Management Argument to Exclude Shareholder Proposal for Protection of Employee Pension Rights

(August 25, 2004)

Representing the management of Farmer Bros. Co., Joseph J. Giunta of Skadden Arps Slate Meagher & Flom LLP submitted an August 25, 2004 letter to the Securities and Exchange Commission ("SEC") arguing that the company should not be required to present shareholders with a proposal of Lime Capital Management LLC for the protection of employee pension rights.

The letter seeks SEC concurrence with management's position that the shareholder proposal may be excluded from the company's proxy statement pursuant to Rule 14a-8, based on arguments (1) that the proposed amendment to the company's Bylaws concerns matters that should be controlled exclusively by the board, (2) that the Delaware General Corporation Law, under which the company was recently reincorporated, should be interpreted to prevent shareholder voting on the subject, and (3) that it is false and misleading for the proposal to suggest that employees may be better able to govern their pension trust than management-appointed directors.

In support of these arguments, the lawyer’s letter states that control of an ESOP's trust assets relates to employee compensation, and therefore the proposed amendment "would remove the Board from the ultimate control of compensation related decisions and would place control of such decisions in the hands of the employees."  The letter further states that company directors are "the most qualified persons to deal with any conflicts that may arise between the interests of management, the other employees and the stockholders," and that the proposal would place control instead "in the hands of employees who are not independent and may not act in the best interests of the stockholders of the Company."

Questions about the arguments presented in this letter were raised in a September 24, 2004 reply to the SEC.

Copies of the letter and its two referenced exhibits can be accessed from the links below.