Farmer Bros. to face dual challenge COURTS: Two hearings may be instrumental in the Torrance coffee roaster's decision to reincorporate. By Muhammed El-Hasan Daily Breeze Farmer Bros. Co. will face two critical court hearings next week that could help decide whether the Torrance coffee roaster reincorporates in Delaware, thereby greatly weakening the power of independent investors. Each court hearing will decide if the company's management can use certain shares to vote in the Jan. 5 annual meeting, where it will be decided whether the management-sponsored reincorporation proposal would be decided. Chairman Roy F. Farmer and the rest of the management control 54 percent of stocks, more than enough for the proposal to pass. But if either of the two court cases goes against Farmer Bros., management would no longer have an automatic majority. "What happens is very significant," said Bradley Takahashi, vice president of Franklin Mutual Advisers, the biggest institutional investor in Farmer Bros. and a frequent critic of management. "I'm waiting with bated breath. Just in time for Christmas, we'll see what happens." On Tuesday in U.S. District Court in Los Angeles, a judge will hear the class-action suit filed this month by Leonard Rosenthal, a Farmer Bros. shareholder and corporate governance expert, who accuses the firm's management of dumping money into its employee stock ownership plan (ESOP) to give management more voting control. The company has made about $35 million in loans to the ESOP, which rewards employees with a stake in the company, but also concentrates a large block of voting shares -- about 8 percent of outstanding shares -- in management's hands. Rosenthal, a finance professor at Bentley College in Waltham, Mass., also seeks to have the company directors personally repay the minority shareholders the amount spent on the ESOP. Last month, Roy F. Farmer's sister, Catherine Crowe, and her two children filed a lawsuit to remove him as head of a family trust containing shares owned by the Crowes. If successful, that lawsuit would deny Farmer another 12.5 percent of voting shares for the shareholder meeting. If both lawsuits succeed, management's voting block would decline to about 33.5 percent of shares. If successful, management's reincorporation proposal would require an 80 percent super majority to pass any investor-sponsored proposal, preventing independent investors from challenging management. The coffee roaster, whose products are used in restaurants, hotels and other commercial outlets, has been fending off dissident investor accusations that management is too secretive about financial information including plans for its cash stockpile of $300 million. The Securities and Exchange Commission raised "concerns" that the firm's cash hoard may require it to register as an investment company, according to a Dec. 15 filing by Farmer Bros. As an investment company, Farmer Bros. would be required to disclose more information on its financial holdings, a key demand of dissident investors. A Farmer Bros. spokesman declined to comment for this article. Publish Date:December 20, 2003
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