Shareholders OK Farmer plan INVESTMENTS: The coffee distributor will remain in Torrance but under Delaware corporate law. More than 60 percent backed the change. By Muhammed El-Hasan Daily Breeze Farmer Bros. Co. filed to reincorporate in Delaware after investors approved the management-sponsored plan at the annual shareholders meeting Monday. The coffee roaster and distributor, which sells to institutional customers such as restaurants, hospitals and convenience stores, will remain based in Torrance while following Delaware corporate law. The reincorporation plan, which was presented and voted on in six parts, received support from at least 61 percent of outstanding shares, said John Simmons, the company's treasurer. The Farmer Bros. management promoted reincorporation as an anti-takeover measure. A shareholder-sponsored proposal for cumulative voting, which would have made it easier for outside investors to elect directors, was voted down. The company management's victory came as little surprise since the founding Farmer family owns or controls 39 percent of shares, while an employee stock ownership plan controls 18 percent of shares. The proposal won 92 percent of the stock ownership plan's voting shares, which are owned by company employees. CEO Roy E. Farmer didn't speak at the shareholders meeting, but released a statement saying: "This was a landmark election: our employees exercised a significant and independent say in the future of their company." A vocal group of dissident investors had opposed the reincorporation, calling it a management power grab that takes away shareholder rights. Some of the outside investors had accused the company's management of being secretive and functioning as an investment company by hoarding millions in cash and securities. Some investors also had accused management of keeping the stock price artificially low to limit estate taxes when chairman Roy F. Farmer dies. The 87-year-old chairman has been in poor health and did not attend the shareholders meeting for the second year in a row. His son is the company's CEO. Management denies the accusations. Some outside investors also say management has performed poorly. Farmer Bros. has seen its earnings drop for nine straight quarters amid slumping sales. In a speech at the shareholders meeting, Simmons defended the company's operations. Farmer Bros. has been hurt by the slumping economy, particularly the dot-com meltdown in California, the company's biggest market, Simmons said. Farmer Bros. also has faced stiffer competition from other coffee companies and other beverage makers. Many of its customers, mostly small or independent, non-chain restaurants, have been hit with greater competition from chains such as Starbucks and a general downturn in the restaurant industry, Simmons said. Farmer Bros. will "sharpen the focus of our sales effort," Simmons said. The company's computer upgrade, expected to be completed next year also will improve sales and earnings through greater efficiencies, he said. The company will need two years beyond completion to fully benefit from the computer upgrade, he said. Simmons added that the company plans to move forward on a planned 10-for-1 stock split. Having lost the reincorporation vote, the dissident investors' focus will shift to trying to push for a sale of the company, said Gary Lutin, who runs an online forum for Farmer Bros. investors. "The previous strategy was basically allowing management the opportunity to demonstrate that it would address shareholder interests. And it has become clear that they will not unless the law compels them to," Lutin said. "Management itself has eliminated all the other alternatives." Like Monday's reincorporation vote, the employees could serve as the swing vote for a sale. In that case, the dissident investors would have to appeal directly to employees. "I would assume that if there were an opportunity for the company's business operations to be managed by an alternative group of executives who had a reputation for expanding rather than shrinking the business, that would create more job security and career opportunity (for employees)," Lutin said. In his speech, Simmons said: "We have little interest in selling the company. We have even less interest in taking the company private." The reincorporation plan includes the following provisions: • Eliminate shareholders' ability to act by written consent. • Prevent the introduction of cumulative voting. • Eliminate the ability of investors controlling at least 10 percent of voting shares to call a special meeting of shareholders. • Approval of a classified board of directors, where some directors serve for two or three years. • Increase in the number of authorized shares of common stock from 3 million to 25 million, in addition to 500,000 shares of preferred stock. The Farmer Bros. share price rose $1.85 to close at $323.35 Monday on Nasdaq. Publish Date:February 24, 2004 © Copyright 2004 Copley Press, Inc.
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