Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held February 23, 2004
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Farmers
Bros. Co. will be held at the main office of the Company located at 20333 South
Normandie Ave., Torrance, California, on Monday, February 23, 2004 at 10:00
a.m., Pacific Standard Time, for considering and acting upon the following:
1. Election of a board of seven directors to serve until the next
Annual Meeting or until their successors are duly elected and qualify (Note: If
the proposal to reincorporate the Company in the State of Delaware (Proposal
Three(A)) with the additional anti-takeover measures (Proposals Three(B)-(F))
is approved, the seven directors will be elected to a classified Board of
Directors, with three directors being elected for a one-year term, two
directors being elected to a two-year term and two directors being elected to a
three-year term. If the proposal to reincorporate in the State of Delaware is
not approved, all seven directors will be elected for a one-year term);
2. Approval of the appointment of Ernst & Young LLP as the independent
public accountants of Farmer Bros. Co. for the fiscal year ending June 30,
2004;
3(A) Approval of the reincorporation of the Company in the State of
Delaware, including the following five anti-takeover measures which will be
voted on separately;
3(B) Approval of the elimination of the right of our shareholders to act
by written consent;
3(C) Approval of a classified Board of Directors;
3(D) Approval of the elimination of the right of shareholders holding
ten percent (10%) or more of the voting shares to call a special meeting of
shareholders;
3(E) Approval of the elimination of cumulative voting for our directors;
and
3(F) Approval of the increase in authorized shares of common stock of
the Company from 3,000,000 shares to 25,000,000 shares, and authorization of
500,000 shares of preferred stock of the Company.
4. A shareholder proposal to amend the Company's Bylaws to restore cumulative
voting; and
5. Any and all other matters that may properly come before the meeting or any
adjournment thereof.
Please note that if any one of Proposals Three(A)-Three(F) is
not approved by the Shareholders, none of Proposals Three(A)-(F)
will be approved.
Only holders of common stock of record at the close of business on
January 12, 2004 will be entitled to notice of and to vote at the meeting
and any adjournments thereof.
MANAGEMENT HOPES YOU WILL ATTEND THE MEETING, BUT IF YOU CANNOT BE THERE,
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY BEFORE FEBRUARY 16,
2004.
Torrance, California John M. Anglin, Secretary
January 30, 2004
TABLE OF CONTENTS
PROXY STATEMENT 1
OWNERSHIP OF COMMON STOCK 2
Principal Shareholders 2
Management Shareholdings 3
PROPOSAL ONE: ELECTION OF DIRECTORS 4
PROPOSAL TWO: APPOINTMENT OF PUBLIC ACCOUNTANTS 5
Audit Fees 5
Financial Information Systems Design and Implementation Fees 5
Audit-related Fees 5
Tax Fees 6
All Other Fees 6
INTRODUCTION TO PROPOSALS THREE(A), THREE(B),
THREE(C), THREE(D), THREE(E) AND THREE(F) 7
PROPOSAL THREE(A): REINCORPORATION OF THE COMPANY
IN THE STATE OF DELAWARE 9
Vote Required for Proposal Three(A) 10
Principal Reasons for the Proposed Reincorporation 11
Proposed Anti-takeover Measures 12
COMPARISON OF THE CHARTERS AND BYLAWS OF FARMER BROS.
CALIFORNIA AND FARMER BROS. DELAWARE 13
Authorized Stock 14
Cumulative Voting 14
Size of the Board of Directors 14
Classified Board 15
Filling Vacancies on the Board of Directors 16
Monetary Liability of Directors 16
Action by Written Consent 16
Power to Call Special Meetings of Shareholders 17
Nominations of Director Candidates and Introduction of
Business at Shareholder Meetings 17
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF
CALIFORNIA AND DELAWARE 18
Shareholder Approval of Certain Business Combinations 19
Removal of Directors 20
Limitation of Liability and Indemnification 21
Inspection of Shareholder Lists 23
Dividends and Repurchases of Shares 24
Appraisal Rights 24
Dissolution 25
Interested Director Transactions 25
Shareholder Derivative Suits 25
Application of the California General Corporation Law
to Delaware Corporations 26
Certain Federal Tax Consequences 26
Investment Company Act 27
PROPOSAL THREE(B): ELIMINATION OF THE RIGHT OF SHAREHOLDERS
TO ACT BY WRITTEN CONSENT 29
PROPOSAL THREE(C): IMPLEMENTATION OF A CLASSIFIED BOARD OF DIRECTORS 31
PROPOSAL THREE(D): ELIMINATION OF RIGHT TO CALL SPECIAL MEETINGS 33
PROPOSAL THREE(E): ELIMINATION OF CUMULATIVE VOTING FOR DIRECTORS 34
PROPOSAL THREE(F): INCREASE IN AUTHORIZED CAPITAL STOCK 36
PROPOSAL FOUR: SHAREHOLDER PROPOSAL TO AMEND THE COMPANY'S BYLAWS
TO RESTORE CUMULATIVE VOTING 38
BOARD AND COMMITTEE MATTERS EXECUTIVE COMPENSATION 39
Director Meetings 39
Director Attendance at Annual Meetings 39
Process for Communicating with Board Members 39
Audit Committee 39
Audit Committee Report 40
Nominating Committee 40
Compensation Committee 41
Compensation Committee Report - Philosophy and Objectives 41
Executive Officer Compensation 41
Incentive Compensation Plan 42
Compensation Committee Interlocks and Insider Participation 42
Summary Compensation Table 43
Retirement Plan 44
Performance Graph 45
OTHER MATTERS 46
Related Party Transactions 46
Voting Requirements 46
Closing date for proposals by shareholders 47
Annual Report to Shareholders 47
Annual Report on Form 10-K 47
Compliance with Section 16(a) of the Exchange Act 47
ANNEX A - Agreement and Plan of Merger
ANNEX B - Certificate of Incorporation
ANNEX C - By-Laws
ANNEX D - Amended and Restated Charter of the Audit Committee of the Board of
Directors
ANNEX E - Charter of the Nominating Committee of the Board of Directors
Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502
PROXY STATEMENT
This proxy statement (this "Proxy Statement") is furnished in connection
with the solicitation by the Board of Directors (the "Board") of proxies from
holders of common stock of Farmer Bros. Co., a California corporation
(hereinafter referred to as the "Company"), for the Annual Meeting of
Shareholders of the Company to be held at 20333 South Normandie Avenue,
Torrance, California on February 23, 2004 at 10:00 a.m., Pacific Standard
Time, and for any adjournment thereof.
The cost of soliciting proxies by the Board will be borne by the Company.
Such solicitation will be made primarily by mail. In addition, certain
directors, officers or regular employees of the Company may solicit proxies by
telephone or other device or in person.
The mailing of proxy materials will commence on or about January 30,
2004. The Company will request known nominees to forward proxy materials to
the beneficial owners of the Company's shares.
On the January 12, 2004 record date, the Company had outstanding
1,607,508 shares of common stock. The Company has no other class of securities
outstanding. Only holders of shares of common stock of record at the close of
business on that date will be entitled to notice of and to vote at the meeting
or any adjournment thereof, and each such holder present or represented at the
meeting will be entitled to one (1) vote for each share of common stock held.
In electing directors a shareholder may not cumulate his or her vote.
Any proxy delivered in the form enclosed may be revoked by the person
executing it at any time prior to the voting thereof by submitting a later
dated proxy or by giving timely written notice to the Secretary of the Company.
OWNERSHIP OF COMMON STOCK
Principal Shareholders
The following are all persons known to management who own beneficially
more than five percent (5%) of the Company's common stock:
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership (1) Class
Roy F. Farmer 448,336 shares (2) 27.89%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502
Roy E. Farmer 184,684 shares (3) 11.49%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502
Franklin Mutual Advisers, LLC 184,688 shares (4) 11.49%
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Farmer Bros. Co. 175,061 shares (5) 18.66%
Employee Stock Ownership Plan
20333 South Normandie Ave.
Torrance, California 90502
--------------------
(1) Sole voting and investment power unless otherwise indicated in the
following footnotes. Share numbers are as of January 12, 2004 except as stated
in footnote (4).
(2) Includes 171,041 shares owned outright by Mr. Farmer and his wife as
trustees of a revocable living trust, 275,342 shares held by various trusts of
which Mr. Farmer is sole trustee, for the benefit of family members, 1,849
shares owned by his wife and 104 shares beneficially owned by Mr. Farmer
through the Company's Employee Stock Ownership Plan ("ESOP"), rounded to the
nearest whole share. On December 24, 2003, Roy E. Farmer succeeded Roy F.
Farmer as sole trustee of a family trust holding 146,364 shares.
(3) Includes 4,000 shares owned outright by Mr. Farmer, 180,575 shares held by
trusts of which Mr. Farmer is sole trustee for the benefit of family members,
and 109 shares beneficially owned by Mr. Farmer through the Company's ESOP,
rounded to the nearest whole share. Excludes 21,218 shares held in a trust of
which Roy E. Farmer is the beneficiary. On December 24, 2003, Roy E. Farmer
succeeded Roy F. Farmer as sole trustee of a family trust holding 146,364
shares.
(4) According to a Schedule 13D/A filed with the SEC dated December 9, 2003 by
Franklin Mutual Advisers, LLC ("Franklin"), Franklin on that date beneficially
owned 184,688 shares (11.49%). Franklin is reported to have sole voting and
investment power over these shares pursuant to certain investment advisory
contracts with one or more record shareholders, which advisory clients are the
record owners of the 184,688 shares.
(5) There are 274,531 shares as yet unallocated to ESOP participants and
25,469 allocated shares. The ESOP has been amended to provide that unallocated
shares and allocated shares which ESOP participants have failed to vote will be
voted proportionately to the vote of allocated shares by ESOP participants.
Management Shareholdings
The following sets forth the beneficial ownership of the common stock of
the Company by each director and nominee, each executive officer named in the
Summary Compensation Table, and all directors and executive officers as a group
as of January 12, 2004:
Number of Shares and Nature
Name of Beneficial Ownership (1) Percent of Class
Guenter W. Berger 608(2) *
Kenneth R. Carson 359(3) *
Lewis A. Coffman 15(4) *
Roy E. Farmer 184,684(5) 11.49%
Roy F. Farmer 448,336(6) 27.89%
Thomas A. Maloof None -
John H. Merrell None -
John Samore, Jr. None -
John E. Simmons 471(7) *
All directors and exec
officers as a group (10 persons) 634,474(8) 39.47%
--------------------
(1) Sole voting and investment power unless indicated otherwise in following
footnotes.
(2) Held in trust with voting and investment power shared by Mr. Berger and
his wife. Includes 109 shares beneficially owned by Mr. Berger through the
Company's ESOP, rounded to the nearest whole share.
(3) Includes 109 shares beneficially owned by Mr. Carson through the Company's
ESOP, rounded to the nearest whole share.
(4) Voting and investment power shared with spouse.
(5) Includes 4,000 shares owned outright by Mr. Farmer, 180,575 shares held by
trusts of which Mr. Farmer is sole trustee for the benefit of family members,
and 109 shares beneficially owned by Mr. Farmer through the Company's ESOP,
rounded to the nearest whole share. Excludes 21,218 shares held in a trust of
which Roy E. Farmer is the beneficiary. On December 24, 2003, Roy E. Farmer
succeeded Roy F. Farmer as sole trustee of a family trust holding 146,364
shares.
(6) Includes 171,041 shares owned outright by Mr. Farmer and his wife as
trustees of a revocable living trust, 275,342 shares held by various trusts of
which Mr. Farmer is sole trustee, for the benefit of family members, 1,849
shares owned by his wife and 104 shares beneficially owned by Mr. Farmer
through the Company's ESOP, rounded to the nearest whole share. On December
24, 2003, Roy E. Farmer succeeded Roy F. Farmer as sole trustee of a family
trust holding 146,364 shares.
(7) Voting and investment power shared with spouse. Includes 109 shares
beneficially owned by Mr. Simmons through the Company's ESOP, rounded to the
nearest whole share.
(8) Excludes all ESOP shares, other than those allocated to officers, as the
ESOP has been amended to eliminate the ESOP Plan Committee's power to direct
the vote of any of the ESOP shares.
* Less than 1%.
PROPOSAL ONE:
ELECTION OF DIRECTORS
Seven directors are to be elected at the meeting, each to serve for the
ensuing year and until his successor is elected and qualifies. All of the
nominees are presently directors of the Company. All of the present directors
were elected to their current term by the shareholders, with the exception of
Messrs. Maloof and Samore who were appointed by the Board on April 30, 2003.
Messrs. Coffman, Maloof, Merrell and Samore, being a majority of the nominees,
are "independent" as defined by the Nasdaq National Market rules and have been
so determined by the Board. All of the nominees have consented to be named and
have indicated their intent to serve if elected. The names of the nominees for
election as directors are set forth below, and the following information is
furnished with respect to them:
Served as
a Director
Continuously Principal Occupation for
Name Class Age Since the Last Five Years
(1)
Guenter W. Berger II 66 1980 Vice President - Production
Lewis A. Coffman I 84 1983 Retired (formerly Vice President-Sales)
Roy E. Farmer (2) III 51 1993 President, Chief Executive Officer since
March 19, 2003; Chief Operating Officer
previously
Roy F. Farmer (2) I 87 1951 Chairman; Chief Executive Officer prior
to March 19, 2003
Thomas A. Maloof II 51 2003 Chief Financial Officer of Hospitality
(3) Marketing Concepts, LLC, Irvine, California
since 2001; President of Perinatal
Practice Management-Alfigen The Genetics
Institute, Pasadena, California previously
John H. Merrell III 59 2001 Partner in accounting firm of Hutchinson
and Bloodgood LLP, Glendale, California
John Samore, Jr. III 57 2003 Independent Consultant and CPA, Los
Angeles, California since 2002; retired Tax
Partner with the accounting firm of Arthur
Andersen LLP, Los Angeles, California
Recommendation:
Your Board of Directors recommends a vote FOR the election of all
nominees named above.
--------------------
(1) If the proposal to reincorporate the Company in the State of Delaware
(Proposal Three(A)) with the additional anti-takeover measures (Proposals
Three(B)-(F)) are approved, the term of office of Class I directors will expire
at the 2004 Annual Meeting of Shareholders, the term of office of Class II
directors will expire at the 2005 Annual Meeting of Shareholders and the term
of office of the Class III directors will expire at the 2006 Annual Meeting of
Shareholders.
(2) Roy F. Farmer is the father of Roy E. Farmer.
(3) Mr. Maloof is also a director of PC Mall, Inc. a publicly traded company
listed on the Nasdaq National Market. None of the other directors is a
director of any other publicly-held company.
PROPOSAL TWO:
APPOINTMENT OF PUBLIC ACCOUNTANTS
The Audit Committee of the Board has selected the firm of Ernst & Young
LLP as the Company's independent public accountants for the fiscal year ending
June 30, 2004, subject to the Committee's right to change firms should it deem
such a change to be in the best interests of the Company. Ernst & Young LLP
was retained in 1997 as the Company's independent public accountants. It has
no direct financial interest or any material indirect financial interest in the
Company or its subsidiaries. During the past three years, it has had no
connection with the Company or its subsidiaries in the capacity of promoter,
underwriter, voting trustee, director, officer or employee.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions concerning the audit for the fiscal year ended June 30, 2003 ("fiscal
2003").
The following resolution will be presented at the Annual Meeting:
"Resolved, that the appointment by the Audit Committee of Ernst & Young LLP as
the Company's independent accountants for the year ending June 30, 2004 is
hereby approved."
Audit Fees
The aggregate fees billed by Ernst & Young LLP for the audit of the
Company's annual financial statements and review of financial statements
included in the Company's quarterly reports on Form 10-Q were $135,000 for the
fiscal year ended June 30, 2002 ("fiscal 2002") and $154,000 for fiscal 2003.
Financial Information Systems Design and Implementation Fees
Ernst & Young LLP did not provide services related to financial
information systems design and implementation during fiscal 2003.
Audit-related Fees
The aggregate fees billed by Ernst & Young LLP for assurance and related
services reasonably related to the performance of the audit of the Company's
financial statements and not reported under Audit Fees, above, were $55,000 for
fiscal 2002 and nil for fiscal 2003. These audit-related services consisted of
employee benefit plan audits.
Tax Fees
The aggregate fees billed by Ernst & Young LLP for tax compliance, tax
advice and tax planning services were $32,000 for fiscal 2002 and $126,000 for
fiscal 2003. These tax services consisted of state tax representation and
miscellaneous consulting on federal taxation matters.
All Other Fees
For fiscal 2002 and 2003, Ernst & Young LLP provided no services other
than audit, audit-related and tax services.
The Audit Committee has considered the effect of Ernst & Young LLP's
providing tax services and other non-audit services on the firm's independence.
All engagements for services by Ernst & Young LLP or other independent
accountants are subject to prior approval by the Audit Committee. Prior
approval was given for all services provided by Ernst & Young LLP in fiscal
2003.
Recommendation:
Your Board of Directors recommends a vote FOR approval of the appointment
of Ernst & Young LLP.
INTRODUCTION TO PROPOSALS THREE(A), THREE(B),
THREE(C), THREE(D), THREE(E) AND THREE(F)
Of the publicly-held companies headquartered in California with a market
capitalization of more than $25 million, more than two-thirds are incorporated
in Delaware.
The Board believes that it is essential to be able to draw upon well-
established principles of corporate governance in making business and legal
decisions. The prominence and predictability of Delaware corporate law provide
a more reliable foundation on which the Company's corporate governance
decisions can be based. Accordingly, as discussed in detail below, we believe
that the Company and its shareholders will benefit in the near and longer term
from reincorporating the Company in Delaware.
These proposals grew out of a request by one of the Company's recently
appointed independent directors, prior to the Company's receipt of any
shareholder proposals, that a review be undertaken of the advantages and
disadvantages of changing the Company's state of incorporation from California
to Delaware. On August 19, 2003, the Board met to discuss the results of the
review. On October 6, 2003, the Board again met and unanimously determined
that the Proposed Reincorporation and the Proposed Anti-takeover Measures, as
defined below, were in the best interest of the Company and its shareholders
and approved the Agreement and Plan of Merger, Delaware Certificate of
Incorporation and Delaware Bylaws attached hereto as Annexes A, B and C,
respectively.
The Board has unanimously approved and, for the reasons described below,
recommends that the shareholders approve a change in the Company's state of
incorporation from California to Delaware as described in Proposal Three(A)
below (the "Reincorporation Proposal" or the "Proposed Reincorporation"). The
Proposed Reincorporation would be accomplished by merging Farmer Bros. Co. (the
"Company" or "Farmer Bros. California") into Farmer Bros. Co., a wholly-owned
Delaware subsidiary ("Farmer Bros. Delaware"), newly-formed for this purpose.
Concurrently with the Reincorporation Proposal, the Board has unanimously
approved, and recommends that the Shareholders approve, the inclusion of
certain anti-takeover measures described in Proposals Three(B)-(F) below (the
"Proposed Anti-takeover Measures") in the Delaware Certificate (as defined
below) and the Delaware Bylaws (as defined below).
Because Farmer Bros. Delaware will be governed by the Delaware General
Corporation Law (the "DGCL") if the Reincorporation Proposal and the Proposed
Anti-takeover Measures are approved, the Proposed Reincorporation will result
in certain changes in the rights of shareholders. These differences are
summarized in Proposal Three(A) under the section entitled "Comparison of the
Charters and Bylaws of Farmer Bros. California and Farmer Bros. Delaware" and
"Significant Differences Between the Corporation Laws of California and
Delaware."
The Proposed Reincorporation, together with each of the five Proposed Anti-
takeover Measures included in the Proposed Reincorporation, are being presented
to shareholders as individual proposals with separate votes to approve, or not
approve, each such proposal. Accordingly, the Board's proposals to:
* reincorporate the Company in the State of Delaware;
* eliminate the right of shareholders to act by written consent;
* implement a classified board of directors;
* eliminate the right of shareholders holding 10% or more of the voting shares
to call a special meeting of the shareholders;
* eliminate cumulative voting for directors; and
* increase the authorized shares of common stock to 25,000,000 shares, and
authorize 500,000 shares of preferred stock
are each being presented as an individual proposal, as set forth in Proposals
Three(A)-(F) below, to be voted upon separately by shareholders.
Notwithstanding the separate presentation of Proposals Three(A)-(F) below, the
Board considered and approved the matters set forth in Proposals Three(A)-(F)
as one unitary transaction. Accordingly, if any one of Proposals Three (A)-(F)
is not approved by the Shareholders, none of Proposals Three(A)-(F) will be
approved.
IN ORDER FOR THE PROPOSED REINCORPORATION TO BE EFFECTED, A MAJORITY OF THE
OUTSTANDING SHARES OF COMMON STOCK MUST APPROVE EACH OF PROPOSALS THREE(A),
THREE(B), THREE(C), THREE(D), THREE(E) AND THREE(F). FOR THE CONVENIENCE OF
SHAREHOLDERS OUR PROXY CARD INCLUDES THREE BOXES UNDER PROPOSAL THREE(A)-(F)
ENTITLED "FOR ALL," "AGAINST ALL" AND "ABSTAIN ON ALL." CHECKING THE
APPROPRIATE BOX WILL ALLOW A SHAREHOLDER TO VOTE FOR, AGAINST OR TO ABSTAIN AS
TO ALL OF PROPOSALS THREE(A)-(F) WITHOUT THE NEED TO VOTE ON SUCH PROPOSALS AS
THEY APPEAR INDIVIDUALLY ON THE PROXY CARD. AN "ABSTAIN ON ALL" VOTE IS THE
SAME AS A VOTE "AGAINST ALL" OF PROPOSALS THREE(A)-(F).
SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS SECTION OF THE PROXY STATEMENT,
INCLUDING THE RELATED ANNEXES, BEFORE VOTING ON PROPOSALS THREE(A)-(F).
PROPOSAL THREE(A):
REINCORPORATION OF THE COMPANY
IN THE STATE OF DELAWARE
Mechanics
The Proposed Reincorporation will be effected by merging Farmer Bros.
California into Farmer Bros. Delaware (the "Merger"). Upon completion of the
Merger, Farmer Bros. California will cease to exist and Farmer Bros. Delaware
will continue the business of the Company.
Pursuant to the Agreement and Plan of Merger, in substantially the form
attached to this Proxy Statement as Annex A (the "Merger Agreement"), each
outstanding share of Farmer Bros. California Common Stock will be automatically
converted into one share of Farmer Bros. Delaware Common Stock, no par value,
upon the effective date of the Merger. Each stock certificate representing
issued and outstanding shares of Farmer Bros. California Common Stock will
continue to represent the same number of shares of Common Stock of Farmer Bros.
Delaware.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK
CERTIFICATES FOR STOCK CERTIFICATES OF FARMER BROS. DELAWARE. Shareholders
may, however, exchange their certificates if they so choose. The Common Stock
of Farmer Bros. California is listed for trading on the Nasdaq National Market
and, after the Merger, Farmer Bros. Delaware's Common Stock will continue to be
traded on the Nasdaq National Market without interruption, under the same
symbol "FARM" as the shares of Farmer Bros. California Common Stock are
currently traded.
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of Farmer Bros. California is required for approval of
the Merger Agreement and the other terms of the Proposed Reincorporation. See
"Vote Required for the Reincorporation Proposal" below. The Proposed
Reincorporation has been unanimously approved by the Board, which recommends a
vote in favor of such proposal. If approved by the shareholders, we expect
that the Merger will become effective as soon as practicable (the "Effective
Date") following the Annual Meeting of Shareholders. However, the Proposed
Reincorporation may be abandoned, either before or after shareholder approval,
if circumstances arise which, in the opinion of the Board, make it inadvisable
to proceed.
Although in some circumstances California law provides shareholders with the
right to dissent from certain corporate reorganizations and receive cash for
their shares, California law does not permit dissenter's rights in connection
with the Proposed Reincorporation.
The Reincorporation Proposal will only make a change in the legal domicile of
the Company and certain other changes of a legal nature which are described in
this Proxy Statement. The Proposed Reincorporation will not result in any
change in the name, business, management, fiscal year, assets or liabilities or
location of the principal offices of the Company.
All employee benefit plans of Farmer Bros. California will be assumed and
continued by Farmer Bros. Delaware. Approval of the Reincorporation Proposal
will also constitute approval of the assumption of these plans by Farmer Bros.
Delaware. The Company believes that the Proposed Reincorporation will not
affect any of its material contracts with any third parties and that Farmer
Bros. California's rights and obligations under such material contractual
arrangements will continue and be assumed by Farmer Bros. Delaware. The
directors who will be elected at the annual meeting of shareholders will become
the directors of Farmer Bros. Delaware, except that if the Proposed
Reincorporation is approved, the directors will be divided into three classes
with staggered terms as described in Proposal Three(C) and under the section
entitled "Classified Board," below.
The discussion set forth below is qualified in its entirety by reference to the
Merger Agreement, the Certificate of Incorporation of Farmer Bros. Delaware
(the "Delaware Certificate") and the Bylaws of Farmer Bros. Delaware (the
"Delaware Bylaws"), copies of which are attached to this Proxy Statement as
Annexes A, B and C, respectively.
Vote Required for Proposal Three(A)
Approval of the Reincorporation Proposal, which will also constitute an
approval of the Merger Agreement, the Delaware Certificate (without the
Proposed Anti-takeover Measures set forth under Proposals Three(B)-(F) unless
separately approved by the shareholders), the Delaware Bylaws (without the
Proposed Anti-takeover Measures set forth under Proposals Three(B)-(F) unless
separately approved by the shareholders) and all provisions of these documents
will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of Farmer Bros. California. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED REINCORPORATION. THE
EFFECT OF AN ABSTENTION OR A BROKER NON-VOTE IS THE SAME AS THAT OF A VOTE
AGAINST THE REINCORPORATION PROPOSAL.
Roy F. Farmer and Roy E. Farmer have notified the Company that they intend to
vote all the shares owned by them directly, and all the shares held in various
trusts, of which they are trustee, in favor of all of Proposals Three(A)-(F).
This totals 39.38% of the shares entitled to vote on these proposals.
The Company has recently amended the ESOP such that the shares unallocated to
plan participants are to be voted for or against Proposals Three(A)-(F) in the
same proportion that the allocated shares are voted by plan participants for or
against such proposals. The ESOP holds 18.66% of the shares entitled to vote
on these proposals.
On December 4, 2003, Leonard Rosenthal brought suit in United States District
Court for the Central District of California (Case No. CV03845) against the
Company, the present directors and a former director ("Directors"), on behalf
of himself and a purported class of persons (the "Rosenthal Litigation"). The
Plaintiff alleges that the Company is operating as an unregistered investment
company in violation of the Investment Company Act of 1940 (the "ICA"). The
Plaintiff also alleges that the Company's loans of corporate funds to the ESOP
to purchase stock of the Company violates federal law and that such purchases
by the ESOP were intended to preserve the voting control of the Farmer family
and entrench management. In addition, the Plaintiff alleges that the Company
is pursuing an estate planning strategy designed to depress the stock price in
order to lessen the estate taxes anticipated on the death of Roy F. Farmer.
Plaintiff is seeking recovery against the Directors in an amount not less than
the amount of the loans to the ESOP. Plaintiff also filed a motion for a
preliminary injunction to prevent the Company and the Directors from voting the
Company stock beneficially owned by the ESOP at the Annual Meeting. On
December 23, 2003, the U.S. District Court denied plaintiff's motion, ruling,
inter alia, that plaintiff lacked standing to bring an action for violation of
the ICA and that plaintiff had failed to show a likelihood of prevailing at
trial on his claims that the Company was in violation of the ICA or that the
Directors had violated their duties with respect to the ESOP. Consequently the
Rosenthal Litigation is most unlikely to affect the voting of the ESOP's shares
at the Annual Meeting.
There is no assurance that the Reincorporation Proposal will be approved. The
Board urges you to vote your shares for the Reincorporation Proposal.
Principal Reasons for the Proposed Reincorporation
For many years, Delaware has followed a policy of encouraging corporations to
incorporate in that state. In furtherance of that policy, Delaware has long
sought to be the leading state in adopting comprehensive and modern corporate
laws that respond to the evolving legal and business needs of corporations
organized under its laws. Because the DGCL has become widely regarded as the
most extensive and well-defined body of corporate law in the United States,
many corporations have chosen Delaware initially as their state of
incorporation or have subsequently changed corporate domicile to Delaware in a
manner similar to the Proposed Reincorporation.
In light of Delaware's prominence as the state of incorporation for many major
U.S. corporations, both the Delaware legislature and courts have demonstrated
an ability and a willingness to act quickly and effectively to meet changing
business needs. In doing so, the Delaware courts have developed considerable
expertise in dealing with corporate issues and a substantial body of case law
construing Delaware law and establishing public policies with respect to
corporate legal affairs. For these reasons, the Board also believes that the
DGCL and Delaware corporate law court decisions provide a broader foundation
from which to respond to questions and predict outcomes relating to significant
corporate matters or disputes, including, but not limited to:
* duties of directors and officers;
* liability of directors and officers and indemnification; and
* contests for corporate control, including proxy contests and tender offers.
In addition, the Company continually seeks to attract and retain the most
capable individuals available to serve as officers and directors. The
frequency of claims and litigation directed against directors and officers, in
management's opinion, has expanded the risks facing directors and officers of
corporations in exercising their duties. Furthermore, the amount of time and
money required to respond to such claims and to defend such litigation can be
substantial. We believe that, in general, Delaware law provides greater
predictability to directors than California law in that Delaware case law
regarding a corporation's ability to limit director liability is more developed
and provides greater guidance than California law. The Board, therefore,
believes that the Proposed Reincorporation may be a significant factor in
continuing to attract and retain such individuals, and in freeing them to make
corporate decisions on their own merits and for the benefit of shareholders
rather than out of a desire to avoid personal liability. For additional
discussion of this matter, see "Significant Differences Between the Corporation
Laws of California and Delaware--Indemnification and Limitation of Liability,"
below.
Proposed Anti-takeover Measures
Delaware, like many other states, permits a corporation to adopt a number of
measures through amendment of the corporate charter or bylaws or otherwise,
which are designed to reduce a corporation's vulnerability to hostile takeover
attempts. It should be noted, however, that the Reincorporation Proposal and
the Proposed Anti-takeover Measures are not being proposed in order to prevent
any present attempt known to the Board to acquire control of the Company or to
obtain representation on the Board.
If the Reincorporation Proposal is approved, certain measures will be
implemented under Delaware law and the Delaware Certificate and Delaware Bylaws
which may have anti-takeover implications. These measures (as described below
and under Proposals Three(B)-(F)) include the elimination of shareholders'
ability to act by written consent (Proposal Three(B)), the implementation of a
classified board of directors (Proposal Three(C)), the elimination of the
ability of shareholders controlling ten percent (10%) or more of the voting
shares to call a special meeting of shareholders (Proposal Three(D)), the
elimination of cumulative voting which the Company eliminated in 1994 by
amending its bylaws by vote of more than sixty-five percent (65%) of the
outstanding shares (Proposal Three(E)), the establishment of advance notice
procedures for shareholder nominations and other proposals, and the elimination
of the ability of the shareholders to remove directors without cause.
Following the Proposed Reincorporation, which will not occur unless all of the
Anti-takeover Measures are approved, the Delaware Certificate will also provide
for an increase in the number of authorized shares of common stock and for the
Board's ability to designate and issue preferred stock (Proposal Three(F)),
although the Company has no present plans to do so. Such preferred stock, if
issued and depending on its terms, may make it more difficult for an
unsolicited bidder to make a takeover attempt. For additional discussion of
these changes, see "Comparison of the Charters and Bylaws of Farmer Bros.
California and Farmer Bros. Delaware," below.
In addition to the Proposed Anti-takeover Measures, certain differences between
California and Delaware law, which will be effective upon consummation of the
Merger without further action of the Board or shareholders, could have a
bearing on unapproved takeover attempts. Section 203 of the DGCL, which Farmer
Bros. Delaware does not intend to opt out of, restricts certain "business
combinations" with "interested shareholders" for three years following the date
that a person becomes an interested shareholder, unless the Board approves the
business combination. For a discussion of differences between the laws of
California and Delaware that may affect the shareholders, see "Significant
Differences Between the Corporation Laws of California and Delaware," below.
The Board may also consider in the future certain defensive strategies allowed
under the DGCL which are designed to enhance the Board's ability to negotiate
with an unsolicited bidder. Such strategies include, but are not limited to,
the adoption of a shareholder rights plan and severance agreements for its
management and key employees which would become effective upon the occurrence
of a change in control of the Company.
The Board recognizes that unsolicited hostile takeover attempts do not always
have unfavorable consequences or effects and may provide all of the
shareholders with considerable value for their shares. To the extent that the
Proposed Reincorporation and the Proposed Anti-takeover Measures may provide
greater deterrence to takeover offers and greater defenses against takeovers,
the Proposed Reincorporation and Proposed Anti-takeover Measures may have the
effect of discouraging or defeating future takeover attempts which a
substantial number or majority of the Company's shareholders might wish to
accept and which might provide a substantial premium over market prices. The
Board, however, believes that the potential suddenness and disadvantages of
unapproved takeover attempts (such as disruption of our business and the
possibility of terms which may be less favorable to all of the shareholders
than would be available in a board-approved transaction) are sufficiently great
that, on balance, prudent steps to reduce the likelihood of such takeover
attempts and to help ensure that the Board has adequate opportunity to fully
consider and respond to any takeover attempt and actively negotiate its terms,
are in the Company's best interests and the best interests of its shareholders.
COMPARISON OF THE CHARTERS AND BYLAWS OF FARMER BROS. CALIFORNIA AND FARMER
BROS. DELAWARE
The following discussion is a summary of the material differences between the
Amended and Restated Articles of Incorporation (the "California Articles") and
Bylaws, as amended (the "California Bylaws"), of Farmer Bros. California and
the Delaware Certificate and Delaware Bylaws. All statements herein are
qualified in their entirety by reference to the respective corporation laws of
California and Delaware and the full text of the California Articles and
California Bylaws and the Delaware Certificate and Delaware Bylaws. Approval
by the Shareholders of the Proposed Reincorporation and the Proposed Anti-
takeover Measures will automatically result in the adoption of all the
provisions set forth in the Delaware Articles and Delaware Bylaws. A copy of
the Delaware Certificate is attached hereto as Annex B and a copy of the
Delaware Bylaws is attached hereto as Annex C. The California Articles and
California Bylaws are on file with the SEC and are available from the Company
upon request.
Authorized Stock
The California Articles currently authorize the Company to issue up to
3,000,000 shares of common stock. The Delaware Certificate provides that the
Company will have 25,000,000 authorized shares of common stock, no par value,
and 500,000 shares of preferred stock, par value $1.00 per share (See Proposal
Three(F)). The Delaware Certificate provides that the Board is entitled to
determine the rights, preferences, privileges and restrictions of the
authorized and unissued preferred stock at the time of issuance.
Cumulative Voting
Cumulative voting entitles a shareholder to cast as many votes as there are
directors to be elected multiplied by the number of shares registered in such
shareholder's name. The shareholder may cast all of such votes for a single
nominee or may distribute them among any two or more nominees. Under
California law, shareholders of a corporation have the right to cumulative
voting unless a corporation has outstanding shares listed on the New York Stock
Exchange or the American Stock Exchange, or has outstanding securities
qualified for trading on the Nasdaq National Market and opts out of cumulative
voting. The Company's shareholders have previously chosen to eliminate the
right to cumulative voting by prohibiting cumulative voting in the California
Bylaws. Therefore, shareholders currently do not have the right to cumulative
voting. Mitchell Partners, L.P. has proposed an amendment to the Company's
California Bylaws that would restore cumulative voting (See Proposal Four). If
the Reincorporation Proposal is approved by the Company's shareholders,
Proposal Four will have no effect even if it is passed by the Company's
shareholders because it proposes to amend the California Bylaws, which, upon
consummation of the Merger, will no longer be effective.
Under Delaware law, cumulative voting in the election of directors is not
permitted unless specifically provided for in a company's charter or bylaws.
As permitted by Delaware law, the Delaware Articles will specifically prohibit
cumulative voting (See Proposal Three(E)).
Size of the Board of Directors
Under California law, the number of directors of a corporation may be fixed in
the articles of incorporation or bylaws of a corporation, or a range may be
established for the number of directors, with the board of directors given
authority to fix the exact number of directors within such range. The
California Bylaws establish a range of five to nine for the number of directors
and authorize the Board to fix the exact number of directors within the range
by resolution or unanimous written consent. The number of directors is
currently set at seven. Shareholders may also fix the number of directors by
an affirmative vote of the majority of the shares entitled to vote or by
written consent of the holders of a majority of the outstanding shares entitled
to vote. Under California law, no subsequent amendment seeking to reduce the
authorized number of directors below five can be implemented if a number of
shares equal to or greater than sixteen and two-thirds percent (16 2/3%) of the
total outstanding shares are voted in opposition to the amendment.
Under Delaware law, the number of directors of a corporation, or the range of
authorized directors, may be fixed or changed by the board of directors acting
alone by amendment to the corporation's bylaws, unless the directors are not
authorized to amend the bylaws or the number of directors is fixed in the
certificate of incorporation, in which case shareholder approval is required.
The Delaware Certificate establishes a range of five to seven for the number of
directors and provides that the number of directors shall be fixed within these
limits from time to time by resolution of a majority of the active directors.
The shareholders will not have the right to fix the number of directors within
these limits. Changes in the size of the Board outside of these limits can
only be adopted with the approval of the shareholders as would be the case
under the California Articles and California Bylaws.
Classified Board
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year.
Under California law, a corporation generally may provide for a classified
board of directors by adopting amendments to its articles of incorporation or
bylaws, if the amendments are also approved by the shareholders. Under
California law, a classified board with two classes requires a minimum of six
directors and a classified board with three classes requires a minimum of nine
directors. The California Articles and California Bylaws do not currently
provide for a classified board.
Delaware law permits, but does not require, a classified board of directors
under which the directors can be divided into as many as three classes with
staggered terms of office, with only one class of directors standing for
election each year. Delaware, unlike California, does not require a minimum of
three directors in each class. The Delaware Certificate and Delaware Bylaws
provide for a classified board of three classes, with directors elected to
three year terms (See Proposal Three(C)). Each class shall consist, as nearly
as may be possible, of one-third of the total number directors constituting the
entire board of directors. Class I would consist of three directors
(initially, Lewis A. Coffman, Roy F. Farmer, John Samore, Jr.) who would hold
office initially for a one year term expiring at the 2004 Annual Meeting, Class
II would consist of two directors (initially, Guenter W. Berger and Thomas A.
Maloof) who would hold office initially for a two year term expiring at the
2005 Annual Meeting, and Class III would consist of two directors (initially,
Roy E. Farmer and John H. Merrell) who would hold office initially for a three
year term expiring at the 2006 Annual Meeting, in all cases subject to the
election and qualification of their successors and to their earlier death,
resignation or removal. As a result of the classification of directors, it
will take at least two years in order to effect a change to the majority of the
members of the Board. At each Annual Meeting following this initial
classification and election, the successors to the class of directors whose
terms expire at that meeting would be elected for a term of office to expire at
the third succeeding Annual Meeting after their election and until their
successors have been duly elected and qualified or until their earlier death,
resignation or removal.
Filling Vacancies on the Board of Directors
Under California law, any vacancy on the Board other than one created by
removal of a director may be filled by the Board. If the number of directors
is less than a quorum, a vacancy may be filled by the unanimous written consent
of the directors then in office, by the affirmative vote of a majority of the
directors at a meeting held pursuant to notice or waivers of notice or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. The
California Bylaws permit vacancies to be filled by a majority of the remaining
directors, even if less than a quorum, or by a sole remaining director.
Directors are not permitted to fill vacancies created by the removal of a
director.
Under Delaware law, vacancies and newly-created directorships may be filled by
a majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, unless otherwise provided in a corporation's
certificate of incorporation or bylaws (or unless the certificate of
incorporation directs that a particular class of stock is to elect such
director(s), in which case a majority of the directors elected by such class,
or a sole remaining director so elected, shall fill such vacancy or newly
created directorship). The Delaware Certificate and Delaware Bylaws provide
that any vacancy, including any vacancy created by the removal of a director by
the shareholders of Farmer Bros. Delaware, may be filled by a majority of the
directors, even if less than a quorum, or by a sole remaining director.
Monetary Liability of Directors
The California Articles and the Delaware Certificate both provide for the
elimination of personal monetary liability of directors to the fullest extent
permissible under the law of the respective states. The provision eliminating
monetary liability of directors set forth in the Delaware Certificate is
potentially more expansive than the corresponding provision in the California
Articles due to differences between California and Delaware law. For a more
detailed explanation of the foregoing, see "Significant Differences Between the
Corporation Laws of California and Delaware-- Limitation of Liability and
Indemnification," below.
Action by Written Consent
Under California and Delaware law, shareholders are permitted to act by written
consent in lieu of a shareholder meeting. The California Bylaws currently
permit shareholders to take action by written consent, provided that the
consent is signed by the minimum number of shareholders necessary to authorize
such action at a meeting where all shares entitled to vote thereon were present
and vote. In the case of election of directors, such consent is only effective
if signed by the holders of all outstanding shares entitled to vote for the
election of directors.
Under the Delaware Certificate and Delaware Bylaws, shareholders will not have
the right to act by written consent in lieu of a meeting (See Proposal
Three(B)). Accordingly, all shareholder action must be carried out by a
shareholder vote at a shareholder meeting.
Power to Call Special Meetings of Shareholders
Under California law and the California Bylaws, a special meeting of
shareholders may be called by the Board, the Chairman of the Board, the
President, the holders of shares entitled to cast not less than ten percent
(10%) of the votes at such meeting and such additional persons as are
authorized by the articles of incorporation or the bylaws.
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or any other person authorized to do so in the certificate
of incorporation or the bylaws. The Delaware Bylaws authorize the Chairman of
the Board, the President and the Board to call a special meeting of
shareholders. Therefore, if the Reincorporation Proposal is adopted, holders
of ten percent (10%) or more of the voting shares of the Company will no longer
be able to call a special meeting of shareholders (See Proposal Three(D)).
Nominations of Director Candidates and Introduction of Business at Shareholder
Meetings
The California Bylaws do not include advance notice procedures for shareholders
with regard to the nomination of directors or with regard to certain matters to
be brought before an annual or special meeting of shareholders.
The Delaware Bylaws include an advance notice procedure for shareholders with
regard to the nomination of directors (the "Nomination Procedure") and with
regard to certain matters to be brought before an annual meeting or special
meeting of shareholders (the "Business Procedure").
The Nomination Procedure provides that only persons nominated by or at the
direction of the board of directors or by a shareholder who has given timely
notice in proper written form to the Company's Secretary prior to the meeting
(and is a shareholder of record at the time of such notice) will be eligible
for election as directors. The Business Procedure provides that at an annual
meeting, and subject to any other applicable requirements, only such business
may be conducted as has been brought before the meeting by or at the direction
of the board of directors or by a shareholder of record who has given timely
notice in proper written form to the Company's Secretary of such shareholder's
intention to bring such business before the meeting (and is a shareholder of
record at the time of such notice). To be timely, notice must be received by
the Company's Secretary:
* in the case of an annual meeting, not less than ninety (90) days nor more
than one hundred twenty (120) days prior to the anniversary of the immediately
preceding year's annual meeting, except that if the date of the annual meeting
is changed by more than thirty (30) days from such anniversary date, notice by
the shareholders to be timely must be received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the date
of the meeting was made; and
* in the case of a special meeting at which directors are to be elected, not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made.
Under the Nomination Procedure, a shareholder's notice to the Company's
Secretary must contain certain information about the nominee, including name,
age, business and residence address, occupation, the class and number of shares
beneficially owned or of record, the nominee's consent to be nominated, other
information that is be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee, and certain information about
the shareholder proposing to nominate that person, including name, address, the
class and number of shares beneficially owned or of record, a description of
all arrangements or understandings between such shareholder and each proposed
nominee any other persons (and their names) pursuant to which nominations are
to be made by such shareholder, a representation that such shareholder intends
to appear in person or by proxy at the meeting to nominate the persons named in
the notice and any other information required to be included in a proxy
statement soliciting proxies for the election of the proposed nominee.
Under the Business Procedure, notice relating to the conduct of business (other
than the nomination of directors) at an annual meeting must contain certain
information about the business and about the shareholder who proposes to bring
the business before the meeting.
If the chairman of the meeting determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director, or if he or she determines that other business was not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any shareholder
of any nomination or business properly made or brought before an annual or
special meeting in accordance with the above-described procedures.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The following provides a summary of the major substantive differences between
the corporation laws of California and Delaware. It is not an exhaustive
description of all differences between the laws of the two states.
Accordingly, all statements herein are qualified in their entirety by reference
to the respective corporation laws of California and Delaware.
Shareholder Voting
In the context of a proposed acquisition, both California and Delaware law
generally require that a majority of the shareholders of both acquiring and
target corporations approve a statutory merger. In addition, both California
and Delaware law require that a sale of all or substantially all of the assets
of a corporation be approved by a majority of the outstanding voting shares of
the corporation transferring such assets.
Delaware law does not require a shareholder vote of the surviving corporation
in a merger (unless the corporation provides otherwise in its certificate of
incorporation) if:
* the merger agreement does not amend the existing certificate of
incorporation;
* each share of stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding share after
the merger; and
* either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under such plan do not exceed twenty percent (20%) of the shares of
common stock of such constituent corporation outstanding immediately prior to
the effective date of the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths (5/6) of
the voting power of the surviving or acquiring corporation or its parent
entity.
Shareholder Approval of Certain Business Combinations
Delaware, like a number of states, has adopted special laws designed to make
certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant shareholders, more
difficult.
Under Section 203 of the DGCL, a Delaware corporation is prohibited from
engaging in a "business combination" with an "interested shareholder" for three
years following the date that such person or entity becomes an interested
shareholder. With certain exceptions, an interested shareholder is a person or
entity who or which owns, individually or with or through certain other persons
or entities, fifteen percent (15%) or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only). The three-year moratorium imposed by Section 203 on
business combinations does not apply if:
* prior to the date on which such shareholder becomes an interested shareholder
the board of directors of the subject corporation approves either the business
combination or the transaction that resulted in the person or entity becoming
an interested shareholder;
* upon consummation of the transaction that made him or her an interested
shareholder, the interested shareholder owns at least eighty-five percent (85%)
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding, for purposes of determining voting stock outstanding
shares owned by directors who are also officers of the subject corporation and
shares held by employee stock plans that do not give employee participants the
right to decide confidentially whether to accept a tender or exchange offer);
or
* on or after the date such person or entity becomes an interested shareholder,
the board of directors approves the business combination and it is also
approved at a shareholder meeting by sixty-six and two-thirds percent (66 2/3%)
of the outstanding voting stock not owned by the interested shareholder.
Although a Delaware corporation may elect not to be governed by Section 203,
the Delaware Certificate and Delaware Bylaws do not contain such an "opt out"
election, and the Board intends that the Company will be governed by Section
203 if the Proposed Reincorporation is approved. The Board believes that
Section 203 will encourage any potential acquiror to negotiate with the Board.
Section 203 also might have the effect of limiting the ability of a potential
acquiror to make a two-tiered bid for Farmer Bros. Delaware in which all
shareholders would not be treated equally. Shareholders should note, however,
that the application of Section 203 to Farmer Bros. Delaware will confer upon
the Board the power to reject a proposed business combination in certain
circumstances, even though a potential acquiror may be offering a substantial
premium for Farmer Bros. Delaware's shares over the then-current market price.
Section 203 could also discourage certain potential acquirors who are unwilling
to comply with its provisions.
California law requires that holders of common stock receive common stock in a
merger of the corporation with the holder of more than fifty percent (50%) but
less than ninety percent (90%) of the target's common stock or its affiliate
unless all of the target company's shareholders consent to the transaction or
the transaction has been approved by the California Commissioner of
Corporations at a "fairness hearing." This provision of California law may have
the effect of making a "cash-out" merger by a majority shareholder more
difficult to accomplish. Although Delaware law does not parallel California
law in this respect, under some circumstances Section 203 does provide similar
protection to shareholders against coercive two-tiered bids for a corporation
in which the shareholders are not treated equally.
Removal of Directors
Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote. However, in the case of a corporation
with cumulative voting or whose board is classified, no individual director may
be removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting rules. The California Articles and California Bylaws do not provide for
a classified board of directors or cumulative voting. As a result, Farmer
Bros. California directors may be removed, with or without cause, with the
approval of a majority of the outstanding shares entitled to vote.
Under Delaware law, any director or the entire board of directors of a
corporation that does not have a classified board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors. Unless
the certificate of incorporation otherwise provides, in the case of a Delaware
corporation whose board is classified, however, shareholders may effect such
removal only for cause. In addition, as in California, if a Delaware
corporation has cumulative voting, and if less than the entire board is to be
removed, a director may not be removed without cause by a majority of the
outstanding shares if the votes cast against such removal would be sufficient
to elect the director under cumulative voting rules. Delaware law also permits
a Delaware corporation to include in its certificate of incorporation a
supermajority voting requirement in connection with the removal of directors.
The Delaware Certificate and Delaware Bylaws provide for a classified board of
directors but not for cumulative voting, and provide that directors can be
removed only for cause and only upon the vote of a majority of the outstanding
shares entitled to vote, subject to the rights of the holders of any
outstanding preferred stock.
Limitation of Liability and Indemnification
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws
of both states also permit corporations to adopt a provision in their charters
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the director's fiduciary duty of care.
Nonetheless, there are certain differences between the laws of the two states
respecting indemnification and limitation of liability.
The DGCL was amended in 1986 in response to widespread concern about the
ability of Delaware corporations to attract capable directors in light of then-
current difficulties in obtaining and maintaining directors and officers
insurance. The legislative commentary to the law states that it is "intended
to allow Delaware corporations to provide substitute protection, in various
forms, to their directors and to limit director liability under certain
circumstances." One provision of the revised DGCL permits a corporation to
include a provision in its certificate of incorporation which limits or
eliminates the personal liability of a director for monetary damages arising
from breaches of his or her fiduciary duties to the corporation or its
stockholders, subject to certain exceptions.
The Delaware Certificate eliminates the liability of directors to the
corporation for monetary damages to the fullest extent permissible under
Delaware law. Under Delaware law, such provision may not eliminate or limit
director monetary liability for:
* breaches of the director's duty of loyalty to the corporation or its
stockholders;
* acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;
* the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
* transactions in which the director received an improper personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve the Company or its directors
from the necessity of complying with federal or state securities laws, or
affect the availability of non-monetary remedies such as injunctive relief or
rescission.
In effect, under the Delaware law provision, Farmer Bros. Delaware directors
could not be held liable for monetary damages for gross negligence or lack of
due care in carrying out his or her fiduciary duties as a director so long as
such gross negligence or lack of due care does not involve bad faith or a
breach of his or her duty of loyalty to Farmer Bros. Delaware.
The Delaware Certificate provides for indemnification to the maximum extent
permissible under Delaware law. Delaware law requires indemnification when
there has been a successful defense on the merits or otherwise by a present or
former director or officer of the corporation. Delaware law generally permits
indemnification of expenses, including attorneys' fees, actually and reasonably
incurred in the defense or settlement of a derivative or third-party action,
provided there is a determination by (i) a majority vote of disinterested
directors (even though less than a quorum), (ii) a committee comprised of and
established by such disinterested directors, (iii) independent legal counsel in
a written opinion if there are no such directors or such directors so direct,
or (iv) the shareholders that the person seeking indemnification has satisfied
the applicable standard of conduct. Without requisite court approval, however,
no indemnification may be made in the defense of any derivative action in which
the person is found to be liable in the performance of his or her duty to the
corporation.
Expenses incurred by an officer or director in defending an action may be paid
in advance, under Delaware law, if such director or officer undertakes to repay
such amounts if it is ultimately determined that he or she is not entitled to
indemnification. In addition, Delaware law authorizes a corporation to
purchase indemnity insurance for the benefit of its officers, directors,
employees and agents whether or not the corporation would have the power to
indemnify against the liability covered by the policy.
Delaware law permits a Delaware corporation to provide indemnification in
excess of that provided by statute by means of any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. Delaware law does not
require authorizing provisions in the certificate of incorporation and does not
contain express prohibitions on indemnification in certain circumstances.
Limitations on indemnification may be imposed by a court, however, based on
principles of public policy.
The California Articles and California Bylaws eliminate the liability of
directors to the corporation for monetary damages to the fullest extent
permissible under California law. California law does not permit the
elimination of monetary liability where such liability is based on:
* intentional misconduct or knowing and culpable violation of law;
* acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on the part of the director;
* receipt of an improper personal benefit;
* acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders;
* acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders;
* transactions between the corporation and a director who has a material
financial interest in such transaction; and
* liability for improper distributions, loans or guarantees.
The California Articles and California Bylaws authorize the Company to
indemnify directors and officers to the fullest extent permitted by California
law. California law requires indemnification when the individual seeking
indemnification has defended successfully on the merits any action, claim,
issue or matter. California law generally permits indemnification of expenses,
actually and reasonably incurred in the defense or settlement of a derivative
or third-party action, provided there is a determination by (i) majority vote
of a quorum of disinterested directors, (ii) independent legal counsel in a
written opinion if such a quorum of directors is not obtainable (iii)
shareholders, with the shares owned by the person to be indemnified not being
entitled to vote thereon, if any, or (iv) the court in which the proceeding is
or was pending upon application made by the corporation, agent or other person
rendering services in connection with the defense, whether or not the
application by such person is opposed by the corporation, that the person
seeking indemnification has satisfied the applicable standard of conduct. With
respect to derivative actions, however, no indemnification may be provided
under California law for amounts paid in settling or otherwise disposing of a
pending action or expenses incurred in defending a pending action that is
settled or otherwise disposed of, or with respect to the defense of any person
adjudged to be liable to the corporation in the performance of his or her duty
to the corporation and its shareholders without court approval.
Like Delaware, under California law expenses incurred by an officer or director
in defending an action may be paid in advance if such director or officer
undertakes to repay such amounts if it is ultimately determined that he or she
is not entitled to indemnification. In addition, the laws of California also
authorize a corporation's purchase of indemnity insurance for the benefit of
its officers, directors, employees and agents whether or not the corporation
would have the power to indemnify against the liability covered by the policy.
Consistent with Delaware law, California law permits a California corporation
to provide rights to indemnification beyond those provided therein except that
such additional indemnification must be authorized in the corporation's
articles of incorporation. Thus, if so authorized, rights to indemnification
may be provided pursuant to agreements or bylaw provisions which make mandatory
the permissive indemnification provided by California law. Both the California
Articles and California Bylaws provide for indemnification beyond that
expressly mandated by California law. Consistent with the provisions of the
California Articles and California Bylaws allowing for indemnification in
excess of that allowed by statute, the California Bylaws, subject to certain
exceptions, provide for indemnification for the settlement of derivative
actions and for expenses incurred therein whether or not such settlement was
approved by the court. In addition, the California Bylaws also mandate that in
the event that California General Corporation Law (the "CGCL") is amended or
interpreted judicially so as to permit broader indemnification rights, such
broader indemnification rights automatically are made a part of the California
Bylaws and supercede any conflicting exceptions to such indemnification.
Inspection of Shareholder Lists
Both California and Delaware law allow any shareholder to inspect a
corporation's shareholder list for a purpose reasonably related to the person's
interest as a shareholder. California law provides, in addition, for an
absolute right to inspect and copy the corporation's shareholder list by
persons holding an aggregate of five percent (5%) or more of the corporation's
voting shares, or shareholders holding an aggregate of one percent (1%) or more
of such shares who have contested the election of directors. Delaware law also
allows the shareholders to inspect the list of shareholders entitled to vote at
a meeting within a ten-day period preceding a shareholders' meeting for any
purpose germane to the meeting. Delaware law, however, contains no provisions
comparable to the absolute right of inspection provided by California law to
certain shareholders.
Dividends and Repurchases of Shares
Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and the redemption or repurchase would not cause an
impairment.
Under California law, a corporation may not make any distribution to its
shareholders unless either: (i) the corporation's retained earnings immediately
prior to the proposed distribution equal or exceed the amount of the proposed
distribution; or (ii) immediately after giving effect to the distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to one and
one fourth (1 1/4) times its liabilities (not including deferred taxes,
deferred income and other deferred credits), and the corporation's current
assets would be at least equal to its current liabilities (or one and one
fourth (1 1/4) times its current liabilities if the average pre-tax and pre-
interest expense earnings for the preceding two fiscal years were less than the
average interest expense for such years). These tests are applied on a
consolidated basis.
Appraisal Rights
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights under which the shareholder may
receive cash in the amount of the fair market value of his or her shares in
place of the consideration he or she would otherwise receive in the
transaction.
Under Delaware law, such fair market value is determined exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, and appraisal rights are generally not available: (a) with
respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation; (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such shareholders
receive only shares of the surviving corporation or shares of any other
corporation that are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares of
such corporations or any combination thereof; or (c) to shareholders of a
corporation surviving a merger if no vote of the shareholders of the surviving
corporation is required to approve the merger under Delaware law.
The limitations on the availability of appraisal rights under California law
are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange generally
do not have such appraisal rights unless the holders of at least five percent
(5%) of the class of outstanding shares claim the right or the corporation or
any law restricts the transfer of such shares. Appraisal rights are also
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities representing more than five-sixths (5/6) of
the voting power of the surviving or acquiring corporation or its parent
entity. California law generally affords appraisal rights in sale of asset
reorganizations.
Dissolution
Under California law, the holders of fifty percent (50%) or more of the total
voting power may authorize a corporation's dissolution, with or without the
approval of the corporation's board of directors, and this right may not be
modified by the articles of incorporation. Under Delaware law, unless the
board of directors approves the proposal to dissolve, the dissolution must be
unanimously approved by all the shareholders entitled to vote on the matter.
Only if the dissolution is initially approved by the board of directors may the
dissolution be approved by a simple majority of the outstanding shares of the
Delaware corporation's stock entitled to vote. In the event of such a board-
initiated dissolution, Delaware law allows a Delaware corporation to include in
its certificate of incorporation a supermajority (greater than a simple
majority) voting requirement in connection with dissolutions. The Delaware
Certificate contains no such supermajority voting requirement.
Interested Director Transactions
Under both California and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest, if certain conditions, such as obtaining the
required approval and fulfilling the requirements of good faith and full
disclosure, are met. With certain exceptions, the conditions are similar under
California and Delaware law. Notwithstanding the foregoing, the Sarbanes Oxley
Act of 2002 currently prohibits personal loans to any executive officer or
director of a corporation.
Shareholder Derivative Suits
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, if certain tests are met. Under Delaware law, a
shareholder may bring a derivative action on behalf of the corporation only if
the shareholder was a shareholder of the corporation at the time of the
transaction in question or if his or her stock thereafter came to be owned by
him or her by operation of law.
California law also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
Application of the California General Corporation Law to Delaware Corporations
Under Section 2115 of the CGCL, certain foreign corporations (i.e.,
corporations not organized under California law) which have significant
contacts with California are subject to a number of provisions of the CGCL.
However, an exemption from Section 2115 is provided for corporations whose
shares are listed on a major national securities exchange, such as the Nasdaq
National Market. Following the Proposed Reincorporation, the Common Stock of
Farmer Bros. Delaware will continue to be traded on the Nasdaq National Market
and, accordingly, it is expected that Farmer Bros. Delaware will be exempt from
Section 2115.
In September 2002, California adopted the California Corporate Disclosure Act
(the "Act"). The Act went into effect on January 1, 2003, and applies to
publicly traded corporations incorporated in California or qualified to do
business in California. Thus, the Company will be subject to the Act
regardless of whether or not this proposal is passed. The Act greatly
increases the annual disclosure that the Company must make to the California
Secretary of State. Substantial portions of the Act, however, cover the same
general categories of information that the Company includes in its SEC filings.
Certain Federal Tax Consequences
The following is a discussion of certain United States federal income tax
considerations that may be relevant to holders of Farmer Bros. California
Common Stock who receive Farmer Bros. Delaware Common Stock as a result of the
Proposed Reincorporation. The discussion does not address all of the tax
consequences of the Proposed Reincorporation that may be relevant to particular
Farmer Bros. California shareholders, such as non-United States persons, or
dealers in securities. Furthermore, no foreign, state, or local tax
considerations are addressed herein. THE U.S. FEDERAL INCOME TAX
CONSIDERATIONS APPLICABLE TO THE PROPOSED REINCORPORATION ARE COMPLEX AND ARE
SUBJECT TO CHANGE (EITHER ON A PROSPECTIVE OR RETROACTIVE BASIS), AND THIS
SUMMARY DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF ALL THE POSSIBLE TAX
CONSEQUENCES OF THE PROPOSED REINCORPORATION. IN VIEW OF THE VARYING NATURE OF
SUCH TAX CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
Subject to the limitations, qualifications and exceptions described below, and
assuming the Proposed Reincorporation qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code"),
the following tax consequences generally should result:
* No gain or loss should be recognized by holders of Farmer Bros. California
Common Stock upon receipt of Farmer Bros. Delaware Common Stock pursuant to the
Proposed Reincorporation;
* The aggregate tax basis of the Farmer Bros. Delaware Common Stock received by
each shareholder in the Proposed Reincorporation should be equal to the
aggregate tax basis of the Farmer Bros. California Common Stock exchanged
therefore; and
* The holding period of the Farmer Bros. Delaware Common Stock received by each
shareholder of Farmer Bros. California should include the period for which such
shareholder held the Farmer Bros. California Common Stock exchanged therefore,
provided that such Farmer Bros. California Common Stock was held by the
shareholder as a capital asset at the time of the Proposed Reincorporation.
The Company has not requested a ruling from the Internal Revenue Service (the
"IRS") with respect to the federal income tax consequences of the Proposed
Reincorporation under the Code. A successful IRS challenge to the Proposed
Reincorporation could result in a shareholder recognizing gain or loss with
respect to each share of Farmer Bros. California Common Stock exchanged in the
Proposed Reincorporation equal to the difference between the shareholder's
basis in such share and the fair market value, as of the time of the Proposed
Reincorporation, of the Farmer Bros. Delaware Common Stock received in exchange
therefore. In such event, a shareholder's aggregate basis in the shares of
Farmer Bros. Delaware Common Stock received in the exchange would equal their
fair market value on such date, and the shareholder's holding period for such
shares would not include the period during which the shareholder held Farmer
Bros. California Common Stock.
State, local or foreign income tax consequences to shareholders may vary from
the federal tax consequences described above.
The Company should not recognize gain or loss for federal income tax purposes
as a result of the Proposed Reincorporation, and Farmer Bros. Delaware should
succeed, without adjustment, to the federal income tax attributes of Farmer
Bros. California.
Investment Company Act
Concerns have been raised by the SEC Staff that the Company may be an
unregistered investment company under Section 3(a)(1)(A) of the ICA, because
the fair market value of its securities exceeds 50 percent of the total book
value of its assets as of June 30, 2003. The Company believes, after
consultation with counsel, that it is primarily engaged in the coffee business
and that it is not an investment company under this Section or any other
section of the ICA. If the Company were ever found to be an investment
company, in order to remain in the coffee business, the Company would have to
reduce the amount of its securities that it owns, which reduction could be
accomplished in a variety of ways including, without limitation, by making
acquisitions, repurchasing shares, or paying a special dividend. The Company
might not be able to implement this proposal to reincorporate in Delaware if
the Company were found to be an unregistered investment company.
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
reincorporate the Company in the State of Delaware. Due to the potentially
broader indemnification and other protections afforded to directors under
Delaware law, the members of the Board may have interests in the
reincorporation that are different from, or in addition to, the interests of
the Company's shareholders.
PROPOSAL THREE(B):
ELIMINATION OF THE RIGHT OF SHAREHOLDERS
TO ACT BY WRITTEN CONSENT
Under California and Delaware law, shareholders are permitted to act by
written consent in lieu of a shareholder meeting. The California Bylaws
currently permit shareholders to take action by written consent, provided that
the consent is signed by the minimum number of shareholders necessary to
authorize such action at a meeting where all shares entitled to vote thereon
were present and vote. In the case of election of directors, such consent is
only effective if signed by the holders of all outstanding shares entitled to
vote for the election of directors. The Board proposes to include a provision
in the Delaware Certificate that would eliminate the right of shareholders to
act by written consent in lieu of a meeting. Accordingly, all shareholder
action must be carried out by a shareholder vote at a shareholder meeting.
Actions by written consent require neither a meeting, prior notice or a formal
voting process. The Board believes that elimination of actions by written
consent would enhance the Board's and shareholders' opportunity to consider
shareholder proposals at a meeting where all views can be heard and with
sufficient time to permit the exchange of views to facilitate the informed
exercise of the shareholder franchise. In addition, the Board is aware that
the use of certain takeover tactics in recent years combined with the written
consent process, can be highly disruptive to a corporation as well as divert
valuable corporate resources and place undue pressure on a corporation's board
and shareholders to act hastily and without complete information. These
tactics can also result in a lost opportunity to consider fully all available
alternatives before shareholders are forced to act. The Board believes the
best interests of the Company's shareholders will be served by establishing
appropriate defenses to coercive tender offers or other coercive efforts to
gain control of the Company.
Shareholders, however, should be aware that elimination of the
shareholders' right to act by written consent may lengthen the amount of time
to take certain shareholder actions because certain actions by written consent
are not subject to the minimum notice requirement of a shareholders' meeting.
The elimination of shareholders' right to act by written consent may deter or
make more difficult hostile takeover attempts because of the lengthened
shareholder approval process. Without the ability to act by written consent, a
holder or a group of holders controlling a majority in interest of Farmer Bros.
Delaware's capital stock will not be able to amend the Delaware By-Laws or
remove directors for cause pursuant to a written consent. Any such holder or
group of holders would have to wait until a shareholders' meeting was held to
take any action. For additional discussion, see "Proposal Three(A): The
Proposed Reincorporation - Anti-takeover Measures," above.
Vote Required for Proposal Three(B)
The approval of Proposal Three(B) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(B). A failure to approve Proposal Three(B) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the
proposal to include a provision in the Delaware Certificate that would
eliminate the right of shareholders to act by written consent.
PROPOSAL THREE(C):
IMPLEMENTATION OF A CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year.
Under California law, a corporation generally may provide for a classified
board of directors by adopting amendments to its articles of incorporation or
bylaws, if the amendments are also approved by the shareholders. Under
California law, a classified board with two classes requires a minimum of six
directors and a classified board with three classes requires a minimum of nine
directors. The California Articles and California Bylaws do not currently
provide for a classified board.
Delaware law permits, but does not require, a classified board of directors
under which the directors can be divided into as many as three classes with
staggered terms of office, with only one class of directors standing for
election each year. Delaware, unlike California, does not require a minimum of
three directors in each class. The Board proposes to include a provision in
the Delaware Certificate and Delaware Bylaws providing for a classified board
of three classes, with directors elected to three year terms. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire board of directors. Class I would consist of
three directors (initially, Lewis A. Coffman, Roy F. Farmer, John Samore, Jr.)
who would hold office initially for a one year term expiring at the 2004 Annual
Meeting, Class II would consist of two directors (initially, Guenter W. Berger
and Thomas A. Maloof) who would hold office initially for a two year term
expiring at the 2005 Annual Meeting, and Class III would consist of two
directors (initially, Roy E. Farmer and John H. Merrell) who would hold office
initially for a three year term expiring at the 2006 Annual Meeting, in all
cases subject to the election and qualification of the their successors and to
their earlier death, resignation or removal. As a result of the classification
of directors, it will take at least two years in order to effect a change to
the majority of the members of the Board. At each Annual Meeting following
this initial classification and election, the successors to the class of
directors whose terms expire at that meeting would be elected for a term of
office to expire at the third succeeding Annual Meeting after their election
and until their successors have been duly elected and qualified or until their
earlier death, resignation or removal.
The Board believes that classification will promote continuity and stability in
the Company's management and policies since a majority of the Company's
directors at any given time will have prior experience with the Company. The
Board also believes that the classified board proposal will facilitate long-
range planning. Currently, our entire Board stands for election at each Annual
Meeting. Accordingly, although the Company has not experienced problems with
continuity with its Board or management in the past, it is possible that all or
a majority of the current directors could be replaced at any given Annual
Meeting. The Board of Farmer Bros. Delaware will be divided into three classes
upon approval of the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)), only one of
which classes will stand for election at each Annual Meeting thereafter.
In addition, a classified board reduces the possibility of a sudden change in
control of a board. The Board believes that a classified board will help
insure that if the Board is faced with an unsolicited offer for the Company, it
will have sufficient time to evaluate all relevant alternatives and, if
appropriate, will have increased negotiating leverage so as to be in the best
position to maximize shareholder value. In addition, the Board believes that a
classified board will assist the Company in dealing with, and possibly
deterring proxy contests that, while unrelated to a takeover offer, may
distract the Board in carrying out its duties to the Company and its
shareholders.
Shareholders, however, should be aware that a classified board may discourage
proxy contests or hostile takeovers by making it more difficult for an acquiror
or a dissident shareholder group to obtain control without the approval of the
Board. For additional discussion, see "Proposal Three(A): The Proposed
Reincorporation - Anti-takeover Measures," above.
Vote Required for Proposal Three(C)
The approval of Proposal Three(C) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(C). A failure to approve Proposal Three(C) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate and the Delaware Bylaws
implementing a classified Board of Directors.
PROPOSAL THREE(D):
ELIMINATION OF RIGHT TO CALL SPECIAL MEETINGS
Under California law and the California Bylaws, a special meeting of
shareholders may be called by the Board, the Chairman of the Board, the
President, the holders of shares entitled to cast not less than ten percent
(10%) of the votes at such meeting and such additional persons as are
authorized by the articles of incorporation or the bylaws.
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or any other person authorized to do so in the certificate
of incorporation or the bylaws. The Board proposes to include in the Delaware
Certificate and the Delaware Bylaws a provision authorizing the Chairman of the
Board, the President and the Board to call a special meeting of shareholders.
Therefore, holders of ten percent (10%) or more of the voting shares of the
Company will no longer be able to call a special meeting of shareholders.
The Board believes that elimination of the procedures for shareholders to call
special meetings may prevent proxy contest initiated by shareholders in between
annual meetings that may be disruptive to, and distract, management and the
Board in carrying out their respective duties to the Company and its
shareholders.
Shareholders, however, should be aware that elimination of the procedures for
shareholders to call special meetings could discourage or make more difficult
efforts by potential bidders to obtain control of the Company, including,
without limitation, through a tender offer or a proxy contests, and, therefore,
could have the effect of deterring or delaying efforts to seek control of the
Company on a basis which some shareholders may deem favorable. For additional
discussion, see "Proposal Three(A): The Proposed Reincorporation - Anti-
takeover Measures," above.
Vote Required for Proposal Three(D)
The approval of Proposal Three(D) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(D). A failure to approve Proposal Three(D) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate and the Delaware Bylaws
eliminating the right of shareholders holding ten percent (10%) or more of the
voting shares to call a special meeting of the shareholders.
PROPOSAL THREE(E):
ELIMINATION OF CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting entitles a shareholder to cast as many votes as there are
directors to be elected multiplied by the number of shares registered in such
shareholder's name. The shareholder may cast all of such votes for a single
nominee or may distribute them among any two or more nominees. Under
California law, shareholders of a corporation have the right to cumulative
voting unless a corporation has outstanding shares listed on the New York Stock
Exchange or the American Stock Exchange, or has outstanding securities
qualified for trading on the Nasdaq National Market and opts out of cumulative
voting. The Company's shareholders have previously chosen to eliminate the
right to cumulative voting by prohibiting cumulative voting in the California
Bylaws. Therefore, shareholders currently do not have the right to cumulative
voting. Mitchell Partners, L.P. has proposed an amendment to the Company's
California Bylaws that would restore cumulative voting. See Proposal Four. If
the Reincorporation Proposal is approved by the Company's shareholders,
Proposal Four will have no effect even if it is passed by the Company's
shareholders because it proposes to amend the California Bylaws, which, upon
consummation of the Merger, will no longer be effective.
Under Delaware law, cumulative voting in the election of directors is not
permitted unless specifically provided for in a company's charter or bylaws.
The Board has proposed to include a provision in the Delaware Certificate that
will specifically prohibit cumulative voting because the Board believes that
all directors should be elected by a plurality of votes of shareholders.
The Board recommends elimination of cumulative voting because one of the
principal results of cumulative voting is to make it more likely that an
individual or group of individuals, owning less than a plurality of the
Company's voting stock, could obtain representation on the Board. Such an
individual or group may have interests and goals inconsistent with, or even
actively conflicting with, the best interests of a majority of the
shareholders. Dissident directors may distract the remaining Board members
from carrying out their duties to the Company and its shareholders and may also
deter qualified directors from agreeing to serve on the Board.
Shareholders, however, should be aware that if the Reincorporation Proposal
(Proposal Three(A)) and all the other Proposed Anti-takeover Measures
(Proposals Three(B)-(F)) are approved, the ability of an organized block of
minority shareholders to elect a representative to the Board without the
cooperation of shareholders owning a plurality of the voting shares would be
reduced or eliminated. Under some circumstances the elimination of cumulative
voting could have an anti-takeover effect by making it more difficult for a
hostile acquiror holding a minority block of stock from obtaining a foothold on
the Board. Under other circumstances, however, the existence of cumulative
voting can have an anti-takeover effect by making it more difficult for a
hostile potential acquiror who obtains a majority but not all shares from
consolidating control of the Company. For additional discussion, see "Proposal
Three(A): The Proposed Reincorporation - Anti-takeover Measures," above.
Vote Required for Proposal Three(E)
The approval of Proposal Three(E) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(E). A failure to approve Proposal Three(E) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate that will eliminate cumulative
voting for directors.
PROPOSAL THREE(F):
INCREASE IN AUTHORIZED CAPITAL STOCK
The Company's capital stock currently consists of 3,000,000 authorized shares
of common stock, of which 1,607,508 shares were issued and outstanding as of
January 12, 2004, and no authorized shares of preferred stock. The Board
proposes to include a provision in the Delaware Certificate increasing the
authorized shares of the Company's common stock to 25,000,000 shares, and
authorizing 500,000 shares of preferred stock. The Company will not issue any
shares of any capital stock in connection with the Reincorporation Proposal.
The Board has recommended the increase in the authorized capital stock of the
Company for possible stock splits, acquisitions, financings and other corporate
purposes. On December 23, 2003, the Board approved in principle a ten for one
stock split of Company common stock following the effectiveness of the
Reincorporation Proposal. If the shareholders do not approve Proposals
Three(A)-(F), then the stock split will not take place. The Company has no
present plans to issue any shares of preferred stock. Such preferred stock, if
issued and depending on its terms, may make it more difficult for an
unsolicited bidder to make a takeover attempt.
The Board believes that the ability to issue preferred stock will provide the
Company with added flexibility in raising capital in the future or
recapitalizing its existing capital structure. In addition, preferred stock
may be utilized in future acquisitions.
Shareholders, however, should be aware that preferred stock could be issued in
connection with a shareholder rights plan, or in other ways, that could
discourage a hostile takeover in which the shareholders might receive a
substantial premium for their shares over current market price. For additional
discussion, see "Proposal Three(A): The Proposed Reincorporation - Anti-
takeover Measures," above.
The Company has no plan to increase the number of shares of common stock which
are authorized or to effect a stock split of the Company's common stock if
Proposals Three(A)-(F) are not approved by the shareholders.
Vote Required for Proposal Three(F)
The approval of Proposal Three(F) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(F). A failure to approve Proposal Three(F) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate increasing the authorized
shares of common stock from 3,000,000 shares to 25,000,000 shares, and
authorizing 500,000 shares of preferred stock.
PROPOSAL FOUR
SHAREHOLDER PROPOSAL TO AMEND THE COMPANY'S
BYLAWS TO RESTORE CUMULATIVE VOTING
Mitchell Partners, L.P., 3187-D Airway Avenue, Costa Mesa, California,
92626, the beneficial owner of shares of common stock of the Company having a
market value of more than $2,000 continuously for more than one year, has
notified the Company that it intends to present the following proposal at this
year's Annual Meeting:
"PROPOSAL: RESTORATION OF CUMULATIVE VOTING
Resolved, that shareholders wish to restore their rights to cumulative voting
for the election of directors, and that Paragraph 2, Section 8, Article II of
the Company's Bylaws is therefore amended to read as follows:
"In electing directors of this corporation, the holders of shares shall be
entitled to cumulate votes as permitted by the California Corporations Code."
SUPPORTING STATEMENT
During the past year investors have seen widespread evidence -- some of it,
according to lawsuits and shareholder statements, at Farmer Bros. Co. -- of the
need for effective shareholder representation on corporate boards.
Restoring cumulative voting rights, which the Company had eliminated in 1994,
will allow the Company's public shareholders to elect at least one or two
members of the board of directors even if management controls over 50% of the
voting stock. It will not enable a change in control, but it will give
minority shareholders the ability to select representatives on whom they can
rely for oversight.
Mitchell Partners believes that having a real, practical ability to elect
directors is the only way investors can promote good corporate governance. We
also believe that if you want to be able to choose someone you believe will
assure board consideration of public shareholder interests, or someone who will
be responsive to investor information requirements, then you should vote for
this proposal to restore your rights."
Recommendation:
Your Board of Directors recommends a vote AGAINST the shareholder
proposal to amend the Company's Bylaws to restore cumulative voting.
BOARD AND COMMITTEE MATTERS
EXECUTIVE COMPENSATION
Director Meetings
The Board met six times during fiscal 2003. For fiscal 2003, each
director who was not a Company employee (an "outside director") was paid an
annual retainer fee of $10,000 and the additional sum of $1,000 for each board
meeting and committee meeting (if not held in conjunction with a board
meeting). For the fiscal year ending June 30, 2004 ("fiscal 2004"), outside
directors will receive an annual retainer fee of $20,000 and an additional
$1,500 for each board meeting and committee meeting (if not held in conjunction
with a board meeting) attended, and the Audit Committee Chairman will receive
an additional annual retainer fee of $2,500. A director also receives
reimbursement of travel expenses from outside the greater Los Angeles area to
attend a meeting. Each current director attended more than 75% of the
aggregate number of the Board meetings held and the meetings of committees on
which such director served.
Director Attendance at Annual Meetings
Although it is customary for all Board members to attend, the Company has
no formal policy in place with regard to Board members' attendance at its
annual meeting of shareholders. All but one Board member, Roy F. Farmer,
attended the Company's 2002 annual meeting of shareholders which was held on
December 26, 2002.
Process for Communicating with Board Members
Shareholders may send any recommendations for director nominees or other
communications to the Board of Directors or any individual director at the
following address. All communications received are reported to the Board or
the individual directors:
Board of Directors (or Nominating Committee or name of individual director)
c/o Corporate Secretary
Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502
Audit Committee
The Audit Committee is a standing committee of the Board and is comprised
of John H. Merrell (Chairman), Thomas A. Maloof and John Samore, Jr. All
members of the Audit Committee are independent as defined by applicable rules
of the Nasdaq National Market. The Audit Committee's principal purposes are to
oversee the accounting and financial reporting processes of the Company, the
audits of the financial statements of the Company and the qualification and
independence of the independent accountants. The Audit Committee operates
under a charter last revised on September 26, 2003. A copy of the Amended and
Restated Audit Committee Charter as adopted on September 26, 2003 is attached
to this Proxy Statement as Annex D. The Amended and Restated Audit Committee
Charter is not available on the Company's website. The Audit Committee met
five times in fiscal 2003. The Board has designated Chairman John H. Merrell
as an audit committee financial expert. Mr. Merrell is "independent" as that
term is used in the relevant SEC proxy rule. The Audit Committee Report
follows:
Audit Committee Report
The Audit Committee reports:
1. The Audit Committee has reviewed and discussed the Company's audited
financial statements with Company management.
2. The Audit Committee has discussed with Ernst & Young LLP, the Company's
independent accountants, the matters required to be discussed by SAS 61
(Communication with Audit Committees) as it may be modified and supplemented.
3. The Audit Committee has received written disclosures and the letter from
Ernst & Young LLP required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) as may be modified or
supplemented, and has discussed with Ernst & Young LLP their independence.
4. Based on the review and discussion referred to in paragraphs (1) through (3)
above, the Audit Committee recommended to the Board, and the Board has
approved, that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2003, for filing
with the SEC.
John H. Merrell, Chairman
Thomas A. Maloof
John Samore, Jr.
Nominating Committee
The Nominating Committee is a standing committee of the Board and is comprised
of Lewis A. Coffman, Thomas A. Maloof, John H. Merrell and John Samore, Jr.
All members of the Nominating Committee are independent as defined by
applicable rules of the Nasdaq National Market. The purposes of the Nominating
Committee are to identify persons qualified to become Board members and to
recommend to the Board nominees for election or appointment to the Board.
The Nominating Committee believes that its slate of nominees should include:
the Chief Executive Officer of the Company; one or more nominees with upper
management experience with the Company or in the coffee industry; three
nominees who are independent and have the requisite accounting or financial
qualifications to serve on the Audit Committee; and at least three nominees who
are independent and have executive compensation experience for service on the
Compensation Committee. All nominees should contribute substantially to the
Board's oversight responsibilities. The Nominating Committee was created on
December 26, 2002 and did not meet in fiscal 2003, but did meet thereafter to
nominate directors for election at the upcoming Annual Meeting. A copy of the
Nominating Committee charter as adopted on December 22, 2003 is attached to
this Proxy Statement as Annex E. The Nominating Committee charter is not
available on the Company's website.
The Nominating Committee will consider recommendations from Company
shareholders. Biographical information and contact information for proposed
candidates should be sent to Farmer Bros. Co., 20333 South Normandie Avenue,
Torrance, California, 90502, Attn: Secretary, at least one hundred-twenty (120)
days prior to the date of the next scheduled annual meeting. The Nominating
Committee will evaluate candidates proposed by shareholders using the following
criteria: board needs (see discussion of slate of nominees above); relevant
business experience; time availability; absence of conflicts of interest; and
perceived ability to contribute to the Company's success.
Compensation Committee
The Compensation Committee (the "Committee") is a standing committee of the
Board and is comprised of Lewis A. Coffman, John H. Merrell, Thomas A. Maloof
and John Samore, Jr. All members of the Committee are independent as defined
by applicable rules of the Nasdaq National Market. The Committee met twice in
fiscal 2003. The Committee makes all determinations with respect to executive
compensation and administers the Company's Incentive Compensation Plan. The
Committee report follows:
Compensation Committee Report - Philosophy and Objectives
The Committee believes that once base salaries of executive officers are
established at competitive levels, increases should generally reflect cost of
living changes and that individual performance should be rewarded by bonuses or
other incentive compensation awards. The Committee believes that most of the
officers will be incentivized to a greater degree by such a program.
Executive Officer Compensation
In fiscal 2003 the Committee obtained a compensation study prepared by
Valuemetrics Advisors, Inc. relating to officer and director compensation. The
report concluded that the current executive officers, excluding the Chairman,
were underpaid when compared to their counterparts at size-adjusted peer group
companies. Consistent with the Committee's expressed compensation policy of
paying a competitive base salary, the Committee has increased base salaries to
Messrs. Roy E. Farmer, Berger, Simmons and Carson by an aggregate of $201,577
for fiscal 2004. This increase also reflects Roy E. Farmer's increased
responsibilities as the Company's new Chief Executive Officer. With respect to
the Chairman, the Committee noted that Roy F. Farmer served in the capacity of
Chairman and CEO from the period July 1, 2002 through March 19, 2003 and served
as non-CEO Chairman, advisor to Roy E. Farmer, the current CEO, and reserve
coffee buyer and cupper for the period March 20, 2003 through June 30, 2003.
The Committee noted that Mr. Farmer had been on medical leave for much of that
period but nevertheless continued to bear the responsibilities of his office,
conferred with Roy E. Farmer on a regular basis, and participated in all
material management decisions pertaining to the Company. Based on these
factors, the Committee determined that Roy F. Farmer's salary for fiscal 2003
would be reduced to $850,000. The Company's performance for fiscal 2003 was
not a material factor in this determination. No bonus was awarded to Roy F.
Farmer under the Company's Incentive Compensation Plan for that year. The
Committee has set Mr. Farmer's salary for fiscal 2004 at $400,000.
Incentive Compensation Plan
The Company made awards under its Incentive Compensation Plan (the "Plan") for
fiscal 2003 to all executive officers other than Roy F. Farmer. The Committee
felt that awards were justified in light of the Company's performance in 2003,
although financial results were below those achieved in the prior two years.
Total awards for fiscal 2003 were $700,000 as compared to $1,000,000 for each
of fiscal 2002 and 2001.
Under the provisions of the Plan, a percentage of the Company's annual pre-tax
income is made available for cash or deferred awards. The percentage varies
from three percent of pre-tax income over $14 million to six percent of pre-tax
income of $24 million or more. Amounts available for awards but not awarded
are carried forward. The pool available for awards for fiscal 2003 under the
Incentive Compensation Plan was in excess of $15 million. Of the available
pool, the Committee awarded a total of $700,000 of which $400,000 was awarded
to Roy E. Farmer, the Company's Chief Executive Officer, and $300,000 in toto
was awarded to the other executive officers.
Lewis A. Coffman
Thomas A. Maloof
John H. Merrell
John Samore, Jr.
Compensation Committee Interlocks and Insider Participation
For fiscal 2003 persons serving on the Company's Compensation Committee were
John H. Merrell, an outside director, Lewis A. Coffman, an outside director and
retired executive officer of the Company, Thomas A. Maloof, an outside
director, John Samore, Jr., an outside director and John M. Anglin, an outside
director and legal counsel to the Company, who on April 30, 2003 resigned and
became the Company's Secretary.
Summary Compensation Table
The following table sets forth all remuneration paid to the Chief
Executive Officer and the four other most highly compensated officers whose
total compensation during the last fiscal year exceeded $100,000, for services
in all capacities to the Company and its subsidiaries.
Annual Annual Other
Name and Principal Fiscal Compensation Compensation Annual All Other
Position Year Salary Bonus(1) Compensation Compensation(2)
ROY F. FARMER 2003 $850,000 -0- $ - $164,683(3)
Chairman; CEO until 2002 $1,000,000 $450,000 $ - $138,815(3)
March 19, 2003 2001 $1,000,000 $450,000 $ - $117,482(3)
ROY E. FARMER 2003 $335,585 $400,000 $ - $465
President; CEO from 2002 $325,730 $300,000 $ - $425
March 19, 2003 2001 $309,000 $300,000 $ - $383
GUENTER W. BERGER 2003 $244,477 $100,000 $ - $700
Vice President, 2002 $238,113 $100,000 $ - $630
Production 2001 $224,149 $100,000 $ - $570
KENNETH R. CARSON 2003 $214,889 $100,000 $ - $414
Vice President, 2002 $208,544 $75,000 $ - $384
Sales 2001 $197,080 $75,000 $ - $356
JOHN E. SIMMONS 2003 $203,472 $100,000 $ - $216
Treasurer and CFO 2002 $188,584 $75,000 $ - $148
2001 $178,849 $75,000 $ - $181
------------------
(1) Awarded under the Company's Incentive Compensation Plan. The awards for
fiscal 2003 were based primarily upon the Company's earnings achieved that
year. (See "Compensation Committee Report," supra.).
(2) Except as stated in footnote (3) the amount shown represents the dollar
value of the benefit to the executive officer for the years shown under the
Company's executive life insurance plan.
(3) The amount shown for Roy F. Farmer represents P.S. 58 costs of the two
split-dollar life insurance policies purchased pursuant to the prior employment
agreement with Mr. Farmer which expired in 1998 plus the dollar value of the
benefit to him under the Company's executive life insurance plan. No premiums
were paid by the Company in fiscal 2001-2003 on the split-dollar policies.
Retirement Plan
The following table shows estimated annual benefits payable for the 2003
plan year under the Company's retirement plan upon retirement at age 62 to
persons at various average compensation levels and years of credited service
based on a straight life annuity. The retirement plan is a contributory
defined benefit plan covering all non-union Company employees. The following
figures assume that employee contributions (2% of annual gross earnings) are
made throughout the employees' first five years of service and are not
withdrawn. After five years of participation in the plan, employees make no
further contributions. Benefits under a predecessor plan are included in the
following figures. Maximum annual combined benefits under both plans generally
cannot exceed the lesser of $200,000 or the average of the employee's highest
three years of compensation.
Annualized Pension Compensation
for Highest 60 Consecutive Months Credited Years of Service
in Last Ten Years of Employment 20 25 30 35
$100,000 $30,000 $37,500 $45,000 $52,500
$125,000 $37,500 $46,875 $56,250 $65,625
$150,000 $45,000 $56,250 $67,500 $78,750
$170,000 $52,500 $65,625 $78,750 $91,875
$200,000 $60,000 $75,000 $90,000 $105,000
$250,000 $60,000 $75,000 $90,000 $105,000
The earnings of executive officers by which benefits in part are measured
consist of the amounts reportable under "Annual Compensation" in the Summary
Compensation Table less certain allowance items (none in 2003).
Credited years of service through December 31, 2002 were as follows:
Guenter W. Berger - 38 years; Roy E. Farmer - 26 years; Kenneth R. Carson - 37
years; John E. Simmons - 21 years. After 37 years of credited service, Roy F.
Farmer began receiving maximum benefits during fiscal 1988.
The above straight life annuity amounts are not subject to deductions for
Social Security or other offsets. Other payment options, one of which is
integrated with Social Security benefits, are available.
Performance Graph
Comparison of Five-Year Cumulative Total Return*
Farmer Bros. Co., Russell 2000 Index and Value Line Food Processing Index
(Performance Results Through 6/30/03)
1998 1999 2000 2001 2002 2003
Farmer Brothers Co. 100.00 85.87 75.49 98.78 155.39 146.56
Russell 2000 Index 100.00 100.87 113.99 111.51 100.64 97.53
Food Processing 100.00 95.87 99.53 121.22 149.07 141.77
Assumes $100 invested at the close of trading 6/30/98 in Farmer Brothers Co.
common stock, Russell 2000 Index and Food Processing Index
*Cumulative total return assumes reinvestment of dividends.
Source: Value Line, Inc.
Factual material is obtained from sources believed to be reliable,
but the publisher is not responsible for any errors or omissions
contained herein.
OTHER MATTERS
Related Party Transactions
On December 24, 2003 the Company purchased a total of 443,845 shares of
Company stock from Catherine Crowe (213,330 shares), sister of Company Chairman
Roy F. Farmer, and trusts created for the benefit of her children (230,515
shares) for the sum of approximately $110,960,000 or approximately $250 per
share. The closing price of the Company's stock on the Nasdaq National Market
on December 24, 2003 was $316. In connection with this purchase, litigation
filed by the Crowe family to remove Roy F. Farmer as trustee of various family
trusts was settled.
On January 9, 2004 the Company sold 124,939 shares of Company common
stock to the Company's ESOP at the price of $250 per share. The closing price
of the Company's stock on the Nasdaq National Market on January 9, 2004 was
$303.66. The Company loaned the ESOP the sum of $31,234,750 for such purpose.
The loan bears interest at a variable rate equal to 1.5% per annum over a 90
day commercial paper rate adjusted quarterly and is repayable in annual
installments through December 15, 2018. The Company has agreed to make
contributions to the ESOP sufficient to enable it to repay the loan.
Voting Requirements
Shares of common stock represented by proxies received will be voted:
(1) unless authority is withheld, for the election of the nominees listed on
page 4 as directors; (2) unless otherwise specified, for approval of the
appointment of Ernst & Young LLP as the Company's independent public
accountants for the ensuing year; (3) unless otherwise specified, for the
approval of the proposals to reincorporate the Company in the State of Delaware
which include certain anti-takeover measures in the Delaware Certificate and
Delaware Bylaws; and (4) unless otherwise specified, against the shareholder
proposal to amend the Company's Bylaws to restore cumulative voting.
Management knows of no other matters to be brought before the meeting. In the
event that one or more of the nominees listed on page 4 should become
unavailable to serve as a director for any reason, the proxy holders will vote
the shares for such other person, if any, as shall be designated by the Board.
Under the CGCL and the Company's Bylaws, the nominees receiving the
highest number of votes will be elected as directors of the Company (Proposal
One). The approval of the appointment of the independent public accountants
(Proposal Two) requires the affirmative vote of a majority of the shares
represented and voting at the meeting in person or by proxy which shares must
also constitute at least a majority of the required quorum. Adoption of the
proposals to reincorporate in the State of Delaware and include certain anti-
takeover measures in the Delaware Certificate and Delaware Bylaws (Proposals
Three(A)-(F)) each requires the affirmative vote of a majority of the
outstanding shares (Note: Approval of each of Proposals Three(A)-(F) is
conditioned upon the approval of each other). The shareholder proposal to
amend the Company's Bylaws to restore cumulative voting (Proposal Four)
requires the affirmative vote of a majority of the outstanding shares for
adoption. A quorum consisting of a majority of the outstanding shares of
common stock must be present at the meeting in person or by proxy to transact
business. Votes will be counted by those persons appointed to act as
inspectors of the election. Abstentions and broker non-votes will not be
counted as voted either "for" or "against" any matter but will be counted in
determining whether a quorum exists.
The proxy holders will have discretionary authority to vote proxies (1)
on any matter of which the Company did not have notice a reasonable time before
the commencement of mailing of this Proxy Statement, (2) on a proposal to limit
indemnification of Company directors omitted from this Proxy Statement under
Rule 14a-8 and which may be brought before the meeting and (3) on matters
incident to the conduct of the Annual Meeting, including any adjournments
thereof.
Closing date for proposals by shareholders
Proposals of shareholders intended to be presented at the Company's 2004
Annual Meeting of Shareholders must be submitted, in writing, to the Company
Secretary by October 2, 2004 if the Annual Meeting is held between January 24
and March 1, 2004, or if not, a reasonable time before mailing this Proxy
Statement. In addition, if the Reincorporation Proposal passes, proposals not
submitted for inclusion in next year's proxy statement but sought to be
presented in person at the meeting must be received at the Company's offices
between 90 and 120 days prior to February 23, 2005. See Article II, Section 3
of the Delaware Bylaws; Annex C hereto.
Annual Report to Shareholders
The Annual Report to Shareholders for fiscal 2003, including financial
statements, is being mailed to shareholders with this Proxy Statement to reduce
postage costs but is not part of the solicitation materials.
Annual Report on Form 10-K
A copy of the Company's Form 10-K/A, as filed with the SEC for the year
ended June 30, 2003, may be obtained by persons entitled thereto, without
charge, by writing to Farmer Bros. Co., 20333 South Normandie Avenue, Torrance,
California 90502, attention Chief Financial Officer. The Company does not make
its Form 10-K or other SEC filings available on its website. However, these
reports are available at the SEC's website, http://www.sec.gov. Other
information concerning the Company is available on the Company's website,
http://www.farmerbroscousa.com.
Compliance with Section 16(a) of the Exchange Act
Based on a review of filings received by it and a representation from
Company officers and directors, the Company believes that all filing
requirements applicable to Company officers and directors were met for fiscal
2003.
By Order of the Board of Directors
John M. Anglin, Secretary
January 30, 2004
ANNEX A
AGREEMENT AND PLAN OF MERGER
OF
FARMER BROS. CO.
(A Delaware Corporation)
ANNEX A
AGREEMENT AND PLAN OF MERGER
OF
FARMER BROS. CO.
(A Delaware Corporation)
AND
FARMER BROS. CO.
(A California Corporation)
THIS AGREEMENT AND PLAN OF MERGER, dated as of January [ ], 2004 (the
"Agreement"), is made by and between Farmer Bros. Co., a Delaware corporation
("Farmer Bros. Delaware"), and Farmer Bros. Co., a California corporation
("Farmer Bros. California"). Farmer Bros. Delaware and Farmer Bros.
California are sometimes referred to herein as the "Constituent
Corporations."
RECITALS
A. Farmer Bros. California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
3,000,000 shares, all of which consist of Common Stock, no par value. As of
January [ ], 2004, there were 1,926,414 shares issued and outstanding.
B. Farmer Bros. Delaware is a corporation duly organized and existing
under the laws of the State of Delaware and, on the date hereof, has
authorized capital of 25,500,000 shares, 25,000,000 of which are designated
Common Stock, no par value, and 500,000 of which are designated Preferred
Stock, $1.00 par value per share. The Preferred Stock of Farmer Bros.
Delaware is undesignated as to series, rights, preferences, privileges, or
restrictions. As of the date hereof, 100 shares of Common Stock of Farmer
Bros. Delaware were issued and outstanding, all of which were held by Farmer
Bros. California, and no shares of Preferred Stock of Farmer Bros. Delaware
were issued and outstanding.
C. Farmer Bros. Delaware is a wholly owned subsidiary of Farmer Bros.
California.
D. The Board of Directors of Farmer Bros. California has determined that,
for the purpose of effecting the reincorporation of Farmer Bros. California
in the State of Delaware, it is advisable and in the best interests of Farmer
Bros. California and its shareholders that Farmer Bros. California merge with
and into Farmer Bros. Delaware upon the terms and conditions provided herein
(the "Merger").
E. The respective Boards of Directors of Farmer Bros. Delaware and Farmer
Bros. California have approved and adopted this Agreement and have directed
that this Agreement be submitted to a vote of their sole stockholder and
shareholders, respectively, and executed by the undersigned officers.
F. The Merger is intended to qualify as a reorganization described in
Section 368(a) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Farmer Bros. Delaware and Farmer Bros. California hereby
agree, subject to the terms and conditions hereinafter set forth, as follows:
ARTICLE I
MERGER
1.1 Merger.
In accordance with the provisions of this Agreement, the Delaware General
Corporation Law and the California General Corporation Law, Farmer Bros.
California shall be merged with and into Farmer Bros. Delaware (the
"Merger"), the separate existence of Farmer Bros. California shall cease, and
Farmer Bros. Delaware shall survive the Merger and shall continue to be
governed by the laws of the State of Delaware. Farmer Bros. Delaware shall
be, and is sometimes referred to herein as, the "Surviving Corporation." The
name of the Surviving Corporation shall be Farmer Bros. Co.
1.2 Filing and Effectiveness.
The Merger shall become effective when the following actions shall have
been completed:
(a) this Agreement and the Merger shall have been adopted and approved by
the stockholders of each Constituent Corporation in accordance with the
requirements of the Delaware General Corporation Law and the California
Corporations Code;
(b) all of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) an executed Certificate of Merger meeting the requirements of the
Delaware General Corporation Law shall have been filed with the Secretary of
State of the State of Delaware; and
(d) this Agreement, together with an executed Certificate of Ownership, as
provided in Section 1110 of the California General Corporation Law, shall
have been filed with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."
1.3 Effect of the Merger.
Upon the Effective Date of the Merger, the separate existence of Farmer
Bros. California shall cease and Farmer Bros. Delaware, as the Surviving
Corporation shall
(i) continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Date of the Merger;
(ii) be subject to all actions previously taken by its and Farmer Bros.
California's Board of Directors;
(iii) succeed, without other transfer, to all of the assets, rights,
powers and property of Farmer Bros. California in the manner more fully set
forth in Section 259 of the Delaware General Corporation Law;
(iv) continue to be subject to all of the debts, liabilities and
obligations of Farmer Bros. Delaware as constituted immediately prior to the
Effective Date of the Merger; and
(v) succeed, without other transfer, to all of the debts, liabilities and
obligations of Farmer Bros. California in the same manner as if Farmer Bros.
Delaware had itself incurred them, all as more fully provided under the
applicable provisions of the Delaware General Corporation Law and the
California General Corporation Law.
ARTICLE II
CHARTER DOCUMENTS AND OFFICERS
2.1 Certificate of Incorporation.
The Certificate of Incorporation of Farmer Bros. Delaware as in effect
immediately prior to the Effective Date of the Merger shall continue in full
force and effect as the Certificate of Incorporation of the Surviving
Corporation until duly amended in accordance with the provisions thereof and
applicable law.
2.2 Bylaws.
The Bylaws of Farmer Bros. Delaware as in effect immediately prior to the
Effective Date of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.
2.3 Directors and Officers.
The directors and officers of Farmer Bros. California immediately prior to
the Effective Date of the Merger shall be the directors and officers of the
Surviving Corporation until their successors shall have been duly elected and
qualified or until as otherwise provided by law, the Certificate of
Incorporation of the Surviving Corporation or the Bylaws of the Surviving
Corporation.
ARTICLE III
MANNER OF CONVERSION OF STOCK
3.1 Farmer Bros. California Common Stock.
Upon the Effective Date of the Merger, each share of Farmer Bros.
California Common Stock issued and outstanding immediately prior thereto
shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, be converted
into and exchanged for one (1) fully paid and nonassessable share of Common
Stock, no par value, of the Surviving Corporation.
3.2 Farmer Bros. California Employee Benefit Plans.
Upon the Effective Date of the Merger, the Surviving Corporation shall
assume and continue all employee benefit plans of Farmer Bros. California.
3.3 Farmer Bros. Delaware Common Stock.
Upon the Effective Date of the Merger, each share of Common Stock, no par
value, of Farmer Bros. Delaware issued and outstanding immediately prior
thereto shall, by virtue of the Merger and without any action by Farmer Bros.
Delaware, the holder of such shares or any other person, be canceled and
returned to the status of authorized but unissued shares.
3.4 Exchange of Certificates.
After the Effective Date of the Merger, each holder of an outstanding
certificate representing shares of Farmer Bros. California Common Stock may,
at such stockholder's option, surrender the same for cancellation to Wells
Fargo Bank of Minnesota, N.A., as exchange agent (the "Exchange Agent"), and
each such holder shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of the
Surviving Corporation's Common Stock into which the surrendered shares were
converted as provided herein. Unless and until so surrendered, each
outstanding certificate theretofore representing shares of Farmer Bros.
California Common Stock shall be deemed for all purposes to represent the
number of shares of the Surviving Corporation's Common Stock into which such
shares of Farmer Bros. California Common Stock were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to the Surviving
Corporation or the Exchange Agent, have and be entitled to exercise any
voting and other rights with respect to, and to receive dividends and other
distributions upon the shares of Common Stock of the Surviving Corporation
represented by, such outstanding certificate as provided above.
Each certificate representing Common Stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Farmer Bros.
California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving Corporation in
compliance with applicable laws, or other such additional legends as agreed
upon by the holder and the Surviving Corporation. If any certificate for
shares of Farmer Bros. Delaware stock is to be issued in a name other than
that in which the certificate surrendered in exchange therefor is registered,
it shall be a condition of issuance thereof that the certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer, that such transfer otherwise be proper and comply with applicable
securities laws and that the person requesting such transfer pay to Farmer
Bros. Delaware or the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of Farmer Bros. Delaware that such tax has been paid or is not
payable.
ARTICLE IV
GENERAL
4.1 Covenants of Farmer Bros. Delaware.
Farmer Bros. Delaware covenants and agrees that it will, on or before the
Effective Date of the Merger:
(a) qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of the
California General Corporation Law;
(b) file any and all documents with the California Franchise Tax Board
necessary for the assumption by Farmer Bros. Delaware of all of the franchise
tax liabilities of Farmer Bros. California;
(c) file the Certificate of Merger with the Secretary of State of the
State of Delaware;
(d) file this Agreement, together with the Certificate of Ownership, with
the Secretary of State of the State of California; and
(e) take such other actions as may be required by the California General
Corporation Law.
4.2 Further Assurances.
From time to time, as and when required by the Surviving Corporation or by
its successors or assigns, there shall be executed and delivered on behalf of
Farmer Bros. California such deeds and other instruments, and there shall be
taken or caused to be taken by the Surviving Corporation and Farmer Bros.
California such further and other actions as shall be appropriate or
necessary in order to vest or perfect in or conform of record or otherwise by
the Surviving Corporation, the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Farmer Bros. California and otherwise to carry out the purposes
of this Agreement, and the officers and directors of the Surviving
Corporation are fully authorized in the name and on behalf of Farmer Bros.
California or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
4.3 Abandonment.
At any time before the Effective Date of the Merger, this Agreement may be
terminated and the Merger may be abandoned for any reason whatsoever by the
Board of Directors of either Farmer Bros. California or Farmer Bros.
Delaware, or both, notwithstanding the approval of this Agreement by the
shareholders of Farmer Bros. California or the sole stockholder of Farmer
Bros. Delaware or both.
4.4 Amendment.
The Boards of Directors of the Constituent Corporations may amend this
Agreement at any time prior to the filing of this Agreement (or certificate
in lieu thereof) with the Secretaries of State of the States of Delaware and
California, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholder of either Constituent Corporation shall not
unless approved by the stockholders as required by law: (i) alter or change
the amount or kind of shares, securities, cash, property and/or rights to be
received in exchange for or on conversion of all or any of the shares of any
class or series thereof of such Constituent Corporation; (ii) alter or change
any term of the Certificate of Incorporation of the Surviving Corporation to
be effected by the Merger; or (iii) alter or change any of the terms and
conditions of this Agreement if such alteration or change would adversely
affect the holders of any class or series of capital stock of any Constituent
Corporation.
4.5 Agreement.
Executed copies of this Agreement will be on file at the principal place
of business of the Surviving Corporation at 20333 S. Normandie Avenue,
Torrance, California 90502.
4.6 Governing Law.
This Agreement shall in all respects be construed, interpreted and
enforced in accordance with and governed by the laws of the State of Delaware
and, so far as applicable, the merger provisions of the California General
Corporation Law.
4.7 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original and all of which, together, shall constitute the
same instrument.
IN WITNESS WHEREOF, the parties hereto executed this Agreement as of the
day and year first written above.
FARMER BROS. CO.,
a California corporation
By:
Name:
Title:
FARMER BROS. CO.,
a Delaware corporation
By:
Name:
Title:
ANNEX B
CERTIFICATE OF INCORPORATION
OF
FARMER BROS. CO.
First : The name of the Corporation is Farmer Bros. Co. (the
"Corporation" ).
Second : The address of the registered office of the Corporation
in the State of Delaware is 2711 Centerville Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address is
Corporation Service Company.
Third : The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware (the "GCL" ).
Fourth : (a) Authorized Capital Stock. The total number of shares
of stock which the Corporation shall have authority to issue is 25,500,000
shares of capital stock, consisting of (i) 25,000,000 shares of common stock,
no par value (the "Common Stock" ), and (ii) 500,000 shares of preferred
stock, par value $1.00 per share (the "Preferred Stock" ).
(b) No Cumulative Voting. The holders of shares of Common Stock
shall not have cumulative voting rights.
(c) No Preemptive or Subscription Rights. No holder of shares of
Common Stock shall be entitled to preemptive or subscription rights.
(d) Preferred Stock. The Board of Directors is hereby expressly
authorized to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or
series such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions adopted by
the Board of Directors providing for the issuance of such class or series,
including, without limitation, the authority to provide that any such class
or series may be (i) subject to redemption at such time or times and at such
price or prices; (ii) entitled to receive dividends (which may be cumulative
or non-cumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on
any other class or classes or any other series; (iii) entitled to such rights
upon the dissolution of, or upon any distribution of the assets of, the
Corporation; or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any
other class or classes of stock, of the Corporation at such price or prices
or at such rates of exchange and with such adjustments; all as may be stated
in such resolution or resolutions.
(e) Power to Sell and Purchase Shares. Subject to the requirements
of applicable law, the Corporation shall have the power to issue and sell all
or any part of any shares of any class of stock herein or hereafter
authorized to such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or
not greater consideration could be received upon the issue or sale of the
same number of shares of another class, and as otherwise permitted by law.
Subject to the requirements of applicable law, the Corporation shall have the
power to purchase any shares of any class of stock herein or hereafter
authorized from such persons, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or
not less consideration could be paid upon the purchase of the same number of
shares of another class, and as otherwise permitted by law.
Fifth : The following provisions are inserted for the management
of the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(b) The Board of Directors shall consist of not less than five or
more than seven members, the exact number of which shall be fixed from time to
time by resolution adopted by the affirmative vote of a majority of the
active Board of Directors.
(c) The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. The initial division of the Board of Directors
into classes shall be made by the decision of the affirmative vote of a
majority of the entire Board of Directors. The term of the initial Class I
directors shall terminate on the date of the 2004 annual meeting; the term of
the initial Class II directors shall terminate on the date of the 2005 annual
meeting; and the term of the initial Class III directors shall terminate on
the date of the 2006 annual meeting. At each succeeding annual meeting of
stockholders beginning in 2005, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
(d) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
(e) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board
of Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a
sole remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall
hold office for a term that shall coincide with the remaining term of that
class. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his
predecessor. Subject to the rights, if any, of the holders of shares of
Preferred Stock then outstanding, any or all of the directors of the
Corporation may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least a majority of the
voting power of the Corporation's then outstanding capital stock entitled to
vote generally in the election of directors. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of Preferred Stock
issued by the Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
(f) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the
GCL, this Certificate of Incorporation, and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
Sixth : No director shall be personally liable to the Corporation
or any of its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the GCL as the same exists or may
hereafter be amended. If the GCL is amended hereafter to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent authorized by the GCL, as so amended. Any repeal or
modification of this Article SIXTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
Seventh : The Corporation shall indemnify its directors and
officers to the fullest extent authorized or permitted by law, as now or
hereafter in effect, and such right to indemnification shall continue as to a
person who has ceased to be a director or officer of the Corporation and
shall inure to the benefit of his or her heirs, executors and personal and
legal representatives; provided, however, that, except for proceedings to
enforce rights to indemnification, the Corporation shall not be obligated to
indemnify any director or officer (or his or her heirs, executors or personal
or legal representatives) in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors. The right to
indemnification conferred by this Article SEVENTH shall include the right to
be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, the By-Laws of the Corporation, any statute, agreement, vote
of stockholders or disinterested directors or otherwise. Any repeal or
modification of this Article SEVENTH shall not adversely affect
any rights to indemnification and to the advancement of expenses of a
director or officer of the Corporation existing at the time of such repeal or
modification with respect to any acts or omissions occurring prior to such
repeal or modification.
Eighth : Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation, and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
Ninth : Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation.
Tenth : Unless otherwise required by law, Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, if there be one, (ii) the President or
(iii) the Board of Directors. The ability of the stockholders to call a
Special Meeting of Stockholders is hereby specifically denied.
Eleventh : In furtherance and not in limitation of the powers
conferred upon it by the laws of the State of Delaware, the Board of
Directors shall have the power to adopt, amend, alter or repeal the
Corporation's By-Laws. The affirmative vote of at least a majority of the
entire Board of Directors shall be required to adopt, amend, alter or repeal
the Corporation's By-Laws. The Corporation's By-Laws also may be adopted,
amended, altered or repealed by the affirmative vote of the holders of at
least a majority of the voting power of the shares entitled to vote at an
election of directors.
Twelfth : The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation
in the manner now or hereafter prescribed in this Certificate of
Incorporation, the Corporation's By-Laws or the GCL, and all rights herein
conferred upon stockholders are granted subject to such reservation;
provided, however, that, notwithstanding any other provision of this
Certificate of Incorporation (and in addition to any other vote that may be
required by law), the affirmative vote of the holders of at least a majority
of the voting power of the shares entitled to vote at an election of
directors shall be required to amend, alter, change or repeal, or to adopt any
provision as part of this Certificate of Incorporation inconsistent with the
purpose and intent of Articles FIFTH, EIGHTH, TENTH and ELEVENTH of this
Certificate of Incorporation or this Article TWELFTH.
Thirteenth : The name and mailing address of the Sole Incorporator
is as follows:
Name: Address:
[Mary E. Keogh/Lynn T. Buckley] P.O. Box 636, Wilmington, DE 19899
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the GCL, do make this
Certificate, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand
this [ ] day of [ ], 2003.
________________________
Name: [Name of Sole Incorporator]
Title: Sole Incorporator
ANNEX C
BY - LAWS
OF
FARMER BROS. CO.
(A Delaware Corporation)
Effective [ }, 2004
TABLE OF CONTENTS
Page
ARTICLE I OFFICES
Section 1. Registered Office 1
Section 2. Other Offices 1
ARTICLE II MEETINGS OF STOCKHOLDERS 1
Section 1. Place of Meetings 1
Section 2. Annual Meetings 1
Section 3. Nature of Business at Meetings of Stockholders 2
Section 4. Nomination of Directors 3
Section 5. Special Meetings 4
Section 6. Notice 4
Section 7. Adjournments 4
Section 8. Quorum 4
Section 9. Voting 5
Section 10. Proxies 5
Section 11. List of Stockholders Entitled to Vote 6
Section 12. Record Date 6
Section 13. Stock Ledger 6
Section 14. Conduct of Meetings 6
Section 15. Inspectors of Election 7
ARTICLE III DIRECTORS 7
Section 1. Number and Election of Directors 7
Section 2. Vacancies 8
Section 3. Duties and Powers 8
Section 4. Meetings 8
Section 5. Organization 8
Section 6. Resignations and Removals of Directors 8
Section 7. Quorum 9
Section 8. Actions of the Board by Written Consent 9
Section 9. Meetings by Means of Conference Telephone 9
Section 10. Committees 9
Section 11. Compensation 9
Section 12. Interested Directors 10
ARTICLE IV OFFICERS 10
Section 1. General 10
Section 2. Election 10
Section 3. Voting Securities Owned by the Corporation 11
Section 4. Chairman of the Board of Directors 11
Section 5. President 11
Section 6. Vice Presidents 12
Section 7. Secretary 12
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Section 8. Treasurer 12
Section 9. Assistant Secretaries 13
Section 10. Assistant Treasurers 13
Section 11. Other Officers 13
ARTICLE V STOCK 13
Section 1. Form of Certificates 13
Section 2. Signatures 13
Section 3. Lost Certificates 14
Section 4. Transfers 14
Section 5. Dividend Record Date 14
Section 6. Record Owners 14
Section 7. Transfer and Registry Agents 15
ARTICLE VI NOTICES 15
Section 1. Notices 15
Section 2. Waivers of Notice 15
ARTICLE VII GENERAL PROVISIONS 15
Section 1. Dividends 15
Section 2. Disbursements 16
Section 3. Fiscal Year 16
Section 4. Corporate Seal 16
ARTICLE VIII INDEMNIFICATION 16
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of
the Corporation 16
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation 16
Section 3. Authorization of Indemnification 17
Section 4. Good Faith Defined 17
Section 5. Indemnification by a Court 17
Section 6. Expenses Payable in Advance 18
Section 7. Nonexclusivity of Indemnification and
Advancement of Expenses 18
Section 8. Insurance 18
Section 9. Certain Definitions 19
Section 10. Survival of Indemnification and Advancement
of Expenses 19
Section 11. Limitation on Indemnification 19
Section 12. Indemnification of Employees and Agents 19
ARTICLE IX AMENDMENTS 20
Section 1. Amendments 20
Section 2. Entire Board of Directors 20
C-ii
ANNEX C
BY-LAWS
OF
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
1.1 Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors.
2.2 Annual Meetings. The Annual Meeting of Stockholders for the
election of directors shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors. Any other proper
business may be transacted at the Annual Meeting of Stockholders.
2.3 Nature of Business at Meetings of Stockholders. No business
may be transacted at an Annual Meeting of Stockholders, other than business
that is either (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors (or any duly
authorized committee thereof), (b) otherwise properly brought before the
Annual Meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof), or (c) otherwise properly brought before the
Annual Meeting by any stockholder of the Corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this
Section 3 and on the record date for the determination of stockholders
entitled to notice of and to vote at such Annual Meeting and (ii) who
complies with the notice procedures set forth in this Section 3.
In addition to any other applicable requirements, for business to
be properly brought before an Annual Meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to
the Secretary of the Corporation.
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To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days nor more than one hundred twenty
(120) days prior to the anniversary date of the immediately preceding Annual
Meeting of Stockholders; provided, however, that in the event that the Annual
Meeting is called for a date that is not within thirty (30) days before or
after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the Annual Meeting
was mailed or such public disclosure of the date of the Annual Meeting was
made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the Annual Meeting (i) a brief description of the business desired to
be brought before the Annual Meeting and the reasons for conducting such
business at the Annual Meeting, (ii) the name and record address of such
stockholder, (iii) the class or series and number of shares of capital stock
of the Corporation which are owned beneficially or of record by such
stockholder, (iv) a description of all arrangements or understandings between
such stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a
representation that such stockholder intends to appear in person or by proxy
at the Annual Meeting to bring such business before the meeting.
No business shall be conducted at the Annual Meeting of
Stockholders except business brought before the Annual Meeting in accordance
with the procedures set forth in this Section 3; provided, however, that,
once business has been properly brought before the Annual Meeting in
accordance with such procedures, nothing in this Section 3 shall be deemed to
preclude discussion by any stockholder of any such business. If the chairman
of an Annual Meeting determines that business was not properly brought before
the Annual Meeting in accordance with the foregoing procedures, the chairman
shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.
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2.4 Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number
of directors in certain circumstances. Nominations of persons for election
to the Board of Directors may be made at any Annual Meeting of Stockholders,
or at any Special Meeting of Stockholders called for the purpose of electing
directors, (a) by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section 4 and on the record date for the determination
of stockholders entitled to notice of and to vote at such meeting and (ii)
who complies with the notice procedures set forth in this Section 4.
In addition to any other applicable requirements, for a nomination
to be made by a stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an Annual Meeting, not less than ninety (90)
days nor more than one hundred twenty (120) days prior to the anniversary
date of the immediately preceding Annual Meeting of Stockholders; provided,
however, that in the event that the Annual Meeting is called for a date that
is not within thirty (30) days before or after such anniversary date, notice
by the stockholder in order to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which such
notice of the date of the Annual Meeting was mailed or such public disclosure
of the date of the Annual Meeting was made, whichever first occurs; and (b)
in the case of a Special Meeting of Stockholders called for the purpose of
electing directors, not later than the close of business on the tenth (10th)
day following the day on which notice of the date of the Special Meeting was
mailed or public disclosure of the date of the Special Meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes
to nominate for election as a director (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
the person and (iv) any other information relating to the person that would
be required to be disclosed in a proxy statement or other filings required to
be made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated thereunder;
and (b) as to the stockholder giving the notice (i) the name and record
address of such stockholder, (ii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (iv) a
C-3
representation that such stockholder intends to appear in person or by proxy
at the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant
to Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 4. If the Chairman of the meeting determines that a nomination
was not made in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded.
2.5 Special Meetings. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, (ii) the President or (iii) the Board of
Directors. At a Special Meeting of Stockholders, only such business shall be
conducted as shall be specified in the notice of meeting (or any supplement
thereto).
2.6 Notice. Whenever stockholders are required or permitted to
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case
of a Special Meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, written notice of any meeting
shall be given not less than ten (10) nor more than sixty (60) days before
the date of the meeting to each stockholder entitled to notice of and to vote
at such meeting.
2.7 Adjournments. Any meeting of the stockholders may be adjourned
from time to time to reconvene at the same or some other place, and notice
need not be given of any such adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, notice of the adjourned meeting in accordance with the
requirements of Section 6 hereof shall be given to each stockholder of record
entitled to notice of and to vote at the meeting.
2.8 Quorum. Unless otherwise required by applicable law or the
Certificate of Incorporation, the holders of a majority of the Corporation's
capital stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave
less than a quorum. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person
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or represented by proxy, shall have power to adjourn the meeting from time to
time, in the manner provided in Section 7 hereof, until a quorum shall be
present or represented.
2.9 Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
the stockholders, other than the election of directors, shall be decided by
the vote of the holders of a majority of the total number of votes of the
Corporation's capital stock represented and entitled to vote thereat, voting
as a single class. Unless otherwise provided in the Certificate of
Incorporation, and subject to Section 12 of this Article II, each stockholder
represented at a meeting of the stockholders shall be entitled to cast one
(1) vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy as provided
in Section 10 of this Article II. The Board of Directors, in its discretion,
or the officer of the Corporation presiding at a meeting of the stockholders,
in such officer's discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
2.10 Proxies. Each stockholder entitled to vote at a meeting of
the stockholders may authorize another person or persons to act for such
stockholder as proxy, but no such proxy shall be voted upon after three years
from its date, unless such proxy provides for a longer period. Without
limiting the manner in which a stockholder may authorize another person or
persons to act for such stockholder as proxy, the following shall constitute
a valid means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing
another person or persons to act for such stockholder as proxy. Execution
may be accomplished by the stockholder or such stockholder's authorized
officer, director, employee or agent signing such writing or causing such
person's signature to be affixed to such writing by any reasonable means,
including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or
persons to act for such stockholder as proxy by transmitting or authorizing
the transmission of a telegram or cablegram to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such telegram or cablegram, provided that any
such telegram or cablegram must either set forth or be submitted with
information from which it can be determined that the telegram or cablegram
was authorized by the stockholder. If it is determined that such telegrams
or cablegrams are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information on
which they relied.
Any copy, facsimile telecommunication or other reliable
reproduction of the writing, telegram or cablegram authorizing another person
or persons to act as proxy for a stockholder may be substituted or used in
lieu of the original writing, telegram or cablegram for any and all purposes
for which the original writing, telegram or cablegram could be used;
provided, however, that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing,
telegram or cablegram.
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2.11 List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting (i) either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held or (ii) during ordinary business hours, at
the principal place of business of the Corporation. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.12 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of the stockholders shall be at the close
of business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of the stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
2.13 Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 10 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
2.14 Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the
conduct of any meeting of the stockholders as it shall deem appropriate.
Except to the extent inconsistent with such rules and regulations as adopted
by the Board of Directors, the chairman of any meeting of the stockholders
shall have the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
appropriate for the proper conduct of the meeting. Such rules, regulations
or procedures, whether adopted by the Board of Directors or prescribed by the
chairman of the meeting, may include, without limitation, the following: (i)
the establishment of an agenda or order of business for the meeting; (ii) the
determination of when the polls shall open and close for any given matter to
be voted on at the meeting; (iii) rules and procedures for maintaining order
at the meeting and the safety of those present; (iv) limitations on
attendance at or participation in the meeting to stockholders of record of
the Corporation, their duly authorized and constituted proxies or such other
persons as the chairman of the meeting shall
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determine; (v) restrictions on entry to the meeting after the time fixed for
the commencement thereof; and (vi) limitations on the time allotted to
questions or comments by participants.
2.15 Inspectors of Election. In advance of any meeting of the
stockholders, the Board of Directors, by resolution, the Chairman or the
President shall appoint one or more inspectors to act at the meeting and make
a written report thereof. One or more other persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of the stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by applicable law, inspectors may be
officers, employees or agents of the Corporation. Each inspector, before
entering upon the discharge of the duties of inspector, shall take and sign
an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of such inspector's ability. The
inspector shall have the duties prescribed by law and shall take charge of
the polls and, when the vote is completed, shall make a certificate of the
result of the vote taken and of such other facts as may be required by
applicable law.
ARTICLE III
DIRECTORS
3.1 Number and Election of Directors. The number of directors
shall be determined by the Certificate of Incorporation. The directors shall
be divided into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. The
initial division of the Board of Directors into classes shall be made by the
decision of the affirmative vote of a majority of the entire Board of
Directors. The term of the initial Class I directors shall terminate on the
date of the 2004 Annual Meeting; the term of the initial Class II directors
shall terminate on the date of the 2005 Annual Meeting; and the term of the
initial Class III directors shall terminate on the date of the 2006 Annual
Meeting or, in each case, upon such director's earlier death, resignation or
removal. At each succeeding Annual Meeting of Stockholders beginning in
2004, successors to the class of directors whose term expires at that Annual
Meeting shall be elected for a three-year term and until their successors are
duly elected and qualified. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class or from the removal from office, death, disability,
resignation or disqualification of a director or other cause shall hold
office for a term that shall coincide with the remaining term of that class,
but in no case will a decrease in the number of directors have the effect of
removing or shortening the term of any incumbent director.
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3.2 Vacancies. Any vacancy on the Board of Directors that results
from an increase in the number of directors may be filled by a majority of
the Board of Directors then in office, provided that a quorum is present, and
any other vacancy occurring on the Board of Directors may be filled by a
majority of the Board of Directors then in office, even if less than a
quorum, or by a sole remaining director. Any director of any class elected
to fill a vacancy resulting from an increase in the number of directors of
such class shall hold office for a term that shall coincide with the
remaining term of that class. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his or her predecessor.
3.3 Duties and Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which
may exercise all such powers of the Corporation and do all such lawful acts
and things as are not by statute or by the Certificate of Incorporation or by
these By-Laws required to be exercised or done by the stockholders.
3.4 Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time
and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or by any two directors. Notice
thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than forty-eight (48) hours before the
date of the meeting, by telephone or telegram on twenty-four (24) hours'
notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
3.5 Organization. At each meeting of the Board of Directors, the
Chairman of the Board of Directors, or, in his or her absence, a director
chosen by a majority of the directors present, shall act as chairman. The
Secretary of the Corporation shall act as secretary at each meeting of the
Board of Directors. In case the Secretary shall be absent from any meeting
of the Board of Directors, an Assistant Secretary shall perform the duties of
secretary at such meeting; and in the absence from any such meeting of the
Secretary and all the Assistant Secretaries, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
3.6 Resignations and Removals of Directors. Any director of the
Corporation may resign at any time, by giving notice in writing to the
Chairman of the Board of Directors, the President or the Secretary of the
Corporation. Such resignation shall take effect at the time therein
specified or, if no time is specified, immediately; and, unless otherwise
specified in such notice, the acceptance of such resignation shall not be
necessary to make it effective. Except as otherwise required by applicable
law and subject to the rights, if any, of the holders of shares of preferred
stock then outstanding, any director or the entire Board of Directors may be
removed from office at any time, but only for cause, and only by the
affirmative vote of the holders of at least a majority in voting
power of the issued and outstanding capital stock of the Corporation entitled
to vote in the election of directors.
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3.7 Quorum. Except as otherwise required by law or the Certificate
of Incorporation, at all meetings of the Board of Directors, a majority of
the entire Board of Directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting of the time and place of the
adjourned meeting, until a quorum shall be present.
3.8 Actions of the Board by Written Consent. Unless otherwise
provided in the Certificate of Incorporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all the members
of the Board of Directors or committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
3.9 Meetings by Means of Conference Telephone. Unless otherwise
provided in the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee thereof, may
participate in a meeting of the Board of Directors or such committee by means
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.9 shall constitute
presence in person at such meeting.
3.10 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent permitted by law and
provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Each committee shall keep regular minutes and report to the Board of
Directors when required.
3.11 Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a
stated salary for service as director, payable in cash or securities. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for service as committee
members.
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3.12 Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors
or officers or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because any such
director's or officer's vote is counted for such purpose if: (i) the material
facts as to the director's or officer's relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to the
director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or
ratified by the Board of Directors, a committee thereof or the stockholders.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
ARTICLE IV
OFFICERS
4.1 General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, also may choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number
of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these By-Laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the
case of the Chairman of the Board of Directors, need such officers be
directors of the Corporation.
4.2 Election. The Board of Directors, at its first meeting held
after each Annual Meeting of Stockholders, shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time
by the Board of Directors; and each officer of the Corporation shall hold
office until such officer's successor is elected and qualified, or until such
officer's earlier death, resignation or removal. Any officer elected by the
Board of Directors may be removed at any time by the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the
Board of Directors. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors or by a committee of the Board of Directors.
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4.3 Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed
in the name of and on behalf of the Corporation by the President or any Vice
President or any other officer authorized to do so by the Board of Directors
and any such officer may, in the name of and on behalf of the Corporation,
take all such action as any such officer may deem advisable to vote in person
or by proxy at any meeting of security holders of any corporation in which
the Corporation may own securities and at any such meeting shall possess and
may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.
4.4 Chairman of the Board of Directors. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer,
and, except where by law the signature of the President is required, the
Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of
Directors shall exercise all the powers and discharge all the duties of the
President. The Chairman of the Board of Directors shall also perform such
other duties and may exercise such other powers as may from time to time be
assigned by these By-Laws or by the Board of Directors.
4.5 President. The President shall, subject to the control of the
Board of Directors and, the Chief Executive Officer if other than the
President, have general supervision of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages,
contracts and other instruments of the Corporation requiring a seal, under
the seal of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these By-
Laws, the Board of Directors or the President. In the absence or disability
of the Chairman of the Board of Directors, or if there be none, the President
shall preside at all meetings of the stockholders and, provided the President
is also a director, the Board of Directors. The foregoing notwithstanding,
the Chief Executive Officer may appoint any officer of the Corporation to
preside at meetings of stockholders. If there be no Chairman of the Board of
Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as may from time to time be assigned to such officer by these By-Laws
or by the Board of Directors.
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4.6 Vice Presidents. At the request of the President or in the
President's absence or in the event of the President's inability or refusal
to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there are more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform
such other duties and have such other powers as the Board of Directors from
time to time may prescribe. If there be no Chairman of the Board of
Directors and no Vice President, or if the Board of Directors otherwise deems
it advisable, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
4.7 Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors, the Chairman of the Board of Directors or the President,
under whose supervision the Secretary shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be
no Assistant Secretary, then either the Board of Directors or the President
may choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Corporation and the Secretary or any
Assistant Secretary, if there be one, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest to the affixing by
such officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to
be kept or filed are properly kept or filed, as the case may be.
4.8 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of the office of the Treasurer and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers,
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money and other property of whatever kind in the Treasurer's possession or
under the Treasurer's control belonging to the Corporation. Unless the Board
of Directors otherwise determines, the Treasurer shall be the Chief Financial
Officer of the Corporation.
4.9 Assistant Secretaries. Assistant Secretaries, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's inability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
4.10 Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's inability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of Assistant Treasurer and for the restoration to the
Corporation, in case of the Assistant Treasurer's death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the Assistant Treasurer's possession or
under the Assistant Treasurer's control belonging to the Corporation.
4.11 Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
ARTICLE V
STOCK
5.1 Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation (i) by the Chairman of the Board of Directors, or the President
or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such stockholder in the Corporation.
5.2 Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same
effect as if such person were such officer, transfer agent or registrar at
the date of issue.
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5.3 Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or such owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation on account of the alleged
loss, theft or destruction of such certificate or the issuance of such new
certificate.
5.4 Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by applicable law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named
in the certificate or by such person's attorney lawfully constituted in
writing and upon the surrender of the certificate therefor, properly endorsed
for transfer and payment of all necessary transfer taxes; provided, however,
that such surrender and endorsement or payment of taxes shall not be required
in any case in which the officers of the Corporation shall determine to waive
such requirement. Every certificate exchanged, returned or surrendered to
the Corporation shall be marked "Cancelled," with the date of cancellation,
by the Secretary or Assistant Secretary of the Corporation or the transfer
agent thereof. No transfer of stock shall be valid as against the
Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
5.5 Dividend Record Date. In order that the Corporation may
determine the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted, and which record date
shall be not more than sixty (60) days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
5.6 Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
required by law.
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5.7 Transfer and Registry Agents. The Corporation may from time to
time maintain one or more transfer offices or agencies and registry offices
or agencies at such place or places as may be determined from time to time by
the Board of Directors.
ARTICLE VI
NOTICES
6.1 Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with
postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Written
notice may also be given personally or by telegram, telex or cable.
6.2 Waivers of Notice. Whenever any notice is required by
applicable law, the Certificate of Incorporation or these By-Laws, to be
given to any director, member of a committee or stockholder, a waiver thereof
in writing, signed by the person or persons entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, present in person or represented by
proxy, shall constitute a waiver of notice of such meeting, except where the
person attends the meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any Annual or Special Meeting of
Stockholders or any regular or special meeting of the directors or members of
a committee of directors need be specified in any written waiver of notice
unless so required by law, the Certificate of Incorporation or these By-Laws.
ARTICLE VII
GENERAL PROVISIONS
7.1 Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the General Corporation Law of
the State of Delaware (the "DGCL") and the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 8 of Article III
hereof), and may be paid in cash, in property, or in shares of the
Corporation's capital stock. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or
for purchasing any of the shares of capital stock, warrants, rights, options,
bonds, debentures, notes, scrip or other securities or evidences of
indebtedness of the Corporation, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
C-15
7.2 Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
7.3 Fiscal Year. The fiscal year of the Corporation shall end on
June 30 of each year unless changed by resolution of the Board of Directors.
7.4 Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
8.1 Power to Indemnify in Actions, Suits or Proceedings other than
Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
8.2 Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to
C-16
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
8.3 Authorization of Indemnification. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the present or former director or officer is proper in the
circumstances because such person has met the applicable standard of conduct
set forth in Section 1 or Section 2 of this Article VIII, as the case may be.
Such determination shall be made, with respect to a person who is a director
or officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers,
by any person or persons having the authority to act on the matter on behalf
of the Corporation. To the extent, however, that a present or former
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith, without the
necessity of authorization in the specific case.
8.4 Good Faith Defined. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or
records given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another enterprise. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article VIII, as the case may be.
8.5 Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery of the State of Delaware or any
other
C-17
court of competent jurisdiction in the State of Delaware for indemnification
to the extent otherwise permissible under Section 1 or Section 2 of this
Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 1 or Section 2 of this Article VIII,
as the case may be. Neither a contrary determination in the specific case
under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption
that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled
to be paid the expense of prosecuting such application.
8.6 Expenses Payable in Advance. Expenses (including attorneys'
fees) incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article VIII. Such expenses (including attorneys' fees) incurred by
former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the Corporation deems appropriate.
8.7 Nonexclusivity of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under the Certificate of Incorporation, these By-Laws, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in such person's official capacity and as to action in another
capacity while holding such office, it being the policy of the Corporation
that indemnification of the persons specified in Section 1 and Section 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or Section 2
of this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the DGCL, or otherwise.
8.8 Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
C-18
8.9 Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the
same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. The
term "another enterprise" as used in this Article VIII shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan
or other enterprise of which such person is or was serving at the request of
the Corporation as a director, officer, employee or agent. For purposes of
this Article VIII, references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties
on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
8.10 Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
8.11 Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 of
this Article VIII), the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) or advance expenses in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof)
was authorized or consented to by the Board of Directors of the Corporation.
8.12 Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article VIII to
directors and officers of the Corporation.
C-19
ARTICLE IX
AMENDMENTS
9.1 Amendments. These By-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the stockholders or by
the Board of Directors; provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of
such meeting of the stockholders or Board of Directors, as the case may be.
All such amendments must be approved by either the holders of at least a
majority of the outstanding capital stock entitled to vote thereon or by
a majority of the entire Board of Directors then in office.
9.2 Entire Board of Directors. As used in this Article IX and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no
vacancies.
* * *
Adopted as of: [ , 2004]
C-20
ANNEX D
FARMER BROS. CO.
AMENDED AND RESTATED CHARTER
OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Purpose
The Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Farmer Bros. Co. (the "Company") is established for the
principal purposes of overseeing the accounting and financial reporting
processes of the Company, the audits of the financial statements of the
Company and the qualifications and independence of the independent
accountants. The Committee is established to assist the Board in fulfilling
its oversight responsibilities on the integrity of the financial reports and
other financial information provided by the Company to its shareholders. This
charter specifies the scope of authority and responsibility of the Committee.
Organization, Membership and Meetings
1. The Committee shall be comprised of at least three directors who
meet the independence, expertise and other qualification standards required
by the federal securities laws and as may be required by the listing
standards of the NASDAQ or other securities exchange upon which the Company's
securities are traded.
2. Members of the Committee shall be appointed by the Board. Members
may be replaced by the Board at any time, but shall otherwise serve until a
successor has been named.
3. The Committee shall meet at least four times a year, with the
authority to convene additional meetings, as circumstances require. The
Committee may invite members of management, independent auditors, legal
counsel or others to attend meetings and to provide relevant information. At
least annually, the Committee shall hold an executive session at which only
independent directors and the independent auditor are present.
4. The Committee may form and delegate authority to subcommittees
when appropriate, or to one or more members of the Committee.
5. The Committee may elect a Chairman of the Committee who, if
elected, shall preside at all meetings. At all meetings of the Committee, a
majority of the members of the Committee shall constitute a quorum for the
transaction of business, and the act of a majority of the members of the
Committee present at a meeting at which a quorum is in attendance shall be
the act of the Committee.
D-1
Members of the Committee may participate in any meeting by means of a
conferencetelephone or similar communications equipment by means of which
persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting. The
Committee shall maintain written minutes of its meetings, which minutes will be
filed in the corporate minute book. Any person present at a meeting may be
appointed by the Committee as Secretary to record the minutes. The Committee
may adopt additional rules of procedure, but when a matter of procedure is not
addressed by Committee rules, the procedure specified by the Company's Bylaws
shall be followed.
Committee Authority and Responsibilities
The Committee shall have the following responsibilities and duties:
Independent Auditor Oversight
1. Be directly and solely responsible for the appointment,
dismissal, compensation, retention and oversight of the work of any
independent auditor employed by the Company (including resolution of
disagreements between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or related
work or performing other audit, review or attest services for the Company
The independent auditor shall report directly to the Committee.
2. Meet with the independent auditor prior to commencement of the
audit and discuss the planning and staffing of the audit.
3. Approve in advance the engagement of the independent auditor for
all audit services and non-audit services and approve the fees and other
terms of any such engagement. The term "non-audit services" means any
professional services provided to the Company by the independent auditor,
other than those provided to the Company in connection with an audit or a
review of the financial statements of the Company. The Committee may grant
pre-approval authority for non-audit services to the Chairman, subject to
such limitations and conditions as the Committee may require. The
independent auditor shall not be retained for non-audit services proscribed
by law. All actions taken by the Chairman pursuant to a grant of pre-
approval authority shall be reported to the full Committee at its next
meeting.
4. Obtain and review annually a formal written statement from the
independent auditor of the matters required to be discussed by Statement of
Auditing Standards No. 61, as amended, and, in particular, describing all
relationships between the auditor and the Company, and discuss with the
auditor any disclosed relationships or services that may impact auditor
objectivity and independence.
5. Evaluate annually the qualifications and independence of the
independent auditor, so as to endeavor to ensure auditor independence and the
absence of conflicts of interest. The Committee shall present its conclusions
with respect to the independent accountants to the Board.
D-2
6. Ensure audit partner rotation as required by applicable laws.
7. Review with the independent auditor:
a. Any significant difficulties encountered by the
independent auditor during the course of the audit, any restrictions on the
scope of work or access to required information and any significant
disagreement among management and the independent auditor in connection with
the preparation of the financial statements.
b. Any material accounting adjustments identified by the
independent auditor.
c. Any material communications between the audit team and the
auditor's national office regarding auditing or accounting issues arising in
connection with the preparation of the financial statements.
d. If applicable, any Management Representation letter or
Internal Control Recommendation letter or Schedule of Unadjusted Differences
issued, or proposed to be issued, by the auditor to the Company, and
management's response.
Financial Information Oversight
1. Review and discuss with management and the independent
accountants:
a. The Company's annual audited financial statements and
related footnotes.
b. Any certification, report, opinion or review rendered by
the independent auditor.
c. The Company's quarterly financial statements.
d. The Company's disclosure in its Annual Report on Form 10-K
and Quarterly Report of Form 10-Q under "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
e. Earnings press releases.
2. Discuss with management and the independent auditor:
a. The selection, application and disclosure of the critical
accounting policies and practices used by the Company, as the same are
identified by management or the independent auditor, and any changes thereto
and the ramifications of such changes and, if applicable, alternative
accounting treatments and the treatment preferred by the independent auditor.
b. The evaluative criteria identified by management and used
in their selection of critical accounting principles and methods.
D-3
c. Any significant judgments made in management's preparation
of the financial statements, as so identified by management or the
independent auditor, and the view of each as to the appropriateness of such
judgments.
d. The effect of regulatory and accounting initiatives and
improvements identified by management or the independent auditor and the
potential impact upon the Company's auditing and accounting principles and
practices.
e. Any correspondence with regulators or governmental
agencies that raise material issues regarding the Company's financial
statements or accounting policies.
f. Any employee complaints that raise material issues
regarding the Company's financial statements, accounting policies or
internal accounting controls.
3. Report to the Board regarding any audit opinions that contain
"going concern" qualifications.
4. Approve all filings with the Securities and Exchange Commission
containing the Company's financial statements, including but not limited to
the Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K.
5. Recommend to the Board whether the audited financial statements
should be included in the Company's annual report on Form 10-K.
Controls Oversight
1. Review and discuss annually with management and the independent
auditor its assessment of the effectiveness of the Company's internal
controls, including computerized information systems controls and security,
disclosure controls and procedures for financial reporting.
a. Review annually with the independent auditor the
attestation to, and report on, the assessment of controls made by management.
b. Consider whether any changes to the internal controls or
disclosure controls processes and procedures are appropriate in light of
management's assessment or the independent auditor's report.
c. At least annually obtain and review all reports required
by NASDAQ and Securities Exchange Commission relating to the independent
accountants internal quality control procedures (including any material
issues raised by internal or peer reviews or government authorities and any
steps taken to address any such issues.
2. If the Company has an internal auditor: (i) the internal auditor
shall report directly to the Audit Committee, (ii) the Audit Committee shall
review the scope and plans of any internal audit recommended by the internal
auditor, (iii) the internal auditor shall report directly to the Audit
Committee
D-4
with the results of all internal audits, (iv) the Audit Committee shall
review with the internal auditor all recommendations made by the internal
auditor as the result of any internal audit and (v) the Audit Committee shall
review with management the implementation of such recommendations by the
Company.
3. Review with the principal executive and financial officers of the
Company and the independent accountants:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to
record, process, summarize, and report financial data and any material
weaknesses in internal controls.
b. Any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company's
internal controls.
Legal Compliance and Ethics Oversight
1. Review and approve all related-party transactions after reviewing
each such transaction for potential conflicts of interests and improprieties.
2. Establish and administer procedures for receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
3. Adopt a Code of Ethics for senior financial officers and provide
for and review prompt disclosure to the public of any change in, or waiver of
such Code of Ethics. Review conduct alleged to be in violation of such Code
of Ethics and adopt as necessary or appropriate, remedial, disciplinary, or
other measures with respect to such conduct.
Other Matters Oversight
1. Discuss with management the Company's major financial risk
exposures and the steps management has taken to monitor and control such
exposures and the process by which risk assessment and management is
undertaken and handled.
2. Prepare the Committee's report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement.
3. Regularly report to the Board on the Committee's activities,
recommendations and conclusions.
4. Review and reassess the Charter's adequacy at least annually.
5. Review its own performance, at least annually, for purposes of
self-evaluation and to encourage the continuing improvement of the Committee
in the execution of its responsibilities.
D-5
General and Resources
1. Have the authority to engage, and pay the fees and expenses of,
independent counsel, advisors and experts deemed necessary, as determined by
the Committee, to permit the Committee to perform its duties under this
charter. The fees and expenses of these counsel, advisors and experts shall
be paid by the Company, and the Company shall provide all other funding
necessary for the Committee to perform its functions and responsibilities.
2. At its discretion, have the authority to initiate special
investigations, and, if appropriate, hire special legal, accounting or other
outside advisors or experts to assist the Committee, to fulfill its duties
under this charter.
3. Also perform such other activities consistent with this charter,
the Company's Bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
Adopted, as amended and restated, on September 26, 2003
ANNEX E
FARMER BROS. CO.
CHARTER OF THE NOMINATING
COMMITTEE OF THE BOARD OF DIRECTORS
Purpose
The Nominating Committee (the "Committee") of the Board of Directors (the
"Board") of Farmer Bros. Co. (the "Company") is established for the
principal purposes of identifying individuals qualified to become Board members
and recommending to the Board individuals to be selected as director nominees
for the next annual meeting of shareholders or for apointment to vacancies on
the Board. This charter specifies the scope of authority and responsibility of
the Committee.
Organization, Membership and Meetings
1. The Committee shall be comprised of at least three directors who meet
the independence, expertise and other qualification standards required by the
federal securities laws and as may be required by the listing standards of
the NASDAQ or other securities exchange upon which the Company's securities are
traded.
2. Members of the Committee shall be appointed by the Board. Members may be
replaced by the Board at any time, but shall otherwise serve until a
successor has been named.
3. The Committee shall meet at least once each year, with the authority to
convene additional meetings, as circumstances require. The Committee may
invite members of management, legal counsel or others to attend meetings and to
provide relevant information.
4. The Committee may form and delegate authority to subcommittees when
appropriate, or to one or more members of the Committee.
5. The Committee may elect a Chairman of the Committee who, if elected,
shall preside at all meetings. At all meetings of the Committee, a majority of
the members of the Committee shall constitute a quorum for the transaction of
Business, and the act of a majority of the members of the Committee present
at a meeting at which a quorum is in attendance shall be the act of the
Committee. Members of the Committee may participate in any meeting by means
of a conference telephone or similar communications equipment by means of which
persons in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting. The Committee shall maintain
written minutes of its meetings, which minutes will be filed in the corporate
minute book. Any person present at a meeting may be appointed by the
Committee as Secretary to record the minutes. The Committee may adopt
additional rules of procedure, but when a matter of procedure is not addressed
by Committee rules, the procedure specified by the Company's Bylaws shall be
followed.
Committee Authority, Responsibilities and Authority
The Committee shall have the following responsibilities and duties:
1. Establish criteria for membership on the Board.
2. Recommend annually to the Board the slate of director candidates to be
proposed for election to the Board. The Committee seeks candidates with
diverse backgrounds and experiences who are expected to be able to contribute
in a meaningful way to the Board's deliberations respecting the Company's
business strategies, financial and operational performance and corporate
governance practices.
3. Recommend to the Board criteria regarding the composition of the Board,
total size and proportion of management to independent directors.
4. Review, at least every two years, Board compensation and recommend to
the Board any changes that seem appropriate.
5. Consider stockholder nominations for Board membership.
6. Review and assess the charter's adequacy at least annually.
7. The authority to engage, and pay the fees and expenses of search firms,
independent firms, independent counsel, advisors and experts deemed
necessary, as determined by the Committee, to permit the Committee to perform
its duties under this charter. The fees and expenses of these search firms
counsel, advisors and experts shall be paid by the Company, and the Company
shall provide all other funding necessary for the Committee to perform its
functions and responsibilities.
8. Perform such other activities consistent with this charter, the
Company's Bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
9. Report to shareholders in the Company's annual proxy statement
about the director nomination process as required by Securities and Exchange
Commission Rules.
Adopted on December 22, 2003.
FARMER BROS. CO.
ANNUAL MEETING OF STOCKHOLDERS
Monday, February 23, 2004
Time: 10:00 a.m.
FARMER BROS CO.
CORPORATE OFFICE
20333 South Normandie Avenue
Torrance, CA 90520
[LOGO] Farmer Bros. Co. PROXY
20333 South Normandie Avenue
Torrance, CA 90502
This proxy is solicited by the Board of Directors for use at the Annual
Meeting on February 23, 2004.
The shares of stock you hold in your account.
If no choice is specified, the proxy will be voted FOR Proposals One, Two
and Three(A)-(F) and AGAINST Proposal Four.
By signing the proxy, you revoke all prior proxies and appoint Roy E.
Farmer, Guenter W. Berger and Lewis A. Coffman, and each of them, with full
power of substitution, to vote your shares on the matters shown on the reverse
side and any other matters which may come before the Annual Meeting and all
adjournments.
See reverse for voting instructions.
Please detach here
The Board of Directors Recommends a Vote FOR Proposals One, Two and Three(A)-
(F) and AGAINST Proposal Four.
Please note that if any one of Proposals Three (A)-(F) is not approved by the
Shareholders, none of Proposals Three(A)-(F) will be approved.
PROPOSAL ONE: Election of Directors (Note: If the proposal to
reincorporate the Company in the State of Delaware (Proposal Three(A)) with the
additional anti-takeover measures (Proposals Three(B)-(F)) is approved, the
seven directors will be elected to a classified Board of Directors, with Class
I directors being elected for a one-year term, Class II directors being elected
to a two-year term and Class III directors being elected to a three-year term.
If the proposal to reincorporate in the State of Delaware is not approved, all
seven directors will be elected for a one-year term.)
Class I Class II Class III
01 Roy F. Farmer 02 Guenter W. Berger 03 John H. Merrell
04 Lewis A. Coffman 05 Thomas A. Maloof 06 Roy E. Farmer
07 John Samore, Jr.
The Board of Directors Recommends a Vote FOR all nominees
Vote FOR all nominees Vote WITHHELD for all
(except as marked) nominees
(Instructions: To withhold authority to vote for any indicated nominee, write
the number(s) of the nominee(s) in the box provided to the right.)
PROPOSAL TWO: Approval of appointment of Ernst & Young LLP as the Company's
independent public accountants for fiscal year 2004
The Board of Directors Recommends a Vote FOR Proposal Two
For Against Abstain
PROPOSALS THREE(A)-(F): FOR ALL
AGAINST ALL
ABSTAIN ON ALL
The Board of Directors Recommends a Vote FOR ALL Proposals Three(A)-(F)
Proposal Three(A): Approval of the reincorporation of the Company in the
State of Delaware (Note: A failure to approve Proposal Three(B) will result in
a failure to approve Proposals Three(A)-(F))
For Against Abstain
Proposal Three(B): Approval of the elimination of the right of our
shareholders to act by written consent (Note: A failure to approve Proposal
Three(B) will result in a failure to approve Proposals Three(A)-(F))
For Against Abstain
Proposal Three(C): Approval of the implementation of a classified Board of
Directors (Note: A failure to approve Proposal Three(C) will result in a
failure to approve Proposals Three(A)-(F))
For Against Abstain
Proposal Three(D): Approval of the elimination of the right of
shareholders holding ten percent 10%) or more of the voting shares to call a
special meeting of shareholders (Note: A failure to approve Proposal Three(D)
will result in a failure to approve Proposals Three(A)-(F))
For Against Abstain
Proposal Three(E): Approval of the elimination of cumulative voting for
our directors (Note: A failure to approve Proposal Three(E) will result in a
failure to approve Proposals Three(A)-(F))
For Against Abstain
Proposal Three(F): Approval of the increase in authorized shares of common
stock of the Company from 3,000,000 shares to 25,000,000 shares, and
authorization of 500,000 shares of preferred stock of the Company (Note: A
failure to approve Proposal Three(F) will result in a failure to approve
Proposals Three(A)-(F))
For Against Abstain
PROPOSAL FOUR: Shareholder proposal to amend the Company's bylaws to restore
cumulative voting
The Board of Directors Recommends a Vote AGAINST Proposal Four
For Against Abstain
DISCRETIONARY AUTHORITY IS CONFERRED ON ALL MATTERS, FOR WHICH A GRANT OF SUCH
AUTHORITY IS PROPER. SEE PROXY STATEMENT "VOTING REQUIREMENTS," Pg. [42].
Date:
Signature(s) in Box
Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.