Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Filed by a party other than the Registrant [ ]
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240.14a-12
FARMER BROS. CO.
......................................................................
(Name of Registrant as Specified In Its Charter)
......................................................................
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Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, California 90502
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held January 21, 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 Wednesday, January 21,
2004 at 10:00 a.m., Pacific Standard Time, for considering and acting upon
the following:
1. The 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) 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 proposal to reincorporate the Company in the State of Delaware;
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.
Only holders of common stock of record at the close of business on
December 29, 2003 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 JANUARY 18,
2004.
John M. Anglin
Secretary
Torrance, California
December 23, 2003
TABLE OF CONTENTS
PROXY STATEMENT 1
OWNERSHIP OF COMMON STOCK 2
Principal Shareholders 2
Management Shareholdings 3
PROPOSAL ONE: 4
ELECTION OF DIRECTORS 4
PROPOSAL TWO: 5
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
PROPOSAL THREE: 7
REINCORPORATION OF THE COMPANY IN THE STATE OF DELAWARE 7
INTRODUCTION 7
MECHANICS OF THE PROPOSED REINCORPORATION 8
Vote Required for the Reincorporation Proposal 9
Principal Reasons for the Proposed Reincorporation 10
Anti-takeover Measures 11
COMPARISON OF THE CHARTERS AND BYLAWS OF FARMER BROS. CALIFORNIA
AND FARMER BROS. DELAWARE 12
Authorized Stock 12
Cumulative Voting 12
Size of the Board of Directors 13
Classified Board 13
Filling Vacancies on the Board of Directors 14
Monetary Liability of Directors 15
Action by Written Consent 15
Power to Call Special Meetings of Shareholders 15
Nominations of Director Candidates and Introduction of Business
at Shareholder Meetings 16
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA
AND DELAWARE 17
Shareholder Approval of Certain Business Combinations 18
Removal of Directors 19
Limitation of Liability and Indemnification 20
Inspection of Shareholder Lists 23
Dividends and Repurchases of Shares 23
Appraisal Rights 23
Dissolution 24
Interested Director Transactions 24
Shareholder Derivative Suits 25
Application of the California General Corporation
Law to Delaware Corporations 25
Certain Federal Tax Consequences 25
Investment Company Act 27
PROPOSAL FOUR 28
SHAREHOLDER PROPOSAL TO AMEND THE COMPANY'S BYLAWS TO RESTORE
CUMULATIVE VOTING 28
BOARD AND COMMITTEE MATTERS 29
EXECUTIVE COMPENSATION 29
Director Meetings 29
Audit Committee 29
Audit Committee Report 29
Nominating Committee 30
Compensation Committee 30
Compensation Committee Report - Philosophy and Objectives 30
Executive Officer Compensation 30
Incentive Compensation Plan 31
Compensation Committee Interlocks and Insider Participation 31
Summary Compensation Table 32
Retirement Plan 32
Performance Graph 34
OTHER MATTERS 35
Voting Requirements 35
Closing date for proposals by shareholders 35
Annual Report to Shareholders 36
Annual Report on Form 10-K 36
Compliance with Section 16(a) of the Exchange Act 36
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 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 Wednesday, January
21, 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 December 30,
2003. The Company will request known nominees to forward proxy materials to
the beneficial owners of the Company's shares.
On the December 29, 2003 record date, the Company had outstanding
1,926,414 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 (as of December 20,
2003):
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership (1) Class
Roy F. Farmer 835,115 shares (2)(3)43.35%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502
Catherine E. Crowe 203,430 shares (4) 10.56%
7821 Stewart Avenue
Los Angeles, California 90045
Franklin Mutual Advisers, LLC 184,688 shares (5) 9.59%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Attn: Bradley Takahashi
Farmer Bros. Co. Employee
Stock Ownership Plan 173,761 shares (6) 9.02%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502
--------------------
(1) Sole voting and investment power unless otherwise indicated in the
following footnotes.
(2) Includes 171,041 shares owned outright by Mr. Farmer and his wife as
trustees of a revocable living trust, 662,121 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.
(3) The Crowe family has filed petitions in the Los Angeles Superior Court
to remove Roy F. Farmer as trustee of family trusts and to have an interim
trustee appointed to vote the Company stock held by the trusts at the upcoming
Annual Meeting of Shareholders. A court hearing on the appointment of the
interim trustee is scheduled for December 24, 2003. If the court appoints an
interim trustee with power to vote the Company stock held by the trusts, Roy F.
Farmer will have the power to vote 594,701 shares, or 30.87% of the outstanding
shares, at the Annual Meeting or any adjournment thereof.
(4) Excludes 9,900 shares held by trusts for Mrs. Crowe's benefit. Mr.
Farmer is sole trustee of said trusts and said shares are included in his
reported holdings.
(5) According to a Schedule 13D/A filed with the Securities and Exchange
Commission dated December 9, 2003 by Franklin Mutual Advisers, LLC
("Franklin"), Franklin on that date beneficially owned 184,688 shares
(9.59%). 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.
(6) There are 148,292 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 December 2, 2003:
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 38,320(5) 1.99%
Roy F. Farmer (See "Principal Shareholders," supra)
Thomas A. Maloof None -
John H. Merrell None -
John Samore, Jr. None -
John E. Simmons 471(6) *
All directors and exec
officers as a group (10 persons) 874,888 (7) 45.41%
--------------------
(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, 34,211 shares held
by various trusts of which Mr. Farmer is sole trustee 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 F.
Farmer is sole trustee (reported under Roy F. Farmer's name in Principal
Shareholders, supra) and of which Roy E. Farmer is the beneficiary.
(6) 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.
(7) Excludes all ESOP shares, as the ESOP has been amended to eliminate the
ESOP Plan Committee's power to direct the vote of any of the ESOP shares.
(8) If an interim trustee is appointed with power to vote the Company shares
held by the trusts of which Roy F. Farmer presently is trustee (see Principal
Shareholders, footnote 6, supra), the group will have voting power over
609,005 shares, or 31.61% of the outstanding shares, at the Annual Meeting or
any adjournment thereof.
* 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 (Note: If the
proposal to reincorporate the Company in the State of Delaware (Proposal
Three) 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). 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. Messers. 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
Name Age Since for the Last Five Years
Guenter W. Berger 66 1980 Vice President - Production
Lewis A. Coffman 84 1983 Retired (formerly Vice President Sales)
Roy E. Farmer (1) 51 1993 President, Chief Executive Officer
since March 19, 2003; Chief
Operating Officer previously
Roy F. Farmer (1) 87 1951 Chairman; Chief Executive Officer
prior to March 19,2003
Thomas A. Maloof (2) 51 2003 Chief Financial Officer of Hospitality
Marketing Concepts, LLC, Irvine,
California since 2001; President of
Perinatal Practice Management-Alfigen
The Genetics Institute, Pasadena,
California previously
John H. Merrell 59 2001 Partner in Accounting Firm of
Hutchinson and Bloodgood LLP,
Glendale, California
John Samore, Jr. 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) Roy F. Farmer is the father of Roy E. Farmer.
(2) 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.
PROPOSAL THREE:
REINCORPORATION OF THE COMPANY IN THE STATE OF DELAWARE
INTRODUCTION
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.
This proposal grew out of a request by one of the Company's recently
appointed independent directors, prior to the 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, as that term is defined below, was 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 (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.
Because Farmer Bros. Delaware will be governed by the Delaware General
Corporation Law (the "DGCL") if the Reincorporation Proposal is approved, the
Proposed Reincorporation will result in certain changes in the rights of
shareholders. These differences are summarized in the sections below
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."
SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS SECTION OF THE PROXY
STATEMENT, INCLUDING THE RELATED ANNEXES, BEFORE VOTING ON THE
REINCORPORATION PROPOSAL.
MECHANICS OF THE PROPOSED REINCORPORATION
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 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 the Reincorporation Proposal
Approval of the Reincorporation Proposal, which will also constitute an
approval of the Merger Agreement, the Delaware Certificate, the Delaware
Bylaws 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 the Reincorporation
Proposal. This totals 45.34% of the shares entitled to vote on this
proposal. In connection with ongoing litigation to remove Roy F. Farmer as the
trustee of certain trusts of which Catherine E. Crowe and her children,
Steven D. Crowe and Janis C. Crowe (the "Crowes") are beneficiaries (the "Crowe
Trusts"), the Crowes have filed petitions in the Los Angeles Superior Court
requesting that the court appoint a retired judge to vote the stock of the
Company held in the Crowe Trusts at the Annual Meeting.
The Company has recently amended the ESOP such that the shares unallocated
to plan participants are to be voted for the Reincorporation Proposal in the
same proportion that the allocated shares are voted by plan participants for
the proposal. The ESOP holds 9.02% of the shares entitled to vote on this
proposal.
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 (the
"Individual Defendants"), on behalf of himself and a purported class of
persons. The Plaintiff alleges that the Company is operating as an
unregistered investment company in violation of applicable federal law. 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 Individual Defendants 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
Individual Defendants from voting the Company stock beneficially owned by the
ESOP at the Annual Meeting. Because the recent amendment to the ESOP removes
the power of the Company and the ESOP Plan Committee to direct the voting of
the ESOP shares, it is uncertain whether this lawsuit could have any effect on
the voting on the Reincorporation Proposal. We intend to vigorously defend the
action and related motion for injunctive relief.
For the reasons described above, 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.
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 is 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
Bylawswhich may have anti-takeover implications. These measures include the
elimination of shareholders' ability to act by written consent, the
establishment of a classified board of directors, the elimination of the
ability of shareholders controlling at least ten percent (10%) of the voting
shares to call a special meeting of shareholders, the establishment of
advance notice procedures for shareholder nominations and other proposals, the
elimination of the ability of the shareholders to remove directors without
cause and 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. Following the Proposed Reincorporation, which
will propose to include the adoption of all of these measures, the Delaware
Certificate will also provide for the Board's ability to designate and issue
preferred stock, 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 a
discussion of the changes which will be implemented as part of the
Reincorporation Proposal, see "Comparison of the Charters and Bylaws of
Farmer Bros. California and Farmer Bros. Delaware," below.
In addition to such 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 may provide greater deterrence to takeover
offers and greater defenses against takeovers, the Proposed Reincorporation
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 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 of the Proposed Reincorporation by the shareholders
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 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
Securities and Exchange Commission 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 5,000,000 authorized shares of common stock, no par value,
and 500,000 shares of preferred stock, par value $1.00 per share. 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 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 ylaws 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.
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 authorizes 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 nine 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. 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 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.
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. 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 or the Board to call a special meeting of
shareholders. Therefore, if the Reincorporation Proposal is adopted, holders
of at least ten percent (10%) of the voting shares of the Company will no
longer be able to call a special meeting of shareholders.
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
therefor; 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 therefor, 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 therefor. 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 Investment
Company Act of 1940, 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 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 that
Act. 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 certain elements included in this proposal to reincorporate the
Company in the State of 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 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 therefore 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 20, 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.
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 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 Securities and Exchange Commission 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 Securities and Exchange Commission.
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 independent directors Lewis A. Coffman, Thomas A. Maloof, John
H. Merrell and John Samore, Jr. 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 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 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, prior to July 15, 2004 for consideration in
connection with the next Annual Meeting.
Compensation Committee
The Compensation Committee (the "Committee") is a standing committee of
the Board and is comprised of independent directors Lewis A. Coffman, John H.
Merrell, Thomas A. Maloof and John Samore, Jr. 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 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
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 proposal to reincorporate the Company in the State of
Delaware; 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 of Directors.
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
proposal to reincorporate in the State of Delaware (Proposal Three) requires
the affirmative vote of a majority of the outstanding shares. 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 on or before October
18, 2003, (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.
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 no later than September 1, 2004. 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 January 5, 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 Securities and
Exchange Commission 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
December 22, 2003
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 nine 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
C-i
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.
C-1
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
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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.
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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
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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
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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.
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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.
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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]
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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 cousnel, 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.
PRELIMINARY COPY
PROXY CARD
FARMER BROS. CO.
ANNUAL MEETING OF STOCKHOLDERS
Wednesday January 21, 2004
Time: 10:00 a.m.
FARMER BROS CO.
CORPORATE OFFICE
20333 South Normandie Avenue
Torrance, CA 90520
[LOGO] Farmer Bros. Co.
20333 South Normandie Avenue
Torrance, CA 90502 proxy
This proxy is solicited by the Board of Directors for use at the Annual
Meeting on January 21, 2004.
The shares of stock you hold in your account or in a dividend
reinvestment account will be voted as you specify below.
If no choice is specified, the proxy will be voted FOR Items 1, 2 and 3
and AGAINST Item 4.
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 maters 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 Recommend a Vote FOR Items 1, 2 and 3 and AGAINST Item
4
1. Election of Directors
01 Roy F. Farmer
02 Roy E. Farmer
03 Guenter W. Berger
04 Lewis A. Coffman
05 John H. Merrell
06 Thomas A. Maloof
07 John Samore, Jr.
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.)
2. Approval of appointment of Ernst & Young LLP as the Company's
independent public accountants for fiscal year 2004
For Against Abstain
3. Proposal to reincorporate the Company in the State of Delaware
For Against Abstain
4. Shareholder proposal to amend the company's bylaws to restore
cumulative voting
For Against Abstain
DISCRETIONARY AUTHORITY IS CONFERRED ON ALL MATTERS, FOR WHICH A GRANT
OF SUCH AUTHORITY IS PROPER. SEE PROXY STATEMENT "VOTING
REQUIREMENTS," P.34.
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.