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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period from January 1, 2004 to March 31, 2004.
Commission File Number: 0-1375
FARMER BROS. CO.
(Exact name of registrant as specified in its charter)
Delaware 95-0725980
(State of Incorporation) (IRS Employer Identification Number)
20333 S. Normandie Avenue, Torrance, California 90502
(Address of principal executive offices) (Zip Code)
(310) 787-5200
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Number of shares of Common Stock outstanding: 16,075,080 as of May 11,
2004.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Dollars in thousands, except per share data)
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the three months For the nine months
ended March 31, ended March 31,
2004 2003 2004 2003
Net sales $49,069 $49,267 $146,245 $153,774
Cost of goods sold 18,488 17,229 53,459 55,050
Gross profit 30,581 32,038 92,786 98,724
Selling expense 22,735 22,696 68,019 66,256
General and administrative
expenses 7,103 4,357 19,843 11,810
Operating expenses 29,838 27,053 87,862 78,066
Income from operations 743 4,985 4,924 20,658
Other income:
Dividend income 844 811 2,527 2,440
Interest income 935 834 2,156 3,195
Other, net 4,980 3,677 6,149 2,725
Total other income 6,759 5,322 10,832 8,360
Income before taxes 7,502 10,307 15,756 29,018
Income taxes 1,899 3,968 5,077 11,172
Net income $ 5,603 $ 6,339 $10,679 $17,846
Net income per share $0.416 $0.352 $0.657 $ 0.978
Weighted average shares
outstanding 13,457,300 18,009,140 16,266,410 18,248,020
Dividends declared per share $0.095 $0.090 $0.285 $0.270
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $ 25,773 $ 18,986
Short term investments 166,652 274,444
Accounts and notes receivable, net 17,568 13,756
Inventories 33,980 34,702
Income tax receivable 900 2,878
Prepaid expenses 3,123 1,851
Total current assets 247,996 346,617
Property, plant and equipment, net 42,223 41,753
Notes receivable 193 193
Other assets 24,235 26,390
Deferred income taxes 1,462 1,462
Total assets $316,109 $416,415
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,599 $ 3,321
Accrued payroll expenses 11,193 7,362
Deferred income tax 976 976
Other expense 4,648 5,000
Total current liabilities 22,416 16,659
Accrued postretirement benefits 26,725 25,041
Other long term liabilities - 5,570
49,141 47,270
Commitments and contingencies - -
Shareholders' equity:
Common stock, $1.00 par value, authorized
3,000,000 shares; 1,607,508 shares
issued and outstanding 1,608 1,926
Additional paid-in capital 46,351 18,798
Retained earnings 282,913 382,831
Unearned ESOP shares (62,858) (33,364)
Less accumulated comprehensive loss (1,046) (1,046)
Total shareholders' equity 266,968 369,145
Total liabilities and shareholders' equity $316,109 $416,415
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Nine months ended March 31,
2004 2003
Cash flows from operating activities:
Net income $10,679 $17,846
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,302 4,316
(Gain) on sales of assets (52) (367)
ESOP compensation expense 3,835 2,835
(Gain)on investments (631) (2,025)
Change in assets and liabilities:
Short term investments (2,738) 55,853
Accounts and notes receivable (3,846) 640
Inventories 722 1,029
Income tax receivable 1,978 2,553
Prepaid expenses and other assets 883 (2,066)
Accounts payable 2,278 (186)
Accrued payroll and expenses and
other liabilities 3,479 733
Accrued postretirement benefits 1,684 1,446
Other long term liabilities (5,570) -
Total adjustments 7.324 64,761
Net cash provided by operating activities $ 18,003 $82,607
Cash flows from investing activities:
Purchases of property, plant and equipment (5,806) (6,445)
Proceeds from sales of property,
plant and equipment 86 497
Notes receivable repaid 34 42
Net cash used in investing activities (5,686) (5,906)
Cash flows from financing activities:
Dividends paid (4,354) (4,916)
ESOP contributions (32,412) (22,496)
Proceeds from sale of short term investments 111,161 -
Purchase of capital stock (111,161) -
Sale of capital stock 31,236 -
Net cash used in financing activities (5,530) (27,412)
Net increase in cash and cash equivalents 6,787 49,289
Cash and cash equivalents at beginning of year 18,986 7,047
Cash and cash equivalents at end of period $25,773 $56,336
Supplemental disclosure of cash flow information:
Income tax payments 2,250 7,044
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2004.
The balance sheet at June 30, 2003 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Farmer Bros Co. annual report on Form 10-K/A
for the year ended June 30, 2003.
Reclassification: Certain 2003 balances have been reclassified to be
consistent with the 2004 presentation.
Note 2. Investments
Investments are as follows (in thousands):
March 31 June 30
2004 2003
U.S. Treasury Obligations $106,827 $220,057
Preferred Stock and Other 58,370 53,897
Futures, options and
other derivative investments 1,455 490
Total short term investments $166,652 $274,444
Note 3. Inventories
(In thousands)
March 31, 2004
Processed Unprocessed Total
Coffee $4,075 $9,110 $13,185
Allied products 10,918 3,872 14,790
Coffee brewing equipment 2,336 3,669 6,005
$17,329 $16,651 $33,980
June 30, 2003
Processed Unprocessed Total
Coffee $3,853 $9,155 $13,008
Allied products 11,776 4,213 15,989
Coffee brewing equipment 2,372 3,333 5,705
$18,001 $16,701 $34,702
Interim LIFO Calculations
An actual valuation of inventory under the LIFO method can be made only
at the end of each year based on the inventory levels and costs at that
time. Accordingly, interim LIFO calculations must necessarily be based
on management's estimates of expected year-end inventory levels and costs.
Because these are subject to many forces beyond management's control,
interim results are subject to the final year-end LIFO inventory valuation.
Note 4. Pension Plans
The Company has a contributory defined benefit pension plan for all employees
not covered under a collective bargaining agreement and a non-contributory
defined benefit plan for certain hourly employees covered under a collective
bargaining agreement. The net periodic pension costs for the defined benefit
plans for the three months ended March 31 were as follows:
Components of Net Periodic Benefit Cost
(in thousands)
Three months ended March 31,
2004 2003
Service cost 594 427
Interest cost 988 971
Expected return on plan assets (1,362) (1,491)
Amortization of transition obligation ( 0 (164)
Amortization of prior service cost 62 66
Amortization of net (gain) loss 336 4
Net periodic benefit cost 618 (187)
Note 5. Stock Split
On May 10, 2004 the Company affected a 10 for 1 stock split. The effect of
this stock split has been retroactively reflected in the net income per share,
dividends per share and weighted average shares reported in the accompanying
condensed financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity
As reported in the Form 10-Q/A dated February 18, 2004, on December 24, 2003,
the Company purchased the 443,845 shares of its common stock held by the Crowe
Family and related trusts for approximately $111 million or approximately $250
per share. The closing market price for Farmer Bros. Co. common stock on
December 24, 2003 was $316/share. Concurrently with this purchase, the Company
offered its Employee Stock Ownership Plan (ESOP) the opportunity to purchase
124,939 shares at the same price, fulfilling its previously announced intention
to purchase 300,000 shares for the ESOP. This portion of the transaction was
completed on January 11, 2004.
The transactions can be summarized as follows:
Cost of shares purchased $111,161,000
Cost of shares retired 79,926,000
Cost of shares transferred to ESOP 31,235,000
The ESOP, established in 2000 for all Farmer Bros. Co. employees, is a
leveraged ESOP. Consistent with plan provisions, the ESOP buys Company stock
with money loaned to the ESOP, in this case by the Company. Annually, the
Company makes a federal income tax deductible contribution to the ESOP, and the
ESOP uses that contribution to make its loan payment (principal and taxable
interest) to the Company. When the loan payment is made, the shares that
secured that payment amount are allocated to employees and held for them by a
third party trust. When employees retire or leave the Company they receive the
stock or cash. Cash amounts are based on the market price of its stock. At
the inception of the ESOP, the Board authorized the purchase of 300,000 shares
of Company stock.
Our multi-year information systems project, is possibly the largest undertaking
of its type the Company has ever attempted, has two major milestones left. The
project began in the Fall of 2002, and the initial milestone was on July 1,
2003 when certain of the financial systems "went live." The manufacturing
systems are expected to go live on September 1, 2004, and the sales system is
expected to be phased into our branches beginning in February, 2005, to be
complete by June 30, 2005. The additional cost of the information systems
portion of the project, through fiscal 2005 is expected to exceed $7,000,000.
Our working capital is composed of the following:
(in thousands) March 30, June 30,
2004 2003
Current assets $247,096 $348,617
Current liabilities 22,505 $ 16,659
Working capital $224,591 $331,958
Total assets $315,209 $416,415
We expect all present and future liquidity needs will be met by internal
sources. The Company tries not to rely on banks or other third parties for its
working capital and other liquidity needs. There have been no changes in the
needs or commitments described in the Company's Annual Report on Form 10-
K/A.
Results of Operations
Most operating trends discussed in the Form 10-K/A for fiscal 2003 have
continued throughout fiscal 2004. A slight improvement in the downward sales
trend seen this year was experienced during the fiscal quarter ended March 31,
2004. Net sales decreased 0.4% in the third quarter of fiscal 2004 to
$49,069,000 as compared to $49,267,000 in the fiscal quarter ended March 31,
2003. Year to date sales decreased 5% to $146,245,000 as compared to
$153,774,000 in the first nine months of fiscal 2003. In addition to the
previously mentioned trends, the Company had decreased coffee brewing equipment
sales of $4,049,000 in the current fiscal year as compared to the same period
of fiscal 2003.
Gross profit for the quarter ended March 31, 2004 decreased 5% to $30,582,000
as compared to $32,038,000 in the same quarter of fiscal 2003. This decrease
is primarily the result of higher green coffee costs. The average cost of
green coffee during the fiscal quarter ended March 31, 2004 has increased 27%
since the June 30, 2003 year end. The average cost of green coffee during the
nine months of fiscal 2004 has been 9% higher than the average cost of green
coffee over the same period of the prior fiscal year. Gross profit for the
first nine months of fiscal 2004 decreased 6% to $92,786,000 as compared to
$98,724,000 in the same period of the prior fiscal year.
Operating expenses in the first nine months of fiscal 2004, consisting of
selling and general and administrative expenses, increased 13% to $87,862,000
as compared to $78,066,000 in the same period of fiscal 2003. Operating
expenses for the three months ended March 31, 2004 increased 10% to $29,839,000
as compared to $27,053,000 in the same period of fiscal year 2003. This
increase is primarily attributed to costs associated with our multi year
program to update our information systems, increased employee benefits and
legal expenses, detailed as follows for the nine months ended March 31.
2004 2003
Information systems $ 4,148,000 $ 563,000
Employee benefits 17,617,000 13,598,000
Legal services 1,857,000 502,000
Total $23,622,000 $14,663,000
Other income in the third quarter of fiscal 2004 increased 27% to $6,759,000
from $5,322,000 in the same quarter of fiscal 2003. Other income for the first
nine months of fiscal 2004 increased 29% to $10,832,000 from $8,360,000 in the
same period of the prior fiscal year. The Company's Chairman, Roy F. Farmer,
who guided the Company for more than 50 years, died on March 16, 2004 (as more
fully described in a Form 8-K filed March 16, 2004). The Company received
payment of a key man life insurance policy on Mr. Farmer that is not taxable.
Additionally, the deferred compensation due Mr. Farmer has been reclassified as
a current liability in the most recent quarter. The Company prevailed in a
lawsuit against the State of California regarding state taxability of
dividends, as a result we will receive a tax refund of approximately $811,000
and interest income in excess of $627,000. The Company received another court
award, as a plaintiff in a class-action lawsuit regarding price-fixing by
sellers of monosodium glutamate. The increase in other income in the third
quarter is primarily the result of the these non-recurring transactions.
Key man life insurance $4,088,000
Court award 1,061,000
Interest on state tax refunds 627,000
Total $5,776,000
As the result of the above mentioned factors, net income for the third
quarter of fiscal 2004 decreased 12% to $5,603,000 or $0.416 per share, as
compared to $6,339,000, or $0.352 per share, in the same quarter of fiscal
2003. Net income for the first nine months of fiscal 2004 decreased 40% to
$10,679,000 or $0.657 per share, as compared to $17,846,000 or $0.978 per share
in the same period of the prior fiscal year.
Quarterly Summary of Results (in thousands of dollars):
03/31/03 06/30/03 09/30/03 12/31/03 3/31/04
Net sales $49,267 $47,784 $45,665 $51,511 $49,069
Gross profit $32,038 $32,172 $29,632 $32,573 30,582
Income from operations $4,985 $3,230 $1,057 $3,124 743
Net income $6,339 $5,783 $2,511 $2,565 $ 5,604
Net income per share $0.352 $0.323 $0.141 $0.146 $0.416
Forward Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q regarding
the risks, circumstances and financial trends that may affect our future
operating results, financial position and cash flows may be forward-looking
statements within the meaning of federal securities laws. These statements
are based on management's current expectations, assumptions, estimates and
observations about our business and are subject to risks and uncertainties.
As a result, actual results could materially differ from the forward looking
statements contained herein. These forward looking statements can be
identified by the use of words like "expects," "plans," "believes,"
"intends," "will," "assumes" and other words of similar meanings. These and
other similar words can be identified by the fact that they do not relate
solely to historical or current facts. While we believe our assumptions are
reasonable, we caution that it is impossible to predict the impact of such
factors which could cause actual results to differ materially from predicted
results. We intend these forward-looking statements to speak only at the
time of this report and do not undertake to update or revise these
projections as more information becomes available. For these statements, we
claim the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of 1995. Many but
not all of these factors and assumptions are identified in the Company's
Annual Report on Form 10-K for the year ended June 30, 2003.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Financial Markets
We are exposed to market value risk arising from changes in interest rates on
our securities portfolio. Our portfolio of investment grade money market
instruments is primarily invested in treasury securities. As of March 31,
2004 over 83% of these funds were invested in instruments with maturities
shorter than 90 days. This portfolio's interest rate risk is not hedged and
its average maturity is approximately 70 days. A 100 basis point increase in
the general level of interest rates would result in a change in the market
value of the portfolio of approximately ($1,080,000).
Our portfolio of preferred securities includes investments in derivatives
that provide a natural economic hedge of interest rate risk. We review the
interest rate sensitivity of these securities and (a) enter into "short
positions" in futures contracts on U.S. Treasury securities or (b) hold put
options on such futures contracts in order to reduce the impact of certain
interest rate changes on such preferred stocks. Specifically, we attempt to
manage the risk arising from changes in the general level of interest rates.
We do not transact in futures contracts or put options for speculative
purposes.
The following table demonstrates the impact of varying interest rate changes
based on the preferred stock holdings, futures and options positions, and
market yield and price relationships at March 31, 2004. This table is
predicated on an instantaneous change in the general level of interest rates
and assumes predictable relationships between the prices of preferred
securities holdings, the yields on U.S. Treasury securities and related
futures and options.
Interest Rate Changes
(In thousands)
Market Value of March 31, 2004 Change in Market
Preferred Futures & Total Value of Total
Stock Options Portfolio Portfolio
- -150 basis points
("b.p.") $63,930 $- $63,930 $4,835
- -100 b.p. 62,578 6 62,584 3,489
Unchanged 58,355 740 59,095 0
+100 b.p. 53,020 5,080 58,100 ( 995)
+150 b.p. 50,424 7,717 58,141 ( 954)
The number and type of future and option contracts entered into depends on,
among other items, the specific maturity and issuer redemption provisions for
each preferred stock held, the slope of the Treasury yield curve, the
expected volatility of Treasury yields, and the costs of using futures and/or
options.
Commodity Price Changes
We are exposed to commodity price risk arising from changes in the market
price of green coffee. We price our inventory on the LIFO basis. In the
normal course of business, we enter into commodity purchase agreements with
suppliers and we purchase green coffee contracts.
The following table demonstrates the impact of changes in the price of green
coffee on inventory and green coffee contracts at March 31, 2004. It
assumes an immediate change in the price of green coffee, and the valuations
of coffee index futures and put options and relevant commodity purchase
agreements at March 31, 2004.
Commodity Risk Disclosure
(In thousands)
Market Value of
Coffee Cost Coffee March 31, 2004 Change in Market Value
Change Inventory Futures & Options Totals Derivatives Inventory
-20% $11,900 $6,355 $18,255 $6,356 ($1,300)
unchanged 13,200 ( 1,450) 11,750 - -
20% 14,500 ( 7,806) 6,694 ( 6,356) 1,300
At March 31, 2004 the derivatives consisted mainly of commodity futures
with maturities shorter than four months.
Item 4 Controls & Procedures
As of the end of the period covered by this report, the Chief Executive Officer
and Chief Financial Officer evaluated the Company's disclosure control and
procedures pursuant to Exchange Act Rule 13a-14 and 15d-14. They have
concluded that the Company's disclosure controls and procedures are effective
in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion. In addition,
there have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's internal control
over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal proceedings.
On February 4, 2004, Leonard Rosenthal, unilaterally and without payment of
settlement filed a Notice of Dismissal Without Prejudice with the United States
District Court for the Central District of California with respect to the
action against the Company, its present directors and a former director,
previously reported in the Company's Form 10-Q for the period ended December
31, 2003.
Item 2. Changes in securities, Use of Proceeds and Issuer Purchases of Equity
Securities.
(a) - (b)
On February 17, 2004, the Company was reincorporated as a Delaware corporation
by merger into a wholly-owned Delaware corporation. As a result of such
reincorporation and the inclusion of certain provisions in the charter of the
surviving Delaware corporation, changes in the rights of holders of the
Company's common stock occurred. The changes are explained in the sections of
the Company's proxy statement dated January 30, 2004 entitled: " Introduction
to Proposals Three (A), Three (B), Three (C), Three (D) and Three (E);"
"Proposal Three (A): Reincorporation of the Company in the State of Delaware;"
"Comparison of the Charters and Bylaws of Farmer Bros. California and Farmer
Bros. Delaware;" "Significant Differences Between the Corporation Laws of
California and Delaware;" "Proposal Three (B): Elimination of the Right of
Shareholders to Act by Written Consent;" " Proposal Three (C): Implementation
of a Classified Board of Directors;" "Proposal Three (D): Elimination of Right
to Call Special Meetings;" "and "Proposal Three (E): Elimination of Cumulative
Voting for Directors." These sections appear at pp. 7 through 35 of the
Company's printed Proxy Statement, and are incorporated hereat by this
reference. A copy of the material incorporated by reference is filed as
Exhibit 99 to this report.
(c)
As described in Part I, Item 2 - Management Discussion and Analysis of this
report, supra, on December 24, 2003 the Company purchased the 443,845 shares of
its common stock held by the Crowe Family and related trusts for approximately
$111 million or approximately $250 per share. Concurrently with this purchase,
the Company offered its Employee Stock Ownership Plan (ESOP) the opportunity to
acquire 124,939 shares at the same price. This portion of the transaction was
completed on January 11, 2004 when the Company transferred said shares to the
ESOP. No underwriters were involved. The ESOP is a non-contributory mandatory
employee benefit plan. Accordingly the transaction did not constitute a sale
for purposes of the Securities Act of 1933, as amended.
(d)
Not applicable.
(e)
The following table summarizes the purchases of equity securities by the issuer
and affiliated purchasers.
Issuer Purchases of Equity Securities
Period (a) Total (b) Average (c) Total Number (d) Maximum Number
Number of Price Paid of Shares Purchased of Shares that
Shares per Share as Part of Publicly May Be Purchased
Purchased Announced Plans Under the Plans
January 1
Through 50(1) $306 none NA
January 31
February 1
Through none
February 29
March 1
Through none
March 31
(1) ESOP purchased shares from retired employee.
Item 3. Defaults upon senior securities. none.
Item 4. Submission of matters to a vote of security holders.
The Company's annual meeting was held on February 23, 2004. At the meeting the
following persons were elected to the terms indicated:
Roy F. Farmer (Class I) 1 year
Lewis A. Coffman (Class I) 1 year
John Samore, Jr. (Class I) 1 year
Guenter W. Berger (Class II) 2 years
Thomas A. Maloof (Class II) 2 years
John H. Merrell (Class III) 3 years
Roy E. Farmer (Class III) 3 years
Roy F. Farmer died on March 16,2004.
The following "Report of Proxy Voting" was originally included in a Form 8-K
dated February 23, 2004 and filed with the Commission on February 23, 2004.
Report of Proxy Voting
There were 1,607,508 shares of Common Stock entitled to vote at the meeting
and a total of 1,229,762 shares (76.50%) were represented at the meeting.
1. Election of Directors
FOR WITHOLD
Roy F. Farmer (Class I) 1,039,648 190,114
Lewis A. Coffman (Class I) 1,038,784 190,978
John Samore, Jr. (Class I) 1,039,470 190,292
Guenter W. Berger (Class II) 1,037,319 192,443
Thomas A. Maloof (Class II) 1,039,480 190,282
John H. Merrell (Class III) 1,039,470 190,292
Roy E. Farmer (Class III) 1,038,964 190,798
2. Approval of Appointment of Ernst & Young LLP as the Company's
independent public accountants for fiscal year 2004.
FOR AGAINST ABSTAIN BROKER NON-VOTE
1,169,645 57,413 2,704 0
3. Approval of the reincorporation of the Company in the State
of Delaware.
FOR AGAINST ABSTAIN BROKER NON-VOTE
996,860 232,546 356 0
4. Approval of the elimination of the right of our shareholders to
act by written consent.
FOR AGAINST ABSTAIN BROKER NON-VOTE
992,798 236,290 674 0
5. Approval of the implementation of a classified Board of Directors.
FOR AGAINST ABSTAIN BROKER NON-VOTE
985,281 244,205 276 0
6. Approval of the elimination of the right of shareholders holding ten
percent (10%) or more of the voting shares to call a special meeting
of shareholders.
FOR AGAINST ABSTAIN BROKER NON-VOTE
991,318 237,669 775 0
7. Approval of the elimination of cumulative voting for our directors.
FOR AGAINST ABSTAIN BROKER NON-VOTE
995,228 234,348 186 0
8. Approval of the increase in authorized shares of common stock of
the Company from 3,000,000 shares to 25,000,000 shares, and
authorization of 500,000 shares of preferred stock of the Company.
FOR AGAINST ABSTAIN BROKER NON-VOTE
994,050 235,477 235 0
9. Shareholder proposal to amend the Company's bylaws to restore
cumulative voting.
FOR AGAINST ABSTAIN BROKER NON-VOTE
216,937 1,011,562 1,263 0
Item 5. Other information none.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits.
3.1 Certificate of Incorporation
3.2 Bylaws
31.1 Certification of Chief Executive Officer (Section 302 of the Sarbannes-
Oxley Act of 2002)
31.2 Certification of Chief Financial Officer (Section 302 of the Sarbannes-
Oxley Act of 2002)
32.1 Certification of Chief Executive Officer (Section 906 of the Sarbannes-
Oxley Act of 2002)
32.2 Certification Chief Financial Officer (Section 906 of the Sarbannes-Oxley
Act of 2002)
99 Excerpts incorporated by reference from proxy statement dated January 30,
2004.
(b) Reports on Form 8-K.
A Form 8-K dated January 12, 2004 and filed with the Commission on January 12,
2004, reporting the purchase of 124,939 shares of stock by the ESOP, completing
the Company's goal of acquiring 300,000 shares of Company stock.
A Form 8-K dated February 23, 2004 and filed with the Commission on February
23, 2004, reporting that the Company had filed to reincorporate in Delaware
following shareholder approval at the shareholder's meeting held February 23,
2004. The Form 8-K also reported the results of proxy voting, and a report
from management on the state of the company.
A Form 8-K dated March 4, 2004 and filed with the Commission on March 4, 2004
noting that the Board of Directors declared a 10 for one stock split in the
form of a one time stock dividend. The stock dividend will entitle each pre-
split shareholder to receive nine shares of stock for each share owned at the
opening of business on May 10, 2004.
A Form 8-K dated March 16, 2004 and filed with the Commission on March 16, 2004
to announce the death of Chairman, Roy F. Farmer.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
FARMER BROS. CO.
/s/ Roy E. Farmer
Roy E. Farmer, President and Chief Executive Officer and Director
(principal executive officer)
Date: May 14, 2004
/s/ John E. Simmons
John E. Simmons, Treasurer and Chief Financial Officer
(principal financial and accounting officer)
Date: May 14, 2004
Exhibit 31.1
Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
I, Roy E. Farmer, President and Chief Executive Officer of Farmer Bros. Co.
("Registrant"), certifies that:
1. I have reviewed this Quarterly Report on Form 10-Q of Registrant;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the Registrant
and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant's
internal control over financial reporting that occurred
during the Registrant's most recent fiscal quarter (the
Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely
to materially affect, the Registrant's internal control over
financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of the
Registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: May 13, 2004
/s/ Roy E. Farmer
Roy E. Farmer
President and Chief Executive Officer
(principal executive officer)
Exhibit 31.2
Certification Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
I, John E. Simmons, Treasurer and Chief Financial Officer of Farmer Bros. Co.
("Registrant"), certifies that:
1. I have reviewed this Quarterly Report on Form 10-Q of Registrant;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the Registrant
and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the Registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant's
internal control over financial reporting that occurred
during the Registrant's most recent fiscal quarter (the
Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely
to materially affect, the Registrant's internal control over
financial reporting; and
5. The Registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Registrant's auditors and the audit committee of the
Registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Registrant's ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: May 13, 2004
/s/ John E. Simmons
John E. Simmons
Treasurer and Chief Financial Officer
(principal financial and accounting officer)
Exhibit 32.1 CERTIFICATION of Chief Executive Officer Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 In connection with the annual report of Farmer Bros. Co. (the "Company") on Form 10-K for the fiscal quarter ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Roy E. Farmer, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: May 13, 2004 /s/ Roy E. Farmer Roy E. Farmer President & Chief Executive Officer (principal executive officer)
Exhibit 32.2 CERTIFICATION of Chief Financial Officer Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 In connection with the annual report of Farmer Bros. Co. (the "Company") on Form 10-K for the fiscal quarter ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John E. Simmons, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: May 13, 2004 /s/ John E. Simmons John E. Simmons Treasurer and Chief Financial Officer (principal financial and accounting officer
Sections of the Company's Proxy Statement dated January 30, 2004 and
incorporated by reference in this filing
INTRODUCTION TO PROPOSALS THREE(A), THREE(B),
THREE(C), THREE(D), THREE(E) AND THREE(F)
Of the publicly-held companies headquartered in California with a market
capitalization of more than $25 million, more than two-thirds are incorporated
in Delaware.
The Board believes that it is essential to be able to draw upon well-
established principles of corporate governance in making business and legal
decisions. The prominence and predictability of Delaware corporate law provide
a more reliable foundation on which the Company's corporate governance
decisions can be based. Accordingly, as discussed in detail below, we believe
that the Company and its shareholders will benefit in the near and longer term
from reincorporating the Company in Delaware.
These proposals grew out of a request by one of the Company's recently
appointed independent directors, prior to the Company's receipt of any
shareholder proposals, that a review be undertaken of the advantages and
disadvantages of changing the Company's state of incorporation from California
to Delaware. On August 19, 2003, the Board met to discuss the results of the
review. On October 6, 2003, the Board again met and unanimously determined
that the Proposed Reincorporation and the Proposed Anti-takeover Measures, as
defined below, were in the best interest of the Company and its shareholders
and approved the Agreement and Plan of Merger, Delaware Certificate of
Incorporation and Delaware Bylaws attached hereto as Annexes A, B and C,
respectively.
The Board has unanimously approved and, for the reasons described below,
recommends that the shareholders approve a change in the Company's state of
incorporation from California to Delaware as described in Proposal Three(A)
below (the "Reincorporation Proposal" or the "Proposed Reincorporation"). The
Proposed Reincorporation would be accomplished by merging Farmer Bros. Co. (the
"Company" or "Farmer Bros. California") into Farmer Bros. Co., a wholly-owned
Delaware subsidiary ("Farmer Bros. Delaware"), newly-formed for this purpose.
Concurrently with the Reincorporation Proposal, the Board has unanimously
approved, and recommends that the Shareholders approve, the inclusion of
certain anti-takeover measures described in Proposals Three(B)-(F) below (the
"Proposed Anti-takeover Measures") in the Delaware Certificate (as defined
below) and the Delaware Bylaws (as defined below).
Because Farmer Bros. Delaware will be governed by the Delaware General
Corporation Law (the "DGCL") if the Reincorporation Proposal and the Proposed
Anti-takeover Measures are approved, the Proposed Reincorporation will result
in certain changes in the rights of shareholders. These differences are
summarized in Proposal Three(A) under the section entitled "Comparison of the
Charters and Bylaws of Farmer Bros. California and Farmer Bros. Delaware" and
"Significant Differences Between the Corporation Laws of California and
Delaware."
The Proposed Reincorporation, together with each of the five Proposed Anti-
takeover Measures included in the Proposed Reincorporation, are being presented
to shareholders as individual proposals with separate votes to approve, or not
approve, each such proposal. Accordingly, the Board's proposals to:
* reincorporate the Company in the State of Delaware;
* eliminate the right of shareholders to act by written consent;
* implement a classified board of directors;
* eliminate the right of shareholders holding 10% or more of the voting shares
to call a special meeting of the shareholders;
* eliminate cumulative voting for directors; and
* increase the authorized shares of common stock to 25,000,000 shares, and
authorize 500,000 shares of preferred stock
are each being presented as an individual proposal, as set forth in Proposals
Three(A)-(F) below, to be voted upon separately by shareholders.
Notwithstanding the separate presentation of Proposals Three(A)-(F) below, the
Board considered and approved the matters set forth in Proposals Three(A)-(F)
as one unitary transaction. Accordingly, if any one of Proposals Three (A)-(F)
is not approved by the Shareholders, none of Proposals Three(A)-(F) will be
approved.
IN ORDER FOR THE PROPOSED REINCORPORATION TO BE EFFECTED, A MAJORITY OF THE
OUTSTANDING SHARES OF COMMON STOCK MUST APPROVE EACH OF PROPOSALS THREE(A),
THREE(B), THREE(C), THREE(D), THREE(E) AND THREE(F). FOR THE CONVENIENCE OF
SHAREHOLDERS OUR PROXY CARD INCLUDES THREE BOXES UNDER PROPOSAL THREE(A)-(F)
ENTITLED "FOR ALL," "AGAINST ALL" AND "ABSTAIN ON ALL." CHECKING THE
APPROPRIATE BOX WILL ALLOW A SHAREHOLDER TO VOTE FOR, AGAINST OR TO ABSTAIN AS
TO ALL OF PROPOSALS THREE(A)-(F) WITHOUT THE NEED TO VOTE ON SUCH PROPOSALS AS
THEY APPEAR INDIVIDUALLY ON THE PROXY CARD. AN "ABSTAIN ON ALL" VOTE IS THE
SAME AS A VOTE "AGAINST ALL" OF PROPOSALS THREE(A)-(F).
SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS SECTION OF THE PROXY STATEMENT,
INCLUDING THE RELATED ANNEXES, BEFORE VOTING ON PROPOSALS THREE(A)-(F).
PROPOSAL THREE(A):
REINCORPORATION OF THE COMPANY
IN THE STATE OF DELAWARE
Mechanics
The Proposed Reincorporation will be effected by merging Farmer Bros.
California into Farmer Bros. Delaware (the "Merger"). Upon completion of the
Merger, Farmer Bros. California will cease to exist and Farmer Bros. Delaware
will continue the business of the Company.
Pursuant to the Agreement and Plan of Merger, in substantially the form
attached to this Proxy Statement as Annex A (the "Merger Agreement"), each
outstanding share of Farmer Bros. California Common Stock will be automatically
converted into one share of Farmer Bros. Delaware Common Stock, no par value,
upon the effective date of the Merger. Each stock certificate representing
issued and outstanding shares of Farmer Bros. California Common Stock will
continue to represent the same number of shares of Common Stock of Farmer Bros.
Delaware.
IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK
CERTIFICATES FOR STOCK CERTIFICATES OF FARMER BROS. DELAWARE. Shareholders
may, however, exchange their certificates if they so choose. The Common Stock
of Farmer Bros. California is listed for trading on the Nasdaq National Market
and, after the Merger, Farmer Bros. Delaware's Common Stock will continue to be
traded on the Nasdaq National Market without interruption, under the same
symbol "FARM" as the shares of Farmer Bros. California Common Stock are
currently traded.
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of Farmer Bros. California is required for approval of
the Merger Agreement and the other terms of the Proposed Reincorporation. See
"Vote Required for the Reincorporation Proposal" below. The Proposed
Reincorporation has been unanimously approved by the Board, which recommends a
vote in favor of such proposal. If approved by the shareholders, we expect
that the Merger will become effective as soon as practicable (the "Effective
Date") following the Annual Meeting of Shareholders. However, the Proposed
Reincorporation may be abandoned, either before or after shareholder approval,
if circumstances arise which, in the opinion of the Board, make it inadvisable
to proceed.
Although in some circumstances California law provides shareholders with the
right to dissent from certain corporate reorganizations and receive cash for
their shares, California law does not permit dissenter's rights in connection
with the Proposed Reincorporation.
The Reincorporation Proposal will only make a change in the legal domicile of
the Company and certain other changes of a legal nature which are described in
this Proxy Statement. The Proposed Reincorporation will not result in any
change in the name, business, management, fiscal year, assets or liabilities or
location of the principal offices of the Company.
All employee benefit plans of Farmer Bros. California will be assumed and
continued by Farmer Bros. Delaware. Approval of the Reincorporation Proposal
will also constitute approval of the assumption of these plans by Farmer Bros.
Delaware. The Company believes that the Proposed Reincorporation will not
affect any of its material contracts with any third parties and that Farmer
Bros. California's rights and obligations under such material contractual
arrangements will continue and be assumed by Farmer Bros. Delaware. The
directors who will be elected at the annual meeting of shareholders will become
the directors of Farmer Bros. Delaware, except that if the Proposed
Reincorporation is approved, the directors will be divided into three classes
with staggered terms as described in Proposal Three(C) and under the section
entitled "Classified Board," below.
The discussion set forth below is qualified in its entirety by reference to the
Merger Agreement, the Certificate of Incorporation of Farmer Bros. Delaware
(the "Delaware Certificate") and the Bylaws of Farmer Bros. Delaware (the
"Delaware Bylaws"), copies of which are attached to this Proxy Statement as
Annexes A, B and C, respectively.
Vote Required for Proposal Three(A)
Approval of the Reincorporation Proposal, which will also constitute an
approval of the Merger Agreement, the Delaware Certificate (without the
Proposed Anti-takeover Measures set forth under Proposals Three(B)-(F) unless
separately approved by the shareholders), the Delaware Bylaws (without the
Proposed Anti-takeover Measures set forth under Proposals Three(B)-(F) unless
separately approved by the shareholders) and all provisions of these documents
will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of Farmer Bros. California. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED REINCORPORATION. THE
EFFECT OF AN ABSTENTION OR A BROKER NON-VOTE IS THE SAME AS THAT OF A VOTE
AGAINST THE REINCORPORATION PROPOSAL.
Roy F. Farmer and Roy E. Farmer have notified the Company that they intend to
vote all the shares owned by them directly, and all the shares held in various
trusts, of which they are trustee, in favor of all of Proposals Three(A)-(F).
This totals 39.38% of the shares entitled to vote on these proposals.
The Company has recently amended the ESOP such that the shares unallocated to
plan participants are to be voted for or against Proposals Three(A)-(F) in the
same proportion that the allocated shares are voted by plan participants for or
against such proposals. The ESOP holds 18.66% of the shares entitled to vote
on these proposals.
On December 4, 2003, Leonard Rosenthal brought suit in United States District
Court for the Central District of California (Case No. CV03845) against the
Company, the present directors and a former director ("Directors"), on behalf
of himself and a purported class of persons (the "Rosenthal Litigation"). The
Plaintiff alleges that the Company is operating as an unregistered investment
company in violation of the Investment Company Act of 1940 (the "ICA"). The
Plaintiff also alleges that the Company's loans of corporate funds to the ESOP
to purchase stock of the Company violates federal law and that such purchases
by the ESOP were intended to preserve the voting control of the Farmer family
and entrench management. In addition, the Plaintiff alleges that the Company
is pursuing an estate planning strategy designed to depress the stock price in
order to lessen the estate taxes anticipated on the death of Roy F. Farmer.
Plaintiff is seeking recovery against the Directors in an amount not less than
the amount of the loans to the ESOP. Plaintiff also filed a motion for a
preliminary injunction to prevent the Company and the Directors from voting the
Company stock beneficially owned by the ESOP at the Annual Meeting. On
December 23, 2003, the U.S. District Court denied plaintiff's motion, ruling,
inter alia, that plaintiff lacked standing to bring an action for violation of
the ICA and that plaintiff had failed to show a likelihood of prevailing at
trial on his claims that the Company was in violation of the ICA or that the
Directors had violated their duties with respect to the ESOP. Consequently the
Rosenthal Litigation is most unlikely to affect the voting of the ESOP's shares
at the Annual Meeting.
There is no assurance that the Reincorporation Proposal will be approved. The
Board urges you to vote your shares for the Reincorporation Proposal.
Principal Reasons for the Proposed Reincorporation
For many years, Delaware has followed a policy of encouraging corporations to
incorporate in that state. In furtherance of that policy, Delaware has long
sought to be the leading state in adopting comprehensive and modern corporate
laws that respond to the evolving legal and business needs of corporations
organized under its laws. Because the DGCL has become widely regarded as the
most extensive and well-defined body of corporate law in the United States,
many corporations have chosen Delaware initially as their state of
incorporation or have subsequently changed corporate domicile to Delaware in a
manner similar to the Proposed Reincorporation.
In light of Delaware's prominence as the state of incorporation for many major
U.S. corporations, both the Delaware legislature and courts have demonstrated
an ability and a willingness to act quickly and effectively to meet changing
business needs. In doing so, the Delaware courts have developed considerable
expertise in dealing with corporate issues and a substantial body of case law
construing Delaware law and establishing public policies with respect to
corporate legal affairs. For these reasons, the Board also believes that the
DGCL and Delaware corporate law court decisions provide a broader foundation
from which to respond to questions and predict outcomes relating to significant
corporate matters or disputes, including, but not limited to:
* duties of directors and officers;
* liability of directors and officers and indemnification; and
* contests for corporate control, including proxy contests and tender offers.
In addition, the Company continually seeks to attract and retain the most
capable individuals available to serve as officers and directors. The
frequency of claims and litigation directed against directors and officers, in
management's opinion, has expanded the risks facing directors and officers of
corporations in exercising their duties. Furthermore, the amount of time and
money required to respond to such claims and to defend such litigation can be
substantial. We believe that, in general, Delaware law provides greater
predictability to directors than California law in that Delaware case law
regarding a corporation's ability to limit director liability is more developed
and provides greater guidance than California law. The Board, therefore,
believes that the Proposed Reincorporation may be a significant factor in
continuing to attract and retain such individuals, and in freeing them to make
corporate decisions on their own merits and for the benefit of shareholders
rather than out of a desire to avoid personal liability. For additional
discussion of this matter, see "Significant Differences Between the Corporation
Laws of California and Delaware--Indemnification and Limitation of Liability,"
below.
Proposed Anti-takeover Measures
Delaware, like many other states, permits a corporation to adopt a number of
measures through amendment of the corporate charter or bylaws or otherwise,
which are designed to reduce a corporation's vulnerability to hostile takeover
attempts. It should be noted, however, that the Reincorporation Proposal and
the Proposed Anti-takeover Measures are not being proposed in order to prevent
any present attempt known to the Board to acquire control of the Company or to
obtain representation on the Board.
If the Reincorporation Proposal is approved, certain measures will be
implemented under Delaware law and the Delaware Certificate and Delaware Bylaws
which may have anti-takeover implications. These measures (as described below
and under Proposals Three(B)-(F)) include the elimination of shareholders'
ability to act by written consent (Proposal Three(B)), the implementation of a
classified board of directors (Proposal Three(C)), the elimination of the
ability of shareholders controlling ten percent (10%) or more of the voting
shares to call a special meeting of shareholders (Proposal Three(D)), the
elimination of cumulative voting which the Company eliminated in 1994 by
amending its bylaws by vote of more than sixty-five percent (65%) of the
outstanding shares (Proposal Three(E)), the establishment of advance notice
procedures for shareholder nominations and other proposals, and the elimination
of the ability of the shareholders to remove directors without cause.
Following the Proposed Reincorporation, which will not occur unless all of the
Anti-takeover Measures are approved, the Delaware Certificate will also provide
for an increase in the number of authorized shares of common stock and for the
Board's ability to designate and issue preferred stock (Proposal Three(F)),
although the Company has no present plans to do so. Such preferred stock, if
issued and depending on its terms, may make it more difficult for an
unsolicited bidder to make a takeover attempt. For additional discussion of
these changes, see "Comparison of the Charters and Bylaws of Farmer Bros.
California and Farmer Bros. Delaware," below.
In addition to the Proposed Anti-takeover Measures, certain differences between
California and Delaware law, which will be effective upon consummation of the
Merger without further action of the Board or shareholders, could have a
bearing on unapproved takeover attempts. Section 203 of the DGCL, which Farmer
Bros. Delaware does not intend to opt out of, restricts certain "business
combinations" with "interested shareholders" for three years following the date
that a person becomes an interested shareholder, unless the Board approves the
business combination. For a discussion of differences between the laws of
California and Delaware that may affect the shareholders, see "Significant
Differences Between the Corporation Laws of California and Delaware," below.
The Board may also consider in the future certain defensive strategies allowed
under the DGCL which are designed to enhance the Board's ability to negotiate
with an unsolicited bidder. Such strategies include, but are not limited to,
the adoption of a shareholder rights plan and severance agreements for its
management and key employees which would become effective upon the occurrence
of a change in control of the Company.
The Board recognizes that unsolicited hostile takeover attempts do not always
have unfavorable consequences or effects and may provide all of the
shareholders with considerable value for their shares. To the extent that the
Proposed Reincorporation and the Proposed Anti-takeover Measures may provide
greater deterrence to takeover offers and greater defenses against takeovers,
the Proposed Reincorporation and Proposed Anti-takeover Measures may have the
effect of discouraging or defeating future takeover attempts which a
substantial number or majority of the Company's shareholders might wish to
accept and which might provide a substantial premium over market prices. The
Board, however, believes that the potential suddenness and disadvantages of
unapproved takeover attempts (such as disruption of our business and the
possibility of terms which may be less favorable to all of the shareholders
than would be available in a board-approved transaction) are sufficiently great
that, on balance, prudent steps to reduce the likelihood of such takeover
attempts and to help ensure that the Board has adequate opportunity to fully
consider and respond to any takeover attempt and actively negotiate its terms,
are in the Company's best interests and the best interests of its shareholders.
COMPARISON OF THE CHARTERS AND BYLAWS OF FARMER BROS. CALIFORNIA AND FARMER
BROS. DELAWARE
The following discussion is a summary of the material differences between the
Amended and Restated Articles of Incorporation (the "California Articles") and
Bylaws, as amended (the "California Bylaws"), of Farmer Bros. California and
the Delaware Certificate and Delaware Bylaws. All statements herein are
qualified in their entirety by reference to the respective corporation laws of
California and Delaware and the full text of the California Articles and
California Bylaws and the Delaware Certificate and Delaware Bylaws. Approval
by the Shareholders of the Proposed Reincorporation and the Proposed Anti-
takeover Measures will automatically result in the adoption of all the
provisions set forth in the Delaware Articles and Delaware Bylaws. A copy of
the Delaware Certificate is attached hereto as Annex B and a copy of the
Delaware Bylaws is attached hereto as Annex C. The California Articles and
California Bylaws are on file with the SEC and are available from the Company
upon request.
Authorized Stock
The California Articles currently authorize the Company to issue up to
3,000,000 shares of common stock. The Delaware Certificate provides that the
Company will have 25,000,000 authorized shares of common stock, no par value,
and 500,000 shares of preferred stock, par value $1.00 per share (See Proposal
Three(F)). The Delaware Certificate provides that the Board is entitled to
determine the rights, preferences, privileges and restrictions of the
authorized and unissued preferred stock at the time of issuance.
Cumulative Voting
Cumulative voting entitles a shareholder to cast as many votes as there are
directors to be elected multiplied by the number of shares registered in such
shareholder's name. The shareholder may cast all of such votes for a single
nominee or may distribute them among any two or more nominees. Under
California law, shareholders of a corporation have the right to cumulative
voting unless a corporation has outstanding shares listed on the New York Stock
Exchange or the American Stock Exchange, or has outstanding securities
qualified for trading on the Nasdaq National Market and opts out of cumulative
voting. The Company's shareholders have previously chosen to eliminate the
right to cumulative voting by prohibiting cumulative voting in the California
Bylaws. Therefore, shareholders currently do not have the right to cumulative
voting. Mitchell Partners, L.P. has proposed an amendment to the Company's
California Bylaws that would restore cumulative voting (See Proposal Four). If
the Reincorporation Proposal is approved by the Company's shareholders,
Proposal Four will have no effect even if it is passed by the Company's
shareholders because it proposes to amend the California Bylaws, which, upon
consummation of the Merger, will no longer be effective.
Under Delaware law, cumulative voting in the election of directors is not
permitted unless specifically provided for in a company's charter or bylaws.
As permitted by Delaware law, the Delaware Articles will specifically prohibit
cumulative voting (See Proposal Three(E)).
Size of the Board of Directors
Under California law, the number of directors of a corporation may be fixed in
the articles of incorporation or bylaws of a corporation, or a range may be
established for the number of directors, with the board of directors given
authority to fix the exact number of directors within such range. The
California Bylaws establish a range of five to nine for the number of directors
and authorize the Board to fix the exact number of directors within the range
by resolution or unanimous written consent. The number of directors is
currently set at seven. Shareholders may also fix the number of directors by
an affirmative vote of the majority of the shares entitled to vote or by
written consent of the holders of a majority of the outstanding shares entitled
to vote. Under California law, no subsequent amendment seeking to reduce the
authorized number of directors below five can be implemented if a number of
shares equal to or greater than sixteen and two-thirds percent (16 2/3%) of the
total outstanding shares are voted in opposition to the amendment.
Under Delaware law, the number of directors of a corporation, or the range of
authorized directors, may be fixed or changed by the board of directors acting
alone by amendment to the corporation's bylaws, unless the directors are not
authorized to amend the bylaws or the number of directors is fixed in the
certificate of incorporation, in which case shareholder approval is required.
The Delaware Certificate establishes a range of five to seven for the number of
directors and provides that the number of directors shall be fixed within these
limits from time to time by resolution of a majority of the active directors.
The shareholders will not have the right to fix the number of directors within
these limits. Changes in the size of the Board outside of these limits can
only be adopted with the approval of the shareholders as would be the case
under the California Articles and California Bylaws.
Classified Board
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year.
Under California law, a corporation generally may provide for a classified
board of directors by adopting amendments to its articles of incorporation or
bylaws, if the amendments are also approved by the shareholders. Under
California law, a classified board with two classes requires a minimum of six
directors and a classified board with three classes requires a minimum of nine
directors. The California Articles and California Bylaws do not currently
provide for a classified board.
Delaware law permits, but does not require, a classified board of directors
under which the directors can be divided into as many as three classes with
staggered terms of office, with only one class of directors standing for
election each year. Delaware, unlike California, does not require a minimum of
three directors in each class. The Delaware Certificate and Delaware Bylaws
provide for a classified board of three classes, with directors elected to
three year terms (See Proposal Three(C)). Each class shall consist, as nearly
as may be possible, of one-third of the total number directors constituting the
entire board of directors. Class I would consist of three directors
(initially, Lewis A. Coffman, Roy F. Farmer, John Samore, Jr.) who would hold
office initially for a one year term expiring at the 2004 Annual Meeting, Class
II would consist of two directors (initially, Guenter W. Berger and Thomas A.
Maloof) who would hold office initially for a two year term expiring at the
2005 Annual Meeting, and Class III would consist of two directors (initially,
Roy E. Farmer and John H. Merrell) who would hold office initially for a three
year term expiring at the 2006 Annual Meeting, in all cases subject to the
election and qualification of their successors and to their earlier death,
resignation or removal. As a result of the classification of directors, it
will take at least two years in order to effect a change to the majority of the
members of the Board. At each Annual Meeting following this initial
classification and election, the successors to the class of directors whose
terms expire at that meeting would be elected for a term of office to expire at
the third succeeding Annual Meeting after their election and until their
successors have been duly elected and qualified or until their earlier death,
resignation or removal.
Filling Vacancies on the Board of Directors
Under California law, any vacancy on the Board other than one created by
removal of a director may be filled by the Board. If the number of directors
is less than a quorum, a vacancy may be filled by the unanimous written consent
of the directors then in office, by the affirmative vote of a majority of the
directors at a meeting held pursuant to notice or waivers of notice or by a
sole remaining director. A vacancy created by removal of a director may be
filled by the board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. The
California Bylaws permit vacancies to be filled by a majority of the remaining
directors, even if less than a quorum, or by a sole remaining director.
Directors are not permitted to fill vacancies created by the removal of a
director.
Under Delaware law, vacancies and newly-created directorships may be filled by
a majority of the directors then in office, even if less than a quorum, or by a
sole remaining director, unless otherwise provided in a corporation's
certificate of incorporation or bylaws (or unless the certificate of
incorporation directs that a particular class of stock is to elect such
director(s), in which case a majority of the directors elected by such class,
or a sole remaining director so elected, shall fill such vacancy or newly
created directorship). The Delaware Certificate and Delaware Bylaws provide
that any vacancy, including any vacancy created by the removal of a director by
the shareholders of Farmer Bros. Delaware, may be filled by a majority of the
directors, even if less than a quorum, or by a sole remaining director.
Monetary Liability of Directors
The California Articles and the Delaware Certificate both provide for the
elimination of personal monetary liability of directors to the fullest extent
permissible under the law of the respective states. The provision eliminating
monetary liability of directors set forth in the Delaware Certificate is
potentially more expansive than the corresponding provision in the California
Articles due to differences between California and Delaware law. For a more
detailed explanation of the foregoing, see "Significant Differences Between the
Corporation Laws of California and Delaware-- Limitation of Liability and
Indemnification," below.
Action by Written Consent
Under California and Delaware law, shareholders are permitted to act by written
consent in lieu of a shareholder meeting. The California Bylaws currently
permit shareholders to take action by written consent, provided that the
consent is signed by the minimum number of shareholders necessary to authorize
such action at a meeting where all shares entitled to vote thereon were present
and vote. In the case of election of directors, such consent is only effective
if signed by the holders of all outstanding shares entitled to vote for the
election of directors.
Under the Delaware Certificate and Delaware Bylaws, shareholders will not have
the right to act by written consent in lieu of a meeting (See Proposal
Three(B)). Accordingly, all shareholder action must be carried out by a
shareholder vote at a shareholder meeting.
Power to Call Special Meetings of Shareholders
Under California law and the California Bylaws, a special meeting of
shareholders may be called by the Board, the Chairman of the Board, the
President, the holders of shares entitled to cast not less than ten percent
(10%) of the votes at such meeting and such additional persons as are
authorized by the articles of incorporation or the bylaws.
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or any other person authorized to do so in the certificate
of incorporation or the bylaws. The Delaware Bylaws authorize the Chairman of
the Board, the President and the Board to call a special meeting of
shareholders. Therefore, if the Reincorporation Proposal is adopted, holders
of ten percent (10%) or more of the voting shares of the Company will no longer
be able to call a special meeting of shareholders (See Proposal Three(D)).
Nominations of Director Candidates and Introduction of Business at Shareholder
Meetings
The California Bylaws do not include advance notice procedures for shareholders
with regard to the nomination of directors or with regard to certain matters to
be brought before an annual or special meeting of shareholders.
The Delaware Bylaws include an advance notice procedure for shareholders with
regard to the nomination of directors (the "Nomination Procedure") and with
regard to certain matters to be brought before an annual meeting or special
meeting of shareholders (the "Business Procedure").
The Nomination Procedure provides that only persons nominated by or at the
direction of the board of directors or by a shareholder who has given timely
notice in proper written form to the Company's Secretary prior to the meeting
(and is a shareholder of record at the time of such notice) will be eligible
for election as directors. The Business Procedure provides that at an annual
meeting, and subject to any other applicable requirements, only such business
may be conducted as has been brought before the meeting by or at the direction
of the board of directors or by a shareholder of record who has given timely
notice in proper written form to the Company's Secretary of such shareholder's
intention to bring such business before the meeting (and is a shareholder of
record at the time of such notice). To be timely, notice must be received by
the Company's Secretary:
* in the case of an annual meeting, not less than ninety (90) days nor more
than one hundred twenty (120) days prior to the anniversary of the immediately
preceding year's annual meeting, except that if the date of the annual meeting
is changed by more than thirty (30) days from such anniversary date, notice by
the shareholders to be timely must be received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the date
of the meeting was made; and
* in the case of a special meeting at which directors are to be elected, not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure of the date of the meeting was made.
Under the Nomination Procedure, a shareholder's notice to the Company's
Secretary must contain certain information about the nominee, including name,
age, business and residence address, occupation, the class and number of shares
beneficially owned or of record, the nominee's consent to be nominated, other
information that is be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee, and certain information about
the shareholder proposing to nominate that person, including name, address, the
class and number of shares beneficially owned or of record, a description of
all arrangements or understandings between such shareholder and each proposed
nominee any other persons (and their names) pursuant to which nominations are
to be made by such shareholder, a representation that such shareholder intends
to appear in person or by proxy at the meeting to nominate the persons named in
the notice and any other information required to be included in a proxy
statement soliciting proxies for the election of the proposed nominee.
Under the Business Procedure, notice relating to the conduct of business (other
than the nomination of directors) at an annual meeting must contain certain
information about the business and about the shareholder who proposes to bring
the business before the meeting.
If the chairman of the meeting determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director, or if he or she determines that other business was not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any shareholder
of any nomination or business properly made or brought before an annual or
special meeting in accordance with the above-described procedures.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The following provides a summary of the major substantive differences between
the corporation laws of California and Delaware. It is not an exhaustive
description of all differences between the laws of the two states.
Accordingly, all statements herein are qualified in their entirety by reference
to the respective corporation laws of California and Delaware.
Shareholder Voting
In the context of a proposed acquisition, both California and Delaware law
generally require that a majority of the shareholders of both acquiring and
target corporations approve a statutory merger. In addition, both California
and Delaware law require that a sale of all or substantially all of the assets
of a corporation be approved by a majority of the outstanding voting shares of
the corporation transferring such assets.
Delaware law does not require a shareholder vote of the surviving corporation
in a merger (unless the corporation provides otherwise in its certificate of
incorporation) if:
* the merger agreement does not amend the existing certificate of
incorporation;
* each share of stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding share after
the merger; and
* either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under such plan do not exceed twenty percent (20%) of the shares of
common stock of such constituent corporation outstanding immediately prior to
the effective date of the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths (5/6) of
the voting power of the surviving or acquiring corporation or its parent
entity.
Shareholder Approval of Certain Business Combinations
Delaware, like a number of states, has adopted special laws designed to make
certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant shareholders, more
difficult.
Under Section 203 of the DGCL, a Delaware corporation is prohibited from
engaging in a "business combination" with an "interested shareholder" for three
years following the date that such person or entity becomes an interested
shareholder. With certain exceptions, an interested shareholder is a person or
entity who or which owns, individually or with or through certain other persons
or entities, fifteen percent (15%) or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only). The three-year moratorium imposed by Section 203 on
business combinations does not apply if:
* prior to the date on which such shareholder becomes an interested shareholder
the board of directors of the subject corporation approves either the business
combination or the transaction that resulted in the person or entity becoming
an interested shareholder;
* upon consummation of the transaction that made him or her an interested
shareholder, the interested shareholder owns at least eighty-five percent (85%)
of the corporation's voting stock outstanding at the time the transaction
commenced (excluding, for purposes of determining voting stock outstanding
shares owned by directors who are also officers of the subject corporation and
shares held by employee stock plans that do not give employee participants the
right to decide confidentially whether to accept a tender or exchange offer);
or
* on or after the date such person or entity becomes an interested shareholder,
the board of directors approves the business combination and it is also
approved at a shareholder meeting by sixty-six and two-thirds percent (66 2/3%)
of the outstanding voting stock not owned by the interested shareholder.
Although a Delaware corporation may elect not to be governed by Section 203,
the Delaware Certificate and Delaware Bylaws do not contain such an "opt out"
election, and the Board intends that the Company will be governed by Section
203 if the Proposed Reincorporation is approved. The Board believes that
Section 203 will encourage any potential acquiror to negotiate with the Board.
Section 203 also might have the effect of limiting the ability of a potential
acquiror to make a two-tiered bid for Farmer Bros. Delaware in which all
shareholders would not be treated equally. Shareholders should note, however,
that the application of Section 203 to Farmer Bros. Delaware will confer upon
the Board the power to reject a proposed business combination in certain
circumstances, even though a potential acquiror may be offering a substantial
premium for Farmer Bros. Delaware's shares over the then-current market price.
Section 203 could also discourage certain potential acquirors who are unwilling
to comply with its provisions.
California law requires that holders of common stock receive common stock in a
merger of the corporation with the holder of more than fifty percent (50%) but
less than ninety percent (90%) of the target's common stock or its affiliate
unless all of the target company's shareholders consent to the transaction or
the transaction has been approved by the California Commissioner of
Corporations at a "fairness hearing." This provision of California law may have
the effect of making a "cash-out" merger by a majority shareholder more
difficult to accomplish. Although Delaware law does not parallel California
law in this respect, under some circumstances Section 203 does provide similar
protection to shareholders against coercive two-tiered bids for a corporation
in which the shareholders are not treated equally.
Removal of Directors
Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote. However, in the case of a corporation
with cumulative voting or whose board is classified, no individual director may
be removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting rules. The California Articles and California Bylaws do not provide for
a classified board of directors or cumulative voting. As a result, Farmer
Bros. California directors may be removed, with or without cause, with the
approval of a majority of the outstanding shares entitled to vote.
Under Delaware law, any director or the entire board of directors of a
corporation that does not have a classified board of directors or cumulative
voting may be removed with or without cause with the approval of a majority of
the outstanding shares entitled to vote at an election of directors. Unless
the certificate of incorporation otherwise provides, in the case of a Delaware
corporation whose board is classified, however, shareholders may effect such
removal only for cause. In addition, as in California, if a Delaware
corporation has cumulative voting, and if less than the entire board is to be
removed, a director may not be removed without cause by a majority of the
outstanding shares if the votes cast against such removal would be sufficient
to elect the director under cumulative voting rules. Delaware law also permits
a Delaware corporation to include in its certificate of incorporation a
supermajority voting requirement in connection with the removal of directors.
The Delaware Certificate and Delaware Bylaws provide for a classified board of
directors but not for cumulative voting, and provide that directors can be
removed only for cause and only upon the vote of a majority of the outstanding
shares entitled to vote, subject to the rights of the holders of any
outstanding preferred stock.
Limitation of Liability and Indemnification
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws
of both states also permit corporations to adopt a provision in their charters
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the director's fiduciary duty of care.
Nonetheless, there are certain differences between the laws of the two states
respecting indemnification and limitation of liability.
The DGCL was amended in 1986 in response to widespread concern about the
ability of Delaware corporations to attract capable directors in light of then-
current difficulties in obtaining and maintaining directors and officers
insurance. The legislative commentary to the law states that it is "intended
to allow Delaware corporations to provide substitute protection, in various
forms, to their directors and to limit director liability under certain
circumstances." One provision of the revised DGCL permits a corporation to
include a provision in its certificate of incorporation which limits or
eliminates the personal liability of a director for monetary damages arising
from breaches of his or her fiduciary duties to the corporation or its
stockholders, subject to certain exceptions.
The Delaware Certificate eliminates the liability of directors to the
corporation for monetary damages to the fullest extent permissible under
Delaware law. Under Delaware law, such provision may not eliminate or limit
director monetary liability for:
* breaches of the director's duty of loyalty to the corporation or its
stockholders;
* acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;
* the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
* transactions in which the director received an improper personal benefit.
Such limitation of liability provisions also may not limit a director's
liability for violation of, or otherwise relieve the Company or its directors
from the necessity of complying with federal or state securities laws, or
affect the availability of non-monetary remedies such as injunctive relief or
rescission.
In effect, under the Delaware law provision, Farmer Bros. Delaware directors
could not be held liable for monetary damages for gross negligence or lack of
due care in carrying out his or her fiduciary duties as a director so long as
such gross negligence or lack of due care does not involve bad faith or a
breach of his or her duty of loyalty to Farmer Bros. Delaware.
The Delaware Certificate provides for indemnification to the maximum extent
permissible under Delaware law. Delaware law requires indemnification when
there has been a successful defense on the merits or otherwise by a present or
former director or officer of the corporation. Delaware law generally permits
indemnification of expenses, including attorneys' fees, actually and reasonably
incurred in the defense or settlement of a derivative or third-party action,
provided there is a determination by (i) a majority vote of disinterested
directors (even though less than a quorum), (ii) a committee comprised of and
established by such disinterested directors, (iii) independent legal counsel in
a written opinion if there are no such directors or such directors so direct,
or (iv) the shareholders that the person seeking indemnification has satisfied
the applicable standard of conduct. Without requisite court approval, however,
no indemnification may be made in the defense of any derivative action in which
the person is found to be liable in the performance of his or her duty to the
corporation.
Expenses incurred by an officer or director in defending an action may be paid
in advance, under Delaware law, if such director or officer undertakes to repay
such amounts if it is ultimately determined that he or she is not entitled to
indemnification. In addition, Delaware law authorizes a corporation to
purchase indemnity insurance for the benefit of its officers, directors,
employees and agents whether or not the corporation would have the power to
indemnify against the liability covered by the policy.
Delaware law permits a Delaware corporation to provide indemnification in
excess of that provided by statute by means of any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. Delaware law does not
require authorizing provisions in the certificate of incorporation and does not
contain express prohibitions on indemnification in certain circumstances.
Limitations on indemnification may be imposed by a court, however, based on
principles of public policy.
The California Articles and California Bylaws eliminate the liability of
directors to the corporation for monetary damages to the fullest extent
permissible under California law. California law does not permit the
elimination of monetary liability where such liability is based on:
* intentional misconduct or knowing and culpable violation of law;
* acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on the part of the director;
* receipt of an improper personal benefit;
* acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders;
* acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders;
* transactions between the corporation and a director who has a material
financial interest in such transaction; and
* liability for improper distributions, loans or guarantees.
The California Articles and California Bylaws authorize the Company to
indemnify directors and officers to the fullest extent permitted by California
law. California law requires indemnification when the individual seeking
indemnification has defended successfully on the merits any action, claim,
issue or matter. California law generally permits indemnification of expenses,
actually and reasonably incurred in the defense or settlement of a derivative
or third-party action, provided there is a determination by (i) majority vote
of a quorum of disinterested directors, (ii) independent legal counsel in a
written opinion if such a quorum of directors is not obtainable (iii)
shareholders, with the shares owned by the person to be indemnified not being
entitled to vote thereon, if any, or (iv) the court in which the proceeding is
or was pending upon application made by the corporation, agent or other person
rendering services in connection with the defense, whether or not the
application by such person is opposed by the corporation, that the person
seeking indemnification has satisfied the applicable standard of conduct. With
respect to derivative actions, however, no indemnification may be provided
under California law for amounts paid in settling or otherwise disposing of a
pending action or expenses incurred in defending a pending action that is
settled or otherwise disposed of, or with respect to the defense of any person
adjudged to be liable to the corporation in the performance of his or her duty
to the corporation and its shareholders without court approval.
Like Delaware, under California law expenses incurred by an officer or director
in defending an action may be paid in advance if such director or officer
undertakes to repay such amounts if it is ultimately determined that he or she
is not entitled to indemnification. In addition, the laws of California also
authorize a corporation's purchase of indemnity insurance for the benefit of
its officers, directors, employees and agents whether or not the corporation
would have the power to indemnify against the liability covered by the policy.
Consistent with Delaware law, California law permits a California corporation
to provide rights to indemnification beyond those provided therein except that
such additional indemnification must be authorized in the corporation's
articles of incorporation. Thus, if so authorized, rights to indemnification
may be provided pursuant to agreements or bylaw provisions which make mandatory
the permissive indemnification provided by California law. Both the California
Articles and California Bylaws provide for indemnification beyond that
expressly mandated by California law. Consistent with the provisions of the
California Articles and California Bylaws allowing for indemnification in
excess of that allowed by statute, the California Bylaws, subject to certain
exceptions, provide for indemnification for the settlement of derivative
actions and for expenses incurred therein whether or not such settlement was
approved by the court. In addition, the California Bylaws also mandate that in
the event that California General Corporation Law (the "CGCL") is amended or
interpreted judicially so as to permit broader indemnification rights, such
broader indemnification rights automatically are made a part of the California
Bylaws and supercede any conflicting exceptions to such indemnification.
Inspection of Shareholder Lists
Both California and Delaware law allow any shareholder to inspect a
corporation's shareholder list for a purpose reasonably related to the person's
interest as a shareholder. California law provides, in addition, for an
absolute right to inspect and copy the corporation's shareholder list by
persons holding an aggregate of five percent (5%) or more of the corporation's
voting shares, or shareholders holding an aggregate of one percent (1%) or more
of such shares who have contested the election of directors. Delaware law also
allows the shareholders to inspect the list of shareholders entitled to vote at
a meeting within a ten-day period preceding a shareholders' meeting for any
purpose germane to the meeting. Delaware law, however, contains no provisions
comparable to the absolute right of inspection provided by California law to
certain shareholders.
Dividends and Repurchases of Shares
Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and the redemption or repurchase would not cause an
impairment.
Under California law, a corporation may not make any distribution to its
shareholders unless either: (i) the corporation's retained earnings immediately
prior to the proposed distribution equal or exceed the amount of the proposed
distribution; or (ii) immediately after giving effect to the distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to one and
one fourth (1 1/4) times its liabilities (not including deferred taxes,
deferred income and other deferred credits), and the corporation's current
assets would be at least equal to its current liabilities (or one and one
fourth (1 1/4) times its current liabilities if the average pre-tax and pre-
interest expense earnings for the preceding two fiscal years were less than the
average interest expense for such years). These tests are applied on a
consolidated basis.
Appraisal Rights
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights under which the shareholder may
receive cash in the amount of the fair market value of his or her shares in
place of the consideration he or she would otherwise receive in the
transaction.
Under Delaware law, such fair market value is determined exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, and appraisal rights are generally not available: (a) with
respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation; (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such shareholders
receive only shares of the surviving corporation or shares of any other
corporation that are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares of
such corporations or any combination thereof; or (c) to shareholders of a
corporation surviving a merger if no vote of the shareholders of the surviving
corporation is required to approve the merger under Delaware law.
The limitations on the availability of appraisal rights under California law
are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange generally
do not have such appraisal rights unless the holders of at least five percent
(5%) of the class of outstanding shares claim the right or the corporation or
any law restricts the transfer of such shares. Appraisal rights are also
unavailable if the shareholders of a corporation or the corporation itself, or
both, immediately prior to the reorganization will own immediately after the
reorganization equity securities representing more than five-sixths (5/6) of
the voting power of the surviving or acquiring corporation or its parent
entity. California law generally affords appraisal rights in sale of asset
reorganizations.
Dissolution
Under California law, the holders of fifty percent (50%) or more of the total
voting power may authorize a corporation's dissolution, with or without the
approval of the corporation's board of directors, and this right may not be
modified by the articles of incorporation. Under Delaware law, unless the
board of directors approves the proposal to dissolve, the dissolution must be
unanimously approved by all the shareholders entitled to vote on the matter.
Only if the dissolution is initially approved by the board of directors may the
dissolution be approved by a simple majority of the outstanding shares of the
Delaware corporation's stock entitled to vote. In the event of such a board-
initiated dissolution, Delaware law allows a Delaware corporation to include in
its certificate of incorporation a supermajority (greater than a simple
majority) voting requirement in connection with dissolutions. The Delaware
Certificate contains no such supermajority voting requirement.
Interested Director Transactions
Under both California and Delaware law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest, if certain conditions, such as obtaining the
required approval and fulfilling the requirements of good faith and full
disclosure, are met. With certain exceptions, the conditions are similar under
California and Delaware law. Notwithstanding the foregoing, the Sarbanes Oxley
Act of 2002 currently prohibits personal loans to any executive officer or
director of a corporation.
Shareholder Derivative Suits
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, if certain tests are met. Under Delaware law, a
shareholder may bring a derivative action on behalf of the corporation only if
the shareholder was a shareholder of the corporation at the time of the
transaction in question or if his or her stock thereafter came to be owned by
him or her by operation of law.
California law also provides that the corporation or the defendant in a
derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond. Delaware does not have a
similar bonding requirement.
Application of the California General Corporation Law to Delaware Corporations
Under Section 2115 of the CGCL, certain foreign corporations (i.e.,
corporations not organized under California law) which have significant
contacts with California are subject to a number of provisions of the CGCL.
However, an exemption from Section 2115 is provided for corporations whose
shares are listed on a major national securities exchange, such as the Nasdaq
National Market. Following the Proposed Reincorporation, the Common Stock of
Farmer Bros. Delaware will continue to be traded on the Nasdaq National Market
and, accordingly, it is expected that Farmer Bros. Delaware will be exempt from
Section 2115.
In September 2002, California adopted the California Corporate Disclosure Act
(the "Act"). The Act went into effect on January 1, 2003, and applies to
publicly traded corporations incorporated in California or qualified to do
business in California. Thus, the Company will be subject to the Act
regardless of whether or not this proposal is passed. The Act greatly
increases the annual disclosure that the Company must make to the California
Secretary of State. Substantial portions of the Act, however, cover the same
general categories of information that the Company includes in its SEC filings.
Certain Federal Tax Consequences
The following is a discussion of certain United States federal income tax
considerations that may be relevant to holders of Farmer Bros. California
Common Stock who receive Farmer Bros. Delaware Common Stock as a result of the
Proposed Reincorporation. The discussion does not address all of the tax
consequences of the Proposed Reincorporation that may be relevant to particular
Farmer Bros. California shareholders, such as non-United States persons, or
dealers in securities. Furthermore, no foreign, state, or local tax
considerations are addressed herein. THE U.S. FEDERAL INCOME TAX
CONSIDERATIONS APPLICABLE TO THE PROPOSED REINCORPORATION ARE COMPLEX AND ARE
SUBJECT TO CHANGE (EITHER ON A PROSPECTIVE OR RETROACTIVE BASIS), AND THIS
SUMMARY DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF ALL THE POSSIBLE TAX
CONSEQUENCES OF THE PROPOSED REINCORPORATION. IN VIEW OF THE VARYING NATURE OF
SUCH TAX CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
Subject to the limitations, qualifications and exceptions described below, and
assuming the Proposed Reincorporation qualifies as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code"),
the following tax consequences generally should result:
* No gain or loss should be recognized by holders of Farmer Bros. California
Common Stock upon receipt of Farmer Bros. Delaware Common Stock pursuant to the
Proposed Reincorporation;
* The aggregate tax basis of the Farmer Bros. Delaware Common Stock received by
each shareholder in the Proposed Reincorporation should be equal to the
aggregate tax basis of the Farmer Bros. California Common Stock exchanged
therefore; and
* The holding period of the Farmer Bros. Delaware Common Stock received by each
shareholder of Farmer Bros. California should include the period for which such
shareholder held the Farmer Bros. California Common Stock exchanged therefore,
provided that such Farmer Bros. California Common Stock was held by the
shareholder as a capital asset at the time of the Proposed Reincorporation.
The Company has not requested a ruling from the Internal Revenue Service (the
"IRS") with respect to the federal income tax consequences of the Proposed
Reincorporation under the Code. A successful IRS challenge to the Proposed
Reincorporation could result in a shareholder recognizing gain or loss with
respect to each share of Farmer Bros. California Common Stock exchanged in the
Proposed Reincorporation equal to the difference between the shareholder's
basis in such share and the fair market value, as of the time of the Proposed
Reincorporation, of the Farmer Bros. Delaware Common Stock received in exchange
therefore. In such event, a shareholder's aggregate basis in the shares of
Farmer Bros. Delaware Common Stock received in the exchange would equal their
fair market value on such date, and the shareholder's holding period for such
shares would not include the period during which the shareholder held Farmer
Bros. California Common Stock.
State, local or foreign income tax consequences to shareholders may vary from
the federal tax consequences described above.
The Company should not recognize gain or loss for federal income tax purposes
as a result of the Proposed Reincorporation, and Farmer Bros. Delaware should
succeed, without adjustment, to the federal income tax attributes of Farmer
Bros. California.
Investment Company Act
Concerns have been raised by the SEC Staff that the Company may be an
unregistered investment company under Section 3(a)(1)(A) of the ICA, because
the fair market value of its securities exceeds 50 percent of the total book
value of its assets as of June 30, 2003. The Company believes, after
consultation with counsel, that it is primarily engaged in the coffee business
and that it is not an investment company under this Section or any other
section of the ICA. If the Company were ever found to be an investment
company, in order to remain in the coffee business, the Company would have to
reduce the amount of its securities that it owns, which reduction could be
accomplished in a variety of ways including, without limitation, by making
acquisitions, repurchasing shares, or paying a special dividend. The Company
might not be able to implement this proposal to reincorporate in Delaware if
the Company were found to be an unregistered investment company.
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
reincorporate the Company in the State of Delaware. Due to the potentially
broader indemnification and other protections afforded to directors under
Delaware law, the members of the Board may have interests in the
reincorporation that are different from, or in addition to, the interests of
the Company's shareholders.
PROPOSAL THREE(B):
ELIMINATION OF THE RIGHT OF SHAREHOLDERS
TO ACT BY WRITTEN CONSENT
Under California and Delaware law, shareholders are permitted to act by
written consent in lieu of a shareholder meeting. The California Bylaws
currently permit shareholders to take action by written consent, provided that
the consent is signed by the minimum number of shareholders necessary to
authorize such action at a meeting where all shares entitled to vote thereon
were present and vote. In the case of election of directors, such consent is
only effective if signed by the holders of all outstanding shares entitled to
vote for the election of directors. The Board proposes to include a provision
in the Delaware Certificate that would eliminate the right of shareholders to
act by written consent in lieu of a meeting. Accordingly, all shareholder
action must be carried out by a shareholder vote at a shareholder meeting.
Actions by written consent require neither a meeting, prior notice or a formal
voting process. The Board believes that elimination of actions by written
consent would enhance the Board's and shareholders' opportunity to consider
shareholder proposals at a meeting where all views can be heard and with
sufficient time to permit the exchange of views to facilitate the informed
exercise of the shareholder franchise. In addition, the Board is aware that
the use of certain takeover tactics in recent years combined with the written
consent process, can be highly disruptive to a corporation as well as divert
valuable corporate resources and place undue pressure on a corporation's board
and shareholders to act hastily and without complete information. These
tactics can also result in a lost opportunity to consider fully all available
alternatives before shareholders are forced to act. The Board believes the
best interests of the Company's shareholders will be served by establishing
appropriate defenses to coercive tender offers or other coercive efforts to
gain control of the Company.
Shareholders, however, should be aware that elimination of the
shareholders' right to act by written consent may lengthen the amount of time
to take certain shareholder actions because certain actions by written consent
are not subject to the minimum notice requirement of a shareholders' meeting.
The elimination of shareholders' right to act by written consent may deter or
make more difficult hostile takeover attempts because of the lengthened
shareholder approval process. Without the ability to act by written consent, a
holder or a group of holders controlling a majority in interest of Farmer Bros.
Delaware's capital stock will not be able to amend the Delaware By-Laws or
remove directors for cause pursuant to a written consent. Any such holder or
group of holders would have to wait until a shareholders' meeting was held to
take any action. For additional discussion, see "Proposal Three(A): The
Proposed Reincorporation - Anti-takeover Measures," above.
Vote Required for Proposal Three(B)
The approval of Proposal Three(B) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(B). A failure to approve Proposal Three(B) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the
proposal to include a provision in the Delaware Certificate that would
eliminate the right of shareholders to act by written consent.
PROPOSAL THREE(C):
IMPLEMENTATION OF A CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year.
Under California law, a corporation generally may provide for a classified
board of directors by adopting amendments to its articles of incorporation or
bylaws, if the amendments are also approved by the shareholders. Under
California law, a classified board with two classes requires a minimum of six
directors and a classified board with three classes requires a minimum of nine
directors. The California Articles and California Bylaws do not currently
provide for a classified board.
Delaware law permits, but does not require, a classified board of directors
under which the directors can be divided into as many as three classes with
staggered terms of office, with only one class of directors standing for
election each year. Delaware, unlike California, does not require a minimum of
three directors in each class. The Board proposes to include a provision in
the Delaware Certificate and Delaware Bylaws providing for a classified board
of three classes, with directors elected to three year terms. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire board of directors. Class I would consist of
three directors (initially, Lewis A. Coffman, Roy F. Farmer, John Samore, Jr.)
who would hold office initially for a one year term expiring at the 2004 Annual
Meeting, Class II would consist of two directors (initially, Guenter W. Berger
and Thomas A. Maloof) who would hold office initially for a two year term
expiring at the 2005 Annual Meeting, and Class III would consist of two
directors (initially, Roy E. Farmer and John H. Merrell) who would hold office
initially for a three year term expiring at the 2006 Annual Meeting, in all
cases subject to the election and qualification of the their successors and to
their earlier death, resignation or removal. As a result of the classification
of directors, it will take at least two years in order to effect a change to
the majority of the members of the Board. At each Annual Meeting following
this initial classification and election, the successors to the class of
directors whose terms expire at that meeting would be elected for a term of
office to expire at the third succeeding Annual Meeting after their election
and until their successors have been duly elected and qualified or until their
earlier death, resignation or removal.
The Board believes that classification will promote continuity and stability in
the Company's management and policies since a majority of the Company's
directors at any given time will have prior experience with the Company. The
Board also believes that the classified board proposal will facilitate long-
range planning. Currently, our entire Board stands for election at each Annual
Meeting. Accordingly, although the Company has not experienced problems with
continuity with its Board or management in the past, it is possible that all or
a majority of the current directors could be replaced at any given Annual
Meeting. The Board of Farmer Bros. Delaware will be divided into three classes
upon approval of the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)), only one of
which classes will stand for election at each Annual Meeting thereafter.
In addition, a classified board reduces the possibility of a sudden change in
control of a board. The Board believes that a classified board will help
insure that if the Board is faced with an unsolicited offer for the Company, it
will have sufficient time to evaluate all relevant alternatives and, if
appropriate, will have increased negotiating leverage so as to be in the best
position to maximize shareholder value. In addition, the Board believes that a
classified board will assist the Company in dealing with, and possibly
deterring proxy contests that, while unrelated to a takeover offer, may
distract the Board in carrying out its duties to the Company and its
shareholders.
Shareholders, however, should be aware that a classified board may discourage
proxy contests or hostile takeovers by making it more difficult for an acquiror
or a dissident shareholder group to obtain control without the approval of the
Board. For additional discussion, see "Proposal Three(A): The Proposed
Reincorporation - Anti-takeover Measures," above.
Vote Required for Proposal Three(C)
The approval of Proposal Three(C) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(C). A failure to approve Proposal Three(C) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate and the Delaware Bylaws
implementing a classified Board of Directors.
PROPOSAL THREE(D):
ELIMINATION OF RIGHT TO CALL SPECIAL MEETINGS
Under California law and the California Bylaws, a special meeting of
shareholders may be called by the Board, the Chairman of the Board, the
President, the holders of shares entitled to cast not less than ten percent
(10%) of the votes at such meeting and such additional persons as are
authorized by the articles of incorporation or the bylaws.
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or any other person authorized to do so in the certificate
of incorporation or the bylaws. The Board proposes to include in the Delaware
Certificate and the Delaware Bylaws a provision authorizing the Chairman of the
Board, the President and the Board to call a special meeting of shareholders.
Therefore, holders of ten percent (10%) or more of the voting shares of the
Company will no longer be able to call a special meeting of shareholders.
The Board believes that elimination of the procedures for shareholders to call
special meetings may prevent proxy contest initiated by shareholders in between
annual meetings that may be disruptive to, and distract, management and the
Board in carrying out their respective duties to the Company and its
shareholders.
Shareholders, however, should be aware that elimination of the procedures for
shareholders to call special meetings could discourage or make more difficult
efforts by potential bidders to obtain control of the Company, including,
without limitation, through a tender offer or a proxy contests, and, therefore,
could have the effect of deterring or delaying efforts to seek control of the
Company on a basis which some shareholders may deem favorable. For additional
discussion, see "Proposal Three(A): The Proposed Reincorporation - Anti-
takeover Measures," above.
Vote Required for Proposal Three(D)
The approval of Proposal Three(D) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(D). A failure to approve Proposal Three(D) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate and the Delaware Bylaws
eliminating the right of shareholders holding ten percent (10%) or more of the
voting shares to call a special meeting of the shareholders.
PROPOSAL THREE(E):
ELIMINATION OF CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting entitles a shareholder to cast as many votes as there are
directors to be elected multiplied by the number of shares registered in such
shareholder's name. The shareholder may cast all of such votes for a single
nominee or may distribute them among any two or more nominees. Under
California law, shareholders of a corporation have the right to cumulative
voting unless a corporation has outstanding shares listed on the New York Stock
Exchange or the American Stock Exchange, or has outstanding securities
qualified for trading on the Nasdaq National Market and opts out of cumulative
voting. The Company's shareholders have previously chosen to eliminate the
right to cumulative voting by prohibiting cumulative voting in the California
Bylaws. Therefore, shareholders currently do not have the right to cumulative
voting. Mitchell Partners, L.P. has proposed an amendment to the Company's
California Bylaws that would restore cumulative voting. See Proposal Four. If
the Reincorporation Proposal is approved by the Company's shareholders,
Proposal Four will have no effect even if it is passed by the Company's
shareholders because it proposes to amend the California Bylaws, which, upon
consummation of the Merger, will no longer be effective.
Under Delaware law, cumulative voting in the election of directors is not
permitted unless specifically provided for in a company's charter or bylaws.
The Board has proposed to include a provision in the Delaware Certificate that
will specifically prohibit cumulative voting because the Board believes that
all directors should be elected by a plurality of votes of shareholders.
The Board recommends elimination of cumulative voting because one of the
principal results of cumulative voting is to make it more likely that an
individual or group of individuals, owning less than a plurality of the
Company's voting stock, could obtain representation on the Board. Such an
individual or group may have interests and goals inconsistent with, or even
actively conflicting with, the best interests of a majority of the
shareholders. Dissident directors may distract the remaining Board members
from carrying out their duties to the Company and its shareholders and may also
deter qualified directors from agreeing to serve on the Board.
Shareholders, however, should be aware that if the Reincorporation Proposal
(Proposal Three(A)) and all the other Proposed Anti-takeover Measures
(Proposals Three(B)-(F)) are approved, the ability of an organized block of
minority shareholders to elect a representative to the Board without the
cooperation of shareholders owning a plurality of the voting shares would be
reduced or eliminated. Under some circumstances the elimination of cumulative
voting could have an anti-takeover effect by making it more difficult for a
hostile acquiror holding a minority block of stock from obtaining a foothold on
the Board. Under other circumstances, however, the existence of cumulative
voting can have an anti-takeover effect by making it more difficult for a
hostile potential acquiror who obtains a majority but not all shares from
consolidating control of the Company. For additional discussion, see "Proposal
Three(A): The Proposed Reincorporation - Anti-takeover Measures," above.
Vote Required for Proposal Three(E)
The approval of Proposal Three(E) will require the affirmative vote of
holders of a majority of outstanding common stock of the Company. The effect
of an abstention or a broker non-vote is the same as that of a vote against
Proposal Three(E). A failure to approve Proposal Three(E) will result in a
failure to approve the Reincorporation Proposal (Proposal Three(A)) and all the
other Proposed Anti-takeover Measures (Proposals Three(B)-(F)).
Recommendation:
Your Board of Directors recommends a vote FOR the approval of the proposal to
include a provision in the Delaware Certificate that will eliminate cumulative
voting for directors.
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,
par value $1.00 (the "Common Stock"), and (ii) 500,000 shares of preferred
stock, par value $1.00 per share (the "Preferred Stock").
(b) No Cumulative Voting. The holders of shares of Common Stock shall not
have cumulative voting rights.
(c) No Preemptive or Subscription Rights. No holder of shares of Common
Stock shall be entitled to preemptive or subscription rights.
(d) Preferred Stock. The Board of Directors is hereby expressly authorized
to provide for the issuance of all or any shares of the Preferred Stock in
one or more classes or series, and to fix for each such class or series such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such class or series, including,
without limitation, the authority to provide that any such class or series
may be (i) subject to redemption at such time or times and at such price or
prices; (ii) entitled to receive dividends (which may be cumulative or non-
cumulative) at such rates, on such conditions, and at such times, and payable
in preference to, or in such relation to, the dividends payable on any other
class or classes or any other series; (iii) entitled to such rights upon the
dissolution of, or upon any distribution of the assets of, the Corporation;
or (iv) convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class or
classes of stock, of the Corporation at such price or prices or at such rates
of exchange and with such adjustments; all as may be stated in such
resolution or resolutions.
(e) Power to Sell and Purchase Shares. Subject to the requirements of
applicable law, the Corporation shall have the power to issue and sell all or
any part of any shares of any class of stock herein or hereafter authorized
to such persons, and for such consideration, as the Board of Directors shall
from time to time, in its discretion, determine, whether or not greater
consideration could be received upon the issue or sale of the same number of
shares of another class, and as otherwise permitted by law. Subject to the
requirements of applicable law, the Corporation shall have the power to
purchase any shares of any class of stock herein or hereafter authorized from
such persons, and for such consideration, as the Board of Directors shall
from time to time, in its discretion, determine, whether or not less
consideration could be paid upon the purchase of the same number of shares of
another class, and as otherwise permitted by law.
Fifth : The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors.
(b) The Board of Directors shall consist of not less than five or more than
seven members, the exact number of which shall be fixed from time to time by
resolution adopted by the affirmative vote of a majority of the active Board
of Directors.
(c) The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the
entire Board of Directors. The initial division of the Board of Directors
into classes shall be made by the decision of the affirmative vote of a
majority of the entire Board of Directors. The term of the initial Class I
directors shall terminate on the date of the 2004 annual meeting; the term of
the initial Class II directors shall terminate on the date of the 2005 annual
meeting; and the term of the initial Class III directors shall terminate on
the date of the 2006 annual meeting. At each succeeding annual meeting of
stockholders beginning in 2005, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
(d) A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
(e) Subject to the terms of any one or more classes or series of Preferred
Stock, any vacancy on the Board of Directors that results from an increase in
the number of directors may be filled by a majority of the Board of Directors
then in office, provided that a quorum is present, and any other vacancy
occurring on the Board of Directors may be filled by a majority of the Board
of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall
hold office for a term that shall coincide with the remaining term of that
class. Any director elected to fill a vacancy not resulting from an increase
in the number of directors shall have the same remaining term as that of his
predecessor. Subject to the rights, if any, of the holders of shares of
Preferred Stock then outstanding, any or all of the directors of the
Corporation may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least a majority of the
voting power of the Corporation's then outstanding capital stock entitled to
vote generally in the election of directors. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of Preferred Stock
issued by the Corporation shall have the right, voting separately by class or
series, to elect directors at an annual or special meeting of stockholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article FIFTH unless expressly provided
by such terms.
(f) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the provisions of the GCL, this
Certificate of Incorporation, and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the stockholders
shall invalidate any prior act of the directors which would have been valid
if such By-Laws had not been adopted.
Sixth : No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further
elimination or limitation of the liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the
fullest extent authorized by the GCL, as so amended. Any repeal or
modification of this Article SIXTH shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
Seventh : The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to
indemnify any director or officer (or his or her heirs, executors or personal
or legal representatives) in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors. The right to
indemnification conferred by this Article SEVENTH shall include the right to
be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the Board
of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those
conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses conferred in
this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation,
the By-Laws of the Corporation, any statute, agreement, vote of stockholders
or disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH shall not adversely affect
any rights to indemnification and to the advancement of expenses of a
director or officer of the Corporation existing at the time of such repeal or
modification with respect to any acts or omissions occurring prior to such
repeal or modification.
Eighth : Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation, and the ability of the stockholders to
consent in writing to the taking of any action is hereby specifically denied.
Ninth : Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation.
Tenth : Unless otherwise required by law, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman of the
Board of Directors, if there be one, (ii) the President or (iii) the Board of
Directors. The ability of the stockholders to call a Special Meeting of
Stockholders is hereby specifically denied.
Eleventh : In furtherance and not in limitation of the powers conferred upon
it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors
shall be required to adopt, amend, alter or repeal the Corporation's By-Laws.
The Corporation's By-Laws also may be adopted, amended, altered or repealed
by the affirmative vote of the holders of at least a majority of the voting
power of the shares entitled to vote at an election of directors.
Twelfth : The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed in this Certificate of Incorporation, the
Corporation's By-Laws or the GCL, and all rights herein conferred upon
stockholders are granted subject to such reservation; provided, however,
that, notwithstanding any other provision of this Certificate of
Incorporation (and in addition to any other vote that may be required by
law), the affirmative vote of the holders of at least a majority of the
voting power of the shares entitled to vote at an election of directors shall
be required to amend, alter, change or repeal, or to adopt any provision as
part of this Certificate of Incorporation inconsistent with the purpose and
intent of Articles FIFTH, EIGHTH, TENTH and ELEVENTH of this Certificate of
Incorporation or this Article TWELFTH.
Thirteenth : The name and mailing address of the Sole Incorporator is as
follows:
Name:
Mary E. Keogh
Address:
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 17th day of February, 2004.
/s/ Mary E. Keogh
Name: Mary E. Keogh
Title: Sole Incorporator
BY-LAWS
OF
FARMER BROS. CO.
a Delaware Corporation
Adopted as of: February 17, 2004
Amended as of: March 4, 2004
TABLE OF CONTENTS
Page
ARTICLE I OFFICES
1.1 Registered Office 1
1.2 Other Offices 1
ARTICLE II MEETINGS OF STOCKHOLDERS 1
2.1 Place of Meetings 1
2.2 Annual Meetings 1
2.3 Nature of Business at Meetings of Stockholders 1
2.4 Nomination of Directors 2
2.5 Special Meetings 4
2.6 Notice 4
2.7 Adjournments 4
2.8 Quorum 4
2.9 Voting 4
2.1 Proxies 5
2.11 List of Stockholders Entitled to Vote 5
2.12 Record Date 6
2.13 Stock Ledger 6
2.14 Conduct of Meetings 6
2.15 Inspectors of Election 7
ARTICLE III DIRECTORS 7
3.1 Number and Election of Directors 7
3.2 Vacancies 7
3.3 Duties and Powers 8
3.4 Meetings 8
3.5 Organization 8
3.6 Resignations and Removals of Directors 8
3.7 Quorum 8
3.8 Actions of the Board by Written Consent 9
3.9 Meetings by Means of Conference Telephone 9
3.1 Committees 9
3.11 Compensation 9
3.12 Interested Directors 9
ARTICLE IV OFFICERS 10
4.1 General 10
4.2 Election 10
4.3 Voting Securities Owned by the Corporation 10
4.4 Chairman of the Board of Directors 11
4.5 President 11
4.6 Vice Presidents 11
4.7 Secretary 12
4.8 Treasurer 12
4.9 Assistant Secretaries 12
4.1 Assistant Treasurers 13
4.11 Other Officers 13
ARTICLE V STOCK 13
5.1 Form of Certificates 13
5.2 Signatures 13
5.3 Lost Certificates 13
5.4 Transfers 14
5.5 Dividend Record Date 14
5.6 Record Owners 14
5.7 Transfer and Registry Agents 14
ARTICLE VI NOTICES 15
6.1 Notices 15
6.2 Waivers of Notice 15
ARTICLE VII GENERAL PROVISIONS 15
7.1 Dividends 15
7.2 Disbursements 15
7.3 Fiscal Year 16
7.4 Corporate Seal 16
ARTICLE VIII INDEMNIFICATION 16
8.1 Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation 16
8.2 Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation 16
8.3 Authorization of Indemnification 17
8.4 Good Faith Defined 17
8.5 Indemnification by a Court 17
8.6 Expenses Payable in Advance 18
8.7 Nonexclusivity of Indemnification and Advancement of Expenses 18
8.8 Insurance 18
8.9 Certain Definitions 18
8.1 Survival of Indemnification and Advancement of Expenses 19
8.11 Limitation on Indemnification 19
8.12 Indemnification of Employees and Agents 19
ARTICLE IX AMENDMENTS 19
9.1 Amendments 19
9.2 Entire Board of Directors 20
BY-LAWS
OF
FARMER BROS. CO.
a Delaware Corporation
(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 2.3 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 2.3.
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.
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 2.3; provided, however, that, once business has
been properly brought before the Annual Meeting in accordance with such
procedures, nothing in this Section 2.3 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.
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 2.4 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 2.4.
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 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
2.4. 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 2.6 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 or represented by proxy, shall have power to adjourn the
meeting from time to time, in the manner provided in Section 2.7 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 2.12 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 2.10 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.
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 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.
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.
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.
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.
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.
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, 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.
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.
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.
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 8.3 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 8.3 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 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 8.1 or Section 8.2 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 8.3
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 8.4 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 8.1 or Section
8.2 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 8.3 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 court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Section 8.1 or
Section 8.2 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 8.1 or Section
8.2 of this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 8.3 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 8.5 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 8.1 and Section 8.2
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 8.1 or Section
8.2 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.
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 8.5 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.
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: February 17, 2004
FIRST AMENDMENT TO THE BY-LAWS OF
FARMER BROS. CO.
This First Amendment to the By-Laws, dated March 4, 2004 (the "By-Laws") of
Farmer Bros. Co., a Delaware corporation (the "Corporation"), amends the By-
Laws adopted as of February 17, 2004, as follows:
Article V, Section 5.1 of the By-Laws of the Corporation is hereby amended to
read in its entirety as follows:
"5.1 Form of Certificate. Shares of the Corporation's stock may be
certificated or uncertificated, as provided under Delaware law, provided that
every holder of stock represented by certificates and upon request every
holder of uncertificated shares 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."
Article V, Section 5.4 of the By-Laws of the Corporation is amended to delete
the phrase "person named in the certificate" from the second sentence and
insert the phrase 'record holder of such stock" in place thereof.