Company Name: Farmer Bros. Co. (Franklin)
Public Availability Date: November 28, 2003
Document Sections:INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
September 12, 2003 VIA HAND DELIVERY Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Farmer Bros. Co.
Shareholder Proposal of Franklin Mutual Advisers, LLC
Securities Exchange Act of 1934Rule 14a-8 Ladies and Gentlemen: We are counsel to Farmer Bros. Co., a California corporation (the "Company").
The Company has received a shareholder proposal concerning indemnification of
directors (the "Proposal") and a supporting statement (the "Supporting
Statement") from Franklin Mutual Advisers, LLC on behalf of its advisory clients
Mutual Beacon Fund and Mutual Discovery Fund, each a series of Franklin Mutual
Series Fund Inc. (collectively the "Proponent") in connection with Company's
2003 Annual Meeting of Shareholders (the "2003 Shareholders Meeting"). On behalf
of the Company, we hereby notify the Division of Corporation Finance of the
Company's intention to exclude the Proposal and Supporting Statement from its
proxy statement and form of proxy for the 2003 Shareholders Meeting
(collectively, the "2003 Proxy Materials") on the bases set forth below, and we
respectfully request that the Staff of the Division (the "Staff") concur in our
view that the Proposal and Supporting Statement are excludable on the bases set
forth below. Pursuant to Rule 14a-8(j), enclosed are six (6) copies of this letter and its
attachments. As required by Rule 14a-8(j), a copy of this letter and its
attachments is being mailed on this date to the Proponent informing them of the
Company's intention to omit the Proposal and Supporting Statement from the 2003
Proxy Materials. The Company intends to begin distribution of its definitive
2003 Proxy Materials in the first week of December, 2003, and therefore this
letter is being submitted more than eighty (80) days prior to the date the
Company will file its definitive Proxy Materials with the Commission. The Proposal relates to limiting indemnification of the Company's directors and
would have the shareholders make a determination that none of the Company
current directors, and one former director, will be entitled to indemnification
from certain types of claims should they arise in the future. We believe that the Proposal and Supporting Statement may properly be excluded
from the Company's 2003 Proxy Materials pursuant to the following rules: 1. Rule 14a-8(i)(1), Rule 14a-8(i)(2) and Rule 14a-8(i)(6), because the
Proposal, if implemented, would cause the Company to not comply with the legally
authorized process of permissive indemnification and would otherwise contravene
California Corporations Code Section 317, and, therefore, cannot be implemented
by the Company. 2. Rule 14a-8(i)(1), because the Proposal conflicts with the Company's Amended
and Restated Articles of Incorporation (the "Articles of Incorporation") and is,
therefore, not a proper subject for action by the shareholders. 3. Rule 14a-8(i)(6), because the Proposal would cause the company to breach
contracts with its directors and sets out vague and general objectives without
suggesting specific means for achieving them, and, therefore, cannot be
implemented by the Company. 4. Rule 14a-8(i)(3), because the Proposal and Supporting Statement contain false
and misleading statements in violation of Rule 14a-9. I. THE PROPOSAL - INTRODUCTION; SUMMARY OF ARGUMENT A copy of the Proposal and Supporting Statement is attached hereto as Exhibit 1.
Attached hereto as Exhibits 2, 3 and 4, respectively, are California
Corporations Code ("CCC") Section 317, the Company's Amended and Restated
Articles of Incorporation (the "Articles of Incorporation") and Article VI of
the Company's Bylaws ("Bylaws"). The Proposal purports to make a determination that current and former directors
of the Company are not entitled to indemnification for expenses and other
amounts incurred in connection with any "threatened, pending or completed action
or proceeding ... concerning violations of law or breaches of duty" from July
2002 to the date of the Proposal, relating to: "(a) disclosures of information
to investors, (b) compliance with the Investment Company Act of 1940, or (c)
actions to benefit the Company's controlling persons which are not in the best
interests of all the Company shareholders, because these directors did not meet
applicable standards of conduct under the CCC and the Company's Bylaws." These
matters as to which the Proposal seeks to abrogate the directors'
indemnification rights are called the "Target Issues" in this letter. Although the Proposal seeks to prohibit indemnification in connection with any
threatened, pending or completed action or proceeding (collectively, "Actions"),
there is no threatened or pending Action against the directors with respect to
any aspect of the Target Issues. Except for the unsupported statement that the
directors did not meet the applicable standards of conduct, the Proposal does
not describe any specific actions which could constitute violations of law or
breaches of duty by the Company's directors, which specific violations or
breaches of duty are necessary for the Company or shareholders to determine in
the future whether or not a future claim is, or is not, within the scope of the
Proposal. The Proposal is an attempt to short-circuit the legally mandated indemnification
process with respect to the Target Issues and adjudge the directors (including
two directors who joined the board in April 2003) guilty of breach of duty
before any accusations have been made, any legal actions brought or threatened,
or any request for indemnification having been made by any director. As such,
the Proposal contravenes CCC Section 317, the Articles of Incorporation, and the
Bylaws and, if implemented, would cause the Company to breach its contractual
indemnification duties to its directors. Attached as Exhibit 5 is our legal
opinion (the "Opinion") which concludes that the Proposal, if implemented, would
contravene CCC Section 317. Finally, the Proposal contains an unsupported assertion of fact and the
Supporting Statement misstates applicable law and would mislead shareholders
concerning the effect of the Proposal. II. THE PROPOSAL CONTRAVENES THE CALIFORNIA INDEMNIFICATION STATUTE, CONFLICTS
WITH THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS AND, IF IMPLEMENTED,
WOULD CAUSE A BREACH OF CONTRACT, AND SETS OUT VAGUE AND GENERAL OBJECTIVES
WITHOUT SUGGESTING SPECIFIC MEANS FOR ACHIEVING THEM (1) The California Indemnification Statute. Section 317 of the CCC provides rules for determining whether indemnification of
directors, officers and other agents is proper under California law. This
statute provides mandatory indemnification of a director if the director has
been successful on the merits in defending an Action (subsection (d)) and
provides for permissive indemnification in other cases upon a determination "in
a specific case" that indemnification is proper, which determination can be made
by any of four alternative means: (1) by a majority of a quorum of non-party
directors, (2) by a written opinion from independent legal counsel, (3) by
approval of the shareholders, or (4) by a court (subsections (e)(1)-(4)). According to the Supporting Statement, "As shareholders, we have the right under
Section 317(e)(3) of the California Corporations Code ("CCC") to decide, in the
absence of a court decision, whether our Company's funds should be used to
indemnify directors for their litigation expenses. (Shares owned by directors to
be indemnified are not entitled to vote on this resolution)." This statement is
erroneous on its face as the Proposal, which purports to act as a disapproval by
the shareholders of indemnification pursuant to Section 317(e)(3), is only one
of the four alternative means of authorizing indemnification where it is not
otherwise mandatory. In addition, CCC Section 317(e) states that indemnification must be authorized
or not "in the specific case, upon a determination that indemnification of the
agent is proper in the circumstances because the agent has met the applicable
standard of conduct...." CCC Section 317(e) is clearly intended to deal with the
propriety of indemnification by determining whether the director has met the
applicable standard of conduct only after there is a pending or threatened claim
giving rise to a claim for indemnification, and as stated in the Opinion, it is
our view that under CCC Section 317(e), indemnification can be neither granted
nor denied in advance of an actual claim for indemnification and consideration
of actual circumstances. Since there is no pending or threatened Action against
a director that could give rise to a claim for indemnification related to the
Target Issues and no claim for indemnification has been made, in our opinion the
Proposal, which purports to be brought under CCC Section 317(e)(3) cannot be
brought under that statute and for this reason contravenes California law.
Moreover, should such a claim be presented in the future, contrary to the
assertion in the Supporting Statement, the failure to obtain a shareholder vote
authorizing indemnification at this time would not preclude the other means
specified by statute and (not referred to in the Supporting Statement) in which
permissive indemnification can be granted, such as a written legal opinion,
approval by a majority of non-party directors, or even approval at a later date
by disinterested shareholders, were an actual claim for indemnification to arise
in the future related to the Target Issues. No facts presently exist, since no
claim has yet been asserted, on which to base any determination of the
appropriateness of indemnification under CCC Section 317(e). As such, the Proposal (i) is not a proper subject for the shareholders under
California law (Rule 14a-8(i)(1)), because it seeks to deny directors the right
to permissive indemnification prior to any claim for indemnification being made,
(ii) contravenes California Corporations Code Section 317, as confirmed in the
Opinion (Rule 14a-8(i)(2)), and (iii) cannot be implemented by the Company (Rule
14a-8(i)(6)). For these reasons, the Proposal may be excluded under Rule
14a-8(i)(1), Rule 14a-8(i)(2) and Rule 14a-8(i)(6). In Occidental Petroleum Corp., March 19, 1982, the Staff agreed that Occidental
could omit a proposal under what is now Rule 14a-8(i)(2), that would limit
indemnification for legal fees in criminal cases to $100,000, because such
proposal was in violation of California law, since the proposal could cause a
violation of mandatory indemnification under CCC Section 317(d) or a violation
of permissive court approved indemnification under what is now CCC Section
317(e)(4). Also in Travelers Group, January 29, 1998, the Staff agreed that a
proposal which would prohibit indemnification for defense costs despite a
successful defense on the merits and would alter the procedures for authorizing
indemnification of corporate agents violated the Delaware indemnification
statute and could be excluded under what is now Rule 14a-8(i)(2). Similarly, in
Western Union, July 22, 1987, the Staff concurred that Western Union could
exclude a proposal to limit indemnification in a manner contrary to the Delaware
statute under what are now Rules 14a-8(i)(2) and 14a-8(i)(6). (2) Conflict with Articles of Incorporation. Article Fifth, Section 2 of the Articles of Incorporation states in pertinent
part: "The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors, or otherwise in excess of the indemnification otherwise permitted by
Section 317 ..." Section 317 of the CCC specifically permits a California
corporation to provide indemnification in its articles of incorporation in
excess of that provided by other provisions of the CCC, with certain
limitations. In addition, Article Fifth, Section 1 of the Articles of
Incorporation, consistent with Section 204.5 of the CCC provides that: "The
liability of the directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law." The Proposal is in conflict with the Company's Articles of Incorporation because
it purports to revoke or limit the Company's authority to indemnify directors
relative to the Target Issues and limit their liability to the fullest extent
possible, provided in the Articles of Incorporaion. Indeed the Proposal also
seeks to do so on a retroactive basis, which, as explained above, would deny the
directors certain protections already afforded them under California law
contained in CCC Section 317 and in the Articles of Incorporation. The Proposal,
therefore, may be excluded under Rule 14a-8(i)(1) because it does not present a
proper subject for action by the Company's shareholders. See Purepac
Laboratories Corporation, April 11, 1974, where the Staff concurred that Purepac
could exclude under what is now Rule 14a-8(i)(1) a proposed bylaw amendment that
was in conflict with the certificate of incorporation on the ground that it did
not present a proper subject for action by such company's shareholders. (3) Breach of Contract. Article VI, Section 2(d) of the Company's Bylaws provides for mandatory
indemnification of a director if the director has been successful on the merits
in defending an indemnifiable action. Article VI, Section 4 of the Bylaws
provides that a director has a right to bring legal action to obtain indemnity
and that the Company has the burden of proof that indemnity is not proper
because the director did not meet the required standard of conduct under the
CCC. In addition, Article VI, Section 10 of the Bylaws provides: "This Article [VI]
shall be a binding contract between the Company and each Indemnitee made in
partial consideration of the Indemnitee's ongoing services to the Company...."
"Indemnitee" is defined in Article VI, Section 1(c) of the Company's bylaws to
include all directors. The Proposal conflicts with Article VI of the Company's Bylaws because it makes
no provision for mandatory indemnification when a director has successfully
defended himself or herself. Moreover, the Proposal on its face purports to
nullify the right of a director to bring a legal action to determine his or her
right to indemnification relative to the Target Issues, on both a prospective
and a retroactive basis, and to nullify the requirement that the Company bear
the burden of proving that one or more of the statutory grounds for denying
indemnification exists. Since Article VI of the Bylaws creates a "binding
contract" between the Company and the directors named in the Proposal, and since
the Proposal contravenes Article VI of the Bylaws, giving effect to the Proposal
would cause the Company to breach its existing contractual obligations with its
directors. For this reason, the Proposal may be excluded by the Company under
Rules 14(a)-8(i)(2) and 14(a)-8(i)(6). See Western Union, July 22, 1987, in
which the Staff permitted exclusion under what are now Rules 14a-8(i)(2) and
14a-8(i)(6) of a proposal which both violated the Delaware indemnification
statute and would have caused a breach of a contract to indemnify. In Staff Legal Bulletin No. 14, dated July 13, 2001, at Question E.5, the Staff
states that, with respect to Rules 14a-8(i)(2) and 14a-8(i)(6), "[I]f
implementing the proposal would require the company to breach existing
contractual obligations, we may permit the shareholder to revise the proposal so
that it applies only to the company's future contractual obligations." However,
the contract in question derives from the Bylaws which will not expire.
Accordingly, the Proposal cannot be revised to cure this problem and is
excludable under Rule 14a-8(i)(2) and Rule 14a-8(i)(6). (4) Vague and General Objectives. In order to implement the Proposal, the Company will need to determine whether
an Action relates to a Target Issue and is, therefore, within the scope of the
Proposal. All of the three Target Issues are extremely vague and unsupported by
any factual foundation since they do not allege what actions, if any, were taken
or failed to be taken by each director so that a determination can be made as to
whether the applicable condition has been met. Although the general objective of
the Proposal is to retroactively prohibit indemnification relating to the Target
Issues, in the absence of a specific allegation of facts that would establish a
breach of duty relating to the Target Issues, neither the Company nor
shareholders have sufficient guidance to know whether or not a future claim will
fall within the scope of the Proposal. This is particularly true at present
since no claims have been asserted and no directors have sought indemnification.
In fact, two directors were not even on the Board during most of the period
covered by the resolution. Accordingly, the Proposal is vague and sets forth
general objectives without providing sufficient guidance for its application,
and, therefore, the Proposal may be omitted pursuant to Rule 14a-8(i)(6). See
General Motors Corp., March 9, 1981 where the proposal would have required
General Motors, before making a donation to a school, to determine how many
avowed Communists, Marxists, Leninists, and Maoists were on its faculty or
administration, without providing specific guidance as to how to accomplish
this. III. THE PROPOSAL AND SUPPORTING STATEMENT ARE FALSE AND MISLEADING The Proposal contains an unsupported assertion of fact: "[T]hese directors did not meet the applicable standards of conduct established
by the California Corporations Code and the Company's Bylaws." The Proposal did not provide any factual support for this statement, because no
such support for this statement exists, and because the Proposal is phrased in
sweeping generalities and purports to prejudge unstated actions occurring in the
past or with respect to further actions which have not yet occurred, the
statement cannot be supported. See Staff Legal Bulletin No. 14 July 13, 2001,
Paragraph G, Substantive Issues 4: "In drafting a proposal and supporting
statement, shareholders should avoid making unsupported assertions of fact."
This unsupported statement is misleading and violates Rule 14a-9. The Note to
Rule 14a-9 states that "misleading" materials include "[m]aterial which directly
or indirectly ... makes charges concerning improper, illegal or immoral conduct
or associations, without factual foundation." The Proponent provides no facts to
support the above statement and it should be excluded under Rule 14a-8(i)(3) as
misleading in violation of Rule 14a-9. The misstatements in the Supporting Statement include: (1) "(Shares owned by the directors to be indemnified are not entitled to vote
on the resolution)." This statement erroneously assumes that this proposal is
itself an action by shareholders pursuant to CCC Section 317(e)(3) which
excludes shares owned by persons to be indemnified from voting. However, there
is no action pending or even threatened against the directors, and no request to
authorize indemnification has been placed before the shareholders. Since this
cannot be a CCC Section 317(e)(3) action, all outstanding shares are eligible to
vote. (2) "As shareholders, we have the right to decide, in the absence of a court
decision, whether or not Company funds should be used to indemnify directors for
this litigation expense." This statement is false and misleading. The
shareholders have no right to deny indemnification if there has been a
successful defense on the merits, nor do they have a right to contravene the
Articles of Incorporation, Bylaws or contracts of the Company. Only if a matter
of permissive indemnification is submitted to them for approval under Section
317(e)(3) do they have a right to vote. The statement also ignores the fact that
indemnification can also be authorized under Section 317 by a vote of a majority
of a quorum of non-party directors and by the written opinion of independent
legal counsel. In addition, indemnification can be provided under the Bylaws
independently of Section 317 inasmuch as Section 317(g) states that Section 317
does not affect other rights to indemnification by contract or otherwise. (3) "This resolution gives you, the shareholders, the ability to exercise that
right." Whatever rights the shareholders have to approve or disapprove
indemnification of agents are derived from and limited by Section 317, the
Articles of Incorporation and the Bylaws. Additionally, because the resolution
is in violation of the Articles of Incorporation, Bylaws and contravenes
California law, the resolution, if passed, would be a nullity and confer no
legal rights. (4) "Without this resolution, the directors themselves could choose lawyers (and
pay them with your Company's funds) to determine whether the Company should
indemnify the directors." This resolution cannot retroactively deprive the
Company directors of any right conferred by statute, the Articles of
Incorporation or Bylaws. The implication that the Proposal can retroactively
change the rules governing indemnification is erroneous. (5) The omission from the third paragraph of reference to the authorization of
indemnification by written opinion of independent legal counsel or pursuant to
the Bylaws is misleading. Similarly, since there are no proceedings pending
against the directors, the right of a majority of a quorum of non-party
directors to authorize indemnification of other corporate agents in future
proceedings under Section 317(e)(1) remains potentially available, and the
omission of reference to that option is also misleading. (6) "If you believe [the directors have not acted in the best interests of the
shareholders], you should vote for this resolution and prevent them from being
able to use your money to pay their costs of claims unless a court decides they
have a right to it." Again, the Supporting Statement is misleading because it
omits references to all the other methods of authorizing indemnification and
states that the Proposal will have an effect which it cannot have. All of these misstatements result from Proponent's failure to comprehend the
fact that the Proposal cannot change the rules governing indemnification as
provided by Section 317 of the California Corporations Code, the Articles of
Incorporation and Bylaws and, therefore, the Proposal cannot achieve its
intended result. Accordingly, the Proponent's statements concerning the effect
of the Proposal are false and misleading. Please take note that the Proponent is a large institutional investor with ample
resources to have researched applicable law and drafted a proper proposal.
Although the Company does not believe this Proposal can be salvaged by
revisions, the Company submits that affording this Proponent any further
opportunity to make a proper proposal would be inappropriate and deleterious to
the efficient operation of the shareholder proposal process. See Pacific
Enterprises, March 9, 1990, in which the Staff, without comment, declined to
permit a sophisticated investor represented by counsel to cure defects in his
proposal. The request for a no-action letter in Pacific Enterprises contains
citations to a number of other no-action letters on this point. If the Staff
determines that the Proposal can be salvaged by revisions, it is the Company's
position that shares owned by the Company's directors should be eligible to vote
on any revised Proposal, because no Proposal can be brought under CCC Section
317(e)(3) for the reasons described above. Would you kindly advise us by fax at 213-687-5600 of your response. Thank you for your consideration. Respectfully submitted, /s/ Joseph J. Giunta [INQUIRY LETTER]
November 10, 2003 VIA email to: cfletters@sec.gov
and FAX to 202.942.9525 (Original and 6 copies via overnight delivery) Grace K. Lee, Esquire
Division of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Farmer Bros. Co. (the "Company") Shareholder proposal (the "Proposal") of Franklin Mutual Advisers, LLC
Response to the Company's November 4, 2003 letter Dear Ms. Lee: Quite frankly, I am unable to follow the logic of the arguments posed by Counsel
for the Company. Counsel asserts that a determination by the Company's
shareholders under California Corporations Code ("CCC") §317(e) that directors'
past conduct failed to meet the standards for Permissive Indemnification would
constitute a breach of the Company's contract to indemnify its directors.
Presumably, Counsel's rationale would be just as applicable to the Company's
directors. In other words, Company's counsel appears to argue that the Company's
Articles and Bylaws grant the Company's directors a blanket right to Permissive
Indemnification which cannot be "retroactively" denied by shareholders, the
directors, or anyone else, which is an absurd conclusion.1 As stated previously, the Company's Articles and Bylaws do not imply such a
conclusion. By their very terms, they seek to provide directors all the rights
to indemnification allowed by statute. And as stated before, the statute allows
shareholders to make the determination whether or not directors' conduct has met
the standards for Permissive Indemnification.2 The very purpose of the Proposal is to further the public policy underpinning
CCC §317, which is to ensure that directors of a company adhere to certain
minimal standards before availing themselves of the benefits of Permissive
Indemnification. The statute explicitly gives shareholders the right to make
such determination. Including the Proposal in the Company's proxy materials does
not foreclose the Company's ability to seek a determination that its
interpretation of the statute is correct. However, excluding the Proposal would
irrevocably deny the Company's shareholders the opportunity to exercise their
statutory right. If you have any questions or require any other information, please do not
hesitate to contact me via telephone (973.912.2152), fax (973.912.0646) or email
at (bradt@msfi.com). Yours truly, /s/ Bradley Takahashi cc: jgiunta@skadden.com -----FOOTNOTES----- 1 Furthermore, if all determinations regarding past conduct would be an improper
"retroactive" breach of contract, the only conduct which either shareholders or
directors could review for Permissive Indemnification purposes, would be future
conduct, which of course, is a logical impossibility. 2 Counsel's assertion that CCC 317(h) would retroactively deny Permissive
Indemnification (see footnote 1 of Counsel's letter dated November 4, 2003) is
inexplicable. The Proposal is based upon CCC §317(e). [INQUIRY LETTER]
November 12, 2003 VIA FACSIMILE AND EMAIL Grace K. Lee, Esq.
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Farmer Bros. Co.
Shareholder Proposal of
Franklin Mutual Advisers, LLC (the "Proposal")
Response to Franklin Mutual November 10, 2003 Letter Dear Ms. Lee: On November 10, 2003, we received by electronic mail a copy of a letter from
Franklin Mutual Advisors, LLC on behalf of its advisory clients Mutual Beacon
Fund and Mutual Discovery Fund, each a series of Franklin Mutual Series Fund
Inc. (collectively, the "Proponent") to the Staff dated November 10, 2003 (the
"Shareholder Response"). This letter is in response to such letter. Pursuant to Rule 14a-8(j), we will hand deliver an original and six (6) copies
of this letter on November 13, 2003. As required by Rule 14a-8(j), a copy of
this letter is being mailed on this date to the Proponent. Once again, counsel for the Proponent fails to address any of the numerous
points raised in our letter and, what is even more troubling, invents arguments
that were not made in our prior communications presumably so he can then shoot
them down. Specifically, there is no pending or completed action against the individuals
named in the Proposal, which is a prerequisite to making any determination under
California Corporations Code ("CCC") Section 317(e). And of course there are no
facts to make a determination under any subsection of CCC Section 317(e) as
there is no proceeding or even factual allegations and no findings by which one
could measure a director's conduct. It is also an incorrect statement of the law to suggest, as the Proposal does,
that a disapproval of indemnification under Section CCC 317(e) would preclude
any of the other methods by which a director can establish a right to
indemnification. Contrary to counsel's assertion, we did not state that indemnification could not
be denied a director who is ultimately unable to satisfy one of the four
permissive means for establishing such a right. We did say that shareholders
cannot deny a director's future right to indemnification for past conduct for a
proceeding that has not yet been brought because it is inconsistent with the
statute and the Company's organization documents. We referred to another
section, CCC Section 317(h), as relevant for determining how and to what extent
shareholders or the Board could prospectively deny indemnification, and that
section clearly does not permit resolutions to be adopted to limit
indemnification prospectively for prior acts. If you have any questions or require any other information, please do not
hesitate to contact me by telephone at 213-687-5040 or by email at
jgiunta@skadden.com. Thank you for your consideration. Respectfully submitted, /s/ Joseph J. Giunta JJG:C
[STAFF REPLY LETTER]
November 28, 2003 Response of the Office of Chief Counsel
Division of Corporation Finance Re: Farmer Bros. Co. Incoming letter dated September 12, 2003 The proposal relates to a shareholder resolution that prohibits the
indemnification of certain current and former directors for expenses, judgments,
fines, settlements and other amounts incurred in connection with any
"threatened, pending or completed action or proceeding ... concerning violations
of law or breaches of duty" from July 2002 to the date of the adoption of the
proposal relating to: "(a) disclosures of information to investors, (b)
compliance with the Investment Company Act of 1940, or (c) actions to benefit
the Company's controlling persons which are not in the best interests of all of
the Company's shareholders." There appears to be some basis for your view that Farmer Bros. may exclude the
proposal under rule 14a-8(i)(1). Under the circumstances, we will not recommend
enforcement action to the Commission if Farmer Bros. omits the proposal from its
proxy materials under rule 14a-8(i)(1). In reaching this position, we have not
found it necessary to address the alternative bases for omission upon which
Farmer Bros. relies. Sincerely, /s/ Grace K. Lee
Special Counsel
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