**Exhibit 10.4**

 

**FARMER BROS. CO.**

 

**2005 INCENTIVE COMPENSATION PLAN**

 

**(Amended and Restated as of December 31,2008)**

 

1.             Purpose. The purpose of this Plan is to furtherthe Company’s profitability by providing an incentive and reward to keymanagement employees of the Company who through industry, ability, teamworkwith other key management employees and exceptional service contributematerially to the success of the Company, and by enhancing the Company’sability to attract and retain in its employ key personnel upon whose effortsthe success of the Company is dependent.  The Company desires to adopt this Plan to:provide awards based on the achievement of corporate goals and specificallymeasured individual goals that are consistent with and support the Company’soverall business strategies and objectives; provide Participants with anincentive for excellence in individual performance; and promote teamwork.  This Plan entirely supersedes the Company’s1982 Incentive Compensation Plan (“1982 Plan”).

 

2.             Definitions. As used in this Plan, the followingterms shall have the following meanings:

 

(a)           “Plan” meansthis Farmer Bros. Co. 2005 Incentive Compensation Plan, as it may be amendedfrom time to time.

 

(b)           “Company” meansFarmer Bros. Co., a Delaware corporation, and includes the Company’ssubsidiaries and divisions.

 

(c)           “Board of Directors”or “Board” means the Board of Directors of Farmer Bros. Co.

 

(d)           “Committee”means the Compensation Committee of the Board, or such other committee as maybe appointed by the Board to administer the Plan pursuant to section 9.

 

(e)           “Fiscal Year”means the year selected by the Company for income taxation and financialreporting purposes.

 

(f)            “Employee” or “EligibleEmployee” means any officer or other key management employee of the Company(including subsidiaries) who is in the employ of the Company. No member of theCommittee shall be an Eligible Employee while serving on the Committee or for aperiod of one year thereafter.

 

(g)           “Participant”means an Eligible Employee to whom an award is made under this Plan.

 

(h)           “Award” means aCurrent Award or Deferred Award made by the Committee pursuant to section 6of the Plan.

 

(i)            “Current Award”means an Award payable pursuant to section 7(a) of the Plan.

 

(j)            “Deferred Award”means an Award payable pursuant to section 7(b) of the Plan.

 

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(k)           “Base Salary”means a Participant’s annual pay rate at the end of the Fiscal Year, withouttaking into account the following:  (i) anydeferrals of income; (ii) any incentive compensation; or (iii) anyother benefits paid or provided under any of the Company’s other employeebenefit plans.

 

(l)            “PerformanceCriteria” means the attainment of specified levels of (or percentagechanges in) financial performance and other corporate and/or individualobjectives as determined by the Committee in its discretion.

 

(i)            Performance Criteriamay measure, without limitation, such financial performance indicators as thefollowing: adjusted net income, net sales; total shareholder return;profitability; stock price; economic value added; profit margin (gross or net);asset turnover; sales growth (whether measured in pounds of coffee, number ofaccounts or otherwise); asset growth; return on investment; earnings per share;return on equity; return on assets; return on capital; operating cash flow;cost of capital; net income; market share; working capital; cost reduction; andsuch other financial metrics measured solely in terms of the attainment ofquantitative targets related to the Company’s business.

 

(ii)           Performance Criteriamay also assess, without limitation, attainment of corporate and/or individualobjectives such as customer satisfaction, maintenance of good employeerelations, safety enhancement, improved product quality, systems improvementand implementation, acquisitions, expansion of product lines, creation ofoperating efficiencies, market share increase, geographic expansion,enhancement of management depth, succession planning, financial risk management,and such other objectives important to the achievement of the Company’s overallbusiness strategies and objectives.

 

(iii)          Performance Criteria maybut need not be susceptible to objective measurement.

 

Performance Criteria may be applied by the Committee as a measure ofthe performance of any, all, or any combination of the following: the Company;a subsidiary, division, department, region, function or business unit of theCompany or any subsidiary; a particular product category or categories of theCompany or any subsidiary; or an individual Participant.

 

(m)          “Target Award” isdefined in Section 5.

 

3.             AmountSubject to Awards.  The amountavailable for Awards under this Plan each Fiscal Year shall be within thediscretion of the Committee.

 

4.             Participants. Based on its evaluation of an Employee’sperformance, contribution to the Company, compensation, and other criteria itdeems relevant, the Committee shall determine within ninety (90) days after thebeginning of each Fiscal Year, in its sole discretion, the Employees, if any,who shall be Participants in the Plan for that year.

 

5.             PerformanceCriteria and Target Award.  Withrespect to each Participant, the Committee shall establish in writing thespecific Performance Criteria for such Fiscal Year to be achieved by theCompany and/or such Participant in order for such Participant to earn an Awardunder this Plan.  The Committee shallalso establish a target Award amount (“Target Award”) for each

 

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Participant based upon the Participant’s past annualcompensation, current salary, job responsibilities and past and expected futurejob performance.  The Committee mayconsult with senior management executives of the Company and the PlanParticipants in establishing such Performance Criteria and Target Awards to theextent deemed appropriate by the Committee.  Performance Criteria may vary from Participantto Participant and between groups of Participants.  The Committee shall for each Fiscal Year establisha formula or matrix for each Participant pursuant to which his or her Awardshall be determined based upon the degree of achievement of such PerformanceCriteria.  This formula or matrix maytake into account Performance Criteria achieved in prior Fiscal Years.  In addition, the relative weight amongspecific Performance Criteria shall be determined by the Committee in itsdiscretion.  The Committee shall informeach Participant of the Performance Criteria, Target Award and formula ormatrix for determining achievement of the Performance Criteria and calculationof the Award which are applicable to the Participant’s Award.  The Committee shall have the discretion at anytime to add additional Performance Criteria and to modify any objectives orperformance levels designated in relation to previously established PerformanceCriteria.  The Performance Criteria foreach Participant, once established, shall continue for subsequent Fiscal Yearsunless modified by the Committee.  Depending on the level of achievement ofapplicable Performance Criteria, a Participant’s actual Award can exceed his orher Target Award.

 

6.             Determination ofAwards.

 

Afterthe end of each Fiscal Year and promptly upon availability of the Company’saudited financial statements, the Committee shall review and evaluate thePerformance Criteria applicable to the Fiscal Year for each Participant inlight of the Company’s and/or such Participant’s performance measured inaccordance with such criteria, and shall determine whether and to what extentthe Performance Criteria have been satisfied and the amount of the Award, ifany, to be made to the Plan Participant.  The executive officers of the Company shallprovide all information necessary to enable the Committee to make thedetermination promptly following fiscal year-end.  The Committee may in its discretion consultwith such Participant’s immediate supervisor (i.e., responsible Vice Presidentand/or the President and CEO) with respect to whether any Performance Criteriameasured by such Participant’s individual performance have been achieved.  Achievement of financial Performance Criteriashall be determined by adding back any past or current Award made under thePlan or any award under the 1982 Plan which otherwise would affect the resultunless the Committee determines otherwise.  If a Performance Criterion is not susceptibleto objective measurement, the Committee shall determine the level of attainmentin good faith on a subjective basis.  Paymentof Awards, less withholding taxes, shall be made to Participants as provided insection 7, but only upon the Committee’s certification that the applicablePerformance Criteria have been satisfied and upon determination of the amountof each Award.  No Award shall be deemedto be earned under the Plan prior to the Committee’s certification and Awarddetermination.

 

Notwithstandinganything contained in this Plan to the contrary and regardless of whether anyor all of the Performance Criteria have been achieved, whether in whole or inpart, the Committee may in its discretion eliminate entirely, reduce, orincrease any Award to a Participant in order to reflect additionalconsiderations relating to the Company and/or such Participant’s individualperformance.  In determining whether anAward will be, eliminated, reduced or increased, the Committee shall considerany changes in circumstances which may

 

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have occurred during the Fiscal Year, including,without limitation, changes in accounting practices or applicable law,extraordinary items of gain or loss, discontinued operations, restructuringcosts, sales or dispositions of assets and acquisitions, and such Participant’sindividual performance.  Any action bythe Committee under this paragraph shall be conclusive and binding on theCompany and the Participant.

 

7.             Payment of Awards.

 

(a)           Current Awards.  Current Awards for a Fiscal Year shall be paidin a lump sum as soon as practicable after the Committee’s determinationpursuant to Section 6 and in all events not later than the December 31that follows the end of such Fiscal Year.

 

(b)           Deferred Awards. Prior to the beginning of any FiscalYear, the Committee may, in its sole discretion, allow Participants to elect todefer payment of any Award they may receive with respect to that Fiscal Yearbeyond the date such Award would be paid pursuant to Section 7(a) butfor such deferral election.  Any suchdeferral election shall be made in a form and manner prescribed by theCommittee, shall be filed with the Committee no later than the last day of theFiscal Year that proceeds the Fiscal Year to which the Award relates (or suchearlier deadline as may be prescribed by the Committee).  Any such deferral of payment must comply withany applicable requirements of Section 409A of the U.S. Internal RevenueCode.

 

8.             Designation ofBeneficiaries.

 

EachParticipant shall file with the Committee a written designation of the personor persons who shall be entitled to receive any amounts payable under this Planafter the Participant’s death.  TheParticipant may designate natural persons, charitable institutions, trusts, orthe Participant’s estate as beneficiaries.  A Participant may name one or more contingentbeneficiaries.  Unless otherwisedesignated by a Participant, payments shall be divided equally amongco-beneficiaries.  A Participant may fromtime to time revoke or change a beneficiary designation without the consent ofany prior beneficiary by filing a new designation with the Committee.  The last such designation received by theCommittee shall be controlling; provided, however, that no designation, orchange or revocation thereof, shall be effective unless received by theCommittee prior to the Participant’s death, and in no event shall it beeffective as of a date prior to such receipt.

 

If nosuch beneficiary designation is in effect at the time of a Participant’s death,or if no designated beneficiary survives the Participant, or if suchdesignation conflicts with law, the payment of the amount, if any, payableunder the Plan after his death shall be made to the Participant’s estate.  If the Committee is in doubt as to the rightof any person to receive such amount, the Committee may retain such amount,without liability for any interest thereon, until the rights thereon aredetermined, or the Committee may pay such amount into any court of appropriatejurisdiction and such payment shall be a complete discharge of the liability ofthe Plan, the Company and the Committee therefor.

 

9.             Administration.

 

ThePlan shall be administered by the Compensation Committee of the Board ofDirectors or such other committee as may be appointed by the Board ofDirectors.  The

 

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Committee shall have full power and authority toconstrue, interpret and administer the Plan.  All decisions, actions or interpretations ofthe Committee shall be final, conclusive and binding upon all parties unlessoverruled by the Board of Directors.

 

TheCommittee shall consist of two or more members, each of whom shall be appointedby, shall remain in office at the will of, and may be removed, with or withcause by the Board of Directors.  Anymember of the Committee may resign at any time.  No member of the Committee shall be entitledto act on or decide any matter relating solely to himself or any of his rightsor benefits under the Plan.  No member ofthe Committee shall be entitled to receive an Award under this Plan whileserving on the Committee or within one year thereafter.  The members of the Committee shall not receiveany special compensation for serving in their capacities as members of theCommittee.  No bond or other securityneed be required of the Committee or any member thereof in any jurisdiction.

 

Theprocedures for the proceedings of the Committee shall be established byresolution of the Board of Directors, absent which resolution the proceduresapplicable under the Company’s Bylaws to proceedings of the Board of Directorsshall apply to the proceedings of the Committee.

 

No memberof the Committee shall be personally liable by reason of any contract or otherinstrument executed by him or his behalf in his capacity as a member of theCommittee nor for any mistake of judgment made in good faith, and the Companyshall indemnify and hold harmless each member of the Committee and each otherofficer, employee or director of the Company to whom any duty or power relatingto the administration or interpretation of the Plan has been delegated, to thefullest extent permissible under the California General Corporation Law.

 

10.           Amendmentor Termination.  The Board ofDirectors reserves the right at any time to amend, suspend, or terminate thePlan in whole or in part and for any reason without the consent of anyParticipant or beneficiary; provided that no such action shall adversely affectthe rights of Participants or beneficiaries with respect to Awards made priorto such action.  Subject to the foregoingprovision, any amendment, modification, suspension, or termination of anyprovisions of the Plan may be retroactively applied.

 

11.           General Provisions.

 

Nothingcontained in the Plan shall give any Employee the right to be retained in theemploy of the Company or affect the right of the Company to dismiss anyEmployee.  The adoption of the Plan ordesignation of an Eligible Employee as a Plan Participant shall not create aright in any Employee to receive an Award under the Plan.  No Award under the Plan shall be considered ascompensation under any employee benefit plan of the Company except as otherwisedetermined by the Committee.

 

If theCommittee shall find that any person to whom any amount is payable under thePlan is unable to care for his affairs because of illness or accident, or is aminor, or is under any other disability, then any payment due him (unless aprior claim therefore has been made by a duly appointed legal representative),may, if the Committee so directs the Company, be paid to

 

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his spouse, a child, a relative, an institutionmaintaining or having custody of such person, or any other person deemed by theCommittee to be a proper recipient on behalf of such person otherwise entitledto payment.  Any such payment shall be acomplete discharge of the liability of the Plan, the Company, and the Committeetherefor.

 

Exceptinsofar as may otherwise be required by law, no amount payable at any timeunder the Plan shall be subject in any manner to alienation by anticipation,sale, transfer, assignment, bankruptcy, pledge, attachment, charge, orencumbrance of any kind nor in any manner be subject to the debts orliabilities of any person and any attempt to so alienate or subject any suchamount, whether presently or thereafter payable, shall be void.  If any person shall attempt to, or shall,alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumberany amount payable under the Plan, or any part thereof, or if by reason of hisbankruptcy or other event happening at any such time such amount would be madesubject to his debts or liabilities or would otherwise not be enjoyed by him,then the Committee, if it so elects, may direct that such amount be withheldand that the same or any part thereof be paid or applied to or for the benefitof such person, his spouse, children or other dependents, or any of them, insuch manner and proportion as the Committee may deem proper.

 

TheParticipant shall have no right, title or interest whatsoever in or to anyinvestments which the Company may make to aid it in meeting its obligationshereunder.  Nothing contained in thePlan, and no action taken pursuant to its provisions, shall create or beconstrued to create a trust of any kind, or a fiduciary relationship, jointventure or partnership between the Company and the Employee or any otherperson.  To the extent that any personacquires a right to receive payments from the Company under this Plan, suchright shall be no greater than the right of an unsecured general creditor ofthe Company.  All payments to be madehereunder shall be paid in cash from the general funds of the Company and nospecial or separate fund shall be established and no segregation of assetsshall be made to assure payments of such amounts.

 

AllDeferred Awards under the Plan constitute unfunded deferred compensationarrangements for a select group of key management personnel and all rightsthereunder shall be governed by and construed in accordance with the laws ofCalifornia.

 

TheCommittee shall make such adjustments as it deems equitable in the event the Companychanges its fiscal year.

 

12.           EffectiveDate of the Plan.  This Plan shall beeffective for Awards made for the Fiscal Year ending June 30, 2006.  Awards made for any prior Fiscal Year shall begoverned by the 1982 Plan.

 

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