Document:

Ex 10.1

Exhibit 10.1
[Company Letterhead]

April 4, 2012
VIA COURIER
Ms. Sherilyn S. McCoy

Dear Sheri:
We are pleased to offer you the position of Chief Executive Officer of Avon Products, Inc. (“Avon”), reporting directly to Avon's Board of Directors (the “Board”).  Your employment with Avon as Chief Executive Officer shall commence on April 23, 2012 (unless otherwise mutually agreed) and shall continue until terminated by either party as set forth herein.   As Chief Executive Officer, you shall have such duties and authority, consistent with your position, as shall be determined from time to time by the Board.  You will also be included as a nominee for election to the Board at each annual shareholders meeting which occurs while you are serving as Chief Executive Officer, in accordance with Avon's Corporate Governance Guidelines.  During your employment with Avon, your principal place of employment shall be at Avon's principal headquarters in New York, New York and you will devote your full business time and best efforts to the performance of your duties to Avon, and will not engage in any other business, profession or occupation for compensation or otherwise that would conflict with or interfere with the rendition of such services directly or indirectly; provided that you shall not be precluded from accepting or continuing appointment to any corporate board of directors or  board of directors or trustees of any charitable or civic organizations, subject, in each case, to Avon's Corporate Governance Guidelines; provided in each case, and in the aggregate, that such activities do not conflict or interfere with the performance of your duties to Avon or conflict with your Restrictive Covenants (as defined below).
Your annual base salary will be $1,200,000, payable in regular installments in accordance with Avon's usual payment practices. Although this salary is quoted on an annual basis, it does not imply a specific period of employment.  Your annual base salary shall be subject to such increases, if any, as may be determined in the discretion of the Compensation Committee of the Board (the “Compensation Committee”).  Your annual base salary, as in effect from time to time, is hereinafter referred to as the “Base Salary”. 
You will be eligible to participate in Avon's annual incentive program available to senior executives beginning with the 2012 plan year. Your annual target award under the annual incentive program will be 150% of your Base Salary, with the opportunity for a maximum payout of 200% of target. Annual awards are contingent on relevant individual and business performance goals being achieved. Payment in respect of your annual incentive award, if any, will be made in the calendar year following the year in respect of which such annual incentive award is earned at the same time when annual incentive

Ms. Sherilyn S. McCoy

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awards are generally paid to Avon's other senior executives. 
You will be eligible to participate in the long-term incentive program available to Avon's senior executives beginning in 2012. You will receive your first regular award with respect to the 2012-2014 performance cycle upon the date of your commencement of employment with Avon (the “Commencement Date”). Long-term incentives are currently delivered 70% in performance-based restricted stock units (“PRSUs”) granted under Avon's 2010 Stock Incentive Plan (the “2010 SIP”), and 30% in performance-based cash; however, Avon may change the composition of long-term incentive awards for future years' grants. PRSUs are generally settled in shares of Avon common stock. The number of PRSUs that vest and the payout percentage for performance cash are subject to performance against pre-set goals. Cycles are generally three years in duration. The Compensation Committee has approved a target long-term incentive award to you for 2012 valued at 600% of your Base Salary (i.e., $7,200,000) with terms and conditions consistent with those applicable to the 2012 long-term incentive awards that have been granted to Avon's other senior executives. In each future year during which you remain employed with Avon, we expect to make additional annual long-term incentive grants to you with an aggregate annual value of 600% of your Base Salary in effect from time to time, in such form and subject to such terms and conditions as the Compensation Committee may determine at the time of grant.  For purposes of any long-term incentive awards granted to you by Avon as described in this paragraph, you will be deemed “Retirement” eligible for purposes of any such outstanding awards from and after the 5th anniversary of the Commencement Date.
We recognize that you will be forfeiting a significant amount of value in unvested equity and other benefits when you leave your current employer. In order to help offset this loss, Avon's Compensation Committee has approved granting to you (i) a special time-based award of 200,000 restricted stock units (the “Sign-On RSUs”), (ii) a deferred cash award with an initial value of $850,000 (the “DCA”) and (iii) a sign-on bonus of $1,910,000, subject to the recoupment provisions described below (the “Sign-On Bonus”). The Sign-On RSUs will vest and be paid to you in five equal annual installments on each of the first five anniversaries of the Commencement Date, and the DCA will vest and be paid to you in full upon the fifth anniversary of the Commencement Date, in each case, subject generally to your continued employment with Avon through the applicable vesting dates and, in each case, subject to accelerated vesting and payment in full in the event of your Severance Termination (as defined below) or in the event of your death or termination of employment due to “Disability” (as defined in the 2010 SIP). The Sign-On Bonus will be paid to you in cash within 5 days following the Commencement Date; provided, however, that you will be obligated to repay to Avon the “unvested portion” of your Sign-On Bonus within 5 days following any termination of your employment with Avon other than a Severance Termination or a termination due to death or Disability.  For purposes of the preceding sentence, the “unvested portion” of your Sign-On Bonus will initially be 100%, with the remaining unvested portion lapsing in 20% installments on each of the first five anniversaries of the Commencement Date, subject to your continued employment with Avon through such anniversary dates.  Your Sign-On RSUs will be paid/settled in shares, or at the election of Avon, in cash of equivalent value if and when they 

Ms. Sherilyn S. McCoy

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vest as described above.  The DCA will be paid/settled in cash (increased by interest at the rate of 3.25% per annum, compounded annually) if and when the DCA vests as described above. 
As a senior executive of Avon, you will need to adhere to stock ownership guidelines, which encourage executive share ownership and align executive interests with those of shareholders consistent with best practices among high-performing companies. You will be required to own Avon stock equal to six times your Base Salary within five years from the Commencement Date.  You further acknowledge and agree that you will be subject to Avon's compensation recoupment (i.e., “clawback”) policy, as in effect from time to time, with respect to compensation awards that you receive from Avon.
In order to assist with your relocation to the New York City area, Avon will provide you with a suitable executive apartment or equivalent hotel suite in Manhattan for up to 6 months following the Commencement Date, while you are employed with us.  Additionally, you will be afforded benefits under Avon's relocation policy applicable to other senior executives.  Thereafter, to the extent you reasonably request further support from Avon with respect to lodging in New York City, you and Avon will discuss in good faith the nature and scope of any such additional support.
You will be eligible to participate in the benefit programs generally available to all Avon senior executives. Accordingly, you will be eligible for our health and welfare benefits such as medical, dental, vision and long-term disability plans as of your date of hire. In addition, you will be eligible to participate in Avon's retirement plans on the same basis as similarly situated senior executives, including with respect to participation under the Avon Personal Savings Account Plan (Avon's 401(k) plan), the Avon Products, Inc. Personal Retirement Account Plan (the “PRA”) and Avon's Benefit Restoration Pension Plan (“BRP”).  For purposes of your pension benefit accruals under the PRA and the BRP, you will be credited with an additional 2% of eligible compensation per year beyond the normal applicable contribution percentages under such plans (with such excess PRA contributions credited under the BRP).  Your eligibility for and pension benefit accruals under, the BRP will commence and be fully vested from and after the Commencement Date, and, to the extent that any pension benefits that you would have earned under the PRA are unvested and therefore forfeited at the time of your termination of employment with Avon, any such forfeited pension benefits will be provided to you as an additional benefit under the BRP.
You will also be covered under other Avon compensation plans and policies and perquisite arrangements in which similarly situated Avon senior executives participate, including, without limitation, Avon's plans and policies for senior executives with respect to (i) financial planning and tax preparation services and (ii) executive health exams.  Additionally, you will be provided with use of a car and driver and NetJets (or equivalent) plane usage, in each case, to the extent practicable and for business purposes only, and a home security system.  The car and driver provided to you as described in the preceding sentence will be made available to you on a similar basis as provided to Avon's prior Chief Executive Officer, as reasonably needed for you to conduct business in connection with your commute between your New Jersey residence and Manhattan.

Ms. Sherilyn S. McCoy

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You will be eligible for four weeks of vacation on the same basis as provided generally to similarly situated senior executives of Avon. If you leave Avon's employment you will be paid for any unused vacation earned and not used through your termination date.
Except as modified by this letter agreement, you will be eligible to receive severance in the form of salary continuation under Avon's Severance Pay Plan, as amended from time to time (the “Severance Plan”) and with severance payments to be made during the 24 month period following your separation from service with Avon in accordance with Avon's customary payroll practices.  You shall be entitled to receive severance payments and benefits under the Severance Plan in the event of your “Severance Termination”, as defined below.  In the event of your Severance Termination prior to the 3rd anniversary of the Commencement Date, your cash severance payments will equal the sum of two-times your Base Salary and two-times an amount equal to your then current annual target bonus, paid over the 24 month severance period provided under the terms of the Severance Plan.  In the event of your Severance Termination on or after the 3rd anniversary of the Commencement Date, your cash severance benefit under the Severance Plan shall be limited to the amounts generally paid to Avon's senior executive officers as severance (currently, 24 months' Base Salary), but in no event less than 24 months' Base Salary.  Please note that payment of your severance benefits will be in accordance with the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), including any applicable six-month delay for certain payments made upon a separation from service as set forth in Section 5.2 of the Severance Plan. In order to be eligible for severance benefits, you will be required to sign a general release of all claims at the time and in the manner described in the Severance Plan (and in any event, within 30 days following your separation from service with Avon) with severance payments commencing (subject to the six-month wait period) effective on such 30th day; provided, however, that you shall not release Avon of its obligations to indemnify you or cover you under Avon's director and officer liability insurance policy. Additionally, you acknowledge and agree that you will be considered a “Selected Exempt Eligible Employee” within the meaning of the Severance Plan and, accordingly, you will be subject to the noncompetition and nonsolicitation provisions described under Sections 5.5 and 5.6 of the Severance Plan (which are incorporated herein by reference and which, together with the confidentiality restrictions described below, are referred to as the “Restrictive Covenants”).
As used herein, the term “Good Reason” has the meaning assigned to such term under Avon's Change in Control Policy, as amended from time to time (the “CIC Policy”), determined without regard to the requirement under the CIC Policy that a termination for Good Reason must occur within two years following a Change in Control (as defined in the CIC Policy); provided, however, that the term “Good Reason” shall also include a material breach by Avon of this letter agreement for which you have provided written notice to Avon within 90 days of the initial existence of such material breach and which Avon has failed to cure within 30 days thereafter.  As used herein, the term “Severance Termination” means (i) an involuntary termination of your employment by Avon other than due to (x) your disability (as defined in Avon's long-term disability plan) or (y) a “Summary Dismissal”, as defined in the CIC Policy, or (ii) a termination of your employment by you for Good Reason, as defined above.

Ms. Sherilyn S. McCoy

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You will also be a covered participant under the CIC Policy; provided, however, that for purposes of payments and other benefits under the CIC Policy, in the event of your “Qualifying Termination” (as defined in the CIC Policy), your applicable severance multiple will be 3 (rather than 2) and applicable continuation periods shall be 3 years (rather than 2 years).
In the event that Avon rescinds this offer letter agreement prior to the Commencement Date other than due to your failure to satisfy the Employment Conditions (as defined below), you shall be entitled to receive cash payments from Avon equal to the cash amounts and the value of any non-cash benefits that you would have been entitled to receive from Avon in the event your employment had been terminated due to a Severance Termination immediately following the Commencement Date (including, without limitation, accelerated vesting of Sign-On RSUs and the DCA and payment in respect of your Sign-On Bonus); provided, however, that if (i) any such rescission is made at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or otherwise arises in anticipation of a Change in Control and (ii) such Change in Control transaction actually occurs, then the cash payments that you shall be entitled to receive will be equal to the cash amounts and the value of other benefits that you would have received in the event of a Qualifying Termination immediately following the Commencement Date (including, without limitation, accelerated vesting of Sign-On RSUs and the DCA and payment in respect of your Sign-On Bonus).
In the event that any amount or benefit paid or distributed to you by Avon or its affiliates, whether pursuant to this letter agreement or otherwise (collectively, the “Covered Payments”), is or becomes subject to the tax (the “Excise Tax”) imposed under Section 4999 of the Code, then the Covered Payments will be reduced to the extent necessary so that no portion of the Covered Payments is subject to the Excise Tax (the “Reduced Amount”); provided that such amounts shall not be so reduced if, without such reduction, you would be entitled to receive and retain, on a net after tax basis (including, without limitation, after any Excise Taxes), an amount that is greater than the amount, on a net after tax basis, that you would be entitled to retain upon receipt of the Reduced Amount.  If the determination made pursuant to this paragraph results in a reduction of the payments that would otherwise be paid to you except for the application of this paragraph, such reduction in payments will be first applied to reduce any cash severance payments that you would otherwise be entitled to receive and will thereafter be applied to reduce other payments and benefits in a manner that would not result in subjecting you to additional taxation under Section 409A of the Code.
You shall hold in a fiduciary capacity for the benefit of Avon all secret or confidential information, knowledge or data, including without limitation all trade secrets, relating to Avon or its affiliates, and their respective businesses (i) obtained by you during your employment by Avon or its affiliates and (ii) which is not otherwise publicly known (other than by reason of an unauthorized act by you).  After termination of your employment with Avon, you shall not, without the prior written consent of Avon, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than Avon and those designed by it. 
Your employment at Avon is contingent upon your passing a satisfactory background investigation, reference checks, compliance with immigration law and passing a drug screening 

Ms. Sherilyn S. McCoy

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test (the “Employment Conditions”). As you may be aware, immigration law requires that Avon verify the employment authorization status of all new employees. Therefore, on your first day you will be asked to provide documents which establish your identity and employment eligibility. We will forward a list of acceptable documents for verification purposes in due course.
Avon maintains a drug free work environment and requires that all new hires pass a drug screen as a condition of employment. The results of this test must be received prior to your date of employment; you should allow 3-4 business days for the results to be processed.
Your employment with Avon hereunder shall constitute “at will” employment and may be terminated by you or Avon at any time (subject to Avon's obligations to you set forth herein and under the programs in which you participate described herein); provided that you will be required to give Avon 60 days advance notice of any resignation of your employment with Avon (other than for Good Reason as described above).
Avon may withhold from any amounts payable hereunder such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
You hereby represent to Avon that you are not subject to any restrictive covenants with respect to employment other than those covenants disclosed to Avon in writing prior to the date hereof.  Additionally, you hereby covenant and represent to Avon that you will not, during the course of your employment with Avon, seek to utilize any trade secrets or confidential or proprietary information belonging to one of your prior employers.
Avon will promptly pay directly or reimburse you for all reasonable attorneys fees and financial advisor fees incurred in connection with the negotiation and finalization of this letter agreement, not to exceed $75,000 in the aggregate.
Sheri, we very much look forward to your joining Avon. We are confident your career at Avon will be rewarding. If you have any questions, please feel free to call either of us.

Ms. Sherilyn S. McCoy

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This letter agreement constitutes the entire agreement between you and Avon regarding the terms and conditions of your employment with Avon; shall be governed by and construed in accordance with the laws of the State of New York, applied without reference to principles of conflicts of laws; and may be executed in one or more counterparts, each of which shall constitute an original with the same effect thereto and hereto were upon the same instrument.
Sincerely,
	
					
	/s/ Fred Hassan
	 
	 
	 
	 

	 
	 
	 
	 
	 

	Fred Hassan, on behalf of the Board
	 
	 

	 
	 
	 
	 
	 

	/s/ Maria Elena Lagomasino
	 
	 
	 
	 

	 
	 
	 
	 
	 

	Maria Elena Lagomasino, on behalf of the Board
	 
	 

	 
	 
	 
	 
	 

	Accepted and Agreed to:
	 
	 
	 
	 

	/s/ Sherilyn S. McCoy
	 
	April 4, 2012
	 
	 

	 
	 
	 
	 
	 

	Sherilyn S. McCoy
	 
	DateEx 10.1 Employment Agreement

Exhibit 10.1
EMPLOYMENT AGREEMENT
(Farmer Bros. Co. / Mortensen)
                                                          

This Employment Agreement (“Agreement”) is made and entered into as of April 4, 2012 between FARMER BROS. CO., a Delaware corporation (the “Company”), and THOMAS W. MORTENSEN (“Mortensen”), who agree as follows:

1.    Employment:  The Company hereby employs Mortensen, and Mortensen accepts employment from the Company, on the terms and conditions herein stated.

2.    Term of Employment:  The term of Mortensen’s employment under this Agreement will commence on April 1, 2012 (the “Commencement Date”) and shall end when terminated under Section 7 below.

3.    Duties:  Mortensen shall serve as the Company’s Senior Vice President, Route Sales, reporting to the Chief Executive Officer (“CEO”).  As such, his general responsibilities include oversight of the Company’s route-sales operations, which includes the Company’s traditional sales routes, office-coffee sales routes, equipment service technicians, and the Company’s network of sales branches.  In addition to his general responsibilities, Mortensen shall also perform such other management duties as are directed by the Company’s CEO or Board of Directors (“Board”).  Mortensen shall devote to the Company’s business substantially all of his working time. Service as a director of for-profit organizations shall require approval of the Board.  

4.    Base Salary: Mortensen shall receive an annual base salary of $250,000 payable in accordance with the Company’s normal payroll practice.  The annual base salary amount shall be reviewed annually by the Company and can be adjusted upward or downward by the Company from time to time but shall not be reduced below $250,000 per annum.

5.    Bonuses:  Mortensen shall be entitled to participate in the Company’s 2005 Incentive Compensation Plan or any successor plan (“Plan”) each year, commencing with the Company’s 2012 fiscal year, so long as the Plan remains in effect and one or more of the Company’s other executive officers who are full-time Company employees (“Senior Executives”) also participate.  Under the terms of the Plan, the Compensation Committee will, in its discretion, determine the Performance Criteria and all other variables by which Mortensen’s bonus for such year will be measured.  The Target Award, as defined in the Plan, shall be an amount equal to fifty percent (50%) (the “Applicable Percentage”) of Mortensen’s base annual salary, except that the Applicable Percentage for fiscal 2012 shall be 12.5% to reflect a proration for Mortensen’s Commencement Date.  Performance criteria for Mortensen’s fiscal 2012 Target Award shall be determined by the Compensation Committee, in consultation with management, after the Commencement Date.  Except as provided otherwise in this Section 5, Mortensen’s participation in the Plan is subject to all Plan terms and conditions.  Under the terms of the Plan, no bonus is earned until awarded by the Compensation Committee after completion of the fiscal year, and the Compensation Committee may, in its discretion, reduce, entirely eliminate or increase the bonus indicated by the Performance Criteria and other Plan factors.  Mortensen acknowledges receipt of a copy of the Plan. 

		
	6.
	Benefits:

A.    The Company will provide to Mortensen all benefits and perquisites provided by the Company from time to time to its Senior Executives, subject to the eligibility requirements and the terms and conditions of the benefit plans and perquisite policies.  For the avoidance of doubt, Mortensen’s benefit package includes thirty (30) days paid vacation per contract year (i.e., the year ending on each anniversary of the Commencement Date) but excludes participation in the Company’s defined benefit pension plan.  Other included benefits and perquisites presently consist of group health insurance (PPO or HMO), participation in the Company’s 2007 Omnibus Plan as provided below, life insurance, key person life insurance, business travel insurance, 401(k) plan, employee stock ownership plan, cell phone, company credit card, and expense reimbursement, and may include use of an automobile or an automobile allowance in accordance with Company policy for Senior Executives which is presently being revised.  Not all of the foregoing benefits are 100% Company paid.

B.    Mortensen shall be entitled to participate in the Company’s 2007 Omnibus Plan as administered by the Company’s Compensation Committee.  In accordance with the provisions of the Farmer Bros. Co. 2007 Omnibus Plan (the “2007 Omnibus Plan”), on the Commencement Date or, if such day falls within a regular blackout period under the Company’s Insider Trading Policy (“Blackout Period”), on the first business day following the end of such Blackout Period (the “Award Date”), the Company will make the following equity awards to Mortensen: 20,000 non-qualified stock options and 10,000 shares of restricted stock.  The strike price of the options will be the closing price of the Company’s stock on such date.  The terms and conditions of the options and restricted stock shall be the same as those applicable to the grants made to the Company’s Senior Executives in fiscal 2010.  Mortensen shall be entitled to such future grants under the 2007 Omnibus Plan as are awarded to him by the Compensation Committee from time to time in its discretion.

C.    The Company reserves the right to alter or discontinue any or all such benefits and perquisites, provided they are so altered or discontinued as to all Senior Executives.

7.    Termination: 

A.    Mortensen’s employment is terminable by the Company for good and sufficient cause (“Cause”) which shall consist only of: (i) a repeated refusal to follow reasonable directions from the CEO or Board after a warning; (ii) a material breach of any of Mortensen’s fiduciary duties to the Company (a breach involving dishonesty or personal gain shall be deemed material regardless of the amount involved); (iii) conviction of a felony; (iv) commission of a willful violation of any law, rule or regulation involving moral turpitude; (v) commission of a willful or grossly negligent act, omission or course of conduct which has a material adverse effect on the Company; or (vi) commission of a material breach by Mortensen of this Agreement which breach, if curable, is not cured within a reasonable time after written notice from the CEO or Board describing the nature of the breach in reasonable detail.

B.    Mortensen’s employment shall terminate upon Mortensen’s resignation, with or without “Good Reason,” as defined below, death or permanent mental or physical incapacity.  “Permanent Incapacity” shall be deemed to have occurred if Mortensen has been unable to perform substantially all of his employment duties under Section 3 on a substantially full time basis by reason of a mental or physical condition for a period of ninety (90) consecutive days or for more than one 

hundred eighty days (180) in any period of three hundred sixty-five (365) consecutive days. 

“Good Reason” shall consist only of (i) the Company’s material breach of this Agreement, (ii) a material reduction in Mortensen’s responsibilities, duties or authority, or (iii) a material relocation of Mortensen’s principal place of employment more than fifty (50) miles from its present location; provided, however, that any such condition shall not constitute “Good Reason” unless both (x) Mortensen provides written notice to the Company describing the condition claimed to constitute Good Reason in reasonable detail within ninety (90) days of the initial existence of such condition, and (y) the Company fails to remedy such condition within thirty (30) days of receiving such written notice thereof; and provided, further, that in all events the termination of Mortensen’s employment with the Company shall not be treated as a termination for “Good Reason” unless such termination occurs not more than one (1) year following the initial existence of the condition claimed to constitute “Good Reason.”

C.    Mortensen’s employment shall terminate at the election of the Company at any time without Cause.

8.    Payments upon Termination:  The following amounts are payable upon termination of Mortensen’s employment, as applicable:

A.    In the event of a termination for any reason, base salary at the then existing rate, shall be prorated and paid through the effective termination date, along with accrued and untaken vacation (subject to the Company’s vacation policy).  If termination is due to Mortensen’s death or Permanent Incapacity, the Company shall also pay to Mortensen upon termination an additional lump sum severance amount equal to the Target Award under the Company’s 2005 Incentive Compensation Plan which is applicable to Mortensen for the fiscal year in which termination is effective or, if termination takes place before a Target Award for the then current fiscal year has been assigned to Mortensen, the Applicable Percentage of Mortensen’s then annual base salary, in either case prorated for the partial fiscal year ending on the effective termination date. 

B.    If termination occurs at the election of the Company without Cause or by Mortensen’s resignation with Good Reason: Mortensen will receive as severance (i) an amount equal to his base salary at the rate in effect on the date of termination for a period of twelve (12) months, (ii) partially Company-paid COBRA coverage under the Company’s health care plan for himself and his spouse for one (1) year after the effective termination date (the Company will pay the same percentage of the coverage cost that it would have paid had Mortensen’s employment not terminated) and (iii) an amount equal to one hundred percent (100%) of Mortensen’s Target Award for the fiscal year in which the date of termination occurs (or, if no Target Award has been assigned to Mortensen as of the date of termination, the average bonus paid by the Company to Mortensen for the last three (3) completed fiscal years or for the number of completed fiscal years that Mortensen has been in the employ of the Company if fewer than three, prior to the termination date), such amount to be prorated for the partial fiscal year in which the termination date occurs.  Mortensen is not obligated to seek other employment as a condition to receipt of the payments called for by this Section 8B, and Mortensen’s earnings, income or profits from other employment or business activities after termination of his employment shall not reduce the Company’s payment obligations under this Section 8B.  Subject to Section 8C and Section 12J(ii), the amount referred to in clause (i) above shall be paid in installments in accordance with the Company’s standard payroll practices commencing in the month following the month in which Mortensen’s Separation from Service occurs, 

and the amount referred to in clause (iii) above shall be paid in a lump sum within thirty (30) days after the end of the Company’s fiscal year in which Mortensen’s Separation from Service occurs.  As used herein, a “Separation from Service” occurs when Mortensen dies, retires, or otherwise has a termination of employment with the Company that constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.  Salary continuation payments shall commence, and the additional severance amount shall be paid, only when the release required by Section 8C below has become effective. 

C.    As a condition to receiving the applicable payments under Section 8B above, Mortensen must execute and deliver to the Company within twenty-one (21) days following the termination of his employment (or such longer period as may be required under applicable law) a general release of claims against the Company other than claims to the payments called for by this Agreement, such release to be in form and content substantially as attached hereto as Exhibit A, and said release shall have become effective under applicable laws, including the Age Discrimination in Employment Act of 1967, as amended.

D.    All benefits other than the entitlement to payments under Section 8B shall terminate automatically upon termination of Mortensen’s employment except to the extent otherwise provided in the Company benefit plans or by law.

E.    Except as provided in this Section 8 or by applicable Company benefit plans or laws, Mortensen shall not be entitled to any payments of any kind in connection with the termination of his employment by the Company.

9.    Employee Handbook and Company Policies: So long as he is employed by the Company, Mortensen shall comply with, and shall be entitled to rights as set forth in the Company’s Employee Handbook which may be revised from time to time and other Company policies as in effect and communicated to Mortensen from time to time.  In the event that there is a conflict or contradiction between the contents of the Employee Handbook or other such Company policies and the provisions of this Agreement, then the provisions of this Agreement will prevail. 

10.    Confidential Information, Intellectual Property:  

A.    Mortensen acknowledges that during the course of his employment with the Company, he will be given or will have access to non-public and confidential business information of the Company which will include information concerning pending or potential transactions, financial information concerning the Company, information concerning the Company’s product formulas and processes, information concerning the Company’s business plans and strategies, information concerning Company personnel and vendors, and other non-public proprietary information of the Company (all collectively called “Confidential Information”).  All of the Confidential Information constitutes “trade secrets” under the Uniform Trade Secrets Act.  Mortensen covenants and agrees that during and after the term of his employment by the Company he will not disclose such information or any part thereof to anyone outside the Company or use such information for any purpose other than the furtherance of the Company’s interests without the prior written consent of the CEO or Board. 

B.  Mortensen further covenants that for a period of two (2) years after his 

employment by the Company terminates, he will not, directly or indirectly, overtly or tacitly, induce, attempt to induce, solicit or encourage (i) any customer or prospective customer of the Company to cease doing business with, or not to do business with, the Company or (ii) any employee of the Company to leave the Company.

C.  The Company and Mortensen agree that the covenants set forth in this Section 10 are reasonably necessary for the protection of the Company’s Confidential Information and that a breach of the foregoing covenants will cause the Company irreparable damage not compensable by monetary damages, and that in the event of such breach or threatened breach, at the Company’s election, an action may be brought in a court of competent jurisdiction seeking a temporary restraining order and a preliminary injunction against such breach or threatened breach notwithstanding the arbitration and reference provisions of Section 12F below.  Upon the court’s decision on the application for a preliminary injunction, the court action shall be stayed and the remainder of the dispute submitted to arbitration or reference under Section 12F.  The prevailing party in such legal action shall be entitled to recover its costs of suit including reasonable attorneys’ fees. 

D.    The Company shall own all rights in and to the results, proceeds and products of Mortensen’s services hereunder, including without limitation, all ideas and intellectual property created or developed by Mortensen and which is related to Mortensen’s employment.

11.    Integration with Change in Control Severance Agreement:  If Mortensen becomes eligible for benefits under Section 3 of the Change in Control Severance Agreement executed concurrently herewith, the benefits provided by Section 4 of that Agreement shall be in lieu of, and not in addition to, the benefits provided by Section 8B of this Agreement.

12.    Miscellaneous: 

A.    This Agreement and the Change in Control Severance Agreement and Indemnification Agreement entered into concurrently herewith contain the entire agreement of the parties on the subject of Mortensen’s employment by the Company, all prior and contemporaneous agreements, promises or understandings being merged herein. This Agreement can be modified only by a writing signed by both parties hereto. 

B.    Mortensen cannot assign this Agreement or delegate his duties hereunder. Subject to the preceding sentence, this Agreement shall bind and inure to the benefit of the parties hereto, their heirs, personal representatives, successors and assigns. 

C.    No waiver of any provision or consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided.  This Agreement may be executed in counterparts (and by facsimile signature), each of which shall be deemed an original but all of which together shall constitute one and the same agreement.

D.    Each party shall execute and deliver such further instruments and take such other action as may be necessary or appropriate to consummate the transactions herein contemplated and to carry out the intent of the parties hereto. 

E.    This Agreement shall be construed in a fair and reasonable manner and not 

pursuant to any principle requiring that ambiguities be strictly construed against the party who caused same to exist. 

F.    (i)    All disputes arising under or in connection with this Agreement, shall be submitted to a mutually agreeable arbitrator, or if the parties are unable to agree on an arbitrator within fifteen (15) days after a written demand for arbitration is made by either party, to JAMS/Endispute (“JAMS”) or successor organization, for binding arbitration in Los Angeles County by a single arbitrator who shall be a former California Superior Court judge.  Except as may be otherwise provided herein, the arbitration shall be conducted under the California Arbitration Act, Code of Civil Procedure 1280 et seq.  The parties shall have the discovery rights provided in Code of Civil Procedure 1283.05 and 1283.1.  The arbitration hearing shall be commenced within ninety (90) days after the selection of an arbitrator by mutual agreement or, absent such mutual agreement, the filing of the application with JAMS by either party hereto, and a decision shall be rendered by the arbitrator within thirty (30) days after the conclusion of the hearing. The arbitrator shall have complete authority to interpret this Section 12F and to render any and all relief, legal and equitable, appropriate under California law, including the award of punitive damages where legally available and warranted. The arbitrator shall award costs of the proceeding, including reasonable attorneys’ fees and the arbitrator’s fee and costs, to the party determined to have substantially prevailed.  Judgment on the award can be entered in a court of competent jurisdiction.

(ii)    The foregoing notwithstanding, if the amount in controversy exceeds $200,000, exclusive of attorneys’ fees and costs, the matter shall be litigated in the Los Angeles County Superior Court as a regular non-jury civil action except that a former California Superior Court Judge selected by the parties or by JAMS, as hereinabove provided, shall be appointed as referee to try all issues of fact and law, without a jury, pursuant to California Code of Civil Procedure §638 et seq.  The parties hereto expressly waive a trial by jury. Judgment entered on the decision of the referee shall be appealable as a judgment of the Superior Court.  The prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs from the other party. 

G.    Payments to Mortensen are subject to payroll deductions and withholdings if and to the extent required by law.  Salary payments will be reduced on a dollar-for-dollar basis by payments received by Mortensen for disability under governmental or Company paid disability insurance programs.  Payments to Mortensen under Section 8B are conditioned upon his continuing compliance with Sections 10A and 10B.

H.    All provisions of this Agreement which must survive the termination of this Agreement to give them their intended effect shall so survive.

I.    If any provision of this Agreement is determined to be unenforceable as illegal or contrary to public policy, it shall be deemed automatically amended to the extent necessary to render it enforceable provided the intent of the parties as expressed herein will not thereby be frustrated.  Otherwise the unenforceable provision shall be severed from the remaining provisions which shall remain in effect.

J.    (i)    It is intended that any amounts payable under this Agreement shall either be exempt from or comply with Section 409A of the Internal Revenue Code (including the Treasury regulations and other published guidance relating thereto) (“Code Section 409A”) so as not to subject Mortensen to payment of any additional tax, penalty or interest imposed under Code 

Section 409A.  The provisions of this Agreement shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Code Section 409A yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Mortensen.

(ii)    Notwithstanding any provision of this Agreement to the contrary, if Mortensen is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of Mortensen’s Separation from Service, Mortensen shall not be entitled to any payment or benefit pursuant to Section 8B until the earlier of (i) the date which is six (6) months after Mortensen’s Separation from Service for any reason other than death, or (ii) the date of Mortensen’s death.  Any amounts otherwise payable to Mortensen upon or in the six (6) month period following Mortensen’s Separation from Service that are not so paid by reason of this Section 12K(ii) shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after Mortensen’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of Mortensen’s death).  The provisions of this Section 12J(ii) shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Code Section 409A.

(iii)    To the extent that any benefits pursuant to Section 8B(ii) or reimbursements pursuant to Section 6 are taxable to Mortensen, any reimbursement payment due to Mortensen pursuant to such provision shall be paid to Mortensen on or before the last day of Mortensen’s taxable year following the taxable year in which the related expense was incurred.  The benefits and reimbursements pursuant to such provisions are not subject to liquidation or exchange for another benefit and the amount of such benefits and reimbursements that Mortensen receives in one taxable year shall not affect the amount of such benefits or reimbursements that Mortensen receives in any other taxable year.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

COMPANY:                FARMER BROS. CO.,
a Delaware corporation

By:/s/ MICHAEL H. KEOWN    
Michael H. Keown
President and Chief Executive Officer

MORTENSEN:
By:/s/ THOMAS W. MORTENSEN        
Thomas W. Mortensen

EXHIBIT A
RELEASE AGREEMENT
                                                     

I understand that my position with Farmer Bros. Co. (the “Company”) terminated effective ___________, 20__ (the “Separation Date”).  The Company has agreed that if I choose to sign this Agreement, the Company will pay me severance benefits (minus the standard withholdings and deductions) pursuant to the terms of the Employment Agreement entered into as of _______________, 2012 between myself and the Company.  I understand that I am not entitled to this severance payment unless I sign this Agreement.  I understand that in addition to this severance, the Company will pay me all of my accrued salary and vacation, to which I am entitled by law regardless of whether I sign this release.

In consideration for the severance payment I am receiving under this Agreement, I acknowledge and agree that I am bound by the provisions of Sections 10A and 10B of my Employment Agreement and hereby release the Company and its current and former officers, directors, agents, attorneys, employees, shareholders, and affiliates from any and all claims, liabilities, demands, causes of action, attorneys’ fees, damages, or obligations of every kind and nature, whether they are known or unknown, arising at any time prior to the date I sign this Agreement.  This general release includes, but is not limited to: all federal and state statutory and common law claims related to my employment or the termination of my employment or related to breach of contract, tort, wrongful termination, discrimination, wages or benefits, or claims for any form of compensation.  This release is not intended to release any claims I have or may have against any of the released parties for (a) indemnification as a director, officer, agent or employee under applicable law, charter document or agreement, (b) severance and other termination benefits specifically provided for in my Employment Agreement which constitutes a part of the consideration for this release, (c) health or other insurance benefits based on claims already submitted or which are covered claims properly submitted in the future, (d) vested rights under pension, retirement or other benefit plans, or (e) in respect of events, acts or omissions occurring after the date of this Release Agreement.  In releasing claims unknown to me at present, I am waiving all rights and benefits under Section 1542 of the California Civil Code, and any law or legal principle of similar effect in any jurisdiction:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”).  I also acknowledge that the consideration given for the waiver in the above paragraph is in addition to anything of value to which I was already entitled.  I have been advised by this writing, as required by the ADEA that: (a) my waiver and release do not apply to any claims that may arise after my signing of this Agreement; (b) I should consult with an attorney prior to executing this release; (c) I have twenty-one (21) days within which to consider this release (although I may choose to voluntarily execute this release earlier); (d) I have seven (7) days following the execution of this release to revoke the Agreement; and (e) this Agreement will not be effective until the eighth day after this Agreement has been signed both by me and by the Company.

I accept and agree to the terms and conditions stated above:

                                        
Thomas W. Mortensen

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