Document:

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 further
the Company’s profitability by providing an incentive and reward to key
management employees of the Company who through industry, ability, teamwork
with other key management employees and exceptional service contribute
materially to the success of the Company, and by enhancing the Company’s
ability to attract and retain in its employ key personnel upon whose efforts
the success of the Company is dependent.  The Company desires to adopt this Plan to:
provide awards based on the achievement of corporate goals and specifically
measured individual goals that are consistent with and support the Company’s
overall business strategies and objectives; provide Participants with an
incentive for excellence in individual performance; and promote teamwork.  This Plan entirely supersedes the Company’s
1982 Incentive Compensation Plan (“1982 Plan”).

 

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

 

(a)           “Plan” means
this Farmer Bros. Co. 2005 Incentive Compensation Plan, as it may be amended
from time to time.

 

(b)           “Company” means
Farmer Bros. Co., a Delaware corporation, and includes the Company’s
subsidiaries 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 may
be 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 financial
reporting purposes.

 

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

 

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

 

(h)           “Award” means a
Current Award or Deferred Award made by the Committee pursuant to section 6
of 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, without
taking into account the following:  (i) any
deferrals of income; (ii) any incentive compensation; or (iii) any
other benefits paid or provided under any of the Company’s other employee
benefit plans.

 

(l)            “Performance
Criteria” means the attainment of specified levels of (or percentage
changes in) financial performance and other corporate and/or individual
objectives as determined by the Committee in its discretion.

 

(i)            Performance Criteria
may measure, without limitation, such financial performance indicators as the
following: 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 of
accounts 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; and
such other financial metrics measured solely in terms of the attainment of
quantitative targets related to the Company’s business.

 

(ii)           Performance Criteria
may also assess, without limitation, attainment of corporate and/or individual
objectives such as customer satisfaction, maintenance of good employee
relations, safety enhancement, improved product quality, systems improvement
and implementation, acquisitions, expansion of product lines, creation of
operating 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 overall
business strategies and objectives.

 

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

 

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

 

(m)          “Target Award” is
defined in Section 5.

 

3.             Amount
Subject to Awards.  The amount
available for Awards under this Plan each Fiscal Year shall be within the
discretion of the Committee.

 

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

 

5.             Performance
Criteria and Target Award.  With
respect to each Participant, the Committee shall establish in writing the
specific Performance Criteria for such Fiscal Year to be achieved by the
Company and/or such Participant in order for such Participant to earn an Award
under this Plan.  The Committee shall
also establish a target Award amount (“Target Award”) for each

 

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Participant based upon the Participant’s past annual
compensation, current salary, job responsibilities and past and expected future
job performance.  The Committee may
consult with senior management executives of the Company and the Plan
Participants in establishing such Performance Criteria and Target Awards to the
extent deemed appropriate by the Committee.  Performance Criteria may vary from Participant
to Participant and between groups of Participants.  The Committee shall for each Fiscal Year establish
a formula or matrix for each Participant pursuant to which his or her Award
shall be determined based upon the degree of achievement of such Performance
Criteria.  This formula or matrix may
take into account Performance Criteria achieved in prior Fiscal Years.  In addition, the relative weight among
specific Performance Criteria shall be determined by the Committee in its
discretion.  The Committee shall inform
each Participant of the Performance Criteria, Target Award and formula or
matrix for determining achievement of the Performance Criteria and calculation
of the Award which are applicable to the Participant’s Award.  The Committee shall have the discretion at any
time to add additional Performance Criteria and to modify any objectives or
performance levels designated in relation to previously established Performance
Criteria.  The Performance Criteria for
each Participant, once established, shall continue for subsequent Fiscal Years
unless modified by the Committee.  Depending on the level of achievement of
applicable Performance Criteria, a Participant’s actual Award can exceed his or
her Target Award.

 

6.             Determination of
Awards.

 

After
the end of each Fiscal Year and promptly upon availability of the Company’s
audited financial statements, the Committee shall review and evaluate the
Performance Criteria applicable to the Fiscal Year for each Participant in
light of the Company’s and/or such Participant’s performance measured in
accordance with such criteria, and shall determine whether and to what extent
the Performance Criteria have been satisfied and the amount of the Award, if
any, to be made to the Plan Participant.  The executive officers of the Company shall
provide all information necessary to enable the Committee to make the
determination promptly following fiscal year-end.  The Committee may in its discretion consult
with such Participant’s immediate supervisor (i.e., responsible Vice President
and/or the President and CEO) with respect to whether any Performance Criteria
measured by such Participant’s individual performance have been achieved.  Achievement of financial Performance Criteria
shall be determined by adding back any past or current Award made under the
Plan or any award under the 1982 Plan which otherwise would affect the result
unless the Committee determines otherwise.  If a Performance Criterion is not susceptible
to objective measurement, the Committee shall determine the level of attainment
in good faith on a subjective basis.  Payment
of Awards, less withholding taxes, shall be made to Participants as provided in
section 7, but only upon the Committee’s certification that the applicable
Performance Criteria have been satisfied and upon determination of the amount
of each Award.  No Award shall be deemed
to be earned under the Plan prior to the Committee’s certification and Award
determination.

 

Notwithstanding
anything contained in this Plan to the contrary and regardless of whether any
or all of the Performance Criteria have been achieved, whether in whole or in
part, the Committee may in its discretion eliminate entirely, reduce, or
increase any Award to a Participant in order to reflect additional
considerations relating to the Company and/or such Participant’s individual
performance.  In determining whether an
Award will be, eliminated, reduced or increased, the Committee shall consider
any 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, restructuring
costs, sales or dispositions of assets and acquisitions, and such Participant’s
individual performance.  Any action by
the Committee under this paragraph shall be conclusive and binding on the
Company and the Participant.

 

7.             Payment of Awards.

 

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

 

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

 

8.             Designation of
Beneficiaries.

 

Each
Participant shall file with the Committee a written designation of the person
or persons who shall be entitled to receive any amounts payable under this Plan
after the Participant’s death.  The
Participant may designate natural persons, charitable institutions, trusts, or
the Participant’s estate as beneficiaries.  A Participant may name one or more contingent
beneficiaries.  Unless otherwise
designated by a Participant, payments shall be divided equally among
co-beneficiaries.  A Participant may from
time to time revoke or change a beneficiary designation without the consent of
any prior beneficiary by filing a new designation with the Committee.  The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant’s death, and in no event shall it be
effective as of a date prior to such receipt.

 

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

 

9.             Administration.

 

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

 

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

 

The
Committee shall consist of two or more members, each of whom shall be appointed
by, shall remain in office at the will of, and may be removed, with or with
cause by the Board of Directors.  Any
member of the Committee may resign at any time.  No member of the Committee shall be entitled
to act on or decide any matter relating solely to himself or any of his rights
or benefits under the Plan.  No member of
the Committee shall be entitled to receive an Award under this Plan while
serving on the Committee or within one year thereafter.  The members of the Committee shall not receive
any special compensation for serving in their capacities as members of the
Committee.  No bond or other security
need be required of the Committee or any member thereof in any jurisdiction.

 

The
procedures for the proceedings of the Committee shall be established by
resolution of the Board of Directors, absent which resolution the procedures
applicable under the Company’s Bylaws to proceedings of the Board of Directors
shall apply to the proceedings of the Committee.

 

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

 

10.           Amendment
or Termination.  The Board of
Directors reserves the right at any time to amend, suspend, or terminate the
Plan in whole or in part and for any reason without the consent of any
Participant or beneficiary; provided that no such action shall adversely affect
the rights of Participants or beneficiaries with respect to Awards made prior
to such action.  Subject to the foregoing
provision, any amendment, modification, suspension, or termination of any
provisions of the Plan may be retroactively applied.

 

11.           General Provisions.

 

Nothing
contained in the Plan shall give any Employee the right to be retained in the
employ of the Company or affect the right of the Company to dismiss any
Employee.  The adoption of the Plan or
designation of an Eligible Employee as a Plan Participant shall not create a
right in any Employee to receive an Award under the Plan.  No Award under the Plan shall be considered as
compensation under any employee benefit plan of the Company except as otherwise
determined by the Committee.

 

If the
Committee shall find that any person to whom any amount is payable under the
Plan is unable to care for his affairs because of illness or accident, or is a
minor, or is under any other disability, then any payment due him (unless a
prior 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 institution
maintaining or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment.  Any such payment shall be a
complete discharge of the liability of the Plan, the Company, and the Committee
therefor.

 

Except
insofar as may otherwise be required by law, no amount payable at any time
under the Plan shall be subject in any manner to alienation by anticipation,
sale, transfer, assignment, bankruptcy, pledge, attachment, charge, or
encumbrance of any kind nor in any manner be subject to the debts or
liabilities of any person and any attempt to so alienate or subject any such
amount, 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 encumber
any amount payable under the Plan, or any part thereof, or if by reason of his
bankruptcy or other event happening at any such time such amount would be made
subject 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 withheld
and that the same or any part thereof be paid or applied to or for the benefit
of such person, his spouse, children or other dependents, or any of them, in
such manner and proportion as the Committee may deem proper.

 

The
Participant shall have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder.  Nothing contained in the
Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship, joint
venture or partnership between the Company and the Employee or any other
person.  To the extent that any person
acquires a right to receive payments from the Company under this Plan, such
right shall be no greater than the right of an unsecured general creditor of
the Company.  All payments to be made
hereunder shall be paid in cash from the general funds of the Company and no
special or separate fund shall be established and no segregation of assets
shall be made to assure payments of such amounts.

 

All
Deferred Awards under the Plan constitute unfunded deferred compensation
arrangements for a select group of key management personnel and all rights
thereunder shall be governed by and construed in accordance with the laws of
California.

 

The
Committee shall make such adjustments as it deems equitable in the event the Company
changes its fiscal year.

 

12.           Effective
Date of the Plan.  This Plan shall be
effective for Awards made for the Fiscal Year ending June 30, 2006.  Awards made for any prior Fiscal Year shall be
governed by the 1982 Plan.

 

6Exhibit 10.6

 

ESOP LOAN AGREEMENT NO. 2

 

This ESOP Loan Agreement No. 2 (the “Second Agreement”) dated as
of July 21, 2003 is entered into by and between FARMER BROS. CO., a
California corporation (“Lender”), and WELLS FARGO BANK, N.A., (the “Trustee”)
as trustee for the FARMER BROS. CO. EMPLOYEE STOCK OWNERSHIP PLAN (the
“Borrower” or the “ESOP”).

 

RECITALS

 

A. The Lender has adopted an employee stock ownership plan to purchase
and hold FARMER BROS. CO. stock on behalf of the eligible employees of Lender. The
ESOP is intended to qualify as an employee stock ownership plan under section
4975(c)(7) of the Internal Revenue Code of 1986, as amended (the “Code”),
and Section 407(d)(6) of the Employee Retirement Income Security Act of
1974, as amended (“ERISA”).  The ESOP
provides that the ESOP may obtain loans to purchase shares of Lender’s
stock.  It is intended that loans made under
this Agreement shall qualify for an exemption under Section 4975(d) of
the Code from being a prohibited transaction under Section 4975(c) of
the Code.

 

B. Pursuant to the ESOP Loan Agreement dated March 28, 2000 as
amended by Amendment No. 1 to ESOP Loan Agreement (“First Agreement”), as
of the date hereof the ESOP has acquired 170,426 shares of the 300,000 shares
of the Company’s common stock for which a loan was authorized by the First
Agreement.

 

C. The provisions for loan advances under the First Agreement expired
on July 31, 2003.

 

D. On July 21, 2003 Lender’s Board of Directors authorized a loan
to the ESOP, without limitation as to amount, to purchase the remainder
(129,574 shares) of the 300,000 originally authorized.  Such remaining shares are called “Shares” herein.

 

E. The ESOP Plan Committee by action dated October 6, 2003 has
authorized the execution of the Second Agreement.

 

ARTICLE 1:  The ESOP Loan

 

1.1 Subject to the terms set forth herein, the Lender agrees to lend to
the Borrower the Principal Amount, or such portion of the Principal Amount as
the Borrower elects to receive from time to time under Section 1.2 of this
Second Agreement (the “Loan”).

 

1.2 During the period commencing with the date hereof and ending on July 31,
2005, the Borrower may elect from time to time to receive from Lender an advance
(an “Advance”). Amounts Advanced and repaid may be reborrowed prior to
July 31, 2005.  An election to
receive an Advance shall be made by the Borrower in writing to the Lender and
shall specify the amount of the Advance requested and the date on which the
Borrower requests that such funds be made available.  Such date shall be no less than three
business days prior to the date the notice of such election is received by the
Lender, unless the Lender in its sole discretion waives such requirement.

 

1.3 The Borrower hereby agrees that it will use the entire proceeds of
each Advance within a reasonable time after receipt to acquire Shares through
open market purchases or from the Lender or any shareholder of Lender.  If for any reason such purchases cannot be
effected within a reasonable time, the Borrower must make a principal
prepayment of the Loan with all such unused proceeds.

 

1.4 Borrower’s indebtedness is evidenced by a Promissory Note of even
date (the “Note”) in the form attached hereto as Exhibit “A”.  The Lender shall

 

1

 

enter upon the schedule attached to the Note the date and principal
amount of each Advance.

 

1.5 Interest shall accrue on the balance of unpaid principal from the
date of each Advance until the payment due date as described in the Note.

 

1.6 To secure payment of the Promissory Note, Borrower grants Lender a security
interest in the Shares purchased with the loan proceeds under the ESOP Pledge
Agreement attached hereto as Exhibit “B”.

 

1.7 The Borrower shall make principal and interest payments to the Lender
according to the terms of the Note.  The
date and amount of each payment, principal or interest, shall be entered on the
schedule to the Note.

 

1.8 The Lender agrees to make contributions to the ESOP in cash or by cancellation
of indebtedness from time to time and in amounts sufficient to permit the
Borrower to make timely repayments of principal and interest due under the
terms of the Note.  Subject to the
preceding sentence, the amount and timing of such contribution(s) shall be
at the sole discretion of the Lender, after considering the amount of each
annual payment of principal and interest, the amount of any cash dividends
received by the ESOP on Lender’s stock and the amount, if any, of non-Lender
investments held by the ESOP.  The Lender
shall not be required to make contributions to the ESOP in amounts in excess of
the limitations under Sections 404(a) and 415 (c) of the Code.  The Borrower agrees that so long as any
interest or principal amount remains payable on the Loan, Borrower will use all
cash contributions, earnings thereon and cash dividends received by the ESOP to
make payments on the Loan. Borrower’s obligation to make payments on the Loan
is limited to the excess of the aggregate of such contributions, earnings and
dividends over prior Loan payments. 
Lender shall have no recourse against Borrower’s assets other than such
excess contributions, earnings and dividends and the Shares then pledged under
the ESOP Pledge Agreement.

 

1.9 The Borrower may prepay principal or interest without premium or
penalty, any such prepayment shall be applied to the principal installments in
the inverse order of maturities.

 

1.10 The ESOP may elect to apply the proceeds from the sale of any
Shares remaining subject to pledge to pay principal and interest due on the
Loan in the event of the termination of the ESOP or if the ESOP ceases to be an
employee stock ownership plan under Section 4975(e)(7) of the Code.

 

ARTICLE 2:  The Borrower
Represents And Warrants As Follows:

 

2.1 The Borrower has duly authorized the execution, delivery and
performance of this Agreement, the Note and the ESOP Pledge Agreement and any
other documents in connection with the Loan. 
These documents that have been or will be executed and delivered
pursuant to this Agreement constitute valid, binding obligations of the ESOP,
each enforceable according to its terms.

 

2.2 The Borrower is an employee stock ownership plan established by the
Lender and has all requisite power and authority, as described in the ESOP plan
document, to execute, deliver and perform its obligations under this Agreement.

 

2.3 All of the proceeds of the Loan will be used by the Trustee to
purchase for the ESOP shares of “employer securities” as defined in Section 409(l) of
the Code, subject to Section1.3 above.

 

2.4 This Agreement is executed by Wells Fargo Bank, N.A. solely in its capacity
as Trustee of the Farmer Bros. Co. Employee Stock Ownership Plan pursuant to
directions from the ESOP.

 

2

 

ARTICLE 3:  The Lender Represents
And Warrants As Follows:

 

3.1 The Lender is a corporation duly incorporated and validly existing
and in good standing under the laws of the State of California.

 

3.2 The Lender has all requisite power and authority to deliver and
perform its obligations under this Agreement. 
The Lender has taken all corporate action to establish the ESOP and to
authorize this Agreement. This Agreement has been duly executed and delivered
by the Lender and is a legal, valid and binding obligation of the Lender.

 

3.3 Neither the execution of this Agreement nor the fulfillment of any
of the Lender’s obligations under this Agreement will conflict with or result
in a breach or violation of or constitute any default under any known rule,
law, regulation, order contract or agreement of the Lender.

 

ARTICLE 4:  Miscellaneous

 

4.1 No amendment or waiver of any provision of the Agreement shall be effective
unless set forth in an instrument in writing and signed by both parties to this
Agreement.

 

4.2 No delay or omission of Lender in exercising any right or remedy
under this Agreement shall impair such right or remedy or be construed to be a waiver
of any default of an acquiescence therein, and any single or partial exercise
of any such right or remedy shall not preclude other or further exercise
thereof or the exercise of any other right or remedy; and no waiver, amendment
or other variation of the terms, conditions or provisions of this Agreement
whatsoever shall be valid unless in writing signed by the Lender, and then only
to the extend such writing specifically set forth.  All rights and remedies described in this
Agreement, the Note or other Loan documents shall be cumulative and all shall
be available to the Lender until all terms and conditions of the debt have been
satisfied.

 

4.3 This instrument, including the Exhibits hereto, is the entire
agreement between the parties hereto with respect to the loan and all
representations, warranties, agreements or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superceded hereby.

 

4.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors or assigns.

 

4.5 Any notice, consent, approval or directions required or permitted
to be given hereunder shall be in writing and shall be deemed duly given and received
upon personal delivery to the addressee stated below or if mailed, forty-eight
(48) hours after deposit in the United States Mail, first class postage and
addressed as required below:

 

“LENDER”

 

Treasurer’s Office

Farmer Bros. Co.

20333 South Normandie Avenue

Torrance, CA 90502

 

“BORROWER”

 

Administrative Committee

Farmer Bros. Co. Employee Stock Ownership Plan

20333 South Normandie Avenue

Torrance, CA 90502

 

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With a copy to “TRUSTEE”

 

Wells Fargo Bank, N.A.

Employee Benefit Trust

707 Wilshire Boulevard

Los Angeles, CA 90017

 

4.6 All Exhibits are incorporated herein.

 

4.7 The Trustee’s personal assets shall not be liable for any act or
omission of the Trustee except in the case of gross negligence or willful
misconduct.

 

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

 

“LENDER”

Farmer Bros. Co.

 

	
  By:

  	
  /s/Roy E. Farmer

  	
   

  
	
  Roy E. Farmer, President

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/John E. Simmons

  	
   

  
	
  John E. Simmons, Treasurer

  	
   

  
	
   

  	
   

  
	
  “BORROWER”

  	
   

  
	
  Farmer Bros. Co. Employee Stock Ownership Plan

  	
   

  
	
  by Wells Fargo Bank, N.A., Trustee

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ E. Pigott

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ E.L. Yeany

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
						

 

PROMISSORY NOTE

 

For value received, the FARMER BROS. CO. EMPLOYEE STOCK OWNERSHIP PLAN (“Borrower’)
promises to pay to the order of FARMER BROS. CO., a California corporation
(“Lender”), at 20333 South Normandie Avenue, Torrance, California or at such other
place as the holder of this Note may designate, such amount as has been
advanced by Lender as may be set forth on the attached schedule (the
“Schedule”), with interest thereon as follows:

 

Each advance shall bear interest from the date made at the interest
rate then applicable under this Note. The interest rate shall be an annual rate
equal to 1.5% per annum over the “90-day Commercial Paper Rate” determined
initially on the date of the first advance and thereafter adjusted quarterly on
the first business day of each calendar quarter.  The 90-day Commercial Paper Rate is the
United States commercial paper rate for said number of days as last published
in The Wall Street Journal as of the date of the first advance or as of an
adjustment date, as applicable.  Interest
shall be computed and paid on the basis of a 360-day year for the actual number
of days elapsed.  Unpaid interest shall
bear interest as principal.

 

Principal is payable in annual installments on December 15 of each
year beginning December 15, 2003 in an amount equal to the unpaid
principal balance divided by the number of years remaining until maturity of
this Note on

 

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December 15, 2018 when the entire unpaid principal balance shall
be due and payable.  Interest on unpaid
principal shall be paid annually on December 15 concurrently with
principal installments.

 

Payments shall be applied first to interest then accrued and the
remainder to principal whereupon interest shall cease on principal so
paid.  Principal and interest shall be
payable in lawful money of the United States of America.

 

This Note evidences the indebtedness incurred by Borrower to the Lender
under the ESOP Loan Agreement No. 2 dated as of July 21, 2003 by and
between the Borrower and the Lender (the “Agreement”) the terms of which are
made a part hereof.

 

This Note may be prepaid in whole or in part at any time, without
premium or penalty.  Partial prepayments
shall be applied in inverse order of maturity.

 

Except as otherwise provided in the Agreement, payments of principal
and interest hereunder shall be made by the Borrower only from cash
contributions (or contributions in the form of cancellation of indebtedness),
from any earnings attributable to such contributions and from any cash
dividends paid on the shares of FARMER BROS. CO. common stock purchased with
the proceeds of the loan evidenced hereby. 
Lender’s recourse is limited as provided in Section 1.8 of the
Agreement.

 

This Note is not subject to acceleration.  In the event of default in payment of any
installment of principal or interest due under this Note (which will not be
deemed to have occurred if such default occurs as a result of a default by
Lender under Section 1.8 of the Agreement), the liability of Borrower is limited
to the amount of such installment.

 

This Note is collateralized by a pledge of stock under an ESOP Pledge Agreement
of even date herewith.

 

This Note is governed by the laws of the State of California, except to
the extent preempted by federal laws.

 

	
  Dated: July 21, 2003

  	
  Farmer Bros. Co. Employee Stock Ownership Plan

  
	
   

  	
   

  
	
   

  	
  by Wells Fargo Bank, N.A,. as Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title: 

  	
   

  
							

 

5

 

SCHEDULE TO PROMISSORY NOTE

 

	
   

  	
   

  	
  Amount of

  	
   

  	
  Amount of

  Repayment

  	
   

  	
  Unpaid

  	
   

  
	
  Date

  	
   

  	
  Borrowing

  	
   

  	
  Principal

  	
   

  	
  Interest

  	
   

  	
  Principal Balance

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

ESOP PLEDGE AGREEMENT

 

This ESOP Pledge Agreement (the “Pledge Agreement”) dated as of July 21,
2003 is entered into by and between FARMER BROS. CO., a California corporation
(the “Lender”) and the FARMER BROS. CO. EMPLOYEE STOCK OWNERSHIP PLAN (the “Borrower”
or the “ESOP”) and WELLS FARGO BANK, N.A. (the “Pledge Holder”).

 

In accordance with the terms and conditions of the ESOP Loan Agreement No. 2
dated as of July 21, 2003 (the “Agreement) and the Promissory Note (the “Note”)
of even date herewith, the Borrower desires to purchase securities with the
proceeds of loan advances from the Lender (the “Loan”).  Under the Agreement, Borrower agrees to
borrow and Lender agrees to lend funds to enable the ESOP to purchase up to
129,574 shares of the Company’s common stock (“Shares”) over and above the
170,426 shares purchased under the original ESOP Loan Agreed dated March 28,
2000.

 

In consideration of Lender making loan advances to Borrower for
purchase of Shares, and as security for the Note and for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged,
Borrower hereby pledges and grants to lender a first priority security interest
in all Shares now or hereafter acquired by Borrower with Loan proceeds as
continuing security for the full performance and payment of the Secured
Obligation. Borrower transfers to the Lender all of Borrower’s right, title and
interest in and to the pledged Shares, to be held in the physical possession of
the Pledge Holder upon the terms and conditions set forth in this Agreement.

 

The Secured Obligation consists of payment of all of Borrower’s
indebtedness to Lender Note and all renewals, extensions, modifications and
novations thereof.

 

1.             Until this
Agreement is termination, Borrower shall:

 

6

 

1.1 Deliver to Pledge Holder all Shares purchased with Loan proceeds.

 

1.2 Not create, incur or suffer to exist any lien, encumbrance or
security interest against the Shares except the security interest created by
this Pledge Agreement.

 

2.             Lender agrees as
follows:

 

2.1 Except upon the occurrence of an Event of Default, as defined
below, Lender shall not sell, exchange or otherwise dispose of any of the
Shares without the prior consent of the Borrower, which shall not be withheld unreasonably.

 

2.2 Within ten (10) days after each payment of principal under the
Loan, Lender shall cause the Pledge Holder to release a number of the Shares
held hereunder.  The number of Shares to
be released shall be calculated by multiplying the number of Shares held by the
Pledge Holder immediately before the release by a fraction the numerator of which
is the amount of the latest principal and interest payment and denominator of
which is the sum of the numerator and the remaining unpaid principal and
interest payments of the Loan.

 

3.             So long as no Event
of Default, as defined below, has occurred and is continuing:

 

3.1 Borrower shall have the right to vote the Shares, grant or withhold
consent, or exercise any other right or privilege with respect to the Shares allowed
under Article 8 of the FARMER BROS. CO. EMPLOYEE STOCK OWNERSHIP PLAN (the
“Plan Document”).

 

4.             The Pledge Holder
agrees as follows:

 

4.1 Lender hereby appoints WELLS FARGO BANK, N.A., to act as Pledge
Holder and Pledge Holder accepts such appointment.

 

4.2 Borrower will deliver to the Pledge Holder the Shares acquired with
the proceeds of the Loan advances.

 

4.3 The Shares will be held in a segregated account by the Pledge
Holder for the benefit of the Lender in accordance with the terms and
conditions of this Pledge Agreement.

 

4.4 The Pledge Holder shall release from the pledge the number of
Shares required by Section 2.2.

 

4.5 The Lender may remove the Pledge Holder and substitute another
entity or person to function as Pledge Holder. Upon receipt by a Pledge Holder
of any such notice of removal and substitution, said Pledge Holder shall
transfer to the successor Pledge Holder Shares, documents of title, and related
books and records.

 

5.             Event of Default:

 

5.1 If the Borrower fails to make any installment of principal or
interest due under the Note within ten (10) days after receipt of written
notice of non- payment from Lender, an Event of Default shall have occurred.

 

6.             Upon Occurrence of
an Event of Default:

 

6.1 Lender shall have all rights and remedies afforded a secured party
and all other rights and remedies available under applicable law, all of which
shall

 

7

 

be cumulative, but subject to all limitations set forth herein, or in
the Agreement, or Note, or under Section 4975 of the Internal Revenue Code
of 1986, as amended, or under the Employee Retirement Income Security Act of 1974,
as amended.

 

6.2 The Lender shall have the right at any time after the occurrence of
an Event of Default to repurchase, sell or otherwise convert to cash all or any
portion of the Shares remaining subject to pledge, provided that such Shares may
be so applied only in an amount necessary to cure the Event of Default. The
proceeds of any sale of Shares shall be applied first to the payment of the
Lender’s reasonable expenses incurred in effecting such sale or other disposition,
including but not limited to attorneys’ fees, and thereafter to Borrower’s
liabilities under the Note, Any surplus remaining with the Lender after payment
of such expenses and liabilities shall be returned to the Borrower.

 

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

 

	
   

  	
   

  	
  “PLEDGEE”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FARMER BROS. CO., a California corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/Roy E. Farmer

  
	
   

  	
   

  	
   

  	
  Roy E. Farmer, President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/John E. Simmons

  
	
   

  	
   

  	
   

  	
  John E. Simmons, Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “PLEDGOR”

  
	
   

  	
   

  	
   

  
	
  FARMER BROS. CO. EMPLOYEE STOCK OWNERSHIP PLAN

  
	
  by WELLS FARGO BANK, N.A., as Trustee

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  “PLEDGE HOLDER”

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WELLS FARGO BANK, N.A.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
						

 

8

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