EMPLOYMENT AGREEMENT (Farmer Bros. Co. / Nelson)

This Employment Agreement (“Agreement”) is made and entered into as of April 1, 2013 between FARMER BROS. CO., a Delaware corporation (the “Company”), and MARK J. NELSON (“Nelson”), who agree as follows:

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

2.    Term of Employment: The term of Nelson’s employment under this Agreement will commence on April 15, 2013 (the “Commencement Date”) and shall end when terminated under Section 7 below.

3.    Duties: Nelson shall serve as the Company’s Treasurer and Chief Financial Officer, reporting to the Chief Executive Officer (“CEO”). As such, his general responsibilities include oversight responsibility for all financial (including treasury functions), accounting, and compliance functions of the Company. Compliance responsibilities include oversight responsibility for compliance with the Company’s obligations under tax, securities and other applicable laws. Nelson shall also serve as the Company’s Chief Compliance Officer under the Company’s Code of Conduct and Ethics upon request of the Board. In addition to his general responsibilities, Nelson shall also perform such other duties as are consistent with his position and as are directed by the Company’s CEO or Board of Directors (“Board”). Nelson shall devote to the Company’s business substantially all of his working time. Service as a director of organizations shall require approval of the Board.

4.    Base Salary: Nelson shall receive an annual base salary of $280,000 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 $280,000 per annum.

5.    Bonuses: Nelson 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 2013 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, as defined in the Plan, and all other variables by which Nelson’s bonus for such year under the Plan will be measured. The Target Award, as defined in the Plan, shall be an amount equal to fifty-five percent (55%) (the “Applicable Percentage”) of Nelson’s base annual salary, except that the Applicable Percentage for fiscal 2013 shall be 11.5% to reflect a proration for Nelson’s Commencement Date. Performance Criteria for Nelson’s fiscal 2013 Target Award shall be determined by the Compensation Committee after the Commencement Date. Except as provided otherwise in this Section 5, Nelson’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. Nelson acknowledges receipt of a copy of the Plan.

A.    The Company will provide to Nelson 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, Nelson’s benefit package includes twenty (20) days paid days off 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), life insurance, 401(k) plan, employee stock ownership plan, cell phone, company credit card, expense reimbursement, and an automobile allowance in accordance with Company policy for Senior Executives, which is currently $400.00 per month. Not all of the foregoing benefits are 100% Company paid.

B.    Nelson shall be entitled to participate in the Farmer Bros. Co. 2007 Omnibus Plan, as amended (the “Omnibus Plan”), or any successor plan as administered by the Compensation Committee. In accordance with the provisions of the 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 Nelson (collectively, the “Awards”):

(i)    a number of non-qualified stock options determined by dividing $189,000 by the per share fair value of a non-qualified stock option (based on a Black-Scholes valuation or other appropriate option pricing methodology approved by the Compensation Committee); and

(ii)    a number of shares of restricted stock determined by dividing $81,000 by the Fair Market Value (as defined in the Omnibus Plan) on the Award Date.

The stock options will have a seven (7) year term with an exercise price equal to the Fair Market Value on the Award Date. Provided Nelson is then employed by the Company, the Awards will vest as follows: (i) the stock option award will vest ratably over three years on each anniversary of the Award Date; and (ii) the restricted stock award will vest in its entirety on the third anniversary of the Award Date. The Awards will be evidenced by a Grant Notice and Stock Option Agreement or Grant Notice and Restricted Stock Agreement, as applicable, to be consistent with this Section 6B and in the Company’s usual form. Notwithstanding the foregoing, the timing of the Awards will be delayed during such period as there exists, in the opinion of the Company’s counsel, material information concerning the Company which has not been publicly disclosed. Nelson shall be entitled to such future grants under the Omnibus Plan or any successor plan as are awarded to him by the Compensation Committee 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.    Nelson’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 Nelson’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 Nelson 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.    Nelson’s employment shall terminate upon Nelson’s resignation, with or without “Good Reason,” as defined below, death or “Permanent Incapacity” (as defined below). “Permanent Incapacity” shall be deemed to have occurred if Nelson 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 Nelson’s responsibilities, duties or authority, or (iii) a material relocation of Nelson’s principal place of employment more than fifty (50) miles from its present location; provided, however, that any such condition in subsections (i) through (iii) shall not constitute “Good Reason” unless both (x) Nelson 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 Nelson’s employment with the Company shall not be treated as a resignation for “Good Reason” unless such resignation occurs not more than one (1) year following the initial existence of the condition claimed to constitute “Good Reason.”

C.    Nelson’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 Nelson’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 unused paid days off (subject to the Company’s paid days off policy). If termination is due to Nelson’s death or Permanent Incapacity, the Company shall also pay to Nelson upon termination, or his estate in the event of his death, an additional lump sum severance amount equal to Nelson’s Target Award under Section 5 for the fiscal year in which termination is effective, prorated for the partial fiscal year ending on the effective termination date. Such payment shall be made no later than the 30^th day following any such death or termination.

B.    If termination occurs at the election of the Company without Cause or by Nelson’s resignation for Good Reason, Nelson will receive as severance:

(i)    base salary continuation 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 Nelson’s employment not terminated); and

(iii)    a bonus for the fiscal year in which the date of termination is effective based on Nelson’s Target Award under Section 5 for such fiscal year and the degree of achievement of Performance Criteria under the Plan for such fiscal year as determined in accordance with the Plan, with individual performance criteria deemed to be achieved at 100%, and prorated for the partial fiscal year ending on the effective termination date.

Nelson is not obligated to seek other employment as a condition to receipt of the payments called for by this Section 8B, and Nelson’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 8B(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 Nelson’s Separation from Service occurs, and the amount referred to in clause 8B(iii) above, if any, shall be paid in a lump sum at the same time as annual bonuses are paid to the Company’s Senior Executives under the Plan for the fiscal year but in no event later than two and one-half (2-1/2) months following the end of the Company’s fiscal year in which Nelson’s Separation from Service occurs. As used herein, a “Separation from Service” occurs when Nelson 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, Nelson must execute and deliver to the Company within twenty-one (21) days following the date of his 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 Nelson’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, Nelson 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, Nelson 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 Nelson 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.    Nelson 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. Nelson 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. Nelson 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 Nelson 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 Nelson’s services hereunder, including without limitation, all ideas and intellectual property created or developed by Nelson and which is related to Nelson’s employment.

11.    Integration with Change in Control Severance Agreement: If Nelson 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 Nelson’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.    Nelson 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 Nelson 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 Nelson for disability under governmental or Company paid disability insurance programs. Payments to Nelson 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 Nelson 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 Nelson.

(ii)    Notwithstanding any provision of this Agreement to the contrary, if Nelson is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of Nelson’s Separation from Service, Nelson shall not be entitled to any payment or benefit pursuant to Section 8B that constitutes deferred compensation within the meaning of Code Section 409A until the earlier of (i) the date which is six (6) months after Nelson’s Separation from Service for any reason other than death, or (ii) the date of Nelson’s death. Any such deferred compensation amounts otherwise payable to Nelson upon or in the six (6) month period following Nelson’s Separation from Service that are not so paid by reason of this Section 12J(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 Nelson’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of Nelson’s death). Each salary or bonus payment made pursuant to Section 8 shall be considered a separate payment for purposes of Code Section 409A. 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 Nelson, any reimbursement payment due to Nelson pursuant to such provision shall be paid to Nelson on or before the last day of Nelson’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 Nelson receives in one taxable year shall not affect the amount of such benefits or reimbursements that Nelson receives in any other taxable year.

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

NELSON:

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 _______________, 2013 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 paid days off, 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, stockholders, 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 at least 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:

                                            

Mark J. Nelson