Exhibit
10.4











AMENDED
AND RESTATED


EMPLOYMENT
AGREEMENT








PART
I





PARTIES
TO AGREEMENT





Section
1.01 - Parties:  This Amended and Restated Employment Agreement
(hereinafter referred to as the “Agreement”) is entered into by and between
Farmers & Merchants Bank of Central California, a California banking
corporation (the “Bank”) and Farmers & Merchants Bancorp, a Delaware
corporation (the “Company”) (hereinafter collectively referred to as “Employer”)
and Kenneth W. Smith (hereinafter referred to as
“Employee”).  Employer and Employee are sometimes collectively
referred to hereinafter as the “Parties” and individually as a
“Party”.





PART
II





EMPLOYMENT





Section
2.01 - Employment:  Employer hereby employs Employee and Employee
hereby accepts employment with Employer in accordance with the terms and
conditions set forth herein.





Section
2.02 - Term of Employment:  This Agreement shall terminate on March
31, 2012 if either party shall have given the other no less than sixty (60) days
advance notice of such termination in accordance with Section
11.01.  Notwithstanding the foregoing, this Agreement may be
terminated pursuant to Part VII of this Agreement.  If the Agreement
is not terminated pursuant to Part VII of this Agreement or pursuant to the
first sentence of this Section 2.02, at the conclusion of the initial thirty-six
(36) month term, this Agreement shall renew automatically for an additional two
year term and for successive additional two years terms thereafter, unless a
Party furnishes notice of such Party’s intention not to renew by no later than
sixty (60) days prior to the expiration date of the current term of this
Agreement, any such notice to be given in accordance with Section
11.01.





If
Employer elects to not renew this Agreement, prior to the expiration of any
current term, Employee shall be paid all accrued salary, vacation and
reimbursement expenses for which expense reports have been provided to Employer
in accordance with Employer’s policies and this Agreement or which are provided
to Employer prior to the Separation Date (defined below) in accordance with
Employer’s policies and this Agreement.  In addition to the foregoing
amounts, if Employer elects to not renew this Agreement in accordance with this
section, and subject to Employee’s continued employment through, and termination
of employment on, the expiration of the then current term of this Agreement
(which shall be the Separation Date), the Employee will be entitled to receipt
of severance payments as set forth herein:





1.
            Employee
      shall be entitled to a sum equivalent to Twelve (12) times the highest
      monthly base salary which the Employee has earned during Employee’s
      employment with Employer (hereinafter referred to as the “Section 2.02
      Severance Payment”).  The Section 2.02 Severance Payment shall
      be paid in a lump sum.  Payment of such amount will be made on
      the 15th day of the first calendar month following Employee’s Separation
      Date.


1


2.
            In
      addition, Employer shall pay to Employee a performance bonus in an amount
      equal to the average of the Employee’s annual discretionary incentive
      bonus for the previous two years, prorated for the number of months
      between the Separation Date and the end of the Employer’s last fiscal
      year.  The performance bonus shall be paid in a lump
      sum.  Payment of such amount will be made on the 15th day of the
      first calendar month following Employee’s Separation
  Date.





3.
            In
      addition, Employee will also be entitled to payment of all vested awards
      of benefit plans and incentive programs in which Employee is then vested
      in accordance with the terms of those plans.  Any such payment
      or distribution from a nonqualified deferred compensation plan shall be
      governed by the terms of such plan relating to the timing of
      distributions.





PART
III





DUTIES
OF EMPLOYEE





Section
3.01 - General Duties:  During the term of this Agreement, Employee
shall be employed as Executive Vice President and Head of Business Markets of
the Bank, under the direction of the Bank’s and Company’s Boards of Directors
and Chief Executive Officer and shall perform and discharge well and faithfully
the duties that may be assigned to Employee from time to time thereafter by the
Bank’s and Company’s Boards of Directors or Chief Executive Officer in
connection with the conduct of Employer’s business.  Nothing herein
shall preclude the Boards of Directors or Chief Executive Officer from changing
Employee’s title or duties as long as the resulting title and duties are
reasonably commensurate with the education, employment background and
qualifications of the Employee and involve similar responsibilities and scope of
duties.





Section
3.02 - Outside Activities:  Employee agrees that, while employed by
Employer, Employee will refrain from any outside activities or activities which
actually or potentially are in direct conflict with the essential
enterprise-related interest of Employer that would cause a material and
substantial disruption of Employer’s operations or would be in direct
competition with Employer or assist competitors of
Employer.  Notwithstanding, the foregoing, it shall not be a violation
of this Agreement for Employee (A) to serve on corporate, civic or charitable
boards or committees, (B) deliver lectures or fulfill speaking engagements and
(C) manage personal investments, so long as such activities do not significantly
interfere with the performance of Employee’s responsibilities as an employee of
the Company and the Bank.





PART
IV





COMPENSATION





Section
4.01 - Salary:  Employee shall be paid an annual base salary of no
less than $230,016 per year.  This base salary shall be paid to
Employee in such intervals and at such times as other salaried executives of
Employer are paid.  Employee will be considered for salary increases
at the times that other salaried executives of Employer are adjusted, and the
base salary under the contract will be adjusted accordingly.


2


Section
4.02 - Incentive Programs:  Employee shall be eligible for an annual
discretionary incentive bonus.  The amount of the bonus shall be
determined by the Bank’s Board of Directors annually by January 31st of each
year and shall be paid no later than February 15th of each
year.  Employee shall be entitled to participate in “Farmers &
Merchants Bank of Central California 2005 Deferred Bonus
Plan”,  “Farmers & Merchants Bank of Central  California
Executive Retention Plan”, “Farmers & Merchants Bank of Central California
Split Dollar Life Insurance Plan”, “Farmers & Merchants Bank of Central
California Executive Indexed Retirement Agreement” and “Farmers & Merchants
Bank of Central California Deferred Compensation Plan”, the terms and conditions
of which are set forth in separate agreements so titled and the contents of
which are incorporated herein by this reference as though set forth in their
entirety.





PART
V





BENEFITS





Section
5.01 - Benefits:  Employee shall be entitled to participate in
whatever vacation, medical, dental, pension, sick leave, 401(k), profit sharing,
disability insurance or other plans of general application or other benefits
which are in effect as to any other executive officer of Employer or as may be
in effect from time to time as to any executive officer of Employer, in
accordance with the rules established for individual participation in any such
plan.





Section
5.02 - Company Automobile/Automobile Allowance:  Employer shall
provide Employee with either an automobile for business and incidental personal
use or an automobile allowance as per Bank policy.





Section
5.03 - Membership Fees:  Employer shall reimburse Employee for all
appropriate and reasonable expenses incurred in performing Employee’s duties,
including providing and paying for the dues and fees of membership in local
service and civic clubs and/or organizations as Employer deems appropriate and
necessary for enhancement of its presence within the local business
community.  In order to be eligible for reimbursement of these
expenses, Employee will provide Employer with receipts and documented evidence
as is required by Federal and State laws and regulations.





Section
5.04 - Directors and Officers Liability Insurance Coverage:  Employer
shall provide directors and officers liability insurance coverage for the
protection of Employee on terms and conditions no less favorable to Employee
than are in effect on the date that this Agreement shall become effective.
Following any termination of Employee’s employment with Employer, such coverage
shall be continued under substantially the same terms and conditions as are in
effect immediately prior to such termination of employment at no cost to
Employee until all applicable statutes of limitation expire with respect to
claims arising prior to such termination of employment and shall also continue
to make indemnification and advancement of litigation expense payments to
Employee to the maximum extent and for the maximum period permitted by
law.


3


PART
VI





EXPENSES





Section
6.01 - Travel and Entertainment Expenses:  During the term of this
Agreement, Employer shall reimburse Employee for reasonable out of pocket
expenses incurred in connection with Employer’s business, including travel
expenses, food and lodging while away from Employee’s home, subject to such
policies as Employer may from time to time establish for its executive
officers.  Employee shall keep records of Employee’s travel and
entertainment expenses in a form suitable to the Internal Revenue Service and
the Franchise Tax Board to qualify this reimbursement as a federal and state
income tax deduction for Employer.  In addition, Employee shall
provide Employer with receipts for all expenses for which Employee seeks
reimbursement.





PART
VII





TERMINATION
OF EMPLOYMENT





Section
7.01 - Termination at Option of Employer:  Employer may terminate this
Agreement at any time and without cause by giving Employee sixty (60) days
written notice of Employer’s intent to terminate this Agreement.  The
60th day after notice shall be deemed to be the Employee’s Separation
Date.  In the event Employee’s employment is terminated pursuant to
this section, Employee shall be paid all accrued salary, vacation and
reimbursement expenses for which expense reports have been provided to Employer
in accordance with Employer’s policies and this Agreement or which are provided
to Employer prior to the Separation Date in accordance with Employer’s policies
and this Agreement.  In addition to the foregoing amounts, if Employee
is terminated pursuant to this section, and subject to Employee’s continued
employment through, and termination of employment on, the Separation Date,
Employee will be entitled to receipt of additional severance payments as set
forth herein:





1.
            Employee
      shall be entitled to a sum equivalent to Twelve (12) times the highest
      monthly base salary which Employee has earned during Employee’s employment
      with Employer (hereinafter referred to as the “Section 7.01 Severance
      Payment”)  The Section 7.01 Severance Payment shall be paid in a
      lump sum.  Payment of such amount will be made on the 15th day
      of the first calendar month following Employee’s Separation
      Date.





2.
            In
      addition, Employer shall pay to Employee a performance bonus in an amount
      equal to the average of the Employee’s annual discretionary incentive
      bonus for the previous two years, prorated for the number of months
      between the Separation Date and the end of Employer’s last fiscal year.
      The performance bonus shall be paid in a lump sum.  Payment of
      such amount will be made on the 15th day of the first calendar month
      following Employee’s Separation
Date.





3.
            In
      addition, Employee will also be entitled to payment of all vested awards
      of benefit plans and incentive programs in which Employee is vested in
      accordance with the terms of those plans.  Any such payment or
      distribution from a nonqualified deferred compensation plan shall be
      governed by the terms of such plan relating to the timing of
      distributions.


4


Section
7.02 - Termination for Cause:  Employer may terminate Employee’s
employment at any time “for cause” upon written notice to Employee, setting
forth in reasonable detail the basis for the determination of “for cause” (as
defined herein).  “For cause” shall be defined as conviction of a
felony resulting in a material adverse economic effect on Employer; provided
that the determination of such material adverse economic effect shall in any
case be made pursuant to a resolution duly adopted by a vote of no less than
two-thirds (2/3’s) of the entire Board of Directors of the Bank at a meeting
duly held and called for such purpose; and provided further, that Employee shall
be given reasonable notice of such meeting and shall have the opportunity,
together with counsel, to be heard before the Board of Directors at any such
meeting.  Termination under such circumstance shall be effective
immediately upon receipt of the notice by Employee, and the date on which the
notice is received shall be deemed to be the Separation Date.  In the
event Employee is terminated pursuant to this Section, Employee shall be
entitled only to accrued salary, vacation and reimbursement expenses for which
expense reports have been provided to Employer in accordance with Employer’s
policies and this Agreement or which are provided to Employer prior to the
Separation Date in accordance with Employer’s policies and this Agreement and
shall be entitled to no further compensation or severance payment of any nature,
provided however, the Employee will also be entitled to payment of all vested
awards of benefit plans and incentive programs which Employee is vested in
accordance with the terms of those plans.  Any such payment or
distribution from a nonqualified deferred compensation plan shall be governed by
the terms of such plan relating to the timing of distributions.  If a
“change of control” (as defined below) shall have occurred prior to Employee’s
termination pursuant to this Section 7.02, the provisions of Section 7.04 shall
continue to apply  notwithstanding Employee’s subsequent
termination.





Section
7.03 - Termination at Option of Employee:  This Agreement may be
terminated by Employee at Employee’s sole discretion by giving sixty (60) days
written notice of termination to Employer.  In the event Employee
terminates his employment pursuant to this Section, Employee shall be entitled
to all accrued salary earned up to Employee’s Separation Date, provided Employee
continues productive employment until such date, vacation and reimbursement
expenses for which expense reports have been provided to Employer in accordance
with Employer’s policies and this Agreement or which are provided to Employer
prior to the Separation Date in accordance with Employer’s policies and this
Agreement.  Alternatively; Employer may, at its option, at any time
after Employee gives written notice of resignation as herein provided, pay
Employee’s accrued salary up to and including the effective date of separation
set forth in Employee’s resignation notice, and thereupon immediately release
and terminate Employee.  In addition, Employee will also be entitled
to payment of all vested awards of benefit plans and incentive programs which
Employee is fully or partially vested in accordance with the terms of those
plans.  Any such payment or distribution from a nonqualified deferred
compensation plan shall be governed by the terms of such plan relating to the
timing of distributions.





Section
7.04 - Change of Control:  In the event of a Change of Control of
Employer (as defined below) during the term of this Agreement and prior to
Employee’s termination of employment, Employer will provide Employee with a
package equal to (1) Twenty Four times the highest monthly base salary which the
Employee has earned during Employee’s employment with Employer, (2) a
performance bonus in an amount equal to Employee’s previous two years annual
discretionary incentive bonuses, (3) Employee’s monthly premium for continuation
coverage under COBRA (as defined in Section 7.06), determined as of the closing
of the Change of Control,  multiplied by Thirty-Six (36) months,
whether or not such continuation coverage is elected by Employee, and (4) a
gross-up payment as defined and set forth herein in section
7.04.2.  In addition, Employee will also be entitled to payment of all
vested awards of benefit plans and incentive programs in which Employee is
vested in accordance with the terms of those plans.  On the closing of
the Change of Control transaction , Employee shall receive disbursement of
payments due Employee under this section, except for payments or distributions
from or pursuant to any nonqualified deferred compensation plan, in one lump sum
payment less any withholding required by state, federal or local
law.  The preceding sentence notwithstanding, any such payment or
distribution from or pursuant to any nonqualified deferred compensation plan
shall be governed by the terms of such plan relating to the timing of
distributions.  If Employee becomes entitled to payment under this
Section 7.04, Employee shall not be entitled to payment under Sections 2.02,
7.01 or 7.05 notwithstanding Employee’s subsequent termination of
employment.


5


1.
            Change
      of Control means a change of control of the Employer that satisfies the
      requirements for a change in the ownership or effective control of the
      Employer, or a change in the ownership of a substantial portion of the
      assets of the Employer, under Section 409A(see Section 10.02 of this
      Agreement), as determined pursuant to applicable guidance
      thereunder.





2.
            Gross-Up
      Payment:  Employee shall be entitled to a “Gross-Up Payment “
      under the terms and conditions set forth herein, and such payment shall
      include the Excise Tax reimbursement due pursuant to section 7.04.2.a and
      any federal and state tax reimbursements due pursuant to section
      7.04.2.b.





a.
            In
      the event that any payment or benefit (as those terms are defined within
      the meaning of Internal Revenue Code Section 280G(b)(2)) paid, payable,
      distributed or distributable to the Employee (hereinafter referred to as
      “Payments”) pursuant to the terms of this Agreement or otherwise in
      connection with or arising out of Employee’s employment with Employer or a
      change of control would be subject to the Excise Tax imposed by Section
      4999 of the Internal Revenue code or any interest or penalties are
      incurred by Employee with respect to such Excise Tax, then Employee will
      be entitled to receive an additional payment (“Gross-Up Payment”) in an
      amount equal to the total Excise Tax, interest and penalties imposed on
      Employee as a result of the payment and the Excise Taxes on any federal
      and state tax reimbursements as set forth in Section
    7.04.2.b.





b.
            If
      Employer is obligated to pay Employee pursuant to Section 7.04.2.a,
      Employer also shall pay Employee an amount equal to the “total presumed
      federal and state taxes” that could be imposed on Employee with respect to
      the Excise Tax reimbursements due to Employee pursuant to Section 7.04.2.a
      and the federal and state tax reimbursements due to Employee pursuant to
      this section.  For purposes of the preceding sentence, the
      “total presumed federal and state taxes” that could be imposed on Employee
      shall be conclusively calculated using a combined tax rate equal to the
      sum of the (a) the highest individual income tax rate in effect under
      Federal tax law applicable to Employee and (ii) the tax laws of the state
      in which Employee resides on the date that the payment is computed and (b)
      the hospital insurance portion of
FICA.


6


c.
            No
      adjustments will be made in this combined rate for the deduction of state
      taxes on the federal return, the loss of itemized deductions or
      exemptions, or for any other purpose for paying the actual
      taxes.





It is
further intended that in the event that any payments would be subject to other
“penalty” taxes (in addition to the Excise Tax in section 7.04.2.a) imposed
applicable federal tax law, that these taxes would also be included in the
calculation of the Gross-Up Payment, including any federal and state tax
reimbursements pursuant to section 7.04.2.b.





3.
            Determination
      of Eligibility for and Amount of Gross-Up Payment:  An initial
      determination as to whether a Gross-Up Payment is required pursuant to
      this Agreement and the amount of such Gross-Up Payment shall be made at
      Employer’s expense by an accounting firm appointed by Employer prior to
      any change of control.  The accounting firm shall provide its
      determination, together with detailed supporting calculations and
      documentation to Employer and Employee prior to submission of the proposed
      change of control to Employer’s shareholders, Board of Directors or
      appropriate regulators for approval.  If the accounting firm
      determines that no Excise Tax is payable by Employee with respect to a
      Payment or Payments, it shall furnish Employee with an opinion reasonably
      acceptable to Employee that no Excise Tax will be imposed with respect to
      any such Payment or Payments.  Within ten (10) days of the
      delivery of the determination to Employee, Employee shall have the right
      to dispute the determination.  The existence of the dispute
      shall not in any way affect Employee’s right to receive the Gross-Up
      Payment in accordance with the determination.  Upon the final
      resolution of a dispute, Employer or its successor shall promptly pay to
      Employee any additional amount required by such resolution.  If
      there is no dispute, the determination shall be binding, final and
      conclusive upon Employer and Employee, except to the extent that any
      taxing authority subsequently makes a determination that the Excise Tax or
      additional Excise Tax is due and owing on the payments made to
      Employee.  If any taxing authority determines that the Excise
      Tax or additional Excise Tax is due and owing, Employer or the entity
      acquiring control of Employer shall pay the Excise Tax and any penalties
      assessed by such taxing authority.





4.
            Excise
      Tax Withholding:  Notwithstanding anything contained in this
      Agreement to the contrary, in the event that according to the
      determination, an Excise Tax will be imposed on any Payment or Payments,
      Employer or its successor shall pay to the applicable government taxing
      authorities as Excise Tax withholding, the amount of the Excise Tax that
      Employer has actually withheld from the Payment or
    Payments.





Section
7.05 - Option to Terminate on Permanent Disability of
Employee:  Employer is hereby given the option to terminate this
Agreement in the event that during the term of this Agreement, Employee shall
become “permanently disabled”, as the term “permanently disabled” is defined
herein.  Such option shall be exercised by Employer giving sixty (60)
days notice to Employee pursuant to Section 11.01 of this Agreement (“Notice of
Termination”). On the giving of the Notice of Termination, this Agreement and
the terms hereof shall cease and come to an end on the sixtieth day after the
notice is given to the Employee, which shall be deemed the Separation Date,
subject to the provisions set forth below in this Section 7.05.


7


In the
event Employee is terminated pursuant to this Section, Employee shall be
entitled to accrued salary and vacation on the employment termination date,
including accrued salary and vacation for the time period in which Employee
failed or refused to perform his duties and/or absented himself from his
duties.  Employee shall also be entitled to reimbursement expenses for
which expense reports have been provided to Employer in accordance with
Employer’s policies and this Agreement or which are provided to Employer prior
to the termination date of the Agreement in accordance with Employer’s policies
and this Agreement.  In addition to the foregoing amounts, if Employee
is terminated pursuant to this section of the Agreement, Employee will be
entitled to receipt of the additional payments following his Separation Date as
and when set forth in Section 7.01.1, 7.01.2 and 7.01.3, above.





For
purposes of this Agreement, Employee shall be deemed to have become permanently
disabled if Employee is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period
of not less than twelve (12) months.  Such physical or mental
impairment shall be confirmed by a physician acceptable to the Employee at the
request of the Employer when the Employer knows or has reason to know of such
impairment.





The
Notice of Termination shall be deemed withdrawn and the Agreement shall remain
in effect after a Notice of Termination has been given to Employee under the
following circumstances.





1.
            Within
      thirty (30) days of the Notice of Termination being given to Employee,
      Employee returns to the full performance of Employee’s duties and provides
      medical certification that Employee can perform the essential functions of
      Employee’s duties with or without reasonable
  accommodation.





2.
            Within
      thirty (30) days of the Notice of Termination being given to Employee,
      Employee requests a reasonable accommodation from Employer which would
      permit Employee to perform the essential functions of Employee’s duties
      and such reasonable accommodation can be provided by Employer without an
      undue hardship to Employer.





Any
absence by Employee from Employee’s duties caused by ill health, physical or
mental disability or illness, or for other medical causes shall automatically be
considered to be a “leave” pursuant to the California Family Rights Act (CFRA)
and the Family Medical Leave Act (FMLA) as of the first date of such absence
caused by the ill health, physical or mental disability, illness or other
medical causes.  No Notice of Termination, pursuant to this section
shall be given to Employee until all leave under the CFRA, Fair Employment and
Housing Act and Family Medical Leave Act has been exhausted.


8


Section
7.06 - Continuation of Medical Benefits:  In the event Employee’s
employment is terminated Employee shall be afforded the right to continue
his/her medical benefits to the extent provided in the Consolidated Omnibus
Budget Reconciliation Act (“COBRA”).  Employer shall provide Employee
with the appropriate COBRA notification within the time required by the law from
the Separation Date.





PART
VIII





COVENANTS





Section
8.01 - Business and Trade Secrets:





1.
            For
      the purpose of this Part VIII, the terms used herein are defined as
      follows.





a.
            TRADE
      AND BUSINESS SECRETS means information, including a formula, pattern,
      compilation, program, device, method, technique or process that derives
      independent economic value, actual or potential from not being generally
      known to the public or to other persons who can obtain economic value from
      its disclosure or use, and is the subject of efforts that are reasonable
      under the circumstances to maintain its
secrecy.





b.
            PROPRIETARY
      AND CONFIDENTIAL INFORMATION means trade secrets, computer programs,
      designs, technology, ideas, know-how, processes, formulas, compositions,
      data, techniques, improvements, inventions (whether patentable or not),
      works of authorship, business and product developments, plans, customers,
      pricing data and other information concerning Employer’s actual or
      anticipated business, research or development, marketing plans and
      strategies, Employer’s plans for new product development, Employer’s
      technical designs, Employer’s data dictionaries, information relating to
      Employer’s financial status, and any other information that Employer marks
      confidential or by separate memorandum or e-mail informs Employee is
      confidential or that is received in confidence by or for Employer from any
      other person.  Also included in “Confidential Information” is
      any information of Employer’s customers that Employee has access to in
      performing Employee’s duties for
Employer.





c.
            COMPANY
      MATERIALS means documents or other media or tangible items that contain or
      embody PROPRIETARY AND CONFIDENTIAL INFORMATION or any other information
      concerning the business, operations or plans of Employer, whether such
      documents have been prepared by Employee or by others.  COMPANY
      MATERIALS include, but are not limited to blueprints, drawings,
      photographs, charts, graphs, notebooks, customer lists, computer disks,
      tape or printouts, sound recordings and other printed, typewritten,
      handwritten or computer generated documents, as well as samples,
      prototypes, models, products and the
like.





d.
            Excluded
      from “Confidential Information” is information that:  (a) was in
      Employee’s possession or known to Employee before Employee received it
      from Employer; (b) is in the public domain through no fault of Employee;
      or (c) Employee learned from a third party not related to
      Employer.  Information licensed by Employer to any customer
      under a confidentiality restriction is not considered to be in the public
      domain.


9


2.
            Nondisclosure:  Employee
      agrees that he will not directly nor indirectly reveal, report, publish or
      disclose to any person, firm, or corporation not expressly authorized in
      writing by Employer to receive such information any Trade and Business
      Secret, Proprietary and Confidential Information and Company
      Materials.  Employee further agrees that he will not use any
      Trade and Business Secret, Proprietary and Confidential Information and/or
      Company Materials for any purpose except to perform his employment duties
      for Employer and such Trade and Business Secret, Proprietary and
      Confidential Information and/or Company Materials may not be used or
      disclosed by Employee for his own benefit or purpose or for the benefit or
      purpose of a subsequent employer.  These agreements will
      continue to apply after Employee is no longer employed by the Employer so
      long as such Trade and Business Secrets, Proprietary and Confidential
      Information and Company Materials are not nor have become, by legitimate
      means, generally known to the public, but in no event longer than two
      years after such separation from
Employer.





3.
            Return
      of Employer’s Property:  After termination of his employment
      with Employer, upon written request of Employer, Employee will promptly
      deliver to Employer, without copying or summarizing, all Trade and
      Business Secrets, Proprietary and Confidential Information and Company
      Materials, that is in Employee’s possession or under Employee’s control,
      including, without limitation, all physical property, keys, documents,
      lists, electronic storage media, manuals, letters, notes, reports,
      including all originals, reproductions, recordings, disks, or other
      media.





4.
            Employee
      acknowledges that Employee has been apprised of the provisions of Labor
      Code Section 2860 which provides:  “Everything which an Employee
      acquires by virtue of his employment, except the compensation which is due
      him from his Employer, belongs to the Employer, whether acquired lawfully
      or unlawfully, or during or after the expiration of the term of his
      employment.” Employee understands that any work that Employee created or
      helped create at the request of Employer, including user manuals, training
      materials, sales materials, process manuals, and other written and visual
      works, are works made for hire in which Employer owns the
      copyright.  Employee may not reproduce or publish these
      copyrighted works, except in the pursuit of his employment duties with
      Employer.





Section
8.02 - Separate Covenants:  The covenants of Part VIII of this
Agreement shall be construed as separate covenants covering their particular
subject mater.  In the event that any covenant shall be found to be
judicially unenforceable, said covenant shall not affect the enforceability or
validity of any other part of this Agreement.





Section
8.03 - Continuing Obligation:  Employee’s obligations set forth in
Part VIII of this Agreement shall expressly continue in effect beyond Employee’s
employment period in accordance with their terms and such obligations shall be
binding on Employee’s assigns, executors, administrators and other legal
representatives.


10


PART
IX





ARBITRATION
AGREEMENT





Section
9.01 - Resolution of Disputes:  Employee and Employer hereby agree to
arbitrate any claim or dispute with respect to this Agreement and the agreements
incorporated by reference herein (“Farmers & Merchants Bank of Central
California 2005 Deferred Bonus Plan”, “Farmers & Merchants Bank of Central
California Executive Retention Plan”,  “Farmers & Merchants Bank
of Central California Split Dollar Life Insurance Plan”, “Farmers &
Merchants Bank of Central California Executive Indexed Retirement Agreement” and
“Farmers & Merchants Bank of Central California Deferred Compensation Plan”)
and that such arbitration shall be the sole and exclusive remedy for resolving
any and all such claims and disputes.  The decision reached in
arbitration as to any such claim or dispute shall be final and binding on the
Parties.  Employee understands that by signing this Agreement,
Employee waives the right to a jury trial in civil court.





Section
9.02 - Arbitration Procedure:  To exercise a party’s right to
arbitration under this Agreement, the party must reduce to writing the details
of any claim or dispute and serve it upon the other party within the time period
specified by California Law as the appropriate statute of
limitations.





Any such
arbitration shall be conducted pursuant to the provisions of Title 9 of Part III
of the California Code of Civil Procedure, commencing at section 1280, et. seq.
(or any successor or replacement statutes).  There shall be no
restrictions on discovery and such shall be permitted pursuant to California
Law.  The arbitrator shall be empowered with the right to issue
subpoenas as to documents and witnesses.





Section
9.03 - Selection and Scope of Arbitrator:  Any such arbitration will
be conducted before a single arbitrator selected in accordance with the
Employment Dispute Resolution Rules of the American Arbitration
Association.  The arbitration will be held in San Joaquin, Sacramento
or Stanislaus County as designated by Employer.  All fees and expenses
charged by AAA or the arbitrator relating to the arbitration shall be paid by
Employer.  Except as provided for under Section 11.06 of this
Agreement, each party shall pay for the fees and costs of its’ own attorneys,
experts, witnesses, transcripts, exhibits, preparation for the proceeding, and
briefs unless a party prevails on a claim for which attorney’s fees and/or costs
are recoverable by statue or contract.





The
arbitrator shall be authorized to award damages supportable by the evidence to
the extent authorized by California Law and shall further be authorized to grant
remedies in law and in equity.  The arbitrator shall only be
authorized to exercise the power specifically enumerated in this Agreement and
to decide the dispute(s) in accordance with the governing principles of law and
equity.  The arbitrator shall have no authority to alter, amend, or
modify the terms of this Agreement.  Should any party fail to appear
or participate in the arbitration proceeding, the arbitrator may make a decision
based on the evidence presented in the proceeding by the appearing party of the
dispute.  The arbitrator shall issue a written award within sixty (60)
calendar days of the date the matter is submitted.  The award shall be
accompanied by a writing that shall set forth the essential facts and
conclusions used by the arbitrator in reaching that decision.


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Section
9.04 - Exclusive Forum:  Employee and Employer agree that arbitration
shall be the exclusive forum for resolving all disputes.  Either Party
may bring an action in any court of competent jurisdiction to enforce an
arbitration award.





The
Parties retain all rights to enter into agreements regarding arbitration after
any dispute has arisen.





Section
9.05 - Severability:  If any provision of this Part IX is adjudged to
be void or otherwise unenforceable in whole or in part, such adjudication shall
not affect the validity of the remainder of this Agreement.





Section
9.06 - Continuation:  The rights and agreements in this Part IX shall
survive the termination of this Agreement and Employee’s employment with
Employer and remain in full force and effect thereafter.





PART
X





TAXES





Section
10.01 - Withholding:  All payments to be made to Employee under this
Agreement will be subject to required withholding of federal, state and local
income and employment taxes as applicable.





Section
10.02 - Section 409A:





a.
            Notwithstanding
      any provision to the contrary in this Agreement, the Company shall delay
      the commencement of payments or benefits coverage to which Employee would
      otherwise become entitled under the Agreement in connection with
      Employee’s termination of employment until the earlier of (i) the
      expiration of the six-month period measured from the date of Employee’s
      “separation from service” with the Company (as such term is defined in
      Treasury Regulations issued under Section 409A of the Code (defined
      below)) or (ii) the date of Employee’s death, if the Company in good faith
      determines that Employee is a “specified employee” within the meaning of
      that term under Code Section 409A at the time of such separation from
      service and that such delayed commencement is otherwise required in order
      to avoid a prohibited distribution under Section 409A(a)(2) of the
      Code.  Upon the expiration of the applicable Code Section
      409A(a)(2) deferral period, all payments and benefits deferred pursuant to
      this Section10.02 (whether they would have otherwise been payable in a
      single sum or in installments in the absence of such deferral) shall be
      paid or reimbursed to Employee in a lump sum, and any remaining payments
      and benefits due under the  Agreement shall be paid or provided
      in accordance with the normal payment dates specified for them
      herein.





b.
            In
      addition, to the extent the Company is required pursuant to this Agreement
      to reimburse expenses incurred by Employee, and such reimbursement
      obligation is subject to Section 409A of the Code, the Company shall
      reimburse any such eligible expenses by the end of the calendar year next
      following the calendar year in which the expense was incurred, subject to
      any earlier required deadline for payment otherwise applicable under this
      Agreement; provided, however, that the following sentence shall apply to
      any tax gross-up payment and related expense reimbursement obligation,
      including any payment obligations described in Section 7.04, to the extent
      subject to Section 409A.  Any such tax gross-up payment will be
      made by the end of the calendar year next following the calendar year in
      which Employee remits the related
taxes.


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c.
            For
      purposes of the provisions of this Agreement which require commencement of
      payments or benefits subject to Section 409A upon a termination of
      employment, the terms “termination of employment” and “Separation Date”
      shall mean a “separation from service” with the Company (as such term is
      defined in Treasury Regulations issued under Code Section 409A),
      notwithstanding anything in this Agreement to the
  contrary.





d.
            In
      each case where this Agreement provides for the payment of an amount that
      constitutes nonqualified deferred compensation under Section 409A to be
      made to the Employee within a designated period and such period begins and
      ends in different calendar years, the exact payment date within such range
      shall be determined by the Employer, in its sole discretion, and the
      Employee shall have no right to designate the year in which the payment
      shall be made.





e.
            Any
      series of payments provided under this Agreement shall for all purposes of
      Code Section 409A be treated as a series of separate payments and not as
      single payments.





f.
            The
      provisions of this Section 10.02 are intended to comply with Code Section
      409A and shall be interpreted consistent with such
  section.





PART
XI





GENERAL
PROVISIONS





Section
11.01 - Notices:  Any notice to be given to Employer under the terms
of this Agreement, and any notice to be given to Employee shall be addressed to
such Party at the mailing address the Party may hereafter designate in writing
to the other.  Any such notice shall be deemed to have been duly given
four days after the same shall be enclosed in a properly sealed and addressed
envelope, registered or certified, and deposited (postage or registry or
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States Government or upon actual delivery to the Party
by messenger or delivery service, with receipt acknowledged in writing by the
Party to whom such notice is addressed.





Section
11.02 - Entire Agreement:  This Agreement and the agreements
incorporated by reference herein (“Farmers & Merchants Bank of Central
California 2005 Deferred Bonus Plan”, “Farmers & Merchants Bank of Central
California Executive Retention Plan”, “Farmers & Merchants Bank of Central
California Split Dollar Life Insurance Plan”, “Farmers & Merchants Bank of
Central California Executive Indexed Retirement Agreement” and “Farmers &
Merchants Bank of Central California Deferred Compensation Plan”) supersede any
and all other agreements or understandings, whether oral, implied, or in
writing, between the parties hereto with respect to the subject matter hereof
and contain all of the covenants and agreements between the Parties with respect
to such matters in their entirety.  Each Party to this Agreement
acknowledges that no representations, inducements, promises or agreements,
orally or otherwise, have been made by any Party, or anyone acting on behalf of
any Party, which is not embodied herein, and that no other agreement, statement
or promise not contained in this Agreement shall be valid or
binding.  Any modification(s) to this Agreement will be effective only
if in writing and signed by the Parties hereto.


13


Section
11.03 - Partial Invalidity:  If any provisions in this Agreement are
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.





Section
11.04 - Continuing Obligations:  The obligations of the covenants
contained in this Agreement shall survive the termination of the Agreement and
any employment relationship between Employer and
Employee.  Accordingly, neither Employer, nor Employee shall be
relieved of the continuing obligations of the covenants contained in this
Agreement.





Section
11.05 - Employee’s Representations:  Employee represents and warrants
that Employee is free to enter into this Agreement and to perform each of the
terms and covenants in it.  Employee represents and warrants that
Employee is not restricted or prohibited, contractually or otherwise, from
entering into and performing this Agreement, and that Employee’s execution and
performance of this Agreement is not a violation or breach of any other
agreement between Employee and any other person or entity.





Section
11.06 - Attorney Fees:  Following a Change of Control as defined in
Section 7.04 of this Agreement, Employer agrees, on request by Employee, to
promptly advance to Employee any attorneys fees and costs incurred by Employee
in connection with any claim or dispute between the Parties hereto with respect
to this Agreement, any agreements incorporated by reference herein, or the
employment relationship existing hereunder, subject to Employer’s right to
recover any amount so advanced in the event that Employee shall not be the
prevailing party in any litigation or arbitration arising from any such claim or
dispute.  Employer shall bear the expense of its own attorney’s fees
and costs incurred in connection with any such claim or dispute or litigation or
arbitration arising therefrom.





Section
11.07 - Governing Law:  This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of California.





Section
11.08 - Superseding Effect of this Agreement:  This Agreement, upon
its effective date, shall amend and restate in its entirety and shall thereby
supersede that certain Employment Agreement dated January 1, 2005 among the
Parties.





Section
11.09 - Full Settlement:  Employer’s obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be not be affected by any set off, counterclaim, recoupment,
defense or other claim, right or action which Employer may have against Employee
or others. In no event shall Employee be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to Employee
under any of the provisions of this Agreement and such amount shall not be
reduced whether or not Employee obtains other employment.


14


Section
11.10 - Successors:  This Agreement shall be binding upon and
enforceable against any successors to Employer. No duties provided for under
this Agreement may be delegated by any of the parties
hereto.  Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and assets of Employer to assume expressly and
agree to perform this Agreement in the same matter and to the same extent that
Employer would be required to perform it if no such succession had taken place.
As used herein, the term “Employer” shall mean Employer as hereinbefore defined
and any successor to its business and assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law or otherwise. This
Agreement shall inure to the benefit of and be enforceable by Employee’s legal
representatives.





Section
11.11 - No Waiver:  The failure of any of the Parties hereto to insist
on strict compliance with any provision of this Agreement, or the failure to
assert any right of any Party hereto may have hereunder, shall not be deemed to
be a waiver of such provision or right or of any other provision or right
contained in this Agreement.





The
effective date of this Agreement shall be April 1, 2009.





FARMERS
& MERCHANTS BANK OF CENTRAL CALIFORNIA


and
FARMERS & MERCHANTS BANCORP











By:
              
              
              Date:  March
      5, 2009Ole
      R. MettlerChairman
      of the BoardStewart
      C. Adams, Jr.Chairman
      of the Personnel Committeeon
      behalf of FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA and FARMERS
      & MERCHANTS BANCORP











Employee:
                
                
                Date:  March
      5, 2009Kenneth
      W. Smith






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