AMENDED AND RESTATED EMPLOYMENT AGREEMENT

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:

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.

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 15 ^th 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.

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:

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.