EX 10.16 EXECUTIVE RETENTION PLAN, Q1 2005 10-Q

 

 

                                                                  Exhibit 10.16

 

                 FARMERS & MERCHANTS BANK OF CENTRAL CALIFORNIA

 

                            EXECUTIVE RETENTION PLAN

 

1.   Purpose of the Plan. The purpose of the Farmers & Merchants Bank of Central

     California Executive Retention Plan is to provide a long-term compensation

     opportunity for the participants in order to retain their services.

 

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

     meanings indicated below:

 

     "Bank" shall mean Farmers & Merchants Bank of Central California and any of

     its subsidiaries.

 

     "Board of Directors" shall mean the Board of Directors of the Bank.

 

     "Participation Factor" shall mean, in respect of any Participant, the

     numerical factor determined by the Committee for purposes of such

     Participant's participation in the Plan.

 

     "Termination for Cause" shall mean the Bank terminating the Executive's

     employment for conviction of a felony resulting in a material economic

     adverse effect on the Bank.

 

     "Change of Control" shall mean a change, after January 1, 2005, of control

     of the Holding Company. Such a Change of Control will be deemed to have

     occurred immediately before the following occur: (i) individuals, who were

     members of the Board of Directors of the Holding Company immediately prior

     to a meeting of the shareholders of the Holding Company which meeting

     involved a contest for the election of directors, do not constitute a

     majority of the Board of Directors of the Holding Company following such

     election or meeting, (ii) an acquisition, directly or indirectly, of more

     than 35% of the outstanding shares of any class of voting securities of the

     Holding Company by any Person, (iii) a merger (in which the Holding Company

     is not the surviving entity), consolidation or sale of all, or

     substantially all, of the assets of the Holding Company, or (iv) there is a

     change, during any period of one year, of a majority of the Board of

     Directors of the Holding Company as constituted as of the beginning of such

     period, unless the election of each director who is not a director at the

     beginning of such period was approved by a vote of at least a majority of

     the directors then in office who were directors at the beginning of such

     period. If any of the events or circumstances described in (i)-(iv), above,

     shall occur to or be applicable to the Bank, then such Change of Control

     shall be deemed for all purposes of this agreement to also be a "Change of

     Control" of the Holding Company. For purposes of this agreement, the term

     "Person" shall mean and include any individual, corporation, partnership,

     group, association or other "person", as such term is used in Section 14(d)

     of the Securities Exchange Act of 1934, other than the Holding Company, the

     Bank, any other wholly owned subsidiary of the Company or any employee

     benefit plan(s) sponsored by the Company, Bank or other subsidiary of the

     Holding Company.

 

     "Committee" shall mean the Personnel Committee of the Board of Directors or

     such other committee that the Board of Directors may designate from time to

     time.

 

     "Disability" shall mean when a Participant (i) is unable to engage in any

     substantial gainful activity by reason of any medical determinable physical

     or mental impairment which can be expected to result in death or can be

     expected to last for a continuous period of not less than 12 months, or

     (ii) is by reason of any medical determinable physical or mental impairment

     which can be expected to result in death or can be expected to last for a

     continuous period of not less than 12 months, receiving income replacement

     benefits for a period of not less than three months under an accident and

     health plan covering employees of Bank. Disability shall be determined by a

     physician acceptable to both the Committee and the Participant

 

                                       1

<PAGE>

 

     "Full Year of Service" shall mean any calendar year in which an individual

     completes at least 1,400 hours of employment with the Bank or the Holding

     Company.

 

     "Holding Company" shall mean Farmers & Merchants Bancorp.

 

     "Participant" shall mean Kent A. Steinwert, President; Richard S. Erichson,

     Executive Vice President; Deborah E. Hodkin, Executive Vice

     President; Chris C. Nelson, Executive Vice President; Stephen W. Haley,

     Executive Vice President; Kenneth W. Smith, Executive Vice President; and

     Lamoin V. Schulz, Senior Vice President.

 

     "Plan" shall mean the Farmers & Merchants Bank of Central California

     Executive Retention Plan as set forth in this document, as successor of any

     prior plans of the same name, and as the same may be amended or

     supplemented from time to time.

 

3.   Retention Compensation. Participants in the Plan will be eligible to earn

     long-term Retention Compensation calculated as follows:

 

     The closing stock price per share at December 31, 2004 ($425.00) times

        the total number of such shares outstanding at December 31, 2004

                                   (792,722),

 

                                      minus

 

            the Shareholders' Equity (exclusive of Accumulated Other

                 Comprehensive Income or Loss), per the Holding

               Company's GAAP financial statements at December 31,

                               2004 ($117,577,000)

 

                                  multiplied by

 

                     the Participant's Participation Factor.

 

 

4.   Vesting. A Participant's entitlement to his or her Retention Compensation

     shall vest based on the Participant's Full Years of Service with the Bank,

     measured beginning January 1, 2005, as set forth in the vesting schedule

     below. However, in the event of a Change of Control, his or her Retention

     Compensation shall become 100% vested.

 

                                                        Percent of Retention

         Post 2004 Full Years of Service                Compensation Vested

         -------------------------------                -------------------

 

         Less than 1 year                                       0%

         1 year to less than 2 years                           10%

         2 years to less than 3 years                          20%

         3 years to less than 4 years                          30%

         4 years to less than 5 years                          40%

         5 years to less than 6 years                          50%

         6 years to less than 7 years                          60%

         7 years to less than 8 years                          70%

         8 years to less than 9 years                          80%

         9 years to less than 10 years                         90%

         10 years or more                                     100%

 

 

                                       2

<PAGE>

 

5.   Retention Compensation Account. The Bank shall establish a Retention

     Compensation Account on its books for the Participant. Incrementally vested

     amounts will be credited to this account and transferred to the rabbi trust

     established under Section 19 (b) upon the earlier of a Change of Control or

     the end of each calendar month. The Participant's account balance will not

     be subject to movements in the Holding Company's stock price, but will be

     credited with interest, as defined in Section 6. A Participant shall be

     entitled to the amount set forth in the Retention Compensation Account

     applicable to him or her, subject to the terms and conditions of this Plan,

     including the vesting rules set forth in Section 4, the forfeiture rules

     set forth in Section 9 and the payment rules set forth in Section 10.

 

6.   Interest on Retention Compensation Account Balances. Interest will be

     credited to each Participant's Retention Compensation Account balance, and

     transferred to the rabbi trust established under Section 18 (b), at the end

     of each calendar month: (a) from January 1, 2005 until such time as the

     account balances are transferred to the rabbi trust at Prime-3.0%; and (b)

     thereafter at a rate equivalent to the pre-tax investment earnings rate for

     such month achieved in the rabbi trust.

 

7.   Notice of Participation Factor and Statement of Accounts. As soon as

     practicable following a determination by the Committee to grant a

     Participation Factor to a Participant, the Committee shall give written

     notice to the Participant of the amount of the Participation Factor. Such

     notice shall enclose a copy of the Plan. The Bank shall also provide to the

     Participant, within sixty (60) days after each calendar year-end, a

     statement setting forth the Participant's account balance.

 

8.   Accounting Device Only. The Retention Compensation Account is solely a

     device for measuring amounts to be paid under this Plan. It is not a trust

     fund of any kind. The Participant is a general unsecured creditor of the

     Bank for the payment of benefits. The benefits represent the mere Bank

     promise to pay such benefits. The Participant's rights are not subject in

     any manner to anticipation, alienation, transfer, assignment, pledge,

     encumbrance, attachment, or garnishment by the Participant's creditors.

 

9.   Forfeiture. Except in the event of a Change of Control, on termination of a

     Participant's status as a Participant (whether by retirement, disability,

     death or termination without cause), that portion of the Retention

     Compensation that is not vested upon the occurrence of such event shall be

     forfeited by the Participant. Notwithstanding anything to the contrary, in

     the event of the Participant's Termination for Cause, all entitlement and

     other rights of Participant to any Retention Compensation, whether or not

     vested, shall be cancelled, terminated and forfeited in their entirety.

     Amounts forfeited by any individual Participant will, in the sole

     discretion of The Committee, either (i) remain in the Plan and be used to

     offset future Plan credits required under Section 6 for the remaining

     Participants, or (ii) withdrawn from the Plan (and the rabbi trust).

 

10.  Payment.

 

     a)   Retirement. From and after the retirement of the Participant from the

          service of the Bank, the Bank shall pay the vested portion of

          Participant's Retention Compensation in accordance with the

          Participant's Election on the attached Payment Election.

 

     b)   Disability. If Participant's termination of employment is due to

          Disability, the Bank shall pay the vested portion of Participant's

          Retention Compensation in accordance with the Participant's Election

          on the attached Payment Election.

 

                                       3

<PAGE>

 

     c)   Death. In the event of the Participant's death (i) while employed by

          the Bank or the Holding Company, the vested portion of Participant's

          Retention Compensation shall be paid to the Participant's heirs,

          devisees or designated beneficiaries in one lump sum payment made on

          the first day of the second month following the Participant's death,

          or (ii) while receiving payments of his Retention Compensation as a

          result of his prior retirement, disability, Change of Control or

          termination without cause, the remaining portion of Participant's

          vested Retention Compensation which had not been previously paid out

          shall be paid to the Participant's heirs, devisees or designated

          beneficiaries in one lump sum payment made on the first day of the

          second month following the Participant's death,.

 

     d)   Change of Control. In the event of a Change of Control, the Bank shall

          pay the full amount of Participant's Retention Compensation in

          accordance with the Participant's Election on the attached Payment

          Election.

 

     e)   Termination without Cause. In the event of the Employee's termination

          of employment with the Bank for any reason, other than disability,

          change of control, retirement, death or Termination for Cause, the

          Bank shall pay the vested portion of Participant's Retention

          Compensation in accordance with the Participant's Election on the

          attached Payment Election.

 

11.  Beneficiary Designation. The Participant shall have the right, at any time

     to submit a Beneficiary Designation Form designating primary and secondary

     beneficiaries to whom payment under this Plan shall be made in the event of

     death prior to complete distribution of the benefits due and payable under

     the Plan. Each beneficiary designation shall become effective only when

     receipt thereof