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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
FARMERS & MERCHANTS BANCORP, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
March 18, 2005
Dear Fellow Shareholders:
I am pleased to invite you to attend the Annual Meeting of Shareholders of
Farmers & Merchants Bancorp, Inc. The meeting will be held at Founders Hall,
located at Sauder Village, State Route 2, Archbold, Ohio 43502 on APRIL 23, 2005
AT 1:00 P.M., EST.
In addition to the typical election of directors, the Board is requesting
shareholder approval for a number of changes to the Corporation's Articles of
Incorporation and Code of Regulations, as specified in the attached notice of
annual meeting. Your Board of Directors, with the guidance of counsel, has
recommended these changes. The intent of these proposed changes to the Articles
of Incorporation and Code of Regulations is to provide the Corporation
additional flexibility in raising capital, engaging in potential acquisitions
and protecting itself against undesirable attempts to gain control of the
Corporation. We believe that the proposed changes will allow the Corporation to
continue as a strong, independent financial institution serving our local
communities.
The Board of Directors also is asking for approval of the adoption of a
Long-Term Stock Incentive Plan. The Board believes that tying the compensation
of the senior officers of the Corporation to that of shareholders will be
beneficial in the long run. We are convinced that in the end, this is the best
way to advance the interest of the Corporation, its employees, the communities
it serves and, most importantly, you our shareholders.
The meeting will also provide an opportunity to review with you the results of
Farmers & Merchants Bancorp, Inc. and its subsidiaries during 2004.
Your vote is important no matter how many shares you own. I encourage you to
vote your shares. If you choose not to attend the Annual Meeting of
Shareholders, you may vote by mail by signing, dating and returning the proxy
card in the accompanying envelope. If you do attend the meeting and desire to
vote in person, you may do so even though you have previously submitted your
proxy.
Please also return the attached reservation form for the sit down luncheon that
will start at 12:00 Noon.
We look forward to seeing you at the meeting.
Sincerely,
Farmers & Merchants Bancorp, Inc.
Joe E. Crossgrove
Chairman of the Board
FARMERS & MERCHANTS BANCORP, INC.
307-11 DEFIANCE ST.
ARCHBOLD, OHIO 43502-0216
(419) 446-2501
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
APRIL 23, 2005
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Farmers &
Merchants Bancorp, Inc., an Ohio corporation ("Corporation") will be held at
Founders Hall, located at Sauder Village, State Route 2, Archbold, Ohio 43502 on
APRIL 23, 2005 AT 1:00 P.M., EST, for the following purposes:
1. INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES - To amend the
Corporation's Articles of Incorporation to increase the number of Common
Shares that the Corporation is authorized to issue from 1,500,000 shares
without par value to 15,000,000 shares without par value.
2. ELIMINATE PREEMPTIVE RIGHTS - To amend the Corporation's Articles of
Incorporation to eliminate the preemptive right of shareholders to
subscribe to additional shares of stock issued by the Corporation from
time to time, which provision the Board of Directors believes will allow
the Corporation to more easily raise capital as needed.
3. REVISE THE SUPERMAJORITY VOTE PROVISIONS - To amend the Corporation's
Articles of Incorporation to modify and, in the opinion of the Board of
Directors, improve the supermajority vote provision in the Corporation's
current Articles of Incorporation.
4. ALLOW FUTURE AMENDMENTS TO THE ARTICLES OF INCORPORATION BY A MAJORITY
VOTE - To amend the Corporation's Articles of Incorporation to allow
future amendment of the Articles of Incorporation of the Corporation,
except in regard to "antitakeover" provisions, by a simple majority
instead of the 2/3 (i.e. 66 2/3%) of outstanding shares currently
required.
5. MAKE TECHNICAL REVISIONS TO THE ARTICLES OF INCORPORATION - To approve
amending and restating the Corporation's Articles of Incorporation, as
more fully described in the accompanying proxy statement, to make certain
technical changes and corrections.
6. REVISE THE NUMBER OF DIRECTORS - To amend the Corporation's Code of
Regulations to allow the Board of Directors to establish the number of
members on the Board of Directors to between nine (9) and twenty (25) as
opposed to having that number set annually by the shareholders.
7. CLASSIFY THE BOARD OF DIRECTORS - To amend the Corporation's Code of
Regulations to divide the Board of Directors into three (3) classes
creating a "classified" Board of Directors which, in the opinion of the
Board of Directors, will provide additional "antitakeover" protection and
provide better transition for members of the Board of Directors.
8. INCREASE THE VOTE OF SHAREHOLDERS REQUIRED TO REMOVE A DIRECTOR - To amend
the Corporation's Code of Regulations to require approval of 75% of the
outstanding common shares to remove a Director, and to require "cause" for
such removal, subject to the additional protections provided by the
provisions under Ohio law related to the implementation of cumulative
voting, which, in the opinion of the Board of Directors, will provide
additional "antitakeover" protection.
9. ADOPT ADVANCE NOTICE PROCEDURES - to require shareholders to provide in
advance of shareholder meetings notice of nominations to elect directors
and to make other proposals.
10. OPT OUT OF THE CONTROL SHARE ACQUISITION STATUTE - To amend the
Corporation's Code of Regulation to choose that the provisions of
Section 1701.831 of the Ohio Revised Code, the control share acquisition
statute, not be applicable to the Corporation.
11. INCREASE THE PERCENTAGE VOTE TO AMEND THE CODE OF REGULATIONS AND MAKE
TECHNICAL REVISIONS TO THE CODE OF REGULATIONS - To provide for amendment
of the Code of Regulations in the future by a majority of the
shareholders, except in regard to certain specific provisions of the
proposed Amended and Restated Code of Regulations which would require a
vote of 80% of outstanding shares and to approve amending and restating
the Corporation's Code of Regulations, as more fully described in the
accompanying proxy statement, to make certain technical changes and
corrections.
12. ELECTION OF DIRECTORS - To elect the following fourteen (14) nominees to
the Board of Directors to serve in the Classes noted in the Proxy
Statement or, in the event that the shareholders do not approve the
appointment of a classified Board of Directors as set forth in the Amended
Code of Regulations discussed above, to elect all nominees to serve until
the Annual Meeting of Shareholders in 2006:
Dexter L. Benecke Jack C. Johnson Kevin J. Sauder
Jerry L. Boyers Dean E. Miller Paul S. Siebenmorgen
Joe E. Crossgrove Anthony J. Rupp Merle J. Short
Steven A. Everhart David P. Rupp, Jr. Steven J. Wyse
Robert G. Frey James C. Saneholtz
13. ADOPT A LONG TERM INCENTIVE PLAN - The Board of Directors has adopted and
recommends to the shareholders approval and adoption of the 2005 Farmers &
Merchants Long Term Stock Incentive Plan that will allow the Corporation
to issue stock options, restricted stock and additional stock related
compensation to its senior officers in an attempt to tie the compensation
of such officers to the long term performance of the Corporation.
14. OTHER BUSINESS - To transact any other business which may properly come
before the meeting or any adjournment of it.
The Board of Directors has fixed the close of business on March 8, 2005, as the
record date for determination of shareholders who are entitled to notice of and
to vote at the meeting.
If the enclosed proxy statement and annual report are being delivered to two or
more security holders who share the same address, and the security holders
sharing the same address each desires to receive a proxy statement and annual
report, or if there are more than one copy of the proxy statement and annual
report being delivered to security holders who share the same address, and it is
preferred to receive a single copy of such proxy statement and annual report,
please notify Ms. Lydia Huber, Secretary of Farmers & Merchants Bancorp, Inc.
This request should be in writing addressed to Ms. Huber at Farmers & Merchants
Bancorp, Inc., 307-11 Defiance St., Archbold, Ohio 43502-0216. If you have
questions, please contact Ms. Huber by telephone at 419-446-2501.
By Order of the Board of Directors
__________________________________
Lydia A. Huber, Secretary
Archbold, Ohio
March 18, 2005
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. YOU STILL HAVE THE RIGHT TO REVOKE THE PROXY AND VOTE IN PERSON AT THE
MEETING IF YOU SO CHOOSE. IF YOU HAVE ANY QUESTIONS PLEASE CONTACT MS. LYDIA A.
HUBER, SECRETARY OF THE CORPORATION AT (419) 446-2501.
The Proxy Statement, proxy card and Farmers & Merchants Bancorp, Inc. 2004
Annual Report will be mailed to shareholders commencing on or about March 18,
2005.
FARMERS & MERCHANTS BANCORP, INC.
TABLE OF CONTENTS OF PROXY STATEMENT
Page
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General Information about the Meeting and Voting Securities and Procedures............... 1
Proposals to Amend the Articles of Incorporation......................................... 4
Proposals to Amend the Code of Regulations............................................... 8
Possible Anti-Takeover Effect of Proposals............................................... 11
Proposal 12 - Election of Directors and Information Concerning Directors and Officers.... 13
Security Ownership of Certain Beneficial Owners and Management........................... 16
Committees and Compensation of the Board of Directors.................................... 17
Executive Compensation and Other Information............................................. 20
Report of the Compensation Committee of Farmers & Merchants Bancorp, Inc................. 22
Compensation Committee Interlocks and Insider Participation.............................. 23
Performance Graph........................................................................ 24
Certain Relationships and Related Transactions........................................... 25
Compliance with Section 16(a) of the Securities Exchange Act of 1934..................... 25
Proposal 13 - Approval of the Farmers & Merchants Bancorp, Inc. 2005 Long-Term
Stock Incentive Plan..................................................................... 25
Information Concerning Independent Accountants........................................... 30
Proposals of Shareholders for Next Annual Meeting........................................ 31
Other Matters............................................................................ 31
Proposed Amended and Restated Articles of Incorporation.................................. Appendix A
Proposed Amended and Restated Code of Regulations........................................ Appendix B
Farmers & Merchants Bancorp, Inc. 2005 Long Term Stock Incentive Plan.................... Appendix C
FARMERS & MERCHANTS BANCORP, INC.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 2005
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Farmers & Merchants Bancorp, Inc., an Ohio
corporation ("Corporation"), to be used at the Annual Meeting of Shareholders of
the Corporation, to be held at the Founders Hall, located at Sauder Village,
State Route 2, Archbold, Ohio 43502 on April 23, 2005 at 1:00 P.M., EST, and at
any adjournments thereof, pursuant to the accompanying Notice of Meeting.
GENERAL INFORMATION ABOUT THE MEETING AND VOTING SECURITIES AND PROCEDURES
WHO MAY VOTE AT THE MEETING?
The Board of Directors has fixed the close of business on March 8, 2005 as the
record date for the determination of shareholders who are entitled to notice of
and to vote at the meeting. The transfer books of the Corporation will not be
closed. Subject to your right to vote cumulatively in the election of directors
if properly implemented, you are entitled to one vote for each share of common
stock you held on the record date, including shares:
- held directly in your name; and
- held for you in an account with a broker, bank or other nominee (shares
held in "street name").
HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
A majority of Farmers & Merchants Bancorp, Inc. outstanding shares of common
stock as of the record date must be present at the meeting in order to hold the
meeting and conduct business. This is called a quorum. On the record date there
were 1,300,000 shares of the Corporation's common stock, without par value
("Common Stock") outstanding, the holders of which are entitled to one vote per
share, subject to the right to vote cumulatively in the election of directors if
properly implemented. Your shares are counted as present at the meeting if you:
- are present and vote in person at the meeting; or have properly
- submitted a proxy card prior to the meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for the transaction of business at the meeting.
WHAT PROPOSALS WILL BE VOTED ON AT THE MEETING?
There are a number of proposals scheduled to be voted on at the meeting,
including proposed amendments to the Corporation's Articles of Incorporation,
proposed amendments to the Corporation's Code of Regulations, approval of the
Farmers & Merchants Bancorp, Inc. 2005 Long Term Stock Incentive Plan and the
election of director of the Corporation.
WHO IS REQUESTING MY VOTE?
The solicitation of proxies on the enclosed form is made on behalf of the Board
of Directors of the Corporation and will be conducted primarily through the
mail. Please mail your completed proxy in the envelope included
with these proxy materials. In addition to the use of the mail, members of the
Board of Directors and certain officers and employees of the Corporation or its
subsidiaries may solicit the return of proxies by telephone, facsimile, and
other electronic media or through personal contact. Except as noted below in
regard to voting of shares held in street name, proxies may not be returned
through the Internet. The Directors, officers and employees that participate in
such solicitation will not receive additional compensation for such efforts, but
will be reimbursed for out-of-pocket expenses. The cost of preparing, assembling
and mailing this Proxy Statement, the Notice of Meeting and the enclosed proxy
will be borne by the Corporation.
HOW MANY VOTES ARE REQUIRED TO APPROVE EACH PROPOSAL?
The approval of each of proposals 1-5 regarding the amendments to the
Corporation's Articles of Incorporation requires the approval of 2/3 (66 2/3%)
of the outstanding common stock of the Corporation (currently 866,667 shares).
The approval of each of proposals 6-11 regarding the amendments to the
Corporation's Code of Regulations requires the approval of a majority of the
outstanding common stock of the Corporation (currently 650,001 shares).
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. This means that the 14 nominees who receive the largest number of "FOR"
votes cast will be elected as directors. A majority of the votes cast at the
meeting is necessary to approve the 2005 Long-Term Stock Incentive Plan. Many of
the Corporation's shareholders hold their shares in "street name"--in the name
of a brokerage firm. If you hold your shares in "street name," please note that
only your brokerage firm can sign a proxy on your behalf. In regard to proposal
13, abstentions and broker non-votes will not be counted as shares voted in
favor of or against the proposal. Because each of proposals 1-11 regarding the
amendments to the Articles of Incorporation and Code of Regulations requires
approval by 66 2/3% or a majority, respectively, of the outstanding shares,
abstentions and broker non-votes in regard to these proposals will effectively
represent a vote against the proposals. THE BOARD OF DIRECTORS URGES YOU TO
CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT TODAY, AND INSTRUCT THEM TO
EXECUTE A PROXY ON YOUR BEHALF FOR THE ANNUAL MEETING.
HOW ARE VOTES COUNTED?
A shareholder may
- Approve each proxy matter
- Disapprove each proxy matter
- Abstain from voting on each proxy matter
- Vote for all of the nominees for director
- Withhold votes on all of the nominees for director
- Withhold votes for one or more nominees
The laws of Ohio under which the Corporation is incorporated and the
Corporation's Articles of Incorporation provide that, if notice in writing is
given by any shareholder to the President, Vice President or the Secretary of
the Corporation not less than 48 hours before the time fixed for holding a
meeting of shareholders for the purpose of electing Directors, that he desires
that the voting at that election shall be cumulative, and if an announcement of
the giving of such notice is made upon the convening of the meeting by the
Chairman or Secretary or by or on behalf of the shareholder giving such notice,
each shareholder shall have the right to cumulate such voting powers as he
possesses in voting for Directors. Cumulative voting rights allow shareholders
to vote the number of shares owned by them times the number of directors to be
elected and to cast such votes for one nominee or to allocate such votes among
nominees as they deem appropriate. Shareholders will not be entitled to exercise
cumulative voting unless at least one shareholder properly notifies the
Corporation of their desire to implement cumulative voting at the Annual
Meeting. The Corporation is soliciting the discretionary authority to cumulate
votes represented by proxy, if such cumulative voting rights are exercised.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
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The Board of Directors recommends that you vote "FOR" each of proposals 1-11 and
13 and "FOR" all of the director nominees listed in proposal 12. In the absence
of instruction, the proxy will be voted "FOR" the election of the management
director nominees listed in this Proxy Statement, and "FOR" each of proposals
1-11 and 13 described above, and in the discretion of the proxy committee for
any other business that properly comes before the meeting.
HOW DO I VOTE MY SHARES WITHOUT ATTENDING THE MEETING?
Whether you hold shares directly or in street name, you may direct your vote
without attending the Annual Meeting. If you are a shareholder of record, you
may vote by granting a proxy as follows:
- By Mail - You may vote by mail by signing and dating your proxy card
and mailing it in the envelope provided. You should sign your name
exactly as it appears on the proxy card. If you are signing in a
representative capacity (for example as guardian, trustee, custodian,
attorney or officer of a corporation), you should indicate your name
and title or capacity.
For shares held in street name, you should follow the voting instructions
provided by your broker or nominee. You may complete and mail a voting
instruction card to your broker or nominee or, in some cases, submit voting
instructions by telephone or the Internet. If you provide specific voting
instructions by mail, telephone, or Internet, your broker or nominee will vote
your shares as you have directed.
HOW DO I VOTE MY SHARES IN PERSON AT THE MEETING?
Even if you plan to attend the meeting, we encourage you to vote by mail so your
vote will be counted if you later decide not to attend the meeting.
If you choose to vote at the Annual Meeting:
- If you are a shareholder of record, to vote your shares at the meeting
you should bring the enclosed proxy card and proof of identity.
- If you hold your shares in street name, you must obtain a proxy in your
name from your bank, broker or other holder of record in order to vote
at the meeting.
Bring the proxy (for record holders) or proof of beneficial ownership (for
street name holders) such as a recent brokerage statement or a letter from your
bank or broker, and proof of identity to the meeting.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY?
It likely means you hold shares registered in more than one account. To ensure
that all of your shares are voted, sign and return each proxy.
MAY I CHANGE MY VOTE?
Yes. The proxy may be revoked at any time before it is voted by written notice
to the Corporation prior to the start of the meeting, and any shareholder
attending the meeting may vote in person whether or not he has previously
submitted a proxy.
WHEN WILL THE PROXY AND ANNUAL REPORT BE MAILED TO SHAREHOLDERS?
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This Proxy Statement and the accompanying Notice of Annual Meeting of
Shareholders and Proxy are being mailed to the Corporation's shareholders on or
about March 18, 2005.
HOW MANY SHARES ARE OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
All Directors and Executive Officers of the Corporation as a group (comprised of
19 individuals), beneficially held 80,122 shares of the Corporation's common
stock as of March 8, 2005, representing 6.16% of the outstanding common stock of
the Corporation.
GENERAL OVERVIEW OF PROPOSALS TO AMEND THE ARTICLES OF INCORPORATION
The Board of Directors has voted to recommend certain amendments to the Articles
of Incorporation to: (i) increase the number of authorized common shares from
1,500,000 shares to 15,000,000 shares; (ii) eliminate the preemptive right of
shareholders to subscribe for additional shares of stock of the Corporation that
may be issued from time to time; (iii) revise the "antitakeover" provisions of
the Articles of Incorporation; (iv) provide for amendment of the Articles of
Incorporation in the future by a majority of the shareholders, except in regard
to the antitakeover provisions of proposed Article Eighth which would require a
vote of 80% of outstanding shares; and (v) to adopt these amendments and
additional less significant changes to the current Articles of Incorporation by
approval and adoption of the Amended and Restated Articles of Incorporation in
the form attached hereto as Appendix A. Each of these issues is addressed below.
On the attached Proxy, shareholders are given the right to vote for these
proposals separately so that some, but not all, of the proposals may be adopted.
However, because the Board of Directors believes that it is in the best interest
of the Corporation that all of these proposals are adopted, the Amended and
Restated Articles of Incorporation in the form of Appendix A attached hereto
incorporate each proposal. The Corporation's Articles of Incorporation have not
been modified, other than to increase the number of authorized shares since the
organization of the Corporation in 1985. The Board of Directors believes that
the Corporation will be in a better overall position to operate in the
competitive financial institutions arena with the Amended and Restated Articles
of Incorporation and requests your support.
PROPOSAL 1
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED COMMON SHARES TO 15,000,000
The Board is proposing to increase the number of authorized shares of the
Corporation from 1,500,000 to 15,000,000. Each share will continue to be without
par value. As of March 8, 2005, the Corporation had 1,500,000 shares authorized,
1,300,000 of which were outstanding, with no shares held by the Corporation as
treasury stock. The Board believes that the increase in authorized shares will
grant it flexibility utilizing authorized but unissued shares for general
corporate purposes. These purposes could include certain shareholder
enhancements such as a stock split or stock dividends. The board of Directors
has expressed its intent to declare a 4 for 1 stock split in the event that this
proposed amendment is adopted by the shareholders. In the event of such split,
the Corporation would have 5,200,000 shares outstanding. The Board of Directors
feels that a stock split is appropriate at this time to reduce the per share
trading value of its stock in an effort to make shares more affordable and
increase liquidity. Authorizing the 15,000,000 shares as proposed would allow
the Board of Directors to effect a subsequent 2 for 1 stock split and still
provide an additional 3,000,000 for other corporate purposes. Such other
corporate purposes include the potential issuance of shares under the 2005 Long
Term Stock Incentive Plan that is proposed for approval at this annual meeting
(See Proposal 13 below). An amendment to increase the authorized shares would
also grant the Board authority to issue shares in connection with the raising of
additional capital or acquisition of an existing bank, bank holding company or
other financial institution. While the Corporation has no specific plans in
regard to the issuance of additional shares concerning any sale of stock or
acquisition, having available authorized but unissued shares would allow the
Board of Directors to act expeditiously in accomplishing any such goals should
the Board deem it appropriate. The
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increase in the authorized shares will grant to the Board the ability to issue
additional shares without further shareholder approval, subject to the
elimination of preemptive rights discussed below, and would, if shares were so
issued, have the result of diluting the ownership percentage of current
shareholders.
PROPOSAL 2
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO ELIMINATE PREEMPTIVE RIGHTS
The current Articles of Incorporation of the Corporation provide the
shareholders of the Corporation with the preemptive right to subscribe to
additional shares of the Corporation offered for sale. The current version of
the Articles of Incorporation and Ohio law do provide exceptions to such right.
The Board of Directors is seeking shareholder approval to eliminate preemptive
rights as it believes that such right unduly restricts the Board of Directors
ability to react to the potential for issuance of new shares at such times and
upon such conditions as the Board of Directors deems appropriate. The Board of
Directors believes that the concept of preemptive rights is appropriate in a
more closely held corporation so as to allow shareholders to maintain their pro
rata interest in the corporation. The Corporation is now a widely held
corporation with over 2,000 shareholders.
Section 1701.15 of the Ohio Revised Code, which governs preemptive rights under
Ohio law, was amended effective March 17, 2000 in favor of limiting preemptive
rights. Prior to such amendment, a shareholder of an Ohio corporation was
entitled to preemptive rights unless the articles of incorporation provided that
there would be no preemptive rights. After March 17, 2000, a shareholder does
not have preemptive rights in a newly organized Ohio corporation unless the
articles of incorporation specifically provide for preemptive rights. Because
the Corporation's current Articles of Incorporation are silent on the issue of
preemptive rights and because the Corporation was organized in 1985, prior to
the recent amendment to the law, it is necessary to amend the Articles of
Incorporation as set forth herein to eliminate preemptive rights.
PROPOSAL 3
REVISIONS TO THE "ANTITAKEOVER" PROVISION OF THE ARTICLES OF INCORPORATION.
The Board of Directors also is recommending that the supermajority
"antitakeover" provisions contained in Article SIXTH of the current Articles of
Incorporation be revised to better protect the Corporation and its shareholders
from an undesired attempt to acquire the Corporation. Currently, the Articles of
Incorporation provide that certain transactions with a shareholder that owns
more than 10% of the Corporation require the affirmative vote of a majority of
the other shareholders of the Corporation. While the Board of Directors believes
that such a provision is helpful, they feel that the proposed amendments will
better accomplish the desired goal of requiring a potential acquirer of the
Corporation or a significant portion of its assets to deal directly with the
Board of Directors. The Amended and Restated Articles of Incorporation as
proposed contain both a supermajority vote provision and a "fair price"
provision. Such provisions were included based on the fact that certain tactics
in corporate takeover practice can be used to the disadvantage of certain of a
corporation's shareholders. These tactics include the accumulation of a
substantial block of stock as a prelude to an attempted takeover or proxy fight
or the use of a partial tender offer followed by a second-step merger or
business combination involving less favorable consideration than was offered in
the partial tender offer. The Board of Directors of the Corporation believes
that such tactics can be highly disruptive and can result in dissimilar and
unfair treatment of shareholders. The fair price and supermajority vote
provisions are designed to encourage potential takeover bidders to negotiate at
arm's length with the Board of Directors. In the absence of such negotiations,
the provisions are intended to achieve a measure of assurance that any
multi-step attempt to take over the Corporation is made on terms that offer
similar treatment to all shareholders. Neither the proposed fair price provision
nor the supermajority vote provision will impede a takeover that is approved by
two-thirds of the directors of the Corporation who are unaffiliated with a ten
percent (10%) or more shareholder (an "interested shareholder"). The Board of
Directors is not aware of any current effort to obtain control of the
Corporation or to
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effect substantial accumulations of its common shares. However, Article Eighth
of the Amended and Restated Articles of Incorporation was included in order to
have in place appropriate safeguards to protect the shareholders against a
two-step takeover attempt.
An effect of these provisions is to make more difficult the consummation of a
business combination with a ten percent (10%) or more shareholder in the absence
of the approval of the Board of Directors of the Corporation. Accordingly, the
provisions may discourage takeover attempts which are not supported by the Board
of Directors. Under the "fair price" provision, no business combination may be
effected without the approval of two-thirds of the "Continuing Directors,"
unless either: (i) approved by holders of not less than 66 2/3% of the voting
stock held by all independent shareholders voting together as a class; or (ii)
compliance with all of the fair price and certain other requirements and
conditions. The uncertainty associated with the "fair price" provision may have
the effect of encouraging an interested shareholder who is not assured of the
eighty percent (80%) "supermajority vote" to negotiate any proposed business
combination with the Board of Directors, and more specifically, negotiate with
the Continuing Directors. The purpose of the foregoing condition is to require,
in the absence of the approval of two-thirds of the Continuing Directors or
holders of at least 66 2/3% of all voting stock held by the "independent
shareholders," that the independent shareholders receive in a business
combination the minimum price specified above, which is the highest price per
share paid by the interested shareholder in acquiring shares of such class. The
form of the consideration would be the same as previously paid by the interested
shareholder to acquire the largest number of shares of such class or series.
Article Eighth also contains a "supermajority vote" provision. The vote required
by the "supermajority vote" provision is in addition to any vote required by the
fair price provision. Under the supermajority vote provision, no business
combination with an "interested shareholder" may be effected without the
approval of two-thirds of the Continuing Directors, unless approved by holders
of not less than eighty percent (80%) of the outstanding voting stock voting
together as a single class. This 80% "supermajority vote" requirement includes
the vote of the interested shareholder. This supermajority vote is an increase
from the majority of the noninterested shareholders required vote needed to
approve such a transaction under the current Articles of Incorporation. Any vote
of shareholders of the Corporation under Article Eighth is in addition to any
required vote of the holders of any class of shares of capital stock of the
Corporation and is required notwithstanding the fact that no shareholder vote or
a lesser percentage shareholder vote may be required by law or other provisions
of the Articles of Incorporation.
All actions required to be taken by the Continuing Directors under Article
Eighth shall be taken by the vote or written consent of two-thirds (2/3) of the
Continuing Directors. In the event that the number of Continuing Directors is at
any time less than nine (9), all power and authority of the Continuing Directors
under Article Eighth shall cease. The Continuing Directors are given authority
under Article Eighth to determine, consistent with their fiduciary obligations,
such matters as whether any person is an interested shareholder; fair market
value of property, securities and other noncash considerations; and other
matters.
Provisions of Article Eighth may not be repealed, amended, supplemented or
otherwise modified unless: (i) the Continuing Directors (or, if there is no
interested shareholder, a majority of directors of the Corporation), recommend
such repeal, amendment, supplement or modification and such repeal, amendment,
supplement or modification is approved by the affirmative vote of the holders of
shares entitling them to exercise a majority of the voting power of the
Corporation, or (ii) such repeal, amendment, supplement or modification is
approved by the affirmative vote of holders of: (a) not less than 80% of the
outstanding voting stock voting together as a single class, and (b) not less
than 66 2/3 percent of the outstanding voting stock held by all shareholders
other than interested shareholders voting together as a single class.
The Board of Directors believes that encouraging a prospective purchaser to
negotiate directly with the Board of Directors of the Corporation will be
beneficial to all shareholders. The Board believes that it, in consultation with
6
professional advisors retained on behalf of the Corporation, is in the best
position to assess the business and prospects of the Corporation. Accordingly,
the Board is of the opinion that negotiations between the Corporation and a
potential acquirer will increase the likelihood that shareholders will receive a
higher price for their shares in a proposed transaction.
There are certain other protections available to the Corporation to protect
against an undesired takeover. Federal and state law requires prior approval by
the Board of Governors of the Federal Reserve System and the Ohio Division of
Financial Institutions before any company acquires control of a bank or bank
holding company. Independent of any provision of the Corporation's Articles of
Incorporation or Code of Regulations, the requirement for such regulatory
approval may delay efforts to obtain control over the Corporation. Section
1701.831 of the Ohio General Corporation Law requires shareholder approval of
the acquisition of control of certain Ohio corporations, including the
Corporation. However, for the reasons noted below, the Board of Directors is
requesting that the Code of Regulations be amended to "opt out" of this "Control
Share Acquisition" statute. The availability of the authorized and unissued
shares of the Corporation to be issued into friendly hands with the purpose of
diluting a potential acquirer's ownership of the Corporation may also be
determined to have an antitakeover effect. Except as described in this Proxy
Statement, the proposed Amended and Restated Articles of Incorporation and
proposed Amended and Restated Code of Regulations contain no other provisions
that are intended to be or could fairly be considered as antitakeover in nature
or effect. The above described provisions are not the result of management's
knowledge of any effort to obtain control of the Corporation.
PROPOSAL 4
REVISIONS TO ALLOW THE ARTICLES OF INCORPORATION TO BE AMENDED BY A MAJORITY
VOTE.
Section 1701.71 of the Ohio Revised Code requires the approval of 66 2/3% of the
voting power of a corporation to amend its articles of incorporation. That same
Section provides that the articles of incorporation may reduce the vote required
for approval of such amendment to not less than a simple majority. The Amended
and Restated Articles of Incorporation contain a provision as a part of Article
Seventh reducing the vote required to amend the Articles to a majority, except
in regard to amendment of Article Eighth concerning antitakeover provisions, and
certain provisions of the Code of Regulations, which would require an 80% vote.
Because of the difficulty in obtaining responses to a request for proxies in
regard to annual meetings (caused in part by the number of shares held "in
street name") and in order to give the Board of Directors the ability to better
manage the affairs of the Corporation, the Board requests approval of this
revision. A reduction in the percentage required to approve an amendment to the
Articles of Incorporation will have the effect of allowing such amendment by
fewer shareholders even if a significant minority does not favor such amendment.
Even so, the Board believes that the majority of shareholders should be entitled
to make such decisions.
PROPOSAL 5
TECHNICAL REVISIONS TO THE ARTICLES OF INCORPORATION
The Board of Directors believes that it would be in the best interest of the
Corporation and its shareholders to amend and restate the Corporation's Articles
of Incorporation to eliminate or change certain provisions of the Articles of
Incorporation that are now inappropriate in light of the other changes proposed
to the Articles of Incorporation. If Proposals 1, 2, 3, 4 and 5 are approved,
the Articles of Incorporation of the Corporation will be amended and restated as
set forth in the Amended and Restated Articles of Incorporation attached as
Appendix A to this Proxy Statement. The affirmative vote of the holders of at
least 66 2/3 percent of the outstanding common shares of stock of the
Corporation is required to adopt Proposals 1, 2, 3, 4 and 5 and thus adopt the
Amended and Restated Articles of Incorporation. In the event that one or more,
but not all of Proposals 1, 2, 3, 4 and 5 are approved, the Articles of
Incorporation of the Corporation will be accordingly amended.
7
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVES AND RECOMMENDS TO THE SHAREHOLDERS
THE ADOPTION OF PROPOSALS 1, 2, 3, 4 AND 5, WHICH WILL RESULT IN THE AMENDMENT
AND RESTATEMENT OF THE CORPORATION'S ARTICLES OF INCORPORATION AS SET FORTH IN
APPENDIX A TO THIS PROXY STATEMENT.
GENERAL OVERVIEW OF PROPOSALS TO AMEND THE CODE OF REGULATIONS
The Board of Directors also is proposing to the shareholders the adoption of
certain amendments to the Code of Regulations of the Corporation including the
adoption of certain provisions which might be deemed to be "antitakeover" in
nature. These changes include: (i) revising the number of members on the Board
of Directors to between nine (9) and twenty five, the exact number to be 14
until changed by the Board of Directors; (ii) implementing a "staggered" or
"classified" board of directors providing for the division of the Board of
Directors into 3 classes of directors and providing for the election of
directors to serve for multiple years; (iii) increasing the percentage of
shareholders required to remove a director to 75% from a simple majority and
increasing the percentage of shareholders needed to amend the section providing
for such removal to 80%; (iv) requiring advance notice to the Corporation by a
shareholder that wants to nominate someone to serve on the Board of Directors or
put forth a shareholder proposal; (v) "opt out" of the "Control Share
Acquisition Statute" (Section 1701.83 of the Ohio Revised Code); and (vi)
provide for amendment of the Code of Regulations in the future by a majority of
the shareholders, except in regard to certain specific provisions of the
proposed Amended and Restated Code of Regulations which would require a vote of
80% of outstanding shares, and to adopt these amendments and additional less
significant changes to the current Code of Regulations by approval and adoption
of the Amended and Restated Code of Regulations in the form attached hereto as
Appendix B. On the attached Proxy, Shareholders are given the right to vote for
each of these proposals separately so that some but not all of the proposals may
be adopted. However, because the Board of Directors believes that it is in the
best interest of the Corporation that all of these proposals are adopted, the
Amended and Restated Code of Regulations in the form of Appendix B attached
hereto incorporates each proposal. Like the Corporation's Articles of
Incorporation, the Code of Regulations has not been modified since the
organization of the Corporation in 1985. The Board of Directors believes that
the Corporation will be in a better overall position to operate in the
competitive financial institutions arena with the Amended and Restated Code of
Regulations and requests your support.
PROPOSAL 6
REVISE THE NUMBER OF MEMBERS SERVING ON THE BOARD OF DIRECTORS
Currently the Articles of Incorporation of the Corporation sets the number of
members of the Board of Directors at not less than nine (9), subject to the
ability of the shareholders to vary such number as provided in the Code of
Regulations. The proposed Amended and Restated Code of Regulations establishes a
range of the number of board members from 9 to 25 and allows the Board to decide
by a majority vote the number of persons that will serve on the Board. Until
otherwise changed, the number of Directors will remain at the current number of
14. The Board of Directors seeks this flexibility to allow the Board to expand
its membership at times other than at the annual shareholders' meeting when it
deems such expansion appropriate. The ability for the Board to determine its
exact number of members may be deemed an antitakeover provision as it allows the
Board to determine when it would be beneficial to modify the number of Board
members. No director elected by the shareholders may be removed, except by the
shareholders as provided in Section 9 of the Amended and Restated Code of
Regulations, or by the Board of Directors in the very limited circumstances
provided by Ohio law.
PROPOSAL 7
CLASSIFICATION OF THE BOARD OF DIRECTORS
8
The Amended and Restated Code of Regulations provides that the Board of
Directors shall be divided into three (3) classes. Assuming the classified board
is approved, directors would be elected to three classes serving for one, two
and three years, respectively. The nominations set forth below assume such
approval and division into three classes. In the event that the shareholders do
not approve the classification of the Board as described herein, all fourteen
(14) of the Directors elected would serve for a one year term. The classified
election system for directors provides continuity of directors and also serves
as a defense against unwanted takeovers. Shareholders desiring to change a
majority of the Board would have to wait two years as only one-third of the
directors would be elected annually. This may discourage potential acquirers of
the Corporation's shares from making acquisitions of the Corporation's shares.
Additionally, if the classified election system is approved, individuals
appointed by the Board of Directors to fill any vacancy created therein shall
stand for election by shareholders at the next annual meeting of shareholders at
which Directors are elected, regardless of whether the appointee in question is
a member of the class of Directors up for election.
PROPOSAL 8
INCREASE THE VOTE REQUIRED AND ALLOW REMOVAL OF A DIRECTOR ONLY FOR "CAUSE"
The Amended and Restated Code of Regulations of the Corporation also contains a
provision requiring the vote of 75% of the shareholders to remove all or any one
of the members of the Board of Directors and requires that such removal may only
occur for "cause". This requires a higher vote than the simple majority provided
by Ohio law and the current Code of Regulations. Coupled with the requirement
that a director may only be removed for "cause", as defined in Section 9 of the
proposed Amended and Restated Code or Regulations, this provision would make it
more difficult to remove all or some of the members of the Board of Directors.
Members of the Board of Directors believe that this provision will help to
protect the Corporation as it will enable directors to act during their terms of
office to make the decisions and judgments required of the Board with a greater
sense of stability and also will protect the Board members from unwarranted
removal. Because the Corporation still has cumulative voting, Ohio law provides
that a director may not be removed if the number of shares voted against any
director's removal would be able to elect the director in an election utilizing
cumulative voting.
PROPOSAL 9
ADOPT AN ADVANCE NOTICE REQUIREMENT TO NOMINATE A DIRECTOR OR
PRESENT OTHER MATTERS AT A SHAREHOLDERS' MEETING
The Board of Directors proposes to add new Sections 5 and 7 to the Corporation's
Code of Regulations requiring shareholders to give the Corporation advance
notice of any proposal a shareholder would like to make in connection with any
shareholder meeting and any nominations for Directors to be considered at such
meetings. We believe that it is appropriate to require shareholders to notify
the Corporation in advance of a shareholder meeting of proposals in order that
they may be addressed in a more orderly fashion at the meeting. Likewise, the
Board believes that it is appropriate to require advance notice of nominees to
the Board of Directors, consistent with the rules and regulations of the
Securities and Exchange Commission, so as to appropriately review the
qualifications of such candidates.
PROPOSAL 10
"OPTING OUT" OF THE CONTROL SHARE ACQUISITION STATUTE
The Board of Directors proposes to add a provision to the Code of Regulations by
which the Corporation will elect to
9
opt out of coverage of the Ohio anti-takeover statute, which is commonly
referred to as the "Ohio Control Share Acquisition Act." This provision is set
forth in Section 33 of the proposed Amended and Restated Code of Regulations.
The "Ohio Control Share Acquisition Act" provides that certain notice and
informational filings and special shareholder meetings and voting procedures
must occur prior to consummation of a proposed "control share acquisition,"
which is defined as any acquisition of shares of an "issuing public corporation"
that would entitle the acquirer, directly or indirectly, alone or with others,
to exercise or direct the voting power of the issuing public corporation in the
election of directors within any of the following ranges:
- one-fifth or more but less than one-third of the voting power;
- one-third or more but less than a majority of the voting power; or
- a majority or more of the voting power.
An "issuing public corporation" is an Ohio corporation with fifty or more
shareholders that has its principal place of business, principal executive
offices, or substantial assets within the State of Ohio, and as to which no
valid close corporation agreement exists. The Corporation currently meets the
definition of an issuing public corporation. Assuming compliance with the notice
and informational filing requirements prescribed by the Ohio Control Share
Acquisition Act, the proposed control share acquisition may take place only if,
at a special meeting of shareholders at which at least a majority of the voting
power is represented in person or by proxy, the acquisition is approved by both:
- a majority of the voting power of the corporation represented in
person or by proxy at the meeting, and
- a majority of the voting power at the meeting exercised by
shareholders, excluding:
- the acquiring shareholder,
- directors of the corporation who are also employees and officers,
and
- persons who acquire specified amounts of shares after the first
public disclosure of the proposed control share acquisition.
The Ohio Control Share Acquisition Act does not apply to a corporation whose
articles of incorporation or code of regulations provides that it does not
apply. We believe that other provisions of the Amended Articles of Incorporation
and Amended Code of Regulations of the Corporation will adequately and more
effectively protect the interests of the Corporation and its shareholders
against the acquisition of controlling share interests that are not approved by
the Board of Directors.
PROPOSAL 11
INCREASE THE PERCENTAGE VOTE TO AMEND THE CODE OF REGULATIONS AND
MAKE TECHNICAL REVISIONS TO THE CODE OF REGULATIONS
The Board of Directors proposes to add provisions to the Corporation's Code of
Regulations to require a supermajority of shareholders to amend or eliminate
certain sections of the Amended Code of Regulations. These provisions regarding
the ability to amend the Code of Regulations are set forth in Section 34 of the
Amended Code of Regulations. Because the current Code of Regulations is silent
in this regard, amendment of the Code of Regulations requires the affirmative
vote of a majority of the voting power of shareholders. The Amended Code of
Regulations will provide that it may be amended by the affirmative vote of a
majority of the voting power of shareholders, with several important exceptions.
Changes that would affect the provisions of the Code of Regulations dealing with
the number of directors, the classification, election and term of office of
directors, the method of nomination of directors and removal of directors will
require approval by holders of 80% of the Corporation's outstanding shares,
unless the changes are first approved by two-thirds of the Corporation's
directors. We believe that these particular provisions are sufficiently
important to the governance of the Corporation that they should not be changed
without the approval of at least two-thirds of the Board of Directors, unless
they are approved by shareholders owning eighty percent of the Corporation's
shares.
10
The Board of Directors believes that it is in the best interest of the
Corporation and its shareholders to amend and restate the Corporation's Code of
Regulations, as set forth in Appendix B to this Proxy Statement. The
Corporation's Code of Regulations was adopted in 1985 in connection with the
organization of the Corporation, and has not been amended since then. The Board
of Directors believes that certain provisions of the current Code of Regulations
are no longer appropriate, and that certain provisions should be added to better
serve the Corporation and its shareholders. The affirmative vote of the holders
of at least a majority of the outstanding common shares of stock of the
Corporation is required to adopt Proposals 6, 7, 8, 9, 10 and 11 and thus adopt
the Amended and Restated Code of Regulations. In the event that one or more, but
not all of Proposals 6, 7, 8, 9, 10 and 11 are approved, the Code of Regulations
of the Corporation will be accordingly amended.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVES AND RECOMMENDS TO THE SHAREHOLDERS
THE ADOPTION OF PROPOSALS 6, 7, 8, 9, 10 AND 11, WHICH WILL RESULT IN THE
AMENDMENT AND RESTATEMENT OF THE CORPORATION'S CODE OF REGULATIONS AS SET FORTH
IN APPENDIX B TO THIS PROXY STATEMENT.
POSSIBLE ANTI-TAKEOVER EFFECT OF PROPOSALS
Several of the proposed amendments to the Corporation's Articles of
Incorporation and Code of Regulations may discourage unilateral tender offers or
other attempts to take over and acquire the business of the Corporation. The
following summarizes those Proposals which might have a potential
"anti-takeover" effect. The following discussion contains all material
disclosure about those Proposals but may not contain all of the information that
is pertinent to each investor. You should refer in each case to the Amended and
Restated Articles of Incorporation and Amended and Restated Code of Regulations,
which are attached to this Proxy Statement as Appendix A and Appendix B,
respectively.
- Increase of Authorized Shares and Elimination of Preemptive Rights. See
Article Fourth and SIXTH of the Amended Articles of Incorporation at Appendix
A. The availability of authorized but unissued shares, coupled with the
elimination of the preemptive right of shareholders to subscribe to newly
issued shares, could discourage third parties from attempting to gain control
of the Corporation, since the Board of Directors could authorize the issuance
of such shares in a private placement or otherwise to one or more persons.
The issuance of these shares could dilute the voting power of a person
attempting to acquire control of the Corporation, increase the cost of
acquiring control or otherwise hinder the efforts of the other person to
acquire control.
- Supermajority and Fair Price Provisions. The Corporation also has certain
provisions in Article SIXTH of its current Articles of Incorporation that
make a takeover of the Corporation without the approval of the Corporation's
Board of Directors more difficult. However, proposed Article EIGHTH of the
Corporation's Amended and Restated Articles of Incorporation contains
significantly enhanced "supermajority" and "fair price" provisions. These
provisions require the affirmative vote of 80% of the Corporation's
outstanding voting power to approve certain business transactions (such as
mergers or disposition of substantially all of its assets) involving an
"interested shareholder", defined as another person or entity owning ten
percent or more of the outstanding capital stock of the Corporation, unless
first approved by two-thirds of the Corporation's directors not affiliated
with the interested shareholder. The Amended and Restated Articles of
Incorporation also require the approval of 66-2/3% of the outstanding shares,
exclusive of shares held by the interested shareholder, or the payment of a
"fair price," as defined in the Amended and Restated Articles of
Incorporation, for any shares acquired by an interested shareholder unless
approved by two-thirds of the directors who are not affiliated with the
interested shareholder. The intent of these provisions is to attempt to force
any proposed acquirer of the
11
Corporation to negotiate with the Board of Directors. The Corporation is also
subject to a set of provisions under Ohio law, which is referred to as the
"Merger Moratorium Statute." The Merger Moratorium Statute regulates certain
business combinations between a "public company" and an "interested
shareholder" such as mergers or disposition of substantially all of the
Corporation's assets. Subject to certain exceptions, these transactions are
prohibited for a three-year period. Prior to the end of the three-year
period, a prohibited transaction may take place provided certain conditions
are satisfied.
- Classified Board and Removal of Directors. See Sections 8 and 9 of the
Amended Code of Regulations at Appendix B. The Board of Directors will be
divided into three classes, eventually to be elected every three years for
three year terms. This will make it more difficult for persons other than the
Board of Directors to acquire control of the Board of Directors. The
Directors may be involuntarily removed from office before their term expires
only for cause and if holders of at least 75% of the Corporation's common
shares vote in favor of removal at a meeting of shareholders, subject to the
right of shareholders to stop such removal if, voting cumulatively, such
shareholders could elect such director. This provision may make it difficult
for any person who may attempt to take over the Corporation to remove elected
directors before the end of their term.
- Restrictions on Business at Shareholder Meetings. See Sections 5 and 7 of the
Amended Code of Regulations at Appendix B. Generally, business at the
Corporation's shareholders meetings is restricted to the purpose of the
meeting described in the notice (if it is a special shareholders' meeting),
business that the Board of Directors wishes to be taken up at the meeting
(regardless of whether it is a special or regular meeting) or which is
brought before the meeting pursuant to a timely written notice to the
President by one or more shareholders. A notice is deemed timely if it is
received at the Corporation's executive offices at least 60 days prior to the
meeting date. Section 7 of the Amended Code of Regulations also requires
advance notice of the nomination of someone to serve on the Board of
Directors. The required contents of the notice and nomination by the
shareholder are contained in the Amended Code of Regulations and must be
strictly complied with in order for a shareholder proposal or nomination to
be considered. These restrictions, while helpful in assuring orderly and
informed shareholders' meetings, have the effect of making it more difficult
for someone attempting to acquire control of the Corporation to bring matters
before any shareholders' meeting, including amendments to the Articles of
Incorporation and Code of Regulations, or to nominate someone not selected by
the Nominating and Corporate Governance Committee of the Corporation.
- "Opting Out" of Section 1701.831 of the Ohio Revised Code. Taking the action
to cause Section 1701.831 to be inapplicable to the Corporation is deemed by
the Board of Directors to be appropriate for the reasons mentioned above.
This and certain other provisions of the Corporation's Articles of
Incorporation and Code of Regulations will require a potential acquirer to
negotiate with the Board of Directors, which is charged with the duty of
acting in the best interest of all shareholders. However, opting out will
have the effect of removing the decision as to a sale or merger of the
Corporation from the shareholders until the Board of Directors has had the
opportunity to consider and recommend action on such matters to the
shareholders.
- Amendment of Articles and Code. Generally, Ohio Corporation law requires
amendments to corporate articles of incorporation to be approved by at least
two-thirds of all votes entitled to be voted. Ohio Corporation law also
generally requires amendments to a corporate code of regulations to be
approved by at least a majority of all votes entitled to be voted. Ohio law
permits a Corporation's articles of incorporation and code of regulations to
change these shareholder voting requirements within limits. The Amended
Articles of Incorporation will provide that a majority vote of the
outstanding shares is required to approve most amendments to the Articles of
Incorporation. The Amended Code of Regulations continues to require a
majority vote of the outstanding shares to make most amendments to the Code
of Regulations. However, the Amended Articles of Incorporation and Amended
Code of Regulations increase the percentage of voting shares outstanding
required to change certain provisions of the Amended Articles of
Incorporation or Amended Code of Regulations, absent prior approval by at
least two-thirds of the Corporation's directors. These provisions include
Article EIGHTH of the Articles of Incorporation, and Sections 6, 8, 9, 33 or
34 of the Code of Regulations. These provisions have the effect of
12
making it difficult to change these provisions of the Amended Articles of
Incorporation and Amended Code of Regulations without the approval of the Board
of Directors. The effect of these provisions may be to make it more difficult
for a person who desires to acquire control of the Corporation to do so without
the cooperation of the incumbent Board of Directors.
PROPOSAL 12
ELECTION OF DIRECTORS AND INFORMATION CONCERNING DIRECTORS AND OFFICERS
The Code of Regulations of Farmers & Merchants Bancorp, Inc. provides that the
number of Directors to be elected at the Shareholder Meeting will be determined
by the vote of the shareholders, but shall not be less than nine or greater than
twenty-five. Currently, the number of Directors is set at fourteen. The proposed
Amended and Restated Code of Regulations of the Company as discussed above,
provides for the division of the Board of Directors into three (3) classes.
Eventually, each Director will serve for a three year term under such system.
However, initially, certain members of the Board of Directors will be elected to
serve one or two-year terms until the system is fully implemented. If the
classified election system is approved, individuals appointed by the Board of
Directors to fill any vacancy created therein shall stand for election by
shareholders at the next annual meeting of shareholders at which Directors are
elected, regardless of whether the appointee in question is a member of the
class of Directors up for election. At the forthcoming Annual Meeting, the
shareholders will be asked to elect the fourteen (14) directors listed below to
serve for the term noted below. Set forth below is information concerning the
nominees for the election to the Board of Directors. The following persons have
been nominated as directors by the Board of Directors:
CLASS I, TERM TO EXPIRE AT THE ANNUAL SHAREHOLDERS' MEETING IN 2006
YEAR FIRST
PRINCIPAL OCCUPATION OR BECAME
NAME AGE EMPLOYMENT FOR PAST FIVE YEARS DIRECTOR(1)
--------------- --- --------------------------------------------- -----------
Jerry L. Boyers 71 President, Edifice Construction
Management 1976
Robert G. Frey 64 President, E. H. Frey & Sons, Inc. 1987
Jack C. Johnson 52 President, Hawk's Clothing, Inc. 1991
Merle J. Short 64 President, Promow, Inc. 1987
CLASS II, TERM TO EXPIRE AT THE ANNUAL SHAREHOLDERS' MEETING IN 2007
YEAR FIRST
PRINCIPAL OCCUPATION OR BECAME
NAME AGE EMPLOYMENT FOR PAST FIVE YEARS DIRECTOR(1)
----------------- --- --------------------------------------------- -----------
Dexter L. Benecke 62 President, Viking Trucking, Inc. 1999
Joe E. Crossgrove 67 Chairman of the Corporation and The Farmers & 1992
13
Merchants State Bank, prior to February 18, 2005
Mr. Crossgrove was the President and CEO
of the Corporation and the Bank
Dean E. Miller 60 President, MBC Holdings, Inc. 1986
James C. Saneholtz 58 President, Saneholtz-McKarns, Inc. 1995
Steven J. Wyse 60 Private Investor 1991
CLASS III, TERM TO EXPIRE AT THE ANNUAL SHAREHOLDERS' MEETING IN 2008
YEAR FIRST
PRINCIPAL OCCUPATION OR BECAME
NAME AGE EMPLOYMENT FOR PAST FIVE YEARS DIRECTOR(1)
------------------------ --- ---------------------------------------- -----------
Steven A. Everhart 50 Secretary/Treasurer, MBC Holdings, Inc. 2003
Anthony J. Rupp(2) 55 President, Rupp Furniture Co. 2000
David P. Rupp Jr. (2)(3) 63 Attorney, Plassman, Rupp, Short & Hagans 2001
Kevin J. Sauder 44 President, Chief Executive Officer,
Sauder Woodworking Co 2004
Paul S. Siebenmorgen 55 President and CEO of the Corporation and
Farmers & Merchants State Bank(4) 2005
-------------------------
(1) The Corporation was organized as the bank holding company for the Farmers &
Merchants State Bank in 1985. Persons noted as having served on the Board of
Directors prior to that date served on the Board of the Bank prior to the
organization of the Corporation.
(2) Anthony J. Rupp and David P. Rupp Jr., both of whom are being nominated to
the Board of Directors, are brothers.
(3)David P. Rupp Jr. is an attorney with membership in the law firm of Plassman,
Rupp, Short, & Hagans of Archbold, Ohio. The law firm has been retained by the
Corporation, and its subsidiaries, during the past sixteen years and is to be
retained currently.
(4) Mr. Siebenmorgen became the President and CEO of the Corporation and the
Bank effective February 18, 2005. Prior to that point in time, he was Senior
Executive Vice President and Chief Lending Officer of the Bank and was not a
member of the Board of Directors of the Corporation or the Bank.
-------------------------
In the event that the shareholders do not approve the amendment to the Code of
Regulations providing for the "classification" of the Board, all fourteen (14)
persons listed as nominees would be elected to a one year term, expiring at the
Annual Meeting of Shareholders in 2006.
Other than the relationship between Mr. Anthony Rupp and David Rupp noted above,
there are no family relationships among any of the directors, nominees for
election as directors and executive officers of the Corporation.
While it is contemplated that all nominees will stand for election, and the
nominees have confirmed this with the Corporation, if one or more of the
nominees at the time of the annual meeting should be unavailable or unable to
serve as a candidate for election as a director of the Corporation, the proxies
reserve full discretion to vote the common shares represented by the proxies for
the election of the remaining nominees and any substitute
14
nominee(s) designated by the Board of Directors. The Board of Directors knows of
no reason why any of the above-mentioned persons will be unavailable or unable
to serve if elected to the Board. Under Ohio law and the Corporation's Code of
Regulations, the fourteen nominees receiving the greatest number of votes will
be elected as directors. The attached form of proxy grants to the persons listed
in such proxy the right to vote shares cumulatively in the election of directors
if a shareholder properly implements cumulative voting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS TO SHAREHOLDERS THE ELECTION OF
THE ABOVE-LISTED PERSONS AS DIRECTORS FOR THE CORPORATION IN THE CLASSES NOTED.
The following table sets forth certain information with respect to the executive
officers of the Corporation and the Bank:
OFFICER POSITIONS AND OFFICES HELD WITH CORPORATION & PRINCIPAL
NAME AGE SINCE(1) OCCUPATION HELD PAST FIVE YEARS
---------------------- --- -------- ----------------------------------------------------------------
Joe E. Crossgrove 67 1964 Chairman of the Corporation and the Bank, previously was
President & CEO from 1997 until February 18, 2005
Paul Siebenmorgen 55 2004 President and CEO of the Corporation and the Bank(2)
Edward A. Leininger 48 1981 Executive Vice President and Chief Operating Officer, was Senior
Commercial Loan Officer of the Bank until July 2004, and was
EVP - Commercial Loans of the Bank, until April 2001
Rex D. Rice 45 1984 Executive Vice President and Senior Commercial Loan Officer of
the Bank, was Chief Lending Officer until July 2004
Barbara J. Britenriker 43 1992 Executive Vice President and Chief Financial Officer of the
Corporation and the Bank, was Senior Vice President until
September 2004, was Vice President until April 2002
Allen G. Lantz 51 1983 Senior Vice President, Branch Administrator, was Vice President
and Branch Administrator 2001-2002, was Branch Manager
before 2001
Randal H. Schroeder 44 1984 Vice President and Senior Operations Officer, was Assistant Vice
President and Chief Operations Officer before April 2002
-----------
(1) Includes time served as an officer of The Farmers & Merchants State Bank
(2) Mr. Siebenmorgen became the President and CEO of the Corporation and the
Bank effective February 18, 2005. Mr. Siebenmorgen was hired as the Senior
Executive Vice President and Chief Lending Officer of the Bank in July 2004 and
was not an officer of the Corporation prior to his appointment on February 18,
2005.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of common stock beneficially
owned at February 27, 2004 by each director and nominee, and all directors and
executive officers as a group. As of the date of this Proxy Statement,
management is not aware of any person who beneficially owns more than five
percent of the Corporation's common stock.
Beneficial ownership of Amounts of Shares of Common Percent
nominees for director: Stock Beneficially Owned of Total
------------------------------ --------------------------- --------
Dexter L. Benecke 1,306(1) .10%
Jerry L. Boyers 3,380 .26
Joe E. Crossgrove 2,600 .20
Steven A. Everhart 600(2) .05
Robert G. Frey 4,745(3) .37
Jack C. Johnson 300 .02
Dean E. Miller 8,775(4) .68
Anthony J. Rupp 2,955(5) .23
David P. Rupp Jr. 16,677(6) 1.28
James C. Saneholtz 325 .03
Kevin J. Sauder 936(7) .07
Merle J. Short 5,540(8) .43
Paul M. Siebenmorgen 654(9) .05
Steven J. Wyse 23,676(10) 1.82
----------
(1) Includes 140 shares of common stock owned jointly with Mr. Benecke's spouse
and 333 shares of common stock owned individually by his spouse.
(2) All 600 shares of common stock are owned jointly by Mr. Everhart and his
spouse.
(3) Includes 150 shares of common stock owned individually by Mr. Frey's spouse.
(4) Includes 3,945 shares of common stock owned individually by Mr. Miller's
spouse.
(5) Includes 298 shares of common stock owned individually by Mr. Rupp's spouse.
(6) Includes 925 shares owned by a church of which Mr. Rupp serves on the
endowment committee, 925 shares owned by a foundation of which Mr. Rupp is a
board member and 10,327 shares owned by a limited liability company of which
Mr. Rupp is the sole manager, but has no financial interest.
(7) Includes 468 shares of common stock owned individually by Mr. Sauder's
spouse.
(8) Includes 2,995 shares of common stock owned individually by Mr. Short's
spouse.
(9) Includes 300 shares of common stock owned jointly with Mr. Siebenmorgen's
spouse.
(10) Includes 11,838 shares of common stock owned individually by Mr. Wyse's
spouse.
Beneficial ownership of named executive officers:
-------------------------------------------------
Edward A. Leininger 1,150 (1) .09%
Rex D. Rice 522 (2) .04
Barbara J. Britenriker 273 (3) .02
----------
(1) Mr. Leininger owned all 1,150 shares of common stock jointly with his
spouse.
(2) Mr. Rice owned all 522 shares of common stock jointly with his spouse.
(3) Ms. Britenriker owned all 273 shares of common stock jointly with her
spouse.
Directors and Executive Officers as a Group (19 Persons) 80,122 6.16%
16
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The following table summarizes the membership of the Board of Directors and each
of its committees, and the number of times each met during 2004.
NOMINATING/
CORPORATE
BOARD AUDIT COMMITTEE COMPENSATION COMMITTEE GOVERNANCE
------ --------------- ---------------------- -----------
Dexter L. Beneke Member Member
Eugene D. Bernath(1) Member Member Member
Jerry L. Boyers Member
Joe E. Crossgrove Member
Steven A. Everhart Member Member
Robert G. Frey Member Member
Jack C. Johnson Member Member
Dean E. Miller Member Member
Anthony J. Rupp Member Member
David P. Rupp Jr. Member
James C. Saneholtz Member
Kevin J. Sauder Member Member Member
Merle J. Short Member Member
Steven J. Wyse Member Member
NUMBER OF MEETINGS
IN 2004 9 12 5 2
----------------------
(1) Mr. Bernath retired from the Board of Directors effective on February 18,
2005.
The directors of Farmers & Merchants Bancorp, Inc. are also the directors of The
Farmers & Merchants State Bank and Farmers & Merchants Life Insurance Co.,
wholly owned subsidiaries of the Corporation.
During 2004, each director attended 75% or more of the total meetings of the
Board and the committees on which they served (held during the period that each
served as a director) of the Corporation and Farmers & Merchants State Bank, the
primary operating subsidiary of the Corporation, except for Robert G. Frey who
attended approximately 73% of the Board and committee meetings that he was
scheduled to attend.
Directors of The Farmers & Merchants State Bank are each paid a monthly retainer
of $500. In addition, each Director receives $400 for each meeting of the Board
of Directors attended and additional amounts for committee meetings ranging from
$200 to $400 based upon the demands of the committee on which the Director
serves.
The Board of Directors of the Corporation's bank subsidiary has an Executive
Salary Committee that also acts as the Compensation Committee for the
Corporation, which is responsible for establishing salary levels and benefits
for its executive officers. In determining the compensation of the executive
officers of the Corporation's subsidiaries, the subsidiaries have sought to
create a compensation program that relates compensation to financial
performance, recognizes individual contributions and achievements, and attracts
and retains outstanding executive officers.
The Corporation established a Nominating and Corporate Governance Committee in
2004. That Committee was responsible for the recommendation to the full Board of
Directors of the proposed Amendments to the Corporation's Articles of
Incorporation and Code of Regulations discussed previously.
The Corporation also has an Audit Committee established in accordance with 15
U.S.C. 78c(a)(58)(A). The function
17
of the Audit Committee is to review the adequacy of the Corporation's system of
internal controls, to investigate the scope and adequacy of the work of the
Corporation's independent public accountants and to recommend to the Board of
Directors a firm of accountants to serve as the Corporation's independent public
accountants.
CORPORATE GOVERNANCE
Starting in 2003, the Corporation reviewed its corporate governance policies as
a matter of good business practices and in light of the passage of the
Sarbanes-Oxley Act of 2002 ("Sarbanes Oxley") and regulations promulgated by the
Securities and Exchange Commission ("SEC") and listing standards adopted by
NASDAQ. While the corporate governance requirements set forth in the NASDAQ
listing standards are not applicable to the Corporation because it is not listed
on NASDAQ, the Corporation decided to implement most of those corporate
governance policies to encourage appropriate conduct among the members of its
Board of Directors, officers and employees and to assure that the Corporation
operates in an efficient and ethical manner.
In this regard, the Audit Committee of the Board of Directors and the Board of
Directors of the Corporation met on February 13, 2004 with outside counsel to
the Corporation to consider a number of policies, charters and guidelines. After
significant discussion, the Board of Directors adopted Corporate Governance
Guidelines for the Corporation. In addition, the Corporation adopted charters
for the Audit Committee, the Compensation Committee and the newly created
Nominating and Corporate Governance Committee. The charters for these three
committees were designed to help the committees function more efficiently and
with greater independence from the Board of Directors, which was one of the
primary goals in the adoption of Sarbanes-Oxley. The members of each of these
three committees are currently, and under the terms of the respective charters,
will continue to be "independent" pursuant to standards adopted by NASDAQ.
Further, the Board of Directors has determined that under the NASDAQ
"independence" standards, a majority of the members of the Board of Directors is
currently independent. Copies of the Charters for each of these Committees were
included in the proxy statement of the Corporation for last year and are
available upon request from the Corporation. Shareholders desiring a copy of one
or all of the Charters should address written requests to Ms. Lydia A. Huber,
Secretary of Farmers & Merchants Bancorp, Inc., 307-11 North Defiance Street,
Archbold, Ohio 43502.
Finally, the Board of Directors adopted a Code of Business Conduct and Ethics
(the "Code") at the meeting. While Sarbanes-Oxley mandates the adoption of a
code of ethics for the most senior executive officers of all public companies,
the Code adopted by the Corporation's Board of Directors is broader in the
activities covered and applies to all officers, directors and employees of the
Corporation and the Bank. The administration of the Code has been delegated to
the Audit Committee of the Board of Directors, a Committee comprised entirely of
"independent directors." The Code addresses topics such as compliance with laws
and regulations, honest and ethical conduct, conflicts of interest,
confidentiality and protection of Corporation assets, fair dealing and accurate
and timely periodic reports, and also provides for enforcement mechanisms. The
Board and management of the Corporation intends to continue to monitor not only
the developing legal requirements in this area, but also the best practices of
comparable companies, to assure that the Corporation maintains sound corporate
governance practices in the future.
A copy of the Corporation's Code is available on the website of the Bank
(www.fm-bank.com). In addition, a copy of the Code is available to any
shareholder free of charge upon request. Shareholders desiring a copy of the
Code should address written requests to Ms. Lydia A. Huber, Secretary of Farmers
& Merchants Bancorp, Inc., 307-11 North Defiance Street, Archbold, Ohio 43502,
and are asked to mark Code of Business Conduct and Ethics on the outside of the
envelope containing the request.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors submits the following report on
the performance of its responsibilities for the year 2004. The purposes and
responsibilities of the Committee are elaborated in the
18
Committee charter, which was originally adopted by the Board of Directors on
February 15, 1991. In connection with certain corporate governance enhancements
agreed to in February 2004, the Board of Directors approved a new Audit Charter.
The Board of Directors has determined that Steven A. Everhart, one of the
members of the Audit Committee, is a "financial expert" as defined under the
regulations promulgated under the Sarbanes-Oxley Act discussed above. Mr.
Everhart and all of the other members of the Audit Committee have been
determined by the Board of Directors to be "independent" under the listing
standards adopted by the NASDAQ Stock Market.
Management of the Corporation has primary responsibility for the financial
statements and the overall reporting process, including the Corporation's system
of internal controls. The independent auditors are responsible for performing an
independent audit of the Corporation's consolidated financial statements in
accordance with auditing standards generally accepted in the United States. This
audit serves as a basis for the auditors' opinion in the annual report to
shareholders addressing whether the financial statements fairly present the
Corporation's financial position, results of operations and cash flows. The
Audit Committee's responsibility is to monitor and oversee these processes.
In reviewing the independence of the Corporation's outside auditors, the
Committee has received from Plante & Moran, PLLC the written disclosures and
letter regarding relationships between Plante & Moran, PLLC. and its related
entities and the Corporation and its related entities and has discussed with
Plante & Moran, PLLC its independence from the Corporation as required by
Independence Standards Board Standard No. 1. As part of this review, the
Committee considered whether the non-audit services provided by Plante & Moran,
PLLC to the company during 2004 were compatible with maintaining Plante & Moran,
PLLC's independence.
In fulfilling its responsibilities relating to the Corporation's internal
control, accounting and financial reporting policies and auditing practices, the
Committee has reviewed and discussed with management and Plante & Moran, PLLC
the Corporation's audited financial statements for 2004. In this connection, the
Committee has discussed with Plante & Moran, PLLC its judgments about the
quality, in addition to the acceptability, of the Corporation's accounting
principles as applied in its financial reporting, as required by Statement on
Auditing Standards No. 61. Based on these reviews and discussions, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Corporation's Annual Report on SEC Form 10-K for the year ended
December 31, 2004, for filing with the Securities and Exchange Commission.
Respectfully submitted by the members of the Audit Committee:
Steven A. Everhart, Chairman
Eugene D. Bernath
Merle J. Short
Dexter L. Benecke
NOMINATIONS FOR MEMBERS OF THE BOARD OF DIRECTORS
As noted above under "Corporate Governance", the Corporation established a
Nominating and Corporate Governance committee. The current members of the
Committee all are "independent" directors (as defined by NASDAQ). The Nominating
and Corporate Governance Committee has not yet developed a policy regarding the
consideration of nominations for directors by shareholders. The committee
intends to develop such a policy in the near future and intends to post the
policy on the Bank's website for review by shareholders. Nonetheless, the
Nominating and Corporate Governance Committee will consider nominations from
shareholders, although it has not actively solicited such nominations. Proposed
nominations should be addressed to Chairman of the Nominating and Corporate
Governance Committee of Farmers & Merchants Bancorp, Inc., 307-11 North Defiance
Street, Archbold, Ohio 43502. The identification and evaluation of all
candidates for nominee to the Board of Director are undertaken on an ad hoc
basis within the context of the Corporation's strategic initiatives at the time
a vacancy occurs on the Board. In evaluating candidates, the Committee considers
a variety of factors, including the
19
candidate's integrity, independence, qualifications, skills, experience
(including experiences in finance and banking), familiarity with accounting
rules and practices, and compatibility with existing members of the Board. Other
than the foregoing, there are no stated minimum criteria for nominees, although
the Committee may consider such other factors as it may deem at the time to be
in the best interest of the Company and its shareholders, which factors may
change from time to time.
The Nominating and Corporate Governance Committee also has been designated by
the Corporation's Corporate Governance Guidelines to receive, review and
respond, as appropriate, to communications concerning the Corporation from
employees, officers, shareholders and other interested parties that such parties
want to address to non-management members of the Board of Directors.
Shareholders that want to direct such questions to the non-management members of
the Board of Directors should address them to the Chairman of the Corporate
Governance and Nominating Committee, Farmers & Merchants Bancorp, Inc., 307-11
North Defiance Street, Archbold, Ohio 43502.
The Corporation's Corporate Governance Guidelines also contain a provision
stating that it is expected that all members of the Board of Directors shall
attend the Annual Meeting of Shareholders. 14 out of the total of 14 members of
the Board of Directors attended the 2004 Annual Meeting of Shareholders.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The executive officers of the Corporation receive no compensation from the
Corporation for services rendered as executive officers of the Corporation.
Instead, they are paid by the Corporation's bank subsidiary, The Farmers &
Merchants State Bank (the "Bank"), for services rendered in their capacity as
executive officers of the Corporation and its subsidiaries. The Corporation and
its other non-bank subsidiary reimburse the Bank for their share of applicable
payroll costs. The Executive Salary Committee of the Bank has the identical
members as the Compensation Committee of the Corporation and the members of
these committees make decisions regarding compensation.
The following table shows, for fiscal years ended December 31, 2004, 2003 and
2002, the cash compensation paid by the Corporation and its subsidiaries, as
well as, certain other compensation paid or accrued for those years, to Joe E.
Crossgrove, the President, Chief Executive Officer and Treasurer of Farmers &
Merchants Bancorp, Inc., President and Chief Executive Officer of The Farmers &
Merchants State Bank, and Vice President of Farmers & Merchants Life Insurance
Corporation and the other executive officers who received compensation in excess
of $100,000. The holding company has no employees; all compensation was paid by
the Bank.
SUMMARY COMPENSATION TABLE
All Other
Name and Principal Position Year Base Salary Bonus Compensation(2)(3)
----------------------------------- ---- ---------------- -------------- ------------------
Joe E. Crossgrove(1) 2004 $ 169,400 $ 60,349 $ 22,516
President and Chief 2003 163,200 40,233 19,590
Executive Officer 2002 148,325 15,465 19,046
Paul Siebenmorgen(4) 2004 $ 75,000 $ 50,000
Senior Executive Vice President
and Chief Lending Officer
Edward A. Leininger 2004 $ 124,284 $ 33,178 $ 15,578
Executive Vice President 2003 104,988 20,471 11,884
2002 95,428 10,370 11,683
20
Name and Base All Other
Principal Position Year Salary Bonus Compensation(2)(3)
------------------ ---- ---------- --------- -----------------
Rex D. Rice 2004 $ 124,284 $ 33,178 $ 14,336
Executive Vice President 2003 104,988 20,471 11,359
2002 95,428 10,370 11,206
Barbara J. Britenriker 2004 $ 120,522 $ 32,173 $ 13,865
Executive Vice President 2003 $ 91,740 17,888 9,350
2002 $ 73,432 8,642 8,741
---------------------------------------
(1) Salary to Joe E. Crossgrove includes directors' fees of $10,300 for 2004,
$9,200 for 2003 and $8,700 for 2002.
(2) Other compensation is the annual cost attributable to contributions to the
401(k) profit sharing plan.
(3) No incidental benefits accrue to officers which, in the opinion of
management, are not job related, normal and appropriate in connection with
the conduct of the bank subsidiary's business affairs.
(4) Other compensation for Mr. Siebenmorgen includes $30,000 in value of stock
granted to Mr. Siebenmorgen in connection with his acceptance of the
position with the Bank and a $20,000 bonus in cash paid in 2004 for
services rendered in 2004. The compensation paid to Mr. Siebenmorgen was
only for a partial year as he started work with the Corporation in June
2004.
----------------------------------------
RETIREMENT PLANS
The Bank has established a 401(k) profit sharing plan that allows eligible
employees to save at a minimum one percent of eligible compensation on a pre-tax
basis, subject to certain Internal Revenue Service limitations. The Bank will
match 50% of employee 401(k) contributions up to four percent of total eligible
compensation. In addition the Bank may make a discretionary contribution from
time to time as is deemed advisable. A participant is 100% vested in the
participant's deferral contributions and employer matching contributions. A
six-year vesting schedule applies to employer discretionary contributions.
In order to be eligible to participate, the employee must be 21 years of age,
have completed six months of service, work 1,000 hours in the plan year and be
employed on the last day of the year. Entry dates have been established at
January 1 and July 1 of each year.
The plan calls for only lump-sum distributions upon either termination of
employment, retirement, death or disability.
Currently, there are no long-term incentive programs or stock option programs in
effect. Under Proposal 13, the Board of Directors is seeking approval by the
shareholders of the 2005 Long-Term Stock Incentive Plan.
CHANGE OF CONTROL AGREEMENTS
On February 18, 2005, the Corporation entered into change of Control Severance
Compensation Agreements with four of its executive officers, Mr. Siebenmorgen,
Mr. Leininger, Mr. Rice and Ms. Britenriker. These Agreements provide for
payment of an amount equal to one year's compensation to the executives in the
event that their contract is terminated in connection with a "change of control"
as defined in the Agreements. No payments will be made in such event if the
executive is terminated "for cause."
EMPLOYMENT AGREEMENT WITH PRESIDENT AND CHIEF EXECUTIVE OFFICER
On May 7, 2004, the Company executed a letter agreement with Paul S.
Siebenmorgen which outlines the basic terms of his employment with the Company.
Mr. Siebenmorgen was appointed President and Chief Executive Officer on February
18, 2005. The material terms of his employment arrangement with the Company
include an
21
annual base salary of $175,000, which went into effect at the time of his
appointment as President and CEO of the Company; the potential for additional
annual cash bonus awards; an award of Company Stock initially valued at $30,000;
and customary employee benefits, including life and health insurance, and
eligibility to participate in the Company's 401(k) plan subject to its terms.
The arrangement also contemplates Mr. Siebenmorgen's participation in the
Company's proposed long-term incentive compensation plan discussed under
Proposal 13 hereto.
REPORT OF THE COMPENSATION COMMITTEE OF FARMERS & MERCHANTS BANCORP, INC.
Under rules established by the Securities and Exchange Commission (the "SEC"),
the Corporation is required to provide certain data and information in regard to
the compensation and benefits provided to the Corporation's President and Chief
Executive Officer and, if applicable, the four other most highly compensated
Executive Officers, whose compensation exceeded $100,000 during the
Corporation's fiscal year. The disclosure includes the use of tables and a
report explaining the rationale and considerations that led to fundamental
executive compensation decisions affecting such officers. The Compensation
Committee of the Corporation has the responsibility of determining the
compensation policy and practices with respect to all Executive Officers. At the
direction of the Board of Directors, the Compensation Committee of the
Corporation has prepared the following report for inclusion in the Proxy
Statement.
Compensation Policy. This report reflects the Corporation's compensation
philosophy as endorsed by the Compensation Committee. Each year, the
Compensation Committee sets a salary for its Executive Officers by reviewing the
performance of each officer, as well as, by making compensation comparisons with
banks of similar size in order to determine whether such salary levels are
adequate to attract and retain qualified Executive Officers. To assess the
compensation paid in other financial institutions, the Committee relied upon the
2003 Compensation & Benefits Survey compiled by the Ohio Bankers League, the
Illinois Bankers Association and the Michigan Bankers Association. The
Compensation Committee determines the level of compensation for all Executive
Officers. Mr. Joe E. Crossgrove, President and CEO and Mr. Paul Siebenmorgen,
Senior Executive Vice President and Chief Lending Officer, both attend the
Compensation Committee meetings and have input into the compensation levels for
all employees and Executive Officers, except themselves.
The executive compensation program of the Corporation has been designed
to:
- Support a pay-for-performance policy that rewards Executive Officers
for corporate performance.
- Motivate Executive Officers to achieve strategic business goals.
- Provide competitive compensation opportunities critical to the
Corporation's long-term success.
The Compensation Committee approved compensation increases for all Executive
Officers of the Corporation during 2004. Executive Officer salary increase
determinations are based upon an evaluation of each executive's performance
against goals set in the prior year. The Committee has determined that a
significant portion of executive compensation should be payable in an annual
cash incentive which shall be based principally upon the financial performance
of the Corporation. The results of the implementation of the policy are
discussed below.
There are two components of the compensation program for all Executive Officers
of the Corporation's subsidiary, The Farmers & Merchants State Bank (the
"Bank"), a base salary component and a discretionary cash incentive component,
which is determined by the Board of Directors in December of each year. The
Corporation does not have any employees that are not also employees of the Bank.
The cash incentive for Executive Officers is based upon two criteria. The first
is return on average assets ("ROA") of the Bank. If the ROA of the Bank equals
the average ROA of the Bank for the prior 10 years, the Executive Officer
receives the full cash incentive amount established. If the ROA is above 1%, but
below such 10-year average, a prorated portion of the cash incentive is
22
paid. No cash incentive is paid if the Bank's ROA for the applicable year is
less than 1%. For the Executive Officers, the cash incentive is paid before the
end of the first quarter of the year following the year in which it is earned.
The ROA for the Bank in 2004 was 1.05%, an amount lower than the 10 year average
of 1.14%. Thus the formula for the cash incentive was adjusted downward for this
component.
The second criterion used in determining the cash incentive to be paid to
Executive Officers is whether the earnings per share for the Corporation reaches
a three-year 6% annual compound growth rate. If such growth rate is less than
6%, that component of the formula for Executive Officers is adjusted downward.
For 2004, the growth rate was projected to be 5.474% for purposes of determining
the cash incentive.
The method used to calculate the cash incentive is different for Executive
Officers, officers that are not Executive Officers and non-officer employees.
The methodology used for Executive Officers is described above. For other
officers, their cash incentive is based upon the Bank's ROA and whether they
attain their pre-established goals. For non-officers, the cash incentive is
based solely upon the Bank's ROA.
The Compensation Committee met on December 15, 2004 and established the cash
incentives for the Executive Officers for 2004. These amounts are included in
the compensation of the named executive officers set forth in this proxy
statement under the heading "Executive Compensation and Other Information." Base
salary adjustments effective as of January 1, 2005 were increased approximately
3.8% for Executive Officers.
Also at the meeting on December 15, 2004, the Compensation Committee considered
and approved the adoption of a Long Term Stock Incentive Plan. The Board of
Directors of the Company approved the adoption of such plan at its meeting on
January 17, 2005. Information regarding such plan is described below in Proposal
13.
Respectfully submitted by the Members of the Compensation Committee:
Jack C. Johnson, Chairman
Eugene D. Bernath
Dean E. Miller
Kevin J. Sauder
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2004, the following individuals served as members of the Compensation
Committee: Eugene D. Bernath, Jack C. Johnson, Dean E. Miller and Kevin J.
Sauder. Some of the Directors who served on the Compensation Committee, and the
companies with which they are associated, were customers of and have had banking
transactions with the Bank in the ordinary course of the Bank's business in the
past and up to the present time. All loans and commitments for loans included in
such transactions were made on substantially the same terms including interest
rates and collateral as were prevailing at the time for comparable transactions
with other persons. In the opinion of the Board of Directors of the Bank, these
loans and commitments for loans do not involve more than a normal risk of
collectibility or present other unfavorable features.
The Corporation and/or the Bank have had, and expect to have in the future,
banking transactions in the ordinary course of its business with such directors,
and their associates, on substantially the same terms, including interest rates
and collateral on loans, as those prevailing at the same time for comparable
transactions with others. It is intended that such transactions will not involve
more than the normal risk of collectibility or present other unfavorable
features.
23
PERFORMANCE GRAPH
Below is a line-graph presentation comparing the cumulative total shareholder
returns for the Corporation, an index for NASDAQ Stock Market (U.S. Companies)
comprised of all domestic common shares traded on the NASDAQ National Market
System and the NASDAQ Bank Index for the five-year period ended December 31,
2004. The chart compares the value of $100 invested in the Corporation and each
of the indices.
The Board of Directors recognizes that the market price of stock is influenced
by many factors, only one of which is performance. The stock price performance
shown on the graph is not necessarily indicative of future performance.
RETURNS ASSUME DIVIDEND REINVESTMENT
INDEXED TO $100 AT 12/31/99
[PERFORMANCE GRAPH]
PERIOD ENDING
INDEX 12/31/99 12/31/100 12/31/01 12/31/02 12/31/03 12/31/04
-------------------------------- -------- --------- -------- -------- -------- --------
FARMERS & MERCHANTS BANCORP, INC. 100 115.71 126.76 114.05 120.48 122.29
NASDAQ 100 60.87 48.21 33.17 49.96 54.51
NASDAQ - BANK INDEX 100 117.2 131.88 141.09 187.06 212.19
------------------
*Source courtesy of Bloomberg, LLC
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and principal officers of the bank subsidiary and their associates
were customers of, and had transactions with, the bank subsidiary in the
ordinary course of business during the year 2004. All loans and commitments
included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of the Board of
Directors and the Bank, do not involve more than normal risk of collectibility
or present other unfavorable features. As of the date hereof, all of such loans
were performing loans.
David P. Rupp Jr. is an attorney with membership in the law firm of Plassman,
Rupp, Short, & Hagans of Archbold, Ohio. The law firm has been retained by the
Corporation and its subsidiaries during the past sixteen years and is to be
retained currently.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers and Directors, and persons who own more than ten percent of a
registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and greater than ten percent shareholders are required by
SEC regulations to furnish the Corporation with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such forms furnished to the Corporation
or written representations that no such forms were required, the Corporation
believes that during 2004 all Section 16(a) filing requirements applicable to
its officers and Directors were complied with.
PROPOSAL 13
APPROVAL OF THE FARMERS & MERCHANTS BANCORP, INC. 2005 LONG-TERM STOCK INCENTIVE
PLAN
The Board of Directors of the Corporation has adopted the Farmers & Merchants
Bancorp, Inc. 2005 Long-Term Stock Incentive Plan (the "Plan") upon the
recommendation of the Corporation's Compensation Committee and recommends that
shareholders approve the Plan at the Annual Meeting. The Corporation has no
prior stock incentive plans in place. The Board believes the Plan is an integral
part of its compensation programs and strategies. It believes the Plan provides
the Corporation the flexibility to implement competitive compensation programs
and will be an effective tool for recruiting, motivating, and retaining the
quality of employees and directors key to the achievement of the Corporation's
success.
The Plan permits the grant of incentive awards in the form of options,
restricted stock, performance shares, and unrestricted stock to employees of the
Corporation or a subsidiary of the Corporation. Shareholder approval of the Plan
will also permit the granting of performance-based awards discussed below to
qualify for deductibility under Section 162(m) of the Internal Revenue Code (the
"Code").
The Board believes that approval of the Plan will substantially further the
interest of shareholders and that the Plan contains a number of provisions that
are consistent with sound corporate governance practices, including:
- Prohibition on stock option repricings. The Plan prohibits the
cancellation of any outstanding option for the purpose of reissuing
an option at a lower option price.
25
- No discount stock options. The Plan prohibits the grant of an option
with an exercise price less than the fair market value of a share of
common stock of the Corporation ("Common Share") on the date of
grant.
- Administration. The Plan provides that it will be administered by
either the full Board of Directors, or if the Board so determines, a
committee comprised of independent, non-employee directors. The
Board of Directors has determined that the Plan will be administered
by the Corporation's Compensation Committee, a committee comprised
entirely of independent directors.
- No option reloads. The Plan does not permit option reloads, that is,
the automatic grant of a replacement option upon the exercise of an
option.
- No Annual "Evergreen" Provision. The Plan provides for specific
number of shares available for awards and limits the maximum award
in one year to a participant.
A summary of the principal provisions of the Plan appears below. The summary is
qualified in it entirely by reference to the complete text of the Plan that is
attached to this proxy statement as Appendix C.
SUMMARY OF THE PLAN
Administration: The Plan provides that it will be administered by a committee
that is comprised of three Directors who are non-employee directors within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and
who qualify as outside directors under Section 162(m) of the Code (the
"Committee"). The Board of Directors may assume the duties and responsibilities
of the Committee and function as the Committee under the Plan. The Board of
Directors has determined that the Plan will be administered by the Corporation's
Compensation Committee, a committee comprised entirely of independent directors.
The Committee selects participants from among eligible persons and, subject to
the terms of the Plan, determines the type, size and time of grant of stock
incentive awards, determines the terms and conditions of awards and makes all
other determinations necessary or advisable for the administration of the plan.
Each award under the Plan will be evidenced by a written award agreement
approved by the Committee (the "Award Agreement").
Eligibility: The Committee may make awards to any person who is an employee of
the Corporation or a Subsidiary. As of March 8, 2005, there were 21 officers and
approximately 210 total full-time equivalent employees, other than officers,
who would be eligible for awards under the Plan. The Committee selects from
eligible persons the persons who actually participate in the plan.
Shares Available for Awards: No more than 200,000 Common Shares may be issued
under the Plan. The shares that may be issued may be authorized but unissued
shares or treasury shares. If there is a stock split, stock dividend or other
relevant change affecting the Common Shares, the Committee will make appropriate
adjustments in the maximum number of shares issuable under the Plan and subject
to outstanding incentive awards. Shares that were subject to an incentive award
under the plan but were not issued for any reason and are no longer subject to
award or were issued and reacquired by the Corporation because of a
participant's failure to comply with the terms of an award are again available
for award under the Plan.
Types of Awards and Annual Award Limits: Stock incentives that may be issued
under the Plan consist of stock options, restricted and unrestricted stock
awards, performance share awards or any combination of the foregoing. The Plan
contains annual limits on certain types of awards to individual participants. In
any calendar year, no participant may be granted stock options, restricted stock
awards, or performance share awards covering more than 20,000 shares.
26
Stock Options: A stock option provides for the purchase Common Shares in the
future at an exercise price per share that may not be less than 100% of the fair
market value of a share on the date the option is granted. Stock options may be
either nonqualified options or incentive stock options, which meet the
requirements of Section 422 of the Code. The term of an option may not exceed
ten years. Unless the Committee determines otherwise, options become exercisable
with respect to 20% of the shares subject to the option on the first, second,
third, fourth and fifth anniversary date of the date of grant of the option. An
option may only be exercised while the optionee is employed by the Corporation
or a Subsidiary or within 30 days after cessation of the optionee's employment
if the reason for cessation of employment is other than disability, retirement,
death or termination for gross misconduct. In the case of disability or normal
retirement, an option may be exercised to the extent it was exercisable on the
date the optionee ceased to be employed by the Corporation for the lesser of
three years after termination of employment or the remaining term of the option
(such three-year period is reduced to a one-year period in the case of early
retirement or death). In the case of termination for gross misconduct, the
option may not be exercised after termination of employment. In the event of a
change of control of the Corporation (as defined in the Plan), any option which
is not then exercisable, automatically becomes exercisable. The option price is
payable either in cash, by delivery to the Corporation of shares of the
Corporation already owned by the optionee, or by any combination of such methods
of payment. Under the Plan, an optionee may use shares received upon the
exercise of a portion of an option to pay the exercise price for additional
portions of the option. The Plan also permits the use of shares issuable upon
exercise of an option to pay applicable withholding taxes due upon the exercise
of a nonqualified stock option. The Committee may, however, adopt guidelines
limiting or restricting the use of shares as a method of payment of the option
price and withholding taxes.
Restricted Stock Awards: A restricted stock award is an award of Common Shares
that may not be sold, transferred, pledged, or otherwise transferred until a
restricted period established by the Committee at the time of grant is
satisfied. The Award Agreement sets forth a restricted period during which the
grantee must remain in the employ of the Corporation. Unless the Committee
determines otherwise, 20% of the shares subject to the restricted share award
vest on the first, second, third, fourth and fifth anniversary date of the date
of grant of the restricted stock award. If the grantee's employment terminates
during the restricted period, the grant terminates and the grantee must return
the shares to the Corporation. However, the Committee may provide complete or
partial exceptions to this requirement as it deems equitable. The grantee of
restricted shares is entitled to vote the shares and receives dividends during
the restricted period.
Performance Awards. The Committee may grant performance awards under which
payment is made, in the Committee's discretion, in shares, in cash, or a
combination of shares and cash if the performance of the Corporation or
Subsidiary or division of the Corporation selected by the Committee meets
certain goals established by the Committee during an award period. The Committee
determines the goals, the length of an award period, the maximum payment value
of an award, and the minimum performance required before a payment is made.
Except for performance awards intended as "performance-based compensation" under
Section 162(m) of the Code, the Committee may revise the goals and the
computation of payment at any time to account for unforeseen events which occur
during an award period and which have a substantial effect on the performance of
the Corporation, Subsidiary or division. In order to receive payment, a grantee
must remain in the employ of the Corporation until the completion of the award
period, except that the Committee may provide complete or partial exceptions to
that requirement as it deems equitable.
Stock Awards. The Committee may grant eligible persons awards of Common Shares
for past services in lieu of bonus or other cash compensation, or for any other
valid purpose determined by the Committee. Stock awards are free of any
restrictions on transfer and upon issuance of the shares, the holder has all of
the rights of a shareholder.
Plan Amendments: The Board of Directors may amend or modify the Plan at any
time, except that it may not amend the plan without shareholder approval so as
to: (i) increase the maximum number of shares that may be issued under the plan;
(ii) expand the types of awards available under the Plan; (iii) permit the
granting of options
27
with exercise prices less than 100% of the fair market value of a Common Share
on the date of grant; (iv) materially modify the requirements as to eligibility
for participation in the plan; (v) materially extend the term of the plan; or
(vi) delete or modify the limitation on the repricing of options. No amendment
of the Plan may, without the consent of a participant, adversely affect any
award held by him under the Plan.
Term of the Plan: Unless earlier terminated by the Board, the Plan would
terminate on the day immediately preceding the tenth anniversary date of its
approval by shareholders of the Corporation. Termination of the plan does not
affect any outstanding awards granted prior to the termination of the plan.
PERFORMANCE-BASED COMPENSATION
Under Section 162(m) of the Code, the Corporation may not deduct compensation of
more than $1,000,000 that is paid to an individual who, on the last day of the
taxable year, is either the Corporation's chief executive officer or is among
one of the four most highly-compensated officers for that taxable year as
reported in the Corporation's proxy statement (referred to as "covered
employees"). The limitation on deductions does not apply to certain types of
compensation, including "performance-based compensation" if approved by
shareholders. Under the Plan, options will qualify as performance-based
compensation and restricted stock awards and performance share awards may also
qualify if the Committee so designates these awards (herein called "Section
162(m) Awards") as performance-based compensation and administers the plan with
respect to these designated awards in compliance with Section 162(m) of the
Code.
The Plan contains various performance measures that the Committee may use to
determine whether and to what extent any covered employee has earned a Section
162(m) Award. The performance criteria upon which the payment or vesting may be
based are limited to the following performance measures, either alone or in any
combination, on either a consolidated or business unit or divisional level, and
which shall include or exclude discontinued operations and acquisition expenses,
as the Committee may determine: level of sales, earnings per share, income
before income taxes and cumulative effect of accounting changes, income before
cumulative effect of accounting changes, net income, return on assets, return on
equity, return on capital employed, total stockholder return, market valuation,
cash flow and completion of acquisitions. The foregoing criteria shall have any
reasonable definitions that the Committee may specify, which may include or
exclude any or all of the following items, as the Committee may specify:
extraordinary, unusual or non-recurring items; effects of accounting changes;
effects of currency fluctuations; effects of financing activities (e.g., effect
on earnings per share of issuing convertible debt securities); expenses for
restructuring or productivity initiatives; non-operating items; and effects of
divestitures. The Committee may make downward adjustments in the amounts payable
under an award, but it may not increase the award amounts or waive the
achievement of a performance goal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal United States Federal income
tax consequences of awards under the Plan and is based on Federal income tax
laws currently in effect.
Limitation on Corporate Deductions for Certain Executives' Compensation: Under
the Plan, the Committee is authorized to grant awards that qualify as
performance-based compensation under Section 162(m) of the Code, as well as
awards that do not. As a result, the Corporation may not be entitled to any
deduction mentioned below if the individual in question is a covered employee
within the meaning of the Code, the amount in question does not qualify as
performance-based compensation, and the amount in question, when added to the
covered employee's other taxable compensation that is not performance-based in
the same taxable year, exceeds $1 million.
Stock Options: There are no Federal income tax consequences either to the
optionee or the Corporation upon the grant of an incentive stock option or a
nonqualified option. If shares are purchased under an incentive stock option
(i.e., an incentive option is exercised) during employment or within three
months thereafter, the optionee
28
will not recognize any income and the Corporation will not be entitled to a
deduction in respect of the option exercise. However, the excess of the fair
market value of the shares on the date of such exercise over the purchase price
of the shares under the option will be includible in the optionee's alternative
minimum taxable income. Generally, if the optionee disposes of shares purchased
under an incentive stock option within two years of the date of grant or one
year of the date of exercise of the incentive stock option, the optionee will
recognize ordinary income, and the Corporation will be entitled to a deduction,
equal to the excess of the fair market value of the shares on the date of
exercise (or, if less, the amount realized by the optionee on the disposition of
the shares) over the purchase price of such shares. Any gain after the date on
which the optionee purchased the shares will be treated as capital gain to the
optionee and will not be deductible by the Corporation. If the shares are
disposed of after the two-year and one-year periods mentioned above, the
Corporation will not be entitled to any deduction, and the entire gain or loss
realized by the optionee will be treated as capital gain or loss. When shares
are purchased under a nonqualified option, the excess of the fair market value
of the shares on the date of purchase over the purchase price of such shares
under the option will generally be taxable to the optionee as ordinary income
and deductible by the Corporation. The disposition of shares purchased under a
nonqualified option will generally result in a capital gain or loss for the
optionee, but will have no tax consequences for the Corporation.
Stock Awards: An employee who receives cash or shares of Common Shares pursuant
to a stock award will generally recognize ordinary income equal to the sum of
the cash and the fair market value of the shares received, and the Corporation
will generally be entitled to a corresponding deduction from its income.
However, an employee who pursuant to a stock award receives Common Shares that
is restricted as to transferability and subject to a substantial risk of
forfeiture, will not recognize taxable income at the time the stock is issued
unless the employee makes a special election in accordance with applicable
Treasury regulations to be taxed (at ordinary income rates) on the fair market
value of the shares at that time (with fair market value determined for this
purpose without regard to any restrictions other than restrictions, if any,
which by their terms will never lapse), in which case the Corporation would be
entitled to a deduction at the same time equal to the amount of income realized
by the employee but would not be entitled to deduct any dividends thereafter
paid on the shares. Absent such an election, an employee who has been awarded
such restricted stock will not recognize taxable income until the shares become
transferable or cease to be subject to a substantial risk of forfeiture, at
which time the recipient will recognize ordinary income and the Corporation will
be entitled to a corresponding deduction equal to the excess of the fair market
value of the shares at that time over the amount (if any) paid by the recipient
for the shares. Dividends paid to the recipient on the restricted shares prior
to that time will be ordinary compensation income to the recipient and
deductible by the Corporation.
American Jobs Creation Act of 2004. In October of 2004 President Bush signed the
American Jobs Creation Act of 2004 (AJCA) and in December of 2004 the Treasury
Department issued regulations under the AJCA. Among other changes the AJCA
affected the tax treatment of nonqualified deferred compensation plans. The Plan
is intended to comply with the provisions of the AJCA. In the event the Board of
Directors determines upon advice of counsel, whether before or after adoption by
shareholders, that a provision of the Plan violates any of the provisions of the
AJCA or the applicable Treasury regulations, the Board of Directors will amend
the plan to bring the terms of the Plan into compliance.
NEW PLAN BENEFITS
Since benefits under the Plan will depend on the action of the Committee and the
fair market value of the Corporation's Common Shares at various future dates, it
is not possible to determine the benefits that will be received by officers and
other employees if the Plan is approved by shareholders.
29
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" PROPOSAL 13.
APPROVAL OF THE PLAN REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES
CAST AT THE ANNUAL MEETING.
INFORMATION CONCERNING INDEPENDENT ACCOUNTANTS
The firm of Plante & Moran, PLLC, ("Plante & Moran") independent certified
public accountants, has been retained by the Audit Committee on behalf of the
Corporation as auditors of the Corporation and its subsidiaries for the fiscal
year beginning January 1, 2004. Plante & Moran was engaged to provide
independent audit services for the Corporation and its subsidiaries and to
provide certain non-audit services including advice on accounting, tax and
reporting matters. The Board of Directors expects that a representative of
Plante & Moran will be present at the annual meeting, will have the opportunity
to make a statement if they desire to do so, and will be available to respond to
appropriate questions. The Board of Directors intends to reappoint the firm of
Plante & Moran to be auditors of the Corporation and its subsidiaries for the
calendar year ending December 31, 2005. The Corporation has been advised by
Plante & Moran that no member of that firm has any financial interest, either
direct or indirect, in the Corporation or its subsidiaries, other than as a
depositor, and it has no connections with the Corporation or its subsidiaries in
any capacity other than that of public accountants. On November 14, 2003 the
Audit Committee of the Board of Directors of the Corporation accepted the
resignation of Krouse, Kern & Co., Inc. ("Krouse Kern"), as the Corporation's
independent public accountant for all periods commencing on or after January 1,
2003. The table set forth below does provide information about fees paid to that
firm in 2003.
Plante & Moran billed the aggregate fees shown below for audit, audit related
matters, tax and other services rendered to the Corporation and its subsidiaries
for the year 2004. Audit fees include fees billed in connection with the audit
of the Corporation's annual financial statements, fees billed for the review of
the unaudited financial statements contained in the Corporation's periodic
reports on Form 10-Q, as filed with the Securities and Exchange Commission and
assistance in compliance with the internal control requirements mandated by
Section 404 of Sarbanes Oxley. Audit related fees include review of the business
continuity plan (disaster recovery) and review of mortgage servicing and
allowance for loan and lease losses. Tax consulting services included assistance
regarding franchise tax and federal income tax planning.
Plante & Moran and its affiliates billed the following amounts to the
Corporation and its subsidiaries during 2003 and 2004, respectively for audit,
audit related fees, tax fees and all other fees:
KROUSE KERN - 2003 PLANTE & MORAN - 2003 PLANTE & MORAN - 2004
------------------ --------------------- ---------------------
AUDIT FEES $ 57,947 $ 20,000 $ 121,560
AUDIT RELATED FEES 3,915 4,000 18,489
TAX FEES 3,900 3,000
PREPARATION 24,275
CONSULTING 11,625
ALL OTHER FEES -0- -0- -0-
TOTAL $ 65,762 $ 27,000 $ 175,949
The Audit Committee of the Corporation considered and concluded that the
provision for non-audit services by
30
Plante & Moran, PLLC and its affiliates was compatible with maintaining the
independent auditors' independence. The Audit Committee of the Corporation will
pre-approve all services to be provided to the Corporation by Plante & Moran.
All the services noted above were approved by the Audit Committee.
PROPOSALS OF SHAREHOLDERS FOR NEXT ANNUAL MEETING
Proposals of shareholders intended to be presented at the 2006 Annual
Shareholders' Meeting must be received at the Corporation's offices at 307-11
North Defiance Street, Archbold, Ohio 43502, prior to November 18, 2005 for
inclusion in the proxy statement and form of proxy. Proposals from shareholders
for next year's annual meeting received by the Corporation after February 1,
2006 will be considered untimely. With respect to such proposals, the
Corporation will vote all shares for which it has received proxies in the
interest of the Company as determined in the sole discretion of its Board of
Directors. The Corporation also retains its authority to discretionarily vote
proxies with respect to shareholder proposals received by the Company after
November 18, 2005 but prior to February 1, 2006, unless the proposing
shareholder takes the necessary steps outlined in Rule 14a-4(c)(2) under the
Securities Exchange Act of 1934 to ensure the proper delivery of proxy materials
related to the proposal.
OTHER MATTERS
The Board of Directors does not know of any other matters that are likely to be
brought before the meeting. However, in the event that any other matters
properly come before the meeting, the persons named in the enclosed proxy will
vote said proxy in accordance with their judgment on such matters.
A COPY OF THE CORPORATION'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED
DECEMBER 31, 2004 IS ENCLOSED. A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM
10-K FOR 2004, WITH EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("2004 10-K"), IS AVAILABLE TO ANY SHAREHOLDER FREE OF CHARGE.
SHAREHOLDERS DESIRING A COPY OF THE 2004 10-K SHOULD ADDRESS WRITTEN REQUESTS TO
MS. BARBARA J. BRITENRIKER, CHIEF FINANCIAL OFFICER OF FARMERS & MERCHANTS
BANCORP, INC., 307-11 NORTH DEFIANCE STREET, ARCHBOLD, OHIO 43502, AND ARE ASKED
TO MARK "2004 10-K REQUEST" ON THE OUTSIDE OF THE ENVELOPE CONTAINING THE
REQUEST.
By Order of the Board of Directors
Archbold, Ohio
March 18, 2005
Lydia A. Huber, Secretary
31
APPENDIX A
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
FARMERS & MERCHANTS BANCORP, INC.
AMENDED ARTICLES OF INCORPORATION
OF
FARMERS & MERCHANTS BANCORP, INC.
These Amended Articles of Incorporation (the "Articles") of Farmers &
Merchants Bancorp, Inc. (the "Corporation") hereby supersede the Corporation's
existing Articles of Incorporation and all amendments to them and shall read as
follows:
FIRST. The name of the Corporation shall be Farmers & Merchants Bancorp, Inc.
SECOND. The place in Ohio where the Corporation's principal office is to be
located is Archbold, Fulton County.
THIRD. The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under Chapter 1701
of the Ohio Revised Code.
FOURTH. The number of shares which the Corporation is authorized to have
outstanding is 15,000,000 shares all of which shall be common shares, without
par value (the "Shares."). The holders of the Shares are entitled at all times,
except in the election of directors where the Shares may be voted cumulatively,
to one (1) vote for each Share and to such dividends as the Board of Directors
(herein called the "Board") may in its discretion periodically declare. In the
event of any liquidation, dissolution or winding up of the Corporation, the
remaining assets of the Corporation after the payment of all debts and necessary
expenses shall be distributed among the holders of the Shares pro rata in
accordance with their respective Share holdings.
FIFTH. Except as otherwise provided in these Articles, the Corporation is hereby
authorized to purchase or redeem through action of the Board, without the
approval of the holders of any Shares and upon such terms and conditions as the
Board determines: (1) any Shares issued by the Corporation, subject to the
express terms of such Shares; (2) any security or other obligation of the
Corporation which may confer upon the holder thereof the right to convert such
security or obligation into Shares; (3) any security or other obligation which
may confer upon the holder thereof the right to purchase Shares; and (4) Shares
of any class or series issued by the Corporation if and when any holder of such
Shares desires to (or, upon the happening of any event, is required to) sell
such Shares.
SIXTH. The provisions of Section 1701.15(A) of the Ohio Revised Code that became
effective March 17, 2000, shall apply to this Corporation. No holder of the
Shares of any class shall have any preemptive right to subscribe for or to
purchase any Shares of any class whether now or hereafter authorized, except
such rights to subscribe for or purchase Shares, at such prices and according to
such terms and conditions as the Board may, from time to time, approve and
authorize in its sole discretion.
SEVENTH. Except as otherwise required by these Articles or the Code of
Regulations (the "Regulations") of the Corporation, and notwithstanding any
provision of law requiring any greater affirmative vote, any amendments to these
Articles may be made, and any proposal other than the election of directors that
requires the action of shareholders may be authorized, by the affirmative vote
of the holders of Shares entitling them to exercise a majority of the voting
power of the Corporation. Notwithstanding the foregoing, any amendment of these
Articles that is inconsistent with, or would have the effect of altering or
repealing the provisions of Sections 6, 8, 9, 33 or 34 of the Regulations of the
Corporation, shall require the same affirmative vote of the shareholders of the
Corporation as would be required under the Regulations to amend Sections 6, 8,
9, 33 or 34 of the Regulations. At any meeting of shareholders at which
directors are to be elected, directors shall be elected by the vote of
shareholders as provided by law.
EIGHTH. Fair Price and Super Vote Requirement.
A. Definitions used in this Article EIGHTH: The following terms are used
in this Article EIGHTH with the meanings set forth below:
(1) "Affiliate" or "Associate" shall have the respective meanings
given to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934.
(2) A person shall be a "beneficial owner" of any Voting Shares:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
2
(ii) which such person or any of its Affiliates or Associates
has by itself or with others (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (b) the right to
vote pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any Voting Shares.
(3) "Business Combination" shall include:
(i) any merger or consolidation of the Corporation or any of
its subsidiaries with or into an Interested Shareholder, regardless of which
person is the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, or other
disposition (in one transaction or a series of transactions) from the
Corporation or any of its subsidiaries to an Interested Shareholder, or from an
Interested Shareholder to the Corporation or any of its subsidiaries, of assets
having an aggregate Fair Market Value of twenty percent (20%) or more of the
Corporation's total stockholders' equity;
(iii) the issuance, sale or other transfer by the Corporation
or any subsidiary thereof of any securities of the Corporation or any subsidiary
thereof to an Interested Shareholder (other than an issuance or transfer of
securities which is effected on a pro rata basis to all shareholders of the
Corporation);
(iv) the acquisition by the Corporation or any of its
subsidiaries of any securities of an Interested Shareholder;
(v) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder;
(vi) any reclassification or recapitalization of securities of
the Corporation if the effect, directly or indirectly, of such transaction is to
increase the relative voting power of an Interested Shareholder; or
(vii) any agreement, contract or other arrangement providing
for or resulting in any of the transactions described in this definition of
Business Combination.
(4) "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested Shareholder
and was a member of the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder; any successor of a Continuing
Director who is unaffiliated with the Interested Shareholder and is approved to
succeed a Continuing Director by the Continuing Directors; any member of the
Board of Directors who is appointed to fill a vacancy on the Board of Directors
who is unaffiliated with the Interested Shareholder and is approved by the
Continuing Directors.
(5) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(6) "Fair Market Value" shall mean:
(i) in the case of securities listed on a national securities
exchange or quoted in the National Association of Securities Dealers Automated
Quotations System (or any successor thereof), the highest sales price or bid
quotation, as the case may be, reported for securities of the same class or
series traded on a national securities exchange or in the over-the-counter
market during the 30-day period immediately prior to the date in question, or if
no such report or quotation is available, the fair market value as determined by
the Continuing Directors; and
(ii) in the case of other securities and of other property or
consideration (other than cash), the Fair Market Value as determined by the
Continuing Directors; provided, however, in the event the power and authority of
the Continuing Directors ceases and terminates pursuant to subsection F. of this
Article EIGHTH as a result of there being less than five Continuing Directors at
any time, then (a) for purposes of clause (ii) of the definition of "Business
Combination," any sale, lease, exchange, mortgage, pledge, or other disposition
of assets from the Corporation or any of its subsidiaries to
3
an Interested Shareholder or from an Interested Shareholder to the Corporation
or any of its subsidiaries, regardless of the Fair Market Value thereof, shall
constitute a Business Combination, and (b) for purposes of paragraph (1) of
subsection D. of this Article EIGHTH, in determining the amount of consideration
received or to be received per share by the Independent Shareholders in a
Business Combination, there shall be excluded all consideration other than cash
and the Fair Market Value of securities listed on a national securities exchange
or quoted in the National Association of Securities Dealers Automated Quotations
System (or any successor thereof) for which there is a reported sales price or
bid quotation, as the case may be, during the 30-day period immediately prior to
the date in question.
(7) "Independent Shareholder" shall mean shareholders of the
Corporation other than the Interested Shareholder engaged in or proposing the
Business Combination.
(8) "Interested Shareholder" shall mean: (a) any person (other than
the Corporation or any of its subsidiaries), and (b) the Affiliates and
Associates of such person, who, or which together, are:
(i) the beneficial owner, directly or indirectly, of 10% or
more of the outstanding Voting Shares or were within the two-year period
immediately prior to the date in question the beneficial owner, directly or
indirectly, of 10% or more of the then outstanding Voting Shares; or
(ii) an assignee of or other person who has succeeded to any
shares of the Voting Shares which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an Interested
Shareholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
Notwithstanding the foregoing, no Trust Department, or designated
fiduciary or other trustee of such Trust Department of the Corporation or a
subsidiary of the Corporation, or other similar fiduciary capacity of the
Corporation with direct voting control of the outstanding Voting Shares shall be
included as or considered to be an Interested Shareholder. No Person shall be
included as or considered to be an Interested Shareholder as a result of an
agreement, arrangement or understanding to vote Voting Shares if such agreement,
arrangement or understanding: (a) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the SEC's rules and regulations
under the Exchange Act, and (b) is not also then reportable by such Person on
Schedule 13D or Schedule 13G under the Exchange Act (or any comparable or
successor report). No Person shall be included as or considered to be an
Interested Shareholder who is engaged in business as an underwriter of
securities as a result of such Person's participation in good faith in a firm
commitment underwriting of Voting Shares until the expiration of forty days
after the date of such Person's acquisition of Voting Shares in such
underwriting. Further, no profit-sharing, employee stock ownership, employee
stock purchase and savings, employee pension, or other employee benefit plan of
the Corporation or any of it subsidiaries, and no trustee of any such plan in
its capacity as such trustee, shall be included or considered as an Interested
Shareholder.
(9) A "Person" shall mean an individual, partnership, trust,
corporation, or other entity and includes any two or more of the foregoing
acting in concert.
(10) "SEC" shall mean the United States Securities and Exchange
Commission.
(11) "Voting Shares" shall mean all outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of directors
of the Corporation.
B. Supermajority Vote to Effect Business Combination: No Business
Combination shall be effected or consummated unless:
(1) Authorized and approved by the Continuing Directors and, if
otherwise required by law to authorize or approve the transaction, the approval
or authorization of shareholders of the Corporation, by the affirmative vote of
the holders of Voting Shares entitling them to exercise a majority of the voting
power of the Corporation; or
(2) Authorized and approved by the affirmative vote of holders of
not less than 80% of the outstanding Voting Shares voting together as a single
class.
The authorization and approval required by this subsection B. is in
addition to any authorization and approval required by subsection C. of this
Article EIGHTH.
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C. Fair Price Required to Effect Business Combination: No Business
Combination shall be effected or consummated unless:
(1) All the conditions and requirements set forth in subsection D.
of this Article EIGHTH have been satisfied; or
(2) Authorized and approved by the Continuing Directors; or
(3) Authorized and approved by the affirmative vote of holders of
not less than 66 2/3% of the outstanding Voting Shares held by all Independent
Shareholders voting together as a single class.
Any authorization and approval required by this subsection C. is in
addition to any authorization and approval required by subsection B. of this
Article EIGHTH.
D. Conditions and Requirements to Fair Price: All the following conditions
and requirements must be satisfied in order for paragraph (1) of subsection C.
of this Article EIGHTH to be applicable.
(1) The cash and Fair Market Value of the property, securities or
other consideration to be received by the Independent Shareholders in the
Business Combination per share of capital stock of the Corporation must not be
less than the sum of:
(i) the highest per share price (including brokerage
commissions, transfer taxes, soliciting dealer's fees and similar payments) paid
by the Interested Shareholder in acquiring any shares; and
(ii) the amount, if any, by which interest on the per share
price, calculated at the Treasury Bill Rate from time to time in effect, from
the date the Interested Shareholder first became an Interested Shareholder until
the Business Combination has been consummated, exceeds the per share amount of
cash dividends received by the Independent Shareholders during such period. The
"Treasury Bill Rate" means for each calendar quarter, or part thereof, the
interest rate of the last auction in the preceding calendar of 91-day United
States Treasury Bills expressed as a bond equivalent yield.
For purposes of this paragraph (1) per share amounts shall be
appropriately adjusted for any recapitalization, reclassification, stock
dividend, stock split, reserve split, or other similar transaction. Any Business
Combination which does not result in the Independent Shareholders receiving
consideration for or in respect of their shares of capital stock of the
Corporation shall not be treated as complying with the requirements of this
paragraph (1).
(2) The form of the consideration to be received by the Independent
Shareholders owning the Corporation's shares must be the same as was previously
paid by the Interested Shareholder(s) for shares of the same class or series;
provided, however, if the Interested Shareholder previously paid for shares of
such class or series with different forms of consideration, the form of the
consideration to be received by the Independent Shareholders owning shares of
such class or series must be in the form as was previously paid by the
Interested Shareholder in acquiring the largest number of shares of such class
or series previously acquired by the Interested Shareholder, provided, further,
in the event no shares of the same class or series had been previously acquired
by the Interested Shareholder, the form of consideration must be cash. The
provisions of this paragraph (2) are not intended to diminish the aggregate
amount of cash and Fair Market Value of any other consideration that any holder
of the Corporation's shares is otherwise entitled to receive upon the
liquidation or dissolution of the Corporation, under the terms of any contract
with the Corporation or an Interested Shareholder, or otherwise.
(3) From the date the Interested Shareholder first became an
Interested Shareholder until the Business Combination has been consummated, the
following requirements must be complied with unless the Continuing Directors
otherwise approve:
(i) the Interested Shareholder has not received, directly or
indirectly, the benefit (except proportionately as a shareholder) of any loan,
advance, guaranty, pledge, or other financial assistance, tax credit or
deduction, or other benefit from the Corporation or any of its subsidiaries;
(ii) there shall have been no failure to declare and pay in
full, when and as due or scheduled, any dividends required to be paid on any
class or series of the Corporation's shares;
5
(iii) there shall have been (a) no reduction in the annual
rate of dividends paid on Common Shares of the Corporation (except as necessary
to reflect any split of such shares), and (b) an increase in the annual rate of
dividends as necessary to reflect reclassification (including a reverse split),
recapitalization or any similar transaction which has the effect of reducing the
number of outstanding Common Shares; and
(iv) there shall have been no amendment or other modification
to any profit-sharing, employee stock ownership; employee stock purchase and
savings, employee pension or other employee benefit plan of the Corporation or
any of its subsidiaries, the effect of which is to change in any manner the
provisions governing the voting of any shares of capital stock of the
Corporation in or covered by such plan.
(4) A proxy or information statement describing the Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations under it (or any subsequent
provisions replacing that Act and the rules and regulations under it) has been
mailed at least 30 days prior to the completion of the Business Combination to
the holders of all outstanding Voting Shares. If deemed advisable by the
Continuing Directors, the proxy or information statement shall contain a
recommendation by the Continuing Directors as to the advisability (or
inadvisability) of the Business Combination and/or an opinion by an investment
banking firm, selected by the Continuing Directors and retained at the expense
of the Corporation, as to the fairness (or unfairness) of the Business
Combination to the Independent Shareholders.
E. Other Applicable Voting Requirement: The affirmative votes or approvals
required to be received from shareholders of the Corporation under subsections
B., C. and H. of this Article EIGHTH are in addition to the vote of the holders
of any class of shares of capital stock of the Corporation otherwise required by
law, or by other provisions of the Articles or Regulations, or by the express
terms of the shares of any class or series of any class. The affirmative votes
or approvals required to be received from shareholders of the Corporation under
subsections B., C. and H. of this Article EIGHTH shall apply even though no vote
or a lesser percentage vote, may be required by law, or by other provisions of
these Articles of Incorporation, or otherwise. Any authorization, approval or
other action of the Continuing Directors under this Article EIGHTH is in
addition to any required authorization, approval or other action of the Board of
Directors.
F. Continuing Directors: All actions required or permitted to be taken by
the Continuing Directors shall be taken with or without a meeting by the vote or
written consent of two-thirds of the Continuing Directors, regardless of whether
the Continuing Directors constitute a quorum of the members of the Board of
Directors then in office. In the event that the number of Continuing Directors
is at any time less than nine (9), all power and authority of the Continuing
Directors under this Article EIGHTH shall thereupon cease and terminate,
including, without limitation, the authority of the Continuing Directors to
authorize and approve a Business Combination under subsections B. and C. of this
Article EIGHTH and to approve a successor Continuing Director. Two-thirds of the
Continuing Directors shall have the power and duty, consistent with their
fiduciary obligations, to determine for the purpose of this Article EIGHTH, on
the basis of information known to them:
(1) Whether any person is an Interested Shareholder;
(2) Whether any person is an Affiliate or Associate of another;
(3) Whether any person has an agreement, arrangement, or
understanding with another or is acting in concert with another; and
(4) The Fair Market Value of property, securities or other
consideration (other than cash).
The good faith determination of the Continuing Directors on such matters
shall be binding and conclusive for purposes of this Article EIGHTH.
G. Effect on Fiduciary Obligations of Interested Shareholders: Nothing
contained in this Article EIGHTH shall be construed to relieve any Interested
Shareholder from any fiduciary obligations imposed by law.
H. Repeal: Notwithstanding any other provisions of these Articles of
Incorporation (and notwithstanding the fact that a lesser percentage vote may be
required by law or other provision of these Articles of Incorporation), the
provisions of this Article EIGHTH may not be repealed, amended, supplemented or
otherwise modified, unless:
6
(1) The Continuing Directors (or, if there is no Interested
Shareholder, a majority vote of the whole Board of Directors of the Corporation)
recommend such repeal, amendment, supplement or modification and such repeal,
amendment or modification is approved by the affirmative vote of the holders of
not less than a simple majority of the outstanding Voting Shares; or
(2) Such repeal, amendment, supplement or modification is approved
by the affirmative vote of holders of (a) not less than 80% of the outstanding
Voting Shares voting together as a single class, and (b) not less than 66 2/3%
of the outstanding Voting Shares held by all shareholders other than Interested
Shareholders voting together as a single class.
7
APPENDIX B
AMENDED AND RESTATED CODE OF REGULATIONS OF
FARMERS & MERCHANTS BANCORP, INC.
AMENDED CODE OF REGULATIONS
OF
FARMERS & MERCHANTS BANCORP, INC.
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
The annual meeting of shareholders of the Corporation shall be held on the
fourth Saturday in April or at such other time and on such business day as the
directors may determine each year. The annual meeting shall be held at the
principal office of the Corporation or at such other place within or without the
State of Ohio as the directors may determine. The directors shall be elected at
the annual meeting of shareholders and such other business transacted as may
properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the shareholders may be called at any time by the
Chairman of the Board, the President, or by the directors by action at a meeting
or a majority of the directors acting without a meeting or by shareholders
holding 50% or more of the outstanding shares entitled to vote at the special
meeting of shareholders. Such meetings may be held within or without the State
of Ohio at such time and place as may be specified in the notice thereof.
SECTION 3. NOTICE OF MEETINGS.
Written notice of every annual or special meeting of the shareholders
stating the time, place and purposes thereof shall be given to each shareholder
entitled to notice as provided by law, not less than seven nor more than sixty
days before the date of the meeting. Such notice may be given by or at the
direction of the Chairman of the Board, the President, any Vice President or the
Secretary by personal delivery or by mail or overnight delivery service
addressed to the shareholder at his last address as it appears on the records of
the Corporation, or by any other means of communication authorized by the
shareholder to whom the notice is given to the address furnished by the
shareholder for such transmission. Any shareholder may waive in writing notice
of any meeting, either before or after the holding of such meeting, and, by
attending any meeting without protesting the lack of proper notice, shall be
deemed to have waived notice thereof.
SECTION 4. QUORUM AND ADJOURNMENTS.
Except as may be otherwise required by law or by the Articles of
Incorporation or these Regulations, the holders of a majority of the then
outstanding shares entitled to vote in an election of directors, taken together
as a single class ("Voting Shares"), present in person or by proxy, shall
constitute a quorum; provided that any meeting duly called, whether a quorum is
present or otherwise may, by vote of the holders of the majority of the Voting
Shares represented at the meeting, be adjourned from time to time, in which case
no further notice of any such adjourned meeting need be given.
SECTION 5. BUSINESS TO BE CONDUCTED AT MEETINGS.
At any meeting of shareholders, the only business that shall be conducted
shall be that which has been properly brought before the meeting. To be properly
brought before a meeting of shareholders, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the directors, otherwise properly brought before the meeting by or at the
direction of the directors or otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before a meeting of
shareholders by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are
9
beneficially owned by such shareholder, and (iv) any material interest of such
shareholder in such business.
Notwithstanding anything in the Regulations of the Corporation to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 5.
The Chairman of the meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 5 in which
event any such business not properly brought before the meeting shall not be
acted upon.
DIRECTORS
SECTION 6. NUMBER.
The number of directors shall not be less than nine (9) nor more than
twenty-five (25), the exact number of directors to be determined from time to
time by the majority vote of the directors then in office, and such exact number
shall be fourteen (14) until otherwise so determined.
SECTION 7. NOMINATIONS.
(a) Only persons who are nominated in accordance with the procedures set
forth in this Section 7 shall be eligible for election by shareholders as
directors. Nominations of persons for election as directors of the Corporation
may be made by or at the direction of the board of directors or by any
shareholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in paragraph (b)
of this Section 7.
(b) Nominations other than those made by or at the direction of the
directors, shall be made only pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days prior to the meeting. Such
shareholder's notice shall set forth (a) as to each person who is not an
incumbent director whom the shareholder proposes to nominate for election as a
director, (i) the name, age, business address and residence address of such
person; (ii) the principal occupation or employment of such person; (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person; and (iv) any other information relating to such person that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended; and (b) as to the shareholder giving the notice, (i) the name and
record address of such shareholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by such shareholder. Such notice
shall be accompanied by the written consent of each proposed nominee to serve as
a director of the Corporation, if elected. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the provisions of this Section 7, and, if he should
so determine, the defective nomination shall be void and ineffective and the
person or persons so nominated shall not be eligible for election.
SECTION 8. CLASSIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
The directors shall be divided into three (3) classes, as nearly equal in
number as possible, with the term of office of one class expiring each year. At
each annual meeting of shareholders, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible. Any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office until the next election of directors,
regardless of class, when the appointed director shall stand for election. In no
case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, or removal from office.
Election of directors shall be by ballot whenever requested by any person
entitled to vote at the meeting; but unless so requested such election may be
conducted in any way approved at such meeting.
10
SECTION 9. REMOVAL.
Subject to the cumulative voting rights of the holders of Shares as
provided under Ohio law, if at the time applicable to the Corporation, directors
may be removed from office at any time, but only for cause, and only by the
affirmative vote of the holders of not less than seventy-five percent (75%) of
the voting power of the outstanding Shares entitled to vote generally in the
election of directors, voting together as a single class. Directors may also be
removed by action of the Board of Directors for the reasons provided by the Ohio
Revised Code.
For the purposes of this Section, "cause" shall mean: (i) declaration of
unsound mind by order of court; (ii) conviction of a felony or misdemeanor
involving moral turpitude; (iii) a final judgment by a court of competent
jurisdiction that the director committed a gross dereliction of his or her
duties as a director which resulted in material injury to the Corporation; (iv)
a final judgment by a court of competent jurisdiction that the director
willfully violated any banking law, rule, regulation or final cease-and-desist
order entered by federal and state banking regulators; (v) a final judgment by a
court of competent jurisdiction that the director engaged in intentional
misconduct or a knowing violation of law, and that such misconduct or violation
resulted in both material injury to the Corporation and an improper substantial
personal benefit; or (vi) the director is adjudicated a bankrupt.
SECTION 10. VACANCIES.
Whenever any vacancy shall occur among the directors, the remaining
directors shall constitute the directors of the Corporation until such vacancy
is filled or until the number of directors is changed pursuant to Section 6
hereof. Except in cases where a director is removed as provided by law and these
Regulations and his successor is elected by the shareholders, the remaining
directors may, by a vote of a majority of their number, fill any vacancy for the
unexpired term. A majority of the directors then in office may fill any vacancy
that results from an increase in the number of directors.
SECTION 11. QUORUM AND ADJOURNMENTS.
A majority of the directors in office at the time shall constitute a
quorum, provided that any meeting duly called, whether a quorum is present or
otherwise, may, by vote of a majority of the directors present, adjourn from
time to time and place to place within or without the State of Ohio, in which
case no further notice of the adjourned meeting need be given. At any meeting at
which a quorum is present, all questions and business shall be determined by the
affirmative vote of not less than a majority of the directors present, except as
is otherwise provided in the Articles of Incorporation or these Regulations or
is otherwise authorized by Section 1701.60(A)(1) of the Ohio Revised Code.
SECTION 12. ORGANIZATION MEETING.
Immediately after each annual meeting of the shareholders at which
directors are elected, or at the next regular meeting of the directors
thereafter, the directors shall hold an organization meeting for the purpose of
electing officers and transacting other business. If held immediately after the
annual meeting, notice of such meeting need not be given.
SECTION 13. REGULAR MEETINGS.
Regular meetings of the directors may be held at such times and places
within or without the State of Ohio as may be provided for in by-laws or
resolutions adopted by the directors and upon such notice, if any, as shall be
so provided for.
SECTION 14. SPECIAL MEETINGS.
Special meetings of the directors may be held at any time within or
without the State of Ohio upon call by the Chairman of the Board, the President,
or by any two directors. Notice of each such meeting shall be given to each
director by mail, not less than five (5) days prior to such meeting, or by
personal delivery, telecopy, electronic mail or by telephone not less than the
day prior to such meeting. Any director may waive in writing notice of any
meeting, and, by attending any meeting without protesting the lack of proper
notice, shall be deemed to have waived notice thereof. Unless otherwise limited
in the notice thereof, any business may be transacted at any organization,
regular or special meeting.
11
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
SECTION 15. MEMBERSHIP AND ORGANIZATION.
(a) The directors, at any time, may elect from their number an Executive
Committee which shall consist of three or more directors of the
Corporation, each of whom shall hold office during the pleasure of
the directors and may be removed at any time, with or without cause,
by vote thereof.
(b) Vacancies occurring in the Executive Committee may be filled by the
directors.
(c) In the event the directors have not designated a Chairman of the
Executive Committee, the Executive Committee shall appoint one of its own number
as Chairman of the Executive Committee who shall preside at all meetings and may
also appoint a Secretary (who need not be a member of the Executive Committee)
who shall keep its records and who shall hold office at the pleasure of the
Executive Committee.
SECTION 16. MEETINGS.
(a) Regular meetings of the Executive Committee may be held without notice
of the time, place or purposes thereof and shall be held at such times and
places within or without the State of Ohio as the Executive Committee may from
time to time determine.
(b) Special meetings may be held upon notice of the time, place and
purposes thereof at any place within or without the State of Ohio and until
otherwise ordered by the Executive Committee shall be held at any time and place
at the call of the Chairman or any two members of the Executive Committee.
(c) At any regular or special meeting the Executive Committee may exercise
any or all of its powers, and any business which shall come before any regular
or special meeting may be transacted thereat, provided a majority of the
Executive Committee is present, but in every case the affirmative vote of a
majority of all of the members of the Executive Committee shall be necessary to
take any action.
(d) Any authorized action by the Executive Committee may be taken without
a meeting by a writing signed by all the members of the Executive Committee.
SECTION 17. POWERS.
Except as its powers, duties and functions may be limited or prescribed by
the directors, during the intervals between the meetings of the directors, the
Executive Committee shall possess and may exercise all the powers of the
directors provided that the Executive Committee shall not be empowered to
declare dividends, elect or remove officers at the level of Executive Vice
President or above, fill vacancies among the directors or Executive Committee,
adopt an agreement of merger or consolidation, recommend to the shareholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, nor recommend to the shareholders a dissolution of the
Corporation or revocation of a dissolution. All actions of the Executive
Committee shall be reported to the directors at their meeting next succeeding
such action.
SECTION 18. OTHER COMMITTEES.
(a) The directors may elect other committees from among the directors in
addition to or in lieu of the Executive Committee and give to them any of the
powers which under the foregoing provisions could be vested in the Executive
Committee.
(b) Vacancies occurring in any committee formed pursuant to Section 18(a)
may be filled by the directors.
12
OFFICERS
SECTION 19. OFFICERS DESIGNATED.
The directors, at their organization meeting or at a special meeting held
in lieu thereof or to the extent otherwise necessary shall elect, and unless
otherwise determined by the directors there shall be, a Chairman of the Board, a
President, a Secretary, a Treasurer and, in their discretion, one or more Vice
Presidents, who may be designated an Executive or Senior Vice President, an
Assistant Secretary or Secretaries, an Assistant Treasurer or Treasurers, and
such other officers as the directors may deem appropriate. Any two or more of
such offices other than that of President and Vice President, or Secretary and
Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by the
same person, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity if such instrument is required by law, the Articles of
Incorporation, these Regulations or any by-laws to be executed, acknowledged, or
verified by two or more officers.
SECTION 20. TENURE OF OFFICE.
The officers of the Corporation shall hold office for such terms as the
directors shall determine from time to time. The directors may remove any
officer at any time with or without cause by a majority vote of the directors in
office at the time. A vacancy, however created, in any office may be filled by
election by the directors.
SECTION 21. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at meetings of the shareholders and
directors and shall have such other powers and duties as may be prescribed by
the directors. Except where the signature of the President is required by law,
the Chairman of the Board shall possess the same power as the President to
execute all authorized deeds, mortgages, bonds, contracts and other instruments
and obligations in the name of the Corporation. The Chairman of the Board and
the President may be the same person.
SECTION 22. PRESIDENT.
The President of the Corporation shall have general supervision over its
property, business and affairs, subject to the directions of the Chairman of the
Board or the directors. Unless otherwise determined by the directors, he shall
have authority to execute all authorized deeds, mortgages, bonds, contracts and
other instruments and obligations in the name of the Corporation, and in the
absence of the Chairman of the Board shall preside at meetings of the
shareholders and the directors. He shall have such other powers and duties as
may be prescribed by the directors.
SECTION 23. VICE PRESIDENTS.
The Vice Presidents shall have such powers and duties as may be prescribed
by the directors or as may be delegated by the Chairman of the Board or the
President.
SECTION 24. SECRETARY.
The Secretary shall attend and keep the minutes of all meetings of the
shareholders and of the directors. He shall keep such books as may be required
by the directors and shall give all notices of meetings of shareholders and
directors, provided, however, that any persons calling such meetings may, at
their option, themselves give such notice. He shall have such other powers and
duties as may be prescribed by the directors, the Chairman of the Board or the
President.
SECTION 25. TREASURER.
The Treasurer shall receive and have in charge all money, bills, notes,
bonds, stocks in other corporations and similar property belonging to the
Corporation and shall do with the same as shall be ordered by the directors. He
shall keep accurate financial accounts and hold the same open for inspection and
examination of the directors. On the expiration of his term of office, he shall
turn over to his successor, or the directors, all property, books, papers and
money of the Corporation in his hands. He shall have such other powers and
duties as may be prescribed by the directors, the Chairman of the Board or the
President.
13
SECTION 26. DELEGATION OF DUTIES.
The directors are authorized to delegate the duties of any officers to any
other officer and generally to control the action of the officers and to require
the performance of duties in addition to those mentioned herein.
SECTION 27. COMPENSATION.
The directors are authorized to determine or to provide the method of
determining the compensation of all officers and directors.
SECTION 28. SIGNING CHECKS AND OTHER INSTRUMENTS.
The directors are authorized to determine or provide the method of
determining how checks, notes, bills of exchange and similar instruments shall
be signed, countersigned or endorsed.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 29. INDEMNIFICATION.
The Corporation shall indemnify any director or officer and any former
director or officer of the Corporation and any such director or officer who is
or has served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to the fullest extent permitted by applicable law, as the same now
exists or may hereafter be amended. The indemnification provided for herein
shall not be deemed to restrict the power of the Corporation (i) to indemnify
employees, agents and others to the extent not prohibited by law, (ii) to
purchase and maintain insurance or furnish similar protection on behalf of or
for any person who is or was a director, officer or employee of the Corporation,
or any person who is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such, and (iii) to enter into agreements with persons of the class
identified in clause (ii) above indemnifying them against any and all
liabilities (or such lesser indemnification as may be provided in such
agreements) asserted against or incurred by them in such capacities.
PROVISIONS IN ARTICLES OF INCORPORATION
SECTION 30. PROVISIONS IN ARTICLES OF INCORPORATION.
These Regulations are at all times subject to the provisions of the
Articles of Incorporation of the Corporation as the same may be in effect from
time to time.
LOST CERTIFICATES
SECTION 31. LOST CERTIFICATES.
The directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon such terms and conditions as they may deem advisable
upon satisfactory proof of loss or destruction thereof. When authorizing such
issue of a new certificate, the directors may, as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the directors shall require and/or to give the Corporation a suitable bond or
indemnity against loss by reason of the issuance of a new certificate.
RECORD DATES
SECTION 32. RECORD DATES.
For any lawful purpose, including, without limitation, the determination of the
shareholders who are entitled to: (i) receive
14
notice of or to vote at a meeting of shareholders; (ii) receive payment of any
dividend or distribution; (iii) receive or exercise rights of purchase of or
subscription for, or exchange or conversion of, shares or other securities,
subject to contract rights with respect thereto; or (iv) participate in the
execution of written consents, waivers, or releases, the directors may fix a
record date which shall not be a date earlier than the date on which the record
date is fixed and, in the cases provided for in clauses (i), (ii) and (iii)
above, shall not be more than ninety (90) nor fewer than seven (7) days, unless
the Articles of Incorporation specify a shorter or a longer period for such
purpose, preceding the date of the meeting of the shareholders, or the date
fixed for the payment of any dividend or distribution, or the date fixed for the
receipt or the exercise of rights, as the case may be.
CONTROL SHARE ACQUISITIONS
SECTION 33. CONTROL SHARE ACQUISITIONS.
The Corporation shall not be subject to the provisions of Section 1701.831
of the Ohio Revised Code regarding "control share acquisitions" of shares of the
Corporation.
AMENDMENTS
SECTION 34. AMENDMENTS.
(a) These Regulations may be altered, changed or amended in any respect or
superseded by new Regulations in whole or in part, by the affirmative vote of
the holders of shares entitling them to exercise a majority of the voting power
of the Corporation.
(b) Notwithstanding the provisions of Section 34(a) hereof and
notwithstanding the fact that a lesser percentage may be specified by law or any
other provision of these Regulations, the amendment, alteration, change or
repeal of, or adoption of any provisions inconsistent with, Sections 6, 8, 9, 33
or 34 of these Regulations shall require the affirmative vote of holders of
shares representing at least eighty percent (80%) of the voting power of the
Corporation, unless such amendment, alteration, change, repeal or adoption has
been recommended by at least two-thirds of the members of the Board of Directors
of the Corporation then in office, in which event the provisions of Section
34(a) hereof shall apply.
15
APPENDIX C
FARMERS & MERCHANTS BANCORP, INC.
2005 LONG TERM STOCK INCENTIVE PLAN
FARMERS & MERCHANTS BANCORP, INC.
2005 LONG -TERM STOCK INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of this 2005 Long-Term Stock Incentive Plan (the "Plan")
is to promote the long-term success of Farmers & Merchants Bancorp, Inc. (the
"Company") by providing financial incentives to employees of the Company and its
subsidiaries who are in positions to make contributions toward such success. The
Plan is designed to attract individuals of outstanding ability to employment
with the Company and its subsidiaries and to encourage employees to acquire a
proprietary interest in the Company through stock ownership, to continue
employment with the Company and its subsidiaries, and to render superior
performance during such employment.
SECTION 2. DEFINITIONS
(a) "Board" means the Board of Directors of the Company.
(b) "Change of Control" means and shall be deemed to have occurred
on (i) the date upon which a Schedule 13D would be required to be filed pursuant
to Section 13(d) of the Securities Exchange Act of 1934 indicating that a group
or person, as defined in Rule 13d-3 under said Act, has become the beneficial
owner of 35% or more of the outstanding Voting Shares; (ii) the date of a change
in the composition of the Board such that individuals who were members of the
Board on the date one year prior to such change (or who were subsequently
elected to fill a vacancy in the Board, or were subsequently nominated for
election by the Company's shareholders, by the affirmative vote of a majority of
the directors then still in office who were directors at the beginning of such
one year period) no longer constitute a majority of the Board; (iii) the date
the shareholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the Voting Shares of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Shares of the surviving entity) at least 50% of the total voting
power represented by the Voting Shares of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or (iv) the date
shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets; provided however, that notwithstanding
the forgoing a Change of Control shall not be deemed to have occurred in
connection with any transaction or series of transactions if such does not
constitute a permitted Change of Control as defined by Section 409(a)(2)(A)(v)
of the Code, IRS Notice 2005-1 and any subsequent Treasury Regulations issued
thereunder.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee referred to in Section 4.
(e) "Company" means Farmers & Merchants Bancorp, Inc., an Ohio
corporation, and when used with reference to employment of a Participant,
Company includes any Subsidiary of the Company.
(f) "Employee" means an employee of the Company or a Subsidiary who
in the opinion of the Committee can contribute significantly to the growth and
successful operations of the Company or a Subsidiary.
(g) "Fair Market Value" means the value determined by the Committee,
provided that such value shall be in accordance with applicable provisions of
the Code and related regulations promulgated under the Code.
(h) "Gross Misconduct" means engaging in any act or acts involving
conduct which violates Company policy or is illegal and which results, directly
or indirectly, in personal gain to the individual involved at the expense of the
Company or a Subsidiary.
(i) "Incentive Award" means an Option, Restricted Share Award,
Performance Award, or Share Award granted under the Plan.
(j) "Incentive Stock Option" means an Option that is an Incentive
Stock Option, as defined in Section 422 of the Code.
(k) "Nonqualified Stock Option" means an Option that is not an
Incentive Stock Option.
(l) "Option" means a right to purchase Shares at a specified price;
"Optionee" means the holder of an Option.
(m) "Participant" means an Employee selected to receive an Incentive
Award.
(n) "Performance Award" means a right to receive Restricted Shares,
Shares, cash, or a combination thereof, contingent upon the attainment of
performance objectives determined in the discretion of the Committee as more
fully set forth at Section 8 hereof.
(o) "Plan" means the 2005 Stock Incentive Plan as herein set forth
as the same shall be amended from time to time.
(p) "Restricted Share Award" means a right to receive Shares that is
nontransferable and subject to substantial risk of forfeiture until specific
conditions are met; "Restricted Shares" means Shares, which are the subject of a
Restricted Share Award; and "Restricted Period" shall have the meaning ascribed
to it at Section 7(a).
(q) "Share Award" means an award of Shares that the Committee in its
discretion determines to grant to one or more Employees under the Plan that is
neither a Performance Award or an award of Restricted Shares.
(r) "Shares" means the Common Shares, no par value, of the Company.
(s) "Subsidiary" means any company more than 50% of the voting stock
of which is owned or controlled, directly or indirectly, by the Company.
(t) "Voting Shares" means any securities of the Company, which vote
generally in the election of directors of the Company.
SECTION 3. SHARES SUBJECT TO THE PLAN
(a) Maximum Number. The maximum number of Shares that may be subject
to Incentive Awards granted pursuant to the Plan shall be two hundred thousand
(200,000), subject to adjustment in accordance with Section 3(c). The Shares
that may be issued pursuant to Incentive Awards may be authorized and unissued
Shares or Shares held in the Company's treasury. In the event of a lapse,
expiration, termination, or cancellation of any Incentive Award granted under
the Plan without the issuance of Shares or the payment of cash, or if Shares are
issued under a Restricted Share Award and are reacquired by the Company as a
result of rights reserved upon the issuance thereof, the Shares subject to or
reserved for such Incentive Award shall no longer be charged against the 200,000
Share maximum and may again be used for new Incentive Awards.
(b) Maximum Number - Per Employee. The maximum Incentive Awards that
may be granted to each Employee in each fiscal year of the Company is as
follows:
(i) With respect to Options, no more than twenty thousand
(20,000) Shares may be subject to options granted in the year;
(ii) With respect to Restricted Shares (not issued in
connection with Performance Awards), no more than twenty thousand
(20,000) such Shares may be awarded in the year; and
(iii) With respect to Performance Awards, no more than twenty
thousand (20,000) Shares may be awarded in the year the award is
made regardless of the year the award is earned or paid).
(c) Adjustment. The Board may make or provide for such adjustments
in the numbers of Shares covered by outstanding Options or Performance Shares
granted hereunder, in the option exercise prices per share applicable to such
Options, and in the kind of shares covered thereby, as the Board, in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants or Optionees that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, or (b) any merger, consolidation, spin-off, split-off, spin-out,
split-up, reorganization, partial or complete liquidation or other distribution
of assets, issuance of rights or warrants to purchase securities, or (c) any
other
2
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
the Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards to be replaced. The Board may also make or provide for
such adjustments in the numbers of shares specified in Section 3(a) and Section
3(b) as the Board in its sole discretion, exercised in good faith, may determine
is appropriate to reflect any transaction or event described in this Section
3(c).
SECTION 4. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Compensation
Committee of the Board, or at the discretion of the board a committee which
shall be comprised of three or more directors, who shall from time to time be
appointed by, and serve at the pleasure of, the Board ("Committee"). Each
director serving on the Committee shall be a "non-employee director" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 and
an "outside director" within the meaning of Code Section 162(m). The Board shall
also have the authority to exercise the powers and duties of the Committee; and
until the Board determines otherwise by formal resolution, all powers of the
Committee under the Plan shall be exercised by the Board.
(b) Authority. The Committee shall have and exercise all the power
and authority granted to it under the Plan. Subject to the provisions of the
Plan, the Committee shall have authority in its sole discretion from time to
time (i) to designate from Employees the persons to whom Incentive Awards are
granted; (ii) to prescribe such limitations, restrictions and conditions upon
any such awards as the Committee shall deem appropriate, including establishing
and administering Performance Goals, as defined in Section 8(a), and certifying
whether the Performance Goals have been attained; (iii) to interpret the Plan
and to adopt, amend and rescind rules and regulations relating to the Plan; and
(iv) to make all other determinations and take all other actions necessary or
advisable for the implementation and administration of the Plan.
(c) Committee Actions. A majority of the Committee shall constitute
a quorum, and the acts of a majority of the members present at a meeting at
which a quorum is present, or acts reduced to or approved in writing by all
members of the Committee, shall be acts of the Committee. All such actions shall
be final, conclusive, and binding. No member of the Committee shall be liable
for any action taken or decision made in good faith relating to the Plan or any
Incentive Award thereunder.
(d) Interpretation and Construction. Any provision of this Plan to
the contrary notwithstanding, (i) certain designated Incentive Awards under this
Plan are intended to qualify as performance-based compensation within the
meaning of Code Section 162(m)(4)(C) and (ii) any provision of the Plan that
would prevent a designated Incentive Award from so qualifying shall be
administered, interpreted and construed to carry out such intention and any
provision that cannot be so administered, interpreted and construed shall to
that extent be disregarded.
SECTION 5. ELIGIBILITY AND INCENTIVE AWARDS
(a) Eligible Employees. The Committee may grant Incentive Awards to
officers and other Employees.
(b) Incentive Awards. Incentive Awards may be granted in any one or
more combinations of (i) Incentive Stock Options, (ii) Nonqualified Stock
Options, (iii) Restricted Share Awards, (iv) Share Awards and (v) Performance
Awards. All Incentive Awards shall be subject to such other terms and conditions
as may be established by the Committee. Determinations by the Committee under
the Plan, including without limitation, designation of Participants, the form,
amount and timing of Incentive Awards, the terms and provisions of Incentive
Awards, and the written agreements evidencing Incentive Awards, need not be
uniform and may be made selectively among employees who receive, or are eligible
to receive, Incentive Awards hereunder, whether or not such employees are
similarly situated.
(c) Employment. The Plan and the Incentive Awards granted hereunder
shall not confer upon any Employee the right to continued employment with the
Company or affect in any way the right of the Company to terminate the
employment of an Employee at any time and for any reason.
SECTION 6. OPTIONS
The Committee may grant Incentive Stock Options and Nonqualified
Stock Options and such Options shall
3
be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:
(a) Option Price. The option price per Share with respect to each
Option shall be determined by the Committee but shall not be less than the Fair
Market Value of a Share on the date the Option is granted.
(b) Period of Option. The Committee shall fix the period of each
Option but in no case may an option be exercised more than ten years after the
date of its grant.
(c) Exercise of Option. Unless the Committee determines otherwise,
an Option shall become exercisable with respect to 20% of the Shares subject to
the option on the first, second, third, fourth and fifth annual anniversary date
of the date of grant of the Option, subject to the provisions of Section 6(d)
relating to continuous employment. Any Shares not purchased during a specified
period may be purchased thereafter at any time prior to the expiration of the
Option unless the Committee determines otherwise. The Committee may at any time
remove or alter any restriction on exercise of an Option that was imposed by the
Committee.
(d) Termination of Employment. Unless otherwise determined by the
Committee and contained in the grant form with respect thereto, no Option may be
exercised under the Plan unless the Optionee has been continuously employed by
the Company from the date of grant of the Option to the date of exercise except
that an Option may, subject to the ten year limitation at Section 6(b), be
exercised (i) within one year of cessation of employment in the case of early
retirement or death; and (ii) within three years of cessation of employment in
the case of normal retirement or disability. After termination of employment
Options may be exercised only to the extent they could have been exercised on
the date of the Optionee's termination of employment. The Committee shall
determine whether authorized leave of absence or absence for military or
governmental service shall constitute a termination of employment. Any
limitation imposed by the Code with respect to the exercisability of an
Incentive Stock Option upon termination of employment which is more restrictive
than the forgoing shall supercede the provisions hereof.
(e) Limits on Incentive Stock Options. Except as may be permitted by
the Code, the Fair Market Value of Shares (determined at the time of grant of
Options) as to which Incentive Stock Options held by an Optionee first become
exercisable in any calendar year shall not exceed $100,000. In addition, no
Incentive Stock Option shall be granted to an Employee who possesses, directly
or indirectly (within the meaning of Code Section 424(d)), at the time of grant
more than 10% of the combined voting power of all classes of stock of the
Company unless the option price is at least 110% of the Fair Market Value of the
Shares subject to the Option on the date such Option is granted and such
Incentive Stock Option is not exercisable after the expiration of five years
from the date of grant.
(f) Notice of Exercise and Payment. An Option granted under the Plan
may be exercised by the Optionee giving written notice of exercise to the
Committee. The Option price for the Shares purchased shall be paid in full at
the time such notice is given. An Option shall be deemed exercised on the date
the Committee receives written notice of exercise, together with full payment
for the Shares purchased. The Option price shall be paid to the Company either
in cash, by delivery to the Company of Shares already-owned by the Optionee or
any combination of cash and such Shares. The Committee may, however, at any time
and in its discretion, adopt guidelines limiting or restricting the use of
already-owned Shares to pay all or any portion of the Option price. In the event
already-owned Shares are used to pay all or a portion of the Option price, the
amount credited to payment of the Option price shall be the Fair Market Value of
the already-owned Shares on the date the Option is exercised.
(g) Fractional Shares. No fractional shares shall be issued pursuant
to the exercise of an Option, nor shall any cash payment be made in lieu of
fractional shares.
(h) Repricing of Options. Without approval of shareholders of the
Company, the option exercise price per share of any previously granted option
will not, whether through amendment, cancellation, replacement grants or any
other means, be lowered, except for adjustments pursuant to Section 3(c).
SECTION 7. RESTRICTED SHARE AWARDS
The Committee may issue Shares to an Employee which Shares shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe in connection with the grant of a
Restricted Share Award:
(a) General. With respect to each grant of Restricted Shares, the
Committee, in its sole discretion,
4
shall determine the period or periods during which the restrictions set forth at
Subsection 7(b) shall apply to the Restricted Shares (the "Restricted Period");
and unless the Committee determines otherwise at the time of grant, 20% of the
Shares included in the grant shall have a Restricted Period of one year, 20% a
Restricted Period of two years, 20% a Restricted Period of three years, 20% a
Restricted Period of four years, and 20% a Restricted Period of five years.
(b) Restrictions. At the time of grant of Restricted Shares to an
Employee, a certificate or certificates representing the number of Shares
granted and included in each Restricted Period shall be registered in his name
but shall be held by the Company for the account of the Employee. The Employee
shall have the entire beneficial ownership interest in, and all rights and
privileges of a shareholder as to, such Restricted Shares, including the right
to receive dividends and the right to vote such Restricted Shares, subject to
the following restrictions: (i) subject to Section 7(c), the Employee shall not
be entitled to delivery of any Share certificate until the expiration of the
Restricted Period with respect to that particular certificate; (ii) Restricted
Shares may not be sold, transferred, assigned, pledged, or otherwise encumbered
or disposed of during the Restricted Period applicable to the particular shares;
and (iii) Restricted Shares shall be forfeited and all rights of the Employee to
such Restricted Shares shall terminate without further obligation on the part of
the Company unless the Employee remains in the continuous employment of the
Company for the entire Restricted Period in relation to which such Restricted
Shares were granted, except as provided by Section 7(c). Any Shares received
with respect to Restricted Shares as a result of a recapitalization adjustment
pursuant to Section 3(b) shall be subject to the same restrictions as such
Restricted Shares.
(c) Termination of Employment.
(i) Retirement. If an Employee ceases to be employed by the
Company prior to the end of a Restricted Period by reason of normal
retirement under a retirement plan of the Company or the Employee
otherwise retires with the consent of the Company, the number of
Restricted Shares granted to such Employee for such Restricted
Period shall be reduced in proportion to the Restricted Period
(determined on a quarterly basis) remaining after the Employee
ceases to be an Employee and all restrictions on such reduced number
of Shares shall lapse. A certificate for such Shares shall be
delivered to the Employee in accordance with the provisions of
Section 7(d) hereof. The Committee may, if it deems appropriate,
direct that the Employee receive a greater number of Shares free of
all restrictions but not exceeding the number of Restricted Shares
then subject to the restrictions of Section 7(b).
(ii) Death. If an Employee ceases to be employed by the
Company prior to the end of a Restricted Period by reason of death,
the Restricted Shares granted to such Employee shall immediately
vest in his beneficiary or estate and all restrictions applicable to
such Shares shall lapse. A certificate for such Shares shall be
delivered to the Employee's beneficiary or estate in accordance with
the provisions of Subsection 7(d).
(iii) All Other Terminations. If an Employee ceases to be an
Employee prior to the end of a Restricted Period for any reason
other than retirement or death, the Employee shall immediately
forfeit all Restricted Shares then subject to the restrictions of
Section 7(b) in accordance with the provisions thereof, except that
the Committee may, if it finds that the circumstances in the
particular case so warrant, allow an Employee whose employment has
so terminated to retain any or all of the Restricted Shares then
subject to the restrictions of Section 7(b) and all restrictions
applicable to such retained shares shall lapse. A certificate for
such retained shares shall be delivered to the Employee in
accordance with the provisions of Section 7(d).
(d) Payment of Restricted Shares. At the end of the Restricted
Period or at such earlier time as provided for in Subsection 7(c), all
restrictions applicable to the Restricted Shares shall lapse and a Share
certificate for a number of Shares equal to the number of Restricted Shares,
free of all restrictions, shall be delivered to the Employee or his beneficiary
or estate, as the case may be. The Company shall not be required to deliver any
fractional Share but will pay, in lieu thereof, the Fair Market Value (measured
as of the date the restrictions lapse) of such fractional Share to the Employee
or his beneficiary or estate, as the case may be.
SECTION 8. PERFORMANCE AWARDS
The Committee may grant to Employees Performance Awards that shall
be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe in connection with the grant of a
Performance Award:
5
(a) Award Period and Performance Goals. The Committee shall
determine and include in a Performance Award the period of time during which a
Performance Award may be earned ("Award Period"). The Committee shall also
establish performance objectives ("Performance Goals") to be met by the Company,
Subsidiary or division during the Award Period as a condition to payment of the
Performance Award. The Performance Goals may include minimum and optimum
objectives or a single set of objectives.
With respect to Performance Awards that are intended to qualify as
"performance based" within the meaning of Code Section 162(m)(4)(C), the
Committee shall (i) select the Employees for such Incentive Awards,
(ii)establish in writing the applicable performance goals no later than 90 days
after the commencement of the period of service to which the performance goals
relates (or such earlier or later date as may be the applicable deadline for
compensation payable hereunder to qualify as "performance based" within the
meaning of Code Section 162(m)(4)(C)), and (iii)designate the Performance Awards
that are to qualify as "performance based" within the meaning of Code Section
162(m)(4)(C).
The Committee shall establish in writing the Performance Goals for
each Award Period, which may be based on any of the following performance
criteria, either alone or in any combination, on either a consolidated or
business unit or divisional level, and which shall include or exclude
discontinued operations and acquisition expenses, as the Committee may
determine: level of sales, earnings per share, income before income taxes and
cumulative effect of accounting changes, income before cumulative effect of
accounting changes, net income, return on assets, return on equity, return on
capital employed, total stockholder return, market valuation, cash flow and
completion of acquisitions. The foregoing criteria shall have any reasonable
definitions that the Committee may specify, which may include or exclude any or
all of the following items, as the Committee may specify: extraordinary, unusual
or non-recurring items; effects of accounting changes; effects of currency
fluctuations; effects of financing activities (e.g., effect on earnings per
share of issuing convertible debt securities); expenses for restructuring or
productivity initiatives; non-operating items; and effects of divestitures. Any
such performance criterion or combination of such criteria may apply to the
participant's award opportunity in its entirety or to any designated portion or
portions of the award opportunity, as the Committee may specify.
(b) No Discretion. With respect to Performance Awards that are
intended to qualify as "performance based" within the meaning of Code Section
162(m)(4)(C), the Committee has no discretion to increase the amount of the
award due upon attainment of the applicable performance goals. No provision of
this Plan shall preclude the Committee from exercising negative discretion with
respect to any award (i.e., to reduce or eliminate the award payable) within the
meaning of Treasury Regulation Section 1.162-27(e)(2)(iii)(A).
(c) Performance Award Earned. The Performance Awards may be
expressed in terms of Shares and referred to as "Performance Shares" or
"Performance Units," as the Committee may specify. With respect to each
Performance Award, the Committee shall fix the number of allocable Performance
Shares or Performance Units. The level of Performance Goals attained will
determine the percentage of Performance Shares or Performance Units earned for
an Award Period. After completion of the Award Period, the Committee shall
certify in writing the extent to which the Performance Goals and other material
terms applicable to such award are attained. Unless and until the Committee so
certifies, the Performance Award shall not be paid.
(d) Performance Award Payment. The Committee, in its discretion, may
elect to make payment of the Performance Awards in Restricted Shares, Shares,
cash or any combination of the foregoing.
(e) Requirement of Employment. A grantee of a Performance Award must
remain in the employment of the Company until the completion of the Award Period
in order to be entitled to payment under the Performance Award; provided that
the Committee may, in its sole discretion, provide for a partial or full payment
of the Performance Award that would have been payable if the grantee had
continued employment for the entire Award Period, which shall be paid at the
same time as would have been paid if no termination of employment occurred, but
only if and to the extent the exercise of such discretion does not prevent any
designated Incentive Award from qualifying as "performance based" within the
meaning of Code Section 162(m)(4)(C).
(f) Dividends. The Committee may, in its discretion, at the time of
the granting of a Performance Award, provide that any dividends declared on
Shares during the Award Period, and which would have been paid with respect to
Performance Shares had they been owned by a grantee, be (i) paid to the grantee,
or (ii) accumulated for the benefit of the grantee and used to increase the
number of Performance Shares of the grantee.
6
SECTION 9. NON-ASSIGNABILITY OF INCENTIVE AWARDS
(a) Except as provided in Section 9(b) with respect to Nonqualified
Stock Options, no Incentive Award granted under the Plan shall be assigned,
transferred, pledged, or otherwise encumbered by an Employee, otherwise than by
will, by designation of a beneficiary after death, or by the laws of descent and
distribution, or be made subject to execution, attachment or similar process.
Except as provided in Section 9(b) with respect to Nonqualified Stock Options,
each Incentive Award shall be exercisable during the Employee's lifetime only by
the Employee or, if permissible under applicable law, by the Employee's guardian
or legal representative.
(b) No Nonqualified Stock Option nor any right thereunder may be
assigned or transferred by the optionee except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order (as defined
in the Code or the Employee Retirement Income Security Act of 1974), provided,
however, the Committee may by written action permit any holder of a Nonqualified
Stock Option, either before or after the time of grant, to transfer a
Nonqualified Stock Option during his lifetime to one or more members of his
family, to one or more trusts for the benefit of one or more members of his
family, or to a partnership or partnerships of members of his family, provided
that no consideration is paid for the transfer and that such transfer would not
result in the loss of any exemption under Rule 16b-3 for any option granted
under any plan of the Company. The transferee of a Nonqualified Stock Option
shall be subject to all restrictions, terms and conditions applicable to the
Nonqualified Stock Option prior to its transfer. The Committee may impose on any
transferable Nonqualified Stock Option and on the shares to be issued upon the
exercise of a Nonqualified Stock Option such limitations and conditions as the
Committee deems appropriate.
SECTION 10. CHANGE OF CONTROL
(a) General. In order to maintain all of the Employee's rights upon
a Change of Control of the Company, all Incentive Awards, shall, with respect to
any time periods relating to the exercise or realization of any such award, be
accelerated, so that such award may be exercised or realized in full on or
before such Change in Control on a date fixed by the Committee.
(b) Options. All outstanding Options that are not yet exercisable
shall become immediately exercisable in full in the event of a Change of Control
of the Company.
SECTION 11. TAXES
(a) Withholding for Taxes. The Company shall be entitled, if
necessary or desirable, to withhold the amount of any tax attributable to any
amounts payable under any Incentive Award and the Company may defer making
payment of any Incentive Award if any such tax, charge, or assessment may be
pending until indemnified to its satisfaction.
(b) Use of Shares for Tax Withholding Payments. With the approval of
the Committee, Shares may be used in lieu of cash to pay all or any part of the
mandatory federal, state or local withholding tax payments to be made by the
Employee in connection with an Incentive Award, as follows:
(i) Nonqualified Stock Options. (a) The holder of a
Nonqualified Stock Option may elect to have the Company retain from
the Shares to be issued upon exercise of such an option Shares
having a Fair Market Value equal to the withholding tax to be paid;
or (b) the holder of a Nonqualified Stock Option may deliver to the
Company already-owned Shares having a Fair Market Value equal to the
withholding tax to be paid and in such case.
(ii) Restricted Share Awards. If withholding taxes are
required to be paid at the time Restricted Shares are delivered to
an Employee or at the expiration of the Restricted Period, then the
Employee may pay such taxes by delivering to the Company Shares
having a Fair Market Value equal to the amount of the withholding
tax being paid by use of Shares.
(iii) Performance Shares. If withholding taxes are required to
be paid at the time Shares are delivered to an Employee as a
Performance Award, then the Employee may pay such taxes by
delivering to the Company Shares having a Fair Market Value equal to
the amount of the withholding tax being paid by use of Shares.
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SECTION 12. COMPLIANCE WITH LAWS AND EXCHANGE REQUIREMENTS
No Option shall be granted and no Shares shall be issued in
connection with any Incentive Award unless the grant of the Option and the
issuance and delivery of Shares or cash pursuant to the Incentive Award shall
comply with all relevant provisions of state and federal law, including, without
limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, the
rules and regulations promulgated thereunder, and the requirements of any market
system or stock exchange upon which the Shares may then be listed.
SECTION 13. AMENDMENT AND TERMINATION OF PLAN
(a) Amendment. The Board may from time to time amend the Plan, or
any provision thereof, in such respects as the Board may deem advisable except
that it may not amend the Plan without shareholder approval so as to:
(i) increase the maximum number of Shares that may be issued under
the Plan except in accordance with Section 3(c);
(ii) expand the types of awards available under the Plan;
(iii) permit the granting of Options with exercise prices lower than
those specified in Section 6 or materially modify the method for
determining the Option exercise price;
(iv) materially modify the requirements as to eligibility for
participation in the Plan; (v) materially extend the term of the Plan;
(vi) delete or modify the limitation on the repricing of Options at
Section 6(h); or
(vii) prevent future grant of Incentive Awards to qualify as
"performance based" within the meaning of Code Section 162(m)(4)(C).
(b) Termination. The Board may at any time terminate the Plan.
(c) Effect of Amendment or Termination. Any amendment or the
termination of the Plan shall not adversely affect any Incentive Award
previously granted nor disqualify an Incentive Award from being treated as
"performance based" within the meaning of Code Section 162(m)(4)(C). Incentive
Awards outstanding at the time that the Plan is amended or terminated shall
remain in full force and effect as if the Plan had not been amended or
terminated.
SECTION 14. NOTICES
Each notice relating to the Plan shall be in writing and delivered in person or
by certified or registered mail to the proper address. Each notice to the
Committee shall be addressed as follows: Farmers & Merchants Bancorp, Inc.,
Farmers & Merchants Bancorp, Inc.,
307-11 N. Defiance Street, Archbold, Ohio 43502, Attention: Compensation
Committee. Each notice to a Participant shall be addressed to the Participant at
the address of the Participant maintained by the Company on its books and
records. Anyone to whom a notice may be given under this Plan may designate a
new address by written notice to the other party to that effect.
SECTION 15. BENEFITS OF PLAN
This Plan shall inure to the benefit of and be binding upon each
successor of the Company. All rights and obligations imposed upon a Participant
and all rights granted to the Company under this Plan shall be binding upon the
Participant's heirs, legal representatives and successors.
SECTION 16. PRONOUNS AND PLURALS
All pronouns shall be deemed to refer to the masculine, feminine,
singular or plural, as the identity of the person or persons may require.
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SECTION 17. SHAREHOLDER APPROVAL AND TERM OF PLAN
(a) The Plan was approved by the Board of Directors of the Company
on January 14, 2005 and shall only become effective upon its approval by
shareholders at the annual meeting of the shareholders of the Company held in
2005.
(b) Unless sooner terminated under Section 13, the Plan shall be in
effect from the date of its approval by shareholders of the Company in
accordance with Section 17(a) and shall continue in effect until the tenth
anniversary of the date its approval by shareholders.
9
PROXY
FARMERS & MERCHANTS BANCORP, INC.
ARCHBOLD, OHIO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joe E. Crossgrove, Dean E. Miller and David P.
Rupp, Jr., or any one or more of them, with full power of substitution, for me
and in my name, place and stead, to vote all the common stock of Farmers &
Merchants Bancorp, Inc. registered in the name of the undersigned as of March 8,
2005, with all powers which the undersigned would possess if personally present
at the Annual Meeting of Shareholders of Farmers & Merchants Bancorp, Inc. to be
held in the Founders Hall at Sauder Village, State Route 2, Archbold, Ohio, on
Saturday, April 23, 2005, at 1:00 P.M., EST, and at any adjournments thereof,
and to vote as follows. By appointing the above named persons as proxy for me, I
give them the right to vote cumulatively in the election of directors and to
cast the number of votes among the nominees noted below in such proportion as
they shall deem appropriate, in their sole discretion, unless I have withheld my
vote for any nominee, in which case votes shall not be cast for that person.
This proxy revokes all prior proxies given by the undersigned.
1. INCREASE THE NUMBER OF AUTHORIZED COMMON SHARES - To amend the
Corporation's Articles of Incorporation to increase the number of Common
Shares that the Corporation is authorized to issue from 1,500,000 shares
without par value to 15,000,000 shares without par value.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 1.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELIMINATE PREEMPTIVE RIGHTS - To amend the Corporation's Articles of
Incorporation to eliminate the preemptive right of shareholders to
subscribe to additional shares of stock issued by the Corporation from
time to time, which provision the Board of Directors believes will allow
the Corporation to more easily raise capital as needed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 2.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. REVISE THE SUPERMAJORITY VOTE PROVISIONS - To amend the Corporation's
Articles of Incorporation to modify and, in the opinion of the Board of
Directors, improve the supermajority vote provision in the Corporation's
current Articles of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 3.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. ALLOW FUTURE AMENDMENTS TO THE ARTICLES OF INCORPORATION BY A MAJORITY
VOTE - To amend the Corporation's Articles of Incorporation to allow
future amendment of the Articles of Incorporation of the Corporation,
except in regard to "antitakeover" provisions, by a simple majority
instead of the 2/3 (i.e. 66 2/3%) of outstanding shares currently
required.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 4.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. TECHNICAL REVISIONS TO THE ARTICLES OF INCORPORATION - To approve amending
and restating the Company's Articles of Incorporation, as more fully
described in the proxy statement, to make certain technical changes and
corrections, and therefore to adopt the Amended and Restated Articles of
Incorporation in the form of Appendix A attached to the proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 5.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
[CONTINUED ON NEXT PAGE]
6. REVISE THE NUMBER OF DIRECTORS - To amend the Corporation's Code of
Regulations to allow the Board of Directors to establish the number of
members on the Board of Directors to between nine (9) and twenty (25) as
opposed to having that number set annually by the shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 6.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. CLASSIFY THE BOARD OF DIRECTORS - To amend the Corporation's Code of
Regulations to divide the Board of Directors into three (3) classes
creating a "classified" Board of Directors which, in the opinion of the
Board of Directors, will provide additional "antitakeover" protection and
provide better transition for members of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 7.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. INCREASE THE VOTE OF SHAREHOLDERS REQUIRED TO REMOVE A DIRECTOR - To amend
the Corporation's Code of Regulations to require approval of 75% of the
outstanding common shares to remove a Director and to require "cause" for
such removal, subject to the additional protections provided by the
provisions under Ohio law related to the implementation of cumulative
voting, which, in the opinion of the Board of Directors, will provide
additional "antitakeover" protection.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 8.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. ADOPT ADVANCE NOTICE PROCEDURES - to require shareholders to provide in
advance of shareholder meetings notice of nominations to elect directors
and to make other proposals.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 9.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. OPT OUT OF THE CONTROL SHARE ACQUISITION STATUTE - To amend the
Corporation's Articles of Incorporation to choose that the provisions of
Section 1701.831 of the Ohio Revised Code, the control share acquisition
statute, not be applicable to the Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 10.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. INCREASE THE PERCENTAGE VOTE TO AMEND THE CODE OF REGULATIONS AND MAKE
TECHNICAL REVISIONS TO THE CODE OF REGULATIONS - To provide for amendment
of the Code of Regulations in the future by a majority of the
shareholders, except in regard to certain specific provisions of the
proposed Amended and Restated Code of Regulations which would require a
vote of 80% of outstanding shares and to approve amending and restating
the Corporation's Code of Regulations, as more fully described in the
accompanying proxy statement, to make certain technical changes and
corrections.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 11.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
[CONTINUED ON NEXT PAGE]
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12. ELECTION OF DIRECTORS - To elect the following fourteen (14) nominees to
the Board of Directors to serve in the Classes noted or, in the event that
the shareholders do not approve the appointment of a classified Board of
Directors as set forth in the Amended Code of Regulations discussed above,
to elect all nominees to serve until the Annual Meeting of Shareholders in
2006:
CLASS I/EXPIRES 2006 CLASS II/EXPIRES 2007 CLASS III/EXPIRES 2008
-------------------- --------------------- ----------------------
Jerry L. Boyers Dexter L. Benecke Steven A. Everhart
Robert G. Frey Joe E. Crossgrove Anthony J. Rupp
Jack C. Johnson Dean E. Miller David P. Rupp Jr.
Merle J. Short James C. Saneholtz Kevin J. Sauder
Steven J. Wyse Paul S. Siebenmorgen
[ ] FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY FOR ALL NOMINEES
(TO WITHHOLD AUTHORITY TO VOTE FOR A SPECIFIC NOMINEE(S) WRITE HIS NAME(S) ON
THE LINE BELOW.)
13. ADOPT A LONG TERM INCENTIVE PLAN - The Board of Directors has adopted and
recommends to the shareholders approval and adoption of the 2005 Farmers &
Merchants Long-Term Stock Incentive Plan that will allow the Corporation
to issue stock options, restricted stock and additional stock related
compensation to its senior officers in an attempt to tie the compensation
of such officers to the long term performance of the Corporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL 13.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
14. OTHER BUSINESS - To transact any other business which may properly come
before the meeting or any adjournment of it.
THIS PROXY IS SOLICITED BY MANAGEMENT AND CONFERS AUTHORITY TO VOTE "FOR" THE
NOMINEES NOTED ABOVE, AND "FOR" EACH OF PROPOSALS 1-11 AND 13 ABOVE UNLESS
OTHERWISE MARKED. IF ANY OTHER BUSINESS IS PRESENTED AT SAID MEETING, THIS PROXY
SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. ALL SHARES
REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED AS DIRECTED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE DIRECTORS NOMINATED BY THE
BOARD OF DIRECTORS AND "FOR" EACH OF PROPOSALS 1-11 AND 13. This proxy may be
revoked prior to its exercise by either written notice or personally at the
meeting or by a subsequently dated proxy.
DATED ______________________________ , 2005
___________________________________________
Signature of Shareholder
___________________________________________
Signature of Joint Shareholder, if any
(If signed in a fiduciary capacity, please give full fiduciary title. If signed
by a corporation, sign the full corporate name followed by the signature of the
duly authorized officer. If signed by an agent, attach the instrument
authorizing the agent to execute the proxy or a photocopy thereof.)
PLEASE SIGN AND DATE THE PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE AT
YOUR EARLIEST CONVENIENCE.
3