SCHEDULE 14A INFORMATION
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 the 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
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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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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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3) Filing Party:
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4) Date Filed:
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March 3, 2004
TO OUR 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 3, 2004
at 1:00 P.M., EST.
Matters scheduled for consideration at this meeting are:
1. To elect fourteen (14) directors of the Corporation; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The meeting will also provide an opportunity to review with you the results of
Farmers & Merchants Bancorp, Inc. and its subsidiaries during 2003.
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.
I look forward to seeing you at the meeting.
Sincerely,
Farmers & Merchants Bancorp, Inc.
Eugene D. Bernath
Chairman of the Board
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held April 3, 2004
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 3, 2004 at 1:00 P.M., EST, for the following purposes:
1. To elect fourteen (14) directors of the Corporation; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on February 27, 2004, 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 Carol J. England, Secretary of Farmers & Merchants Bancorp, Inc.
This request should be in writing addressed to Ms. England at Farmers &
Merchants Bancorp, Inc., 119 N. Fulton St., Wauseon, Ohio 43567. If you have
questions, please contact Ms. England by telephone at 419-337-3085.
By Order of the Board of Directors
----------------------------------
Carol J. England
Secretary
Archbold, Ohio
March 3, 2004
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 CAROL J.
ENGLAND, SECRETARY OF THE CORPORATION AT (419) 337-3085.
The Proxy Statement, proxy card and Farmers & Merchants Bancorp, Inc. 2003
Annual Report will be mailed to each shareholder commencing on or about March 4,
2004.
TABLE OF CONTENTS
OF
PROXY STATEMENT
Page
General Information about the Meeting and Voting Securities and Procedures...................... 1
Election of Directors and Information Concerning Directors and Officers......................... 3
Security Ownership of Certain Beneficial Owners and Management.................................. 5
Committees and Compensation of the Board of Directors........................................... 6
Executive Compensation and Other Information.................................................... 8
Report of the Compensation Committee of Farmers & Merchants Bancorp, Inc........................ 9
Compensation Committee Interlocks and Insider Participation..................................... 10
Performance Graph............................................................................... 10
Compliance with Section 16(a) of the Securities Exchange Act of 1934............................ 12
Information Concerning Independent Accountants.................................................. 12
Proposals of Shareholders for Next Annual Meeting............................................... 13
Other Matters................................................................................... 13
Audit Committee Charter......................................................................... Appendix A
Compensation Committee Charter.................................................................. Appendix B
Nominating and Corporation Governance Committee Charter......................................... Appendix C
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
APRIL 3, 2004
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 3, 2004 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 February 27, 2004 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.
WHAT PROPOSALS WILL BE VOTED ON AT THE MEETING?
There is only one proposal scheduled to be voted on at the meeting, the election
of fourteen (14) directors.
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?
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.
HOW ARE VOTES COUNTED?
A shareholder may
- Vote for all of the nominees for director
- Withhold votes on all of the nominees for director
- Abstain from voting for one or more nominees
- Approve each proxy matter
- Disapprove each proxy matter
The laws of Ohio under which the Corporation is incorporated 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 Company of their desire to implement cumulative voting at the
Annual Meeting. The Company 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?
The Board of Directors recommends that you vote "FOR" each of the director
nominees.
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.
2
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. Where no instructions are indicated, proxies will be voted
FOR the election of the fourteen nominees for directors..
WHEN WILL THE PROXY AND ANNUAL REPORT BE MAILED TO SHAREHOLDERS?
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 4, 2004.
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. Currently, the number of Directors is set at fourteen.
Fourteen Directors of the Corporation are to be elected at the meeting. Each
such Director will be elected to serve in accordance with the Code of
Regulations of the Corporation until the next annual meeting of shareholders and
until his successor is elected and qualified. Directors will be elected by a
plurality of the shares of Common Stock represented at the meeting, in person or
by proxy.,
It is the intention of the individuals named in the enclosed form for proxy to
vote such proxy for the election of directors of persons hereinafter named.
Management has no reason to believe that any of the nominees for the office of
director will not be available for election as a director. However, should any
of them become unwilling or unable to accept nomination for election, it is
intended that the individuals named in the enclosed proxy may vote for the
election of such other person or persons as management may recommend.
Set forth below is information concerning the nominees for the election to the
Board of Directors.
Year First
Principal Occupation or Became
Name Age Employment for Past Five Years Director(1)
---- --- ------------------------------ ----------
Eugene D. Bernath 71 Farmer 1978
Dexter L. Benecke 61 President, Viking Trucking, Inc. 1999
Jerry L. Boyers 70 President, Edifice Construction 1976
Management
Joe E. Crossgrove 67 President and Chief Executive Officer of the Corporation 1992
and The Farmers & Merchants State Bank
Steven A. Everhart 49 Secretary/Treasurer, MBC Holdings, Inc. 2003
Robert G. Frey 63 President, E. H. Frey & Sons, Inc. 1987
Jack C. Johnson 51 President, Hawk's Clothing, Inc. 1991
Partner, REJO Partnership
Dean E. Miller 60 President, MBC Holdings, Inc. 1986
Anthony J. Rupp(2) 54 President, Rupp Furniture Co. 2000
David P. Rupp Jr. (2)(3) 62 Attorney, Plassman, Rupp, Hensal, Short & Hagans 2001
James C. Saneholtz 57 President, Saneholtz-McKarns, Inc. 1995
3
Year First
Principal Occupation or Became
Name Age Employment for Past Five Years Director(1)
---- --- ------------------------------- -----------
Kevin J. Sauder 43 President, Chief Executive Officer, 2004
Sauder Woodworking Co
Merle J. Short 63 President, Promow, Inc. 1987
Steven J. Wyse 59 President, SteelinQ Systems, Inc. 1991
(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, Hensal, 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.
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 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.
MANAGEMENT RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION OF THE
ABOVE-NAMED NOMINEES AS DIRECTORS OF THE CORPORATION.
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 COMPANY
NAME AGE SINCE(1) & PRINCIPAL OCCUPATION HELD PAST FIVE YEARS
----------------- --- -------- --------------------------------------------
Joe E. Crossgrove 67 1966 President and CEO of the Corporation and the Bank
Edward A. Leininger 47 1981 Executive Vice President, Senior Commercial Loan Officer and
COO of the Bank, until April 2001, was EVP Commercial Loans
Rex D. Rice 44 1984 Executive Vice President, Chief Lending Officer of the Bank
Barbara J. Britenriker 42 1992 Senior Vice President, Chief Financial Officer and Comptroller of the
Corporation and the Bank, was Vice President until April 2002
Allen Lantz 50 1983 Senior Vice President, Branch Administrator, was Vice President and
Branch Administrator 2001-2002, was Branch Manager before 2001
Randall H. Schroeder 44 1984 Vice President and Senior Operations Officer, was Assistant Vice
President and Chief Operations Officer before April 2002
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(1) Includes time served as an officer of The Farmers & Merchants State Bank
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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.
Amounts of Shares of Common
Stock Beneficially Owned Percent of Total
Beneficial ownership of nominees for director: --------------------------- ----------------
-----------------------------------------------
Dexter L. Benecke 956 (1) .07%
Eugene D. Bernath 4,980 (2) .38
Jerry L. Boyers 3,380 .26
Joe E. Crossgrove 2,600 .20
Steven A. Everhart 600 (3) .05
Robert G. Frey 4,745 (4) .37
Jack C. Johnson 875 .07
Dean E. Miller 8,775 (5) .68
Anthony J. Rupp 2,857 (6) .22
David P. Rupp Jr. 4,445 (7) .34
James C. Saneholtz 325 .03
Kevin J. Sauder 936 (8) .07
Merle J. Short 5,540 (9) .43
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) Includes 500 shares of common stock owned jointly with Mr. Bernath's spouse
and 372 shares of common stock owned individually by his spouse.
(3) All 600 shares of common stock are owned jointly by Mr. Everhart and his
spouse.
(4) Includes 150 shares of common stock owned individually by Mr. Frey's
spouse.
(5) Includes 3,945 shares of common stock owned individually by Mr. Miller's
spouse.
(6) Includes 200 shares of common stock owned individually by Mr. Rupp's
spouse.
(7) Includes 140 shares of common stock owned by the law firm of Plassman,
Rupp, Hensal, Short & Hagans, of which Mr. Rupp is a partner.
(8) Includes 468 shares of common stock owned individually by Mr. Sauder's
spouse.
(9) Includes 2,995 shares of common stock owned individually by Mr. Short'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 1,130 (1) .09%
Rex D. Rice 522 (2) .04
Barbara J.Britenriker 273 (3) .02
(1) Mr. Leininger owned 1,130 shares of common stock jointly with his spouse.
(2) Mr. Rice owned 522 shares of common stock jointly with his spouse.
(3) Ms. Britenriker owned 273 shares of common stock jointly with her spouse.
Directors and Executive Officers as a Group (19 Persons) 66,755 5.14%
5
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 2003.
BOARD AUDIT COMMITTEE COMPENSATION COMMITTEE
----- --------------- ----------------------
Dexter L. Beneke Member
Eugene D. Bernath Member Member Member
Jerry L. Boyers Member
Joe E. Crossgrove Member
Steven A. Everhart(1) Member Member
Robert G. Frey Member
Jack C. Johnson Member Member
Dean E. Miller Member Member
Anthony J. Rupp Member
David P. Rupp Jr. Member
James C. Saneholtz Member
Maynard Sauder(2) Member Member Member
Merle J. Short Member Member
Steven J. Wyse Member
NUMBER OF MEETINGS
IN 2003 29 7 5
(1) Mr. Everhart was appointed to the Board of Directors by the Board of
Directors to fill the vacancy created through the retirement of Mr. Julian
Giovarelli in November 2003.
(2) Mr. Sauder retired from the Board of Directors on January 30, 2004.
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 2003, 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 James C. Saneholtz
and Steven J. Wyse who attended 55% and 72%, respectively, of the Board and
committee meetings that they were scheduled to attend.
As noted below under "Corporate Governance", the Corporation now has an audit,
compensation and nominating and corporate governance committee. During 2003, the
Board of Directors of Corporation did not have a standing nominating committee
or any other committee performing similar functions. Functions normally
performed by a corporation's nominating committee were performed by the
Corporation's Board of Directors acting as a whole. The Corporation did
establish a nominating committee in 2004 as described below under "Corporate
Governance." Because the nominating and corporate governance committee was
created on February 13, 2004, the members of that committee have not yet been
identified and the committee has not yet held a meeting.
Directors of The Farmers & Merchants State Bank are each compensated at a rate
of $300 for each meeting of the Board of Directors attended, and in 2003 each
received a bonus of $600. Directors receive no additional compensation for
services performed while serving on special committees.
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 Company'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.
During 2003, the Corporation had an Audit Committee composed of Eugene Bernath,
Director and Chairman of the Board, Maynard Sauder, Director and Vice Chairman,
and Directors Julian Giovarelli, Merle Short and, after November 13, 2003 when
he was appointed to the Board of Directors, Steve Everhart. Mr. Giovarelli
retired from the Board of Directors in November 2003 and was replaced by Mr.
Everhart. Mr. Sauder retired from the Board of Directors on January 30, 2004 and
has been replaced on the Audit Committee as of February 13, 2004 by Director
Dexter Benecke. The function of the Audit Committee was 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.
6
CORPORATE GOVERNANCE
The Corporation recently 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 (attached hereto as Appendix A), the Compensation
Committee (attached hereto as Appendix B) and the newly created Nominating and
Corporate Governance Committee (attached hereto as Appendix C). The charters for
these three committees are 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.
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 Mr. Joe E. Crossgrove, President, Chief
Executive Officer and Treasurer 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 2003. The purposes and
responsibilities of the Committee are elaborated in the 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. A copy of the revised
Audit Charter is attached hereto as Appendix A. 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
7
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
2003 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 2003. In this connection, the
Committee has discussed with Plante & Moran, PLLC. its judgments about the
quality, in addition to the acceptability, of the Company'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, 2003, 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 has established a
Nominating and Corporate Governance committee. Because the Nominating and
Corporate Governance Committee was created on February 13, 2004, the members of
that committee have not yet been identified and the committee has not yet held a
meeting. The charter for the committee is attached hereto as Appendix C. The
Board of Directors intends to appoint only "independent" directors (as defined
by NASDAQ) to the committee. The Nominating and Corporate Governance Committee
does not yet have 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. The Nominating and Corporate Governance Committee will consider
nominations from shareholders. 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 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 member of the Board of Directors shall
attend the Annual Meeting of Shareholders. 12 out of the total of 14 members of
the Board of Directors attended the 2003 Annual Meeting of Shareholders.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The executive officers of the Company receive no compensation from the Company
for services rendered as executive officers of the Company. Instead, they are
paid by the Company's bank subsidiary, The Farmers & Merchants State Bank (the
"Bank"), for services rendered in their capacity as executive officers of the
Company and its subsidiaries. The Company 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 Company and the members of these committees make decisions
regarding compensation.
The following table shows, for fiscal years ended December 31, 2003, 2002 and
2001, the cash compensation paid by the Company 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
Company 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.
8
SUMMARY COMPENSATION TABLE
Name and Base Other Annual
Principal Position Year Salary Bonus Compensation(2)(3)
------------------ ---- -------- -------- ------------------
Joe E. Crossgrove(1) 2003 $163,200 $ 40,233 $ 19,590
President and Chief 2002 148,325 15,465 19,046
Executive Officer 2001 144,750 24,511 18,571
Edward A. Leininger 2003 $104,988 $ 20,471 $ 11,884
Executive Vice President 2002 95,428 10,370 11,683
2001 92,600 15,931 11,301
Rex D. Rice 2003 $104,988 $ 20,471 $ 11,359
Executive Vice President 2002 95,428 10,370 11,206
2003 92,600 15,931 10,838
Barbara J. Britenriker 2003 $ 91,740 $ 17,888 $ 9,350
Chief Financial Officer and 2002 $ 73,432 8,642 8,741
Comptroller 2001 $ 69,424 13,186 8,200
(1) Salary to Joe E. Crossgrove includes directors' fees of $9,200 for 2003,
$8,700 for 2002 and $8,400 for 2001.
(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.
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
seven-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.
There are no long-term incentive programs or stock option programs in effect.
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.
9
Compensation Policy. The 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. The Compensation
Committee determines the level of compensation for all Executive Officers,
including Mr. Crossgrove as the President and CEO. Mr. Crossgrove has input into
the compensation levels for all Executive Officers, except himself.
There are two components of the compensation program for all Executive Officers
of the Corporation's subsidiary, The Farmers & Merchants State Bank, a base
salary component and a discretionary bonus component, which is applicable to all
employees, set by the Board of Directors in December of each year. The bonus is
determined based upon specific goals set for each employee and the return on
average assets ("ROA") of the Bank. If the employee meets his or her goal and
the ROA exceeds the average ROA of the Bank for the prior 10 years, the employee
receives the full bonus amount established. If the ROA is above 1%, but below
such 10-year average, a prorated portion of the bonus is paid. No bonus is paid
if the Bank's ROA for the applicable year is less than 1% or the employee fails
to attain his or her pre-established goals. For non-officer employees, such
bonus is paid in December of the applicable year based upon an estimate of the
ROA made in November of each year. For officers, the bonus is paid before the
end of the first quarter of the following year and is based upon actual ROA, not
estimated. The Corporation does not have any employees that are not also
employees of the Bank.
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 2003. 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 bonus which shall be based
principally upon the financial performance of the Corporation and that of the
individual in attaining his or her established goals.
Respectfully submitted by the Members of the Compensation Committee:
Eugene D. Bernath Jack C. Johnson Dean E. Miller
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2003, the following individuals served as members of the
Compensation Committee: Eugene D. Bernath, Jack C. Johnson, Dean E. Miller and
Maynard 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 Company 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.
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, an index for financial institutions with total assets greater than $500
million but less than $1 billion as compiled by SNL Securities, and the NASDAQ
Bank Index for the five-year period ended December 31, 2003. The chart compares
the value of $100 invested in the Corporation and each of the indices.
10
Previously, the Corporation has presented its performance compared to that of
the NASDAQ National Market System and the SNL Securities Index for financial
institutions with greater than $500 Million but less than $1 Billion in total
assets. Because the information for the NASDAQ Bank Index is more readily
available and because management of the Corporation believes that the NASDAQ
Bank Index provides a more comprehensive view of the banking industry as a
whole, the Corporation has decided to use the NASDAQ Bank Index in future years.
For comparison purposes, both the old and new indices are shown in the table
below.
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 12/31/98
TOTAL RETURN PERFORMANCE
[PERFORMANCE GRAPH]
PERIOD ENDING
INDEX 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
FARMERS & MERCHANTS BANCORP, INC. 100 141.87 163.87 179.33 161.53 170.53
NASDAQ 100 185.95 113.19 89.64 61.67 92.9
NASDAQ - BANK INDEX 100 94.28 110.5 124.34 133.02 176.36
SNL BANK INDEX ($500 M-$1 B BANK INDEX) 100 90.81 84.76 107.23 133.91 189.14
*Source courtesy of Bloomberg, LLC
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 2003. 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, Hensal, 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.
11
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, except as noted below, during 2003 all Section 16(a) filing
requirements applicable to its officers and Directors were complied with. The
Corporation has no shareholders that are ten percent beneficial owners. During
2002 and 2003, the SEC implemented regulations that require the filing of Form
4s within 2 days of the transaction to which the filing relates. The regulations
also require that all forms to be filed under Section 16(a) be filed
electronically with the SEC. Because of the shortened time frame and need for
electronic filing, there were more late filings by persons affiliated with the
Corporation than have occurred in the past. The following information notes all
late filings of Forms 3 and 4 by persons who were directors or executive
officers of the Corporation in 2003: (i) Steven A. Everhart failed to timely
file one Form 3, his initial report of ownership; (ii) Maynard Sauder, a former
director of the Corporation, failed to timely file one Form 4 regarding the sale
of shares; (iii) Eugene D. Bernath failed to timely file one Form 4 regarding
the purchase of shares; (iv) David P. Rupp, Jr. failed to timely file one Form 4
regarding the purchase of shares; (v) Steven J. Wyse failed to timely file one
Form 4 regarding the purchase of shares; (vi) Merle J. Short failed to timely
file one Form 4 regarding the purchase of shares; (vii) Robert G. Frey failed to
timely file one Form 4 regarding the purchase of shares and (viii) Dean E.
Miller failed to timely file one Form 4 regarding the purchase of shares. All
late forms have since been filed. There were no late Form 5s filed for the year
2003.
INFORMATION CONCERNING INDEPENDENT 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. Also on that date, the Audit Committee
engaged the firm of Plante & Moran, PLLC, ("Plante & Moran") independent
certified public accountants, to be auditors of the Corporation and its
subsidiaries for the fiscal year beginning January 1, 2003. Plante & Moran was
engaged to provide independent audit services for the Company 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, 2004. 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.
Krouse Kern's report on the consolidated financial statements of the
Corporation for the fiscal years ended December 31, 2001 and 2002 did not
contain an adverse opinion or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2001 and December 31, 2002,
as well as during the subsequent interim period ending on November 14, 2003,
there were no disagreements between the Corporation and Krouse Kern on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Krouse Kern, would have caused it to make reference to the
subject matter of the disagreement in connection with its reports.
During the Company's two most recent fiscal years ended December 31,
2001, and December 31, 2002, and the subsequent interim period through November
14, 2003, the Corporation did not consult with Plante & Moran regarding any of
the matters or events set forth in Item 304(a)(2)(I) and (ii) of SEC Regulation
S-K.
The Corporation's independent accountants billed the aggregate fees
shown below for audit, financial information systems design and implementation,
and other services rendered to the Corporation and its subsidiaries for the year
2003. Audit fees include fees billed in connection with the audit of the
Corporation's annual financial statements, as well as 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.
Krouse Kerns and Plante & Moran and its affiliates billed the following amounts
to the Corporation and its subsidiaries during
12
2002 and 2003, respectively for audit, audit related fees, tax fees and all
other fees:
KROUSE KERN - 2002 KROUSE KERN - 2003 PLANTE & MORAN - 2003
------------------ ------------------ ---------------------
AUDIT FEES $91,845 $57,947 $20,000
AUDIT RELATED FEES 3,625 3,915 4,000
TAX FEES -0- 3,900 3,000
ALL OTHER FEES 515 -0- -0-
TOTAL $95,985 $65,762 $27,000
The Audit Committee of the Corporation considered and concluded that the
provision for non-audit services by 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 2005 Annual
Shareholders' Meeting must be received at the Corporation's offices at 307-11
North Defiance Street, Archbold, Ohio 43502, prior to November 3, 2004 for
inclusion in the proxy statement and form of proxy.
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, 2003 IS ENCLOSED. A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM
10-K FOR 2003, WITH EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("2003 10-K"), IS AVAILABLE TO ANY SHAREHOLDER FREE OF CHARGE.
SHAREHOLDERS DESIRING A COPY OF THE 2003 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 "2003 10-K REQUEST" ON THE OUTSIDE OF THE ENVELOPE CONTAINING THE
REQUEST.
By Order of the Board of Directors
Archbold, Ohio
March 3, 2004
Carol J. England, Secretary
13
APPENDIX A
FARMERS & MERCHANTS BANCORP, INC.
AUDIT COMMITTEE CHARTER
STATEMENT OF POLICY
The purpose of the audit committee is to oversee the Corporation's accounting
and financial reporting processes and the audits of the Corporation's financial
statements. The audit committee shall provide assistance to the board of
directors in fulfilling its oversight responsibilities by reviewing the
financial reports and related financial information provided by the Corporation
to governmental agencies or the general public, the Corporation's system of
internal controls and the effectiveness of its control structure, the
Corporation's compliance with designated laws and regulations, and the
Corporation's accounting, internal and external auditing and financial reporting
processes. In discharging its responsibilities, the audit committee shall:
- Serve as an independent and objective party to oversee the
Corporation's accounting and financial reporting processes,
internal control system, and the audits of the Corporation's
financial statements.
- Review and evaluate the audit procedures and results of the
Corporation's independent auditor and internal audit function.
- Approve, engage and terminate the independent auditor.
- Review and evaluate the independent auditor's qualifications,
performance and independence.
- Review, evaluate and approve any non-audit services the
independent auditor may perform for the Corporation and
disclose such approved non-audit services in periodic reports
to shareholders.
- Maintain free and open means of communication between the
board of directors, the independent auditor, the internal
auditor, and the management of the Corporation.
- Maintain free and open means of communication between
employees and the audit committee for the processing of
complaints received by the Corporation regarding questionable
accounting or auditing matters, including suspicions of
fraudulent activity.
- At lease annually, review and if necessary or appropriate,
update this charter for consideration by the board of
directors and perform an evaluation of the audit committee
performance and function.
ORGANIZATION
The members of the audit committee shall be appointed by the board of directors
and may be removed by the board of directors. The audit committee may consult or
retain its own independent legal, accounting or other advisors and shall
determine the degree of independence from the Corporation required of those
advisors. The audit committee shall meet at least four times per year and will
report directly to the full board any issues that arise with respect to the
quality and integrity of the Corporation's general financial performance and
reporting and regulatory compliance. The audit committee may also meet
periodically by itself to discuss matters it determines require private audit
committee or board of directors' attention. Further, the audit committee shall
meet separately with management, with the internal auditor and with the
independent auditor. There will be at least three members of the audit
committee. A majority of the members of the audit committee shall be a quorum to
transact business.
RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE
The audit committee shall have the funding, resources and authority to discharge
its duties and responsibilities without seeking the approval of the board of
directors or management of the Corporation, including (1) the authority, funding
and resources to compensate the independent auditor engaged by the audit
committee for the purpose of preparing or issuing the audit report and
performing other audit, review and attest services for the Corporation, (2) the
authority, funding and resources to select, retain, terminate and approve the
fees and other terms of engagement of, special or independent counsel,
accountants and other advisors as deemed appropriate by the audit committee, and
(3) the authority to pay all its ordinary administrative expenses incurred in
carrying out its duties and responsibilities.
A-1
QUALIFICATIONS
The audit committee shall be composed entirely of independent directors,
determined by the board of directors under the Farmers & Merchants Bancorp, Inc.
Corporate Governance Guidelines. The members of the audit committee, as
determined by the board of directors, shall also meet the independence and
financial expertise requirements of The Nasdaq Stock Market for audit committee
members. At least one member of the audit committee will have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background which results in the
member's financial sophistication.
INDEPENDENT AUDITORS
The independent auditor shall be engaged by and accountable to the audit
committee. The independent auditor will report directly to the audit committee.
The audit committee shall have the sole authority to engage, compensate,
evaluate and terminate the independent auditor, to review with the independent
auditor the nature and scope of any disclosed relationships or professional
services including all audit engagement fees and terms, and to take appropriate
action to ensure the continuing independence of the auditor. The audit committee
shall pre-approve, or adopt appropriate procedures to pre-approve, all audit and
non-audit services to be provided by the independent auditor. The audit
committee shall also set clear policies and standards relating to the
Corporation's hiring of employees or former employees of the independent auditor
to ensure continued independence throughout the engagement of the independent
auditor.
The audit committee shall, on an annual basis, obtain from the independent
auditor a written disclosure delineating all of its relationships and
professional services as required by Independence Standards Board Standard No.
1, Independence Discussions with Audit Committees. The audit committee shall
engage in a dialogue with the independent auditor with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the independent auditor and be responsible for taking appropriate action to
oversee the independence of the independent auditor. Additionally, the audit
committee will obtain and review a report of the independent auditor describing
its internal quality-control procedures, material issues raised by the most
recent internal quality-control review of the independent auditor or an inquiry
or investigation by a governmental authority involving one or more audits
carried out by the independent auditor in the preceding five years and any steps
or procedures taken to deal with any such issues. After reviewing the
independent auditor's report, the audit committee shall evaluate the auditor's
qualifications, performance and independence. The audit committee shall consider
the opinions of management and the internal auditor in making such evaluation.
As required by law, the audit committee shall confirm the regular rotation of
the lead and concurring audit partner, and consider whether there should be a
regular rotation of the auditor itself.
The independent auditor shall ascertain that the audit committee is made aware
of and timely report to the audit committee all necessary accounting policies
and practices to be used, all alternative treatments of financial information
within generally accepted accounting principles that have been discussed with
management and the risks of using such alternative treatments, and inform the
audit committee of other material written communications between the independent
auditor and management.
The audit committee will have complete oversight of the work done by the
independent auditor for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Corporation, including
resolution of any disagreement between management and the independent auditor
regarding financial reporting.
INTERNAL AUDIT
The internal auditor of the Corporation shall directly report to the chairman of
the audit committee, with administrative oversight provided by an appropriate
executive officer of the Corporation. The audit committee will oversee the
internal audit function and determine that the internal auditor is establishing,
maintaining and executing appropriate audit programs, policies and procedures
that govern the examination and audit of the ledgers, records, procedures and
operations of the Corporation and its affiliates.
COMPLAINT PROCEDURES
The audit committee will establish procedures for the receipt, retention and
treatment of complaints received by the Corporation regarding accounting,
internal accounting controls or auditing matters, and for the confidential,
anonymous submission by employees of the Corporation and its subsidiaries
regarding questionable accounting or auditing matters.
A-2
FINANCIAL REPORTING OVERSIGHT
In discharging its responsibilities to oversee governmental and public reporting
of financial information, the audit committee shall:
- Review and discuss the annual audited financial statements, footnotes
and related disclosures included in the Corporation's annual report to
shareholders and its annual report on Form 10-K with financial
management, the independent auditor, and the internal auditor prior to
the release and filing of such documents. Review with the independent
auditor the results of its annual examination of the financial
statements, including their report thereon, and determine its
satisfaction with the disclosures and content of the financial
statements. This review shall cover discussion of all items required by
generally accepted auditing standards regarding required communications
with audit committees. Ascertain that the results of any internal audit
activity or regulatory reports were appropriately considered in
preparing the financial statements.
- Review and discuss the quarterly financial results and information with
financial management, the independent auditor, and the internal auditor
to determine that the independent auditor does not take exception to
the disclosure and content of the financial statements on Form 10-Q, to
determine that the results of any internal audit activity or regulatory
reports were appropriately considered in preparing the financial
statements, and to discuss any other matters required to be
communicated to the audit committee by the independent auditor.
- Review and discuss the types of presentation and information to be
included in earnings press releases, and any additional financial
information and earnings guidance that is provided.
- Inquire of management, the internal auditor, and the independent
auditor about significant risks or exposures and discuss guidelines and
policies to govern the steps management has taken to minimize such risk
to the Corporation.
- Review and discuss the form and content of the certification documents
for the quarterly reports on Form 10-Q and the annual report on Form
10-K with the internal auditor, the independent auditor, the chief
financial officer and the chief executive officer.
- Review the basis for the disclosures made in the annual report to
stockholders under the heading Management's Report on Internal Controls
regarding the control environment of the Corporation and the annual
filing required under the Federal Deposit Insurance Corporation
Improvement Act of 1991.
- Prepare, review and approve the annual proxy statement disclosure
regarding the activities and report of the audit committee for the
year.
A-3
APPENDIX B
FARMERS & MERCHANTS BANCORP, INC.
COMPENSATION COMMITTEE CHARTER
STATEMENT OF POLICY
The Compensation Committee shall provide assistance to the board of directors in
fulfilling the board of directors' responsibilities relating to management
organization, performance, compensation and succession, and establishing
compensation for members of the board of directors.
ORGANIZATION
The members of the Compensation Committee shall be appointed by the board of
directors and may be removed by the board of directors. The Compensation
Committee shall meet on the call of its chairman. The Compensation Committee has
the authority to retain and terminate advisors, including compensation
consultants, accountants and legal counsel, to assist in discharging its duties
including the authority to approve such advisors' fees and retention terms.
There will be at least three members of the Compensation Committee. A majority
of the members of the Compensation Committee shall be a quorum to transact
business.
QUALIFICATIONS
The Compensation Committee shall be composed of independent directors,
determined by the board of directors under the Farmers & Merchants Bancorp, Inc.
Corporate Governance Guidelines. The members of the Compensation Committee shall
be outside directors within the meaning of Section 162 (m) of the Internal
Revenue Code. Each member of the Compensation Committee shall also be a
"Non-Employee Director" as the term is defined by Rule 16b-3 of the Securities
and Exchange Commission.
POWERS, DUTIES AND RESPONSIBILITIES
In discharging its responsibilities for management organization, performance,
compensation, and succession, the Compensation Committee shall:
- Consider and authorize the compensation philosophy for Farmers &
Merchants Bancorp, Inc.'s personnel.
- Review and evaluate chief executive officer and senior management
performance, in light of goals and objectives set by the Compensation
Committee that include Farmers & Merchants Bancorp, Inc.'s performance
and return to shareholders.
- Set the chief executive officer's and senior management's compensation
based upon performance. The chief executive officer will not be present
during the Compensation Committee's deliberations about or voting on
the chief executive officer's compensation.
- Annually review and approve perquisites for the chief executive officer
and senior management.
- Consider and make recommendations to the board of directors on matters
relating to organization and succession of senior management.
- Evaluate and establish director compensation.
- Consider and approve the report of the Compensation Committee for
inclusion in Farmers & Merchants Bancorp, Inc.'s proxy statement for
its annual shareholders' meeting.
- Make recommendations to the board of directors with respect to
incentive compensation plans, deferred compensation plans, executive
retirement plans, and equity-based plans.
- Administer incentive, deferred compensation, and equity-based plans.
- Annually review and if necessary or appropriate, update this charter
for consideration by the board of directors.
- Annually evaluate the performance and function of the Compensation
Committee.
- Report the matters considered and actions taken by the Compensation
Committee to the board of directors.
APPENDIX C
FARMERS & MERCHANTS BANCORP, INC.
NOMINATING AND GOVERNANCE COMMITTEE CHARTER
STATEMENT OF POLICY
The Nominating and Governance Committee shall provide assistance to the board of
directors in fulfilling the board of directors' responsibilities for director
nominations and appointments, and board of directors and corporate governance.
ORGANIZATION
The members of the Nominating and Governance Committee shall be appointed by the
board of directors and may be removed by the board of directors. The Nominating
and Governance Committee shall meet on the call of its chairman. The Nominating
and Governance Committee has the sole authority to retain and terminate any
consulting or search firm to be used to identify director candidates, including
the sole authority to approve the firm's fees and other retention terms. There
will be at least three members of the Nominating and Governance Committee. A
majority of the members of the Nominating and Governance Committee shall be a
quorum to transact business.
QUALIFICATIONS
The Nominating and Governance Committee shall be composed entirely of
independent directors, determined by the board of directors under the Farmers &
Merchants Bancorp, Inc. Corporate Governance Guidelines.
POWERS, DUTIES, AND RESPONSIBILITIES
In discharging its responsibilities to review, authorize and approve director
nominations, director compensation and corporate governance, the Nominating and
Governance Committee shall:
- actively seek individuals qualified to become members of the board of
directors;
- from time to time recommend individuals for appointment as directors by
the board of directors;
- set the number of directors that shall constitute the whole board of
directors;
- recommend to the whole board of directors nominees for director for
nomination by the board of directors for approval by shareholders at an
annual meeting of shareholders or special meeting of shareholders;
- recommend to the board of directors the establishment, charter and
membership of the various committees of the board of directors;
- recommend to the board of directors corporate governance guidelines for
Farmers & Merchants Bancorp, Inc.;
- consider and advise the board of directors on other matters relating to
the affairs or governance of the board of directors;
- annually review and if necessary or appropriate, update this charter
for consideration by the board of directors;
- annually evaluate the performance and function of the Nominating and
Governance Committee; and
- report the matters considered and actions taken by the Nominating and
Governance Committee to the board of directors.
PROXY
FARMERS & MERCHANTS BANCORP, INC.
ARCHBOLD, OHIO
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Eugene D. Bernath, 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 February
27, 2004, with all powers which the undersigned would possess if personally
present at the Annual Meeting of the Shareholders of Farmers & Merchants
Bancorp, Inc. to be held in the Founders Hall at Sauder Village, State Route 2,
Archbold, Ohio, on Saturday, April 3, 2004, 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. Fixing the number of Directors to be elected at 14 and the election of
the 14 nominees namely: Dexter L. Benecke, Eugene D. Bernath, Jerry L.
Boyers, Joe E. Crossgrove, Steven A. Everhart, Robert G. Frey, Jack C.
Johnson, Dean E. Miller, Anthony J. Rupp, David P. Rupp Jr., James C.
Saneholtz, Kevin J. Sauder, Merle J. Short, and Steven J. Wyse.
[ ] For [ ] Withhold Authority
IF YOU WISH TO WITHHOLD AUTHORITY FOR ANY NOMINEE, PLEASE DRAW A LINE
THROUGH THE NOMINEE'S NAME.
2. To transact any and all other business as may properly come before the
meeting or any adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS LISTED
ABOVE UNLESS INDICATED TO THE CONTRARY. 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 majority of said attorneys and proxies at said meeting and adjournments
thereof, (or if only one be present, then that one), shall have and may exercise
all of the powers of said attorneys and proxies.
DATED_______________________________, 2004
INSERT LABEL
___________________________________________________
___________________________________________________
(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.