FARMERS & MERCHANTS STATE BANK, INC.

                               CHANGE IN CONTROL -

                        SEVERANCE COMPENSATION AGREEMENT



      This is a Change in Control - Severance Compensation Agreement (the

"Agreement") made by and between Farmers & Merchants State Bank ("Company") and

Rex D. Rice ("Executive").



                                    RECITALS



      WHEREAS, Company is a bank which is engaged in the business of banking and

businesses incidental thereto.



      WHEREAS, Executive possesses unique skills, knowledge and experience

relating to the business of the Company.



      WHEREAS, Company desires to recognize the past and future services of

Executive, and, in that connection, Executive desires to be assured that, in the

event of a change in the control of Company, Executive will be provided with an

adequate severance payment for termination without cause or as compensation for

Executive's Severance because of a material change in his duties and functions.



      WHEREAS, Company desires to be assured of the objectivity of Executive in

evaluating a potential change of control and advising whether or not a potential

change of control is in the best interest of Company and its shareholders.



      WHEREAS, Company desires to induce Executive to remain in the employ of

the Company (as hereinafter defined) following a change of control to provide

for continuity of management.



      NOW, THEREFORE, in consideration of the premises and of their mutual

covenants expressed in this Agreement, the parties hereto make the following

agreement, intending to be legally bound thereby:



SECTION 1 - DEFINITIONS



A.    Board - "Board" shall mean the Board of Directors of Company.



B.    Cause - "Cause" shall mean and be limited to Executive's (a) criminal

      dishonesty, (b) failure to perform his duties on an exclusive and

      substantially full-time basis (unless unable to so perform by reason of

      disability), (c) failure to act in accordance with any specific

      substantive instructions given by Company with respect to Executive's



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      performance of duties normally associated with his position prior to the

      Change in Control (unless unable to so perform by reason of disability),

      or (d) engaging in conduct which could be materially damaging to Company

      without a reasonable good faith belief that such conduct was in the best

      interest of Company.



C.    Change in Control - A "Change" in Control" shall result if, and shall be

      deemed to have occurred on the date of, a transaction pursuant to which:



      1.    Any person or group (as such terms are used in connection with

            Sections 13(d) and 14(d) of the Exchange Act) is or becomes the

            "beneficial owner" (as defined in Rule 13(d)(3) and 13(d)(5) under

            the Exchange Act), directly or indirectly, of securities of the

            Company representing 35% or more of the combined voting power of the

            Company's then outstanding securities;



      2.    A merger, consolidation, sale of assets, reorganization, or proxy

            contest is consummated and, as a consequence of which, members of

            the Board in office immediately prior to such transaction or event

            constitute less than a majority of the Board thereafter;



      3.    During any period of 24 consecutive months, individuals who at the

            beginning of such period constitute the Board (including for this

            purpose any new director whose election or nomination for election

            by the Company's stockholders was approved by a vote of at least

            one-half of the directors then still in office who were directors at

            the beginning of such period) cease for any reason to constitute at

            least a majority of the Board; or



      4.    A merger, consolidation or reorganization is consummated with any

            other corporation pursuant to which the shareholders of the Company

            immediately prior to the merger, consolidation or reorganization do

            not immediately thereafter directly or indirectly own more than

            fifty percent (50%) of the combined voting power of the voting

            securities entitled to vote in the election of directors of the

            merged, consolidated or reorganized entity.



      Notwithstanding the foregoing, no trust Department or designated fiduciary

      or other trustee of such trust department of the Company or a subsidiary

      of the Company, or other similar fiduciary capacity of the Company with

      direct voting control of the stock shall be treated as a person or group

      within the meaning of subsection C.1. hereof. Further, no profit-sharing,

      employee stock ownership, employee stock purchase and savings, employee

      pension, or other employee benefit plan of the Company or any of its

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