Exhibit 10.26

 

CREDIT AGREEMENT

 

THIS AGREEMENT is entered into as of April 10, 2003, by and between WESTERN
SIERRA BANCORP, a California corporation (“Borrower”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

Borrower has requested that Bank extend or continue credit to Borrower as
described below, and Bank has agreed to provide such credit to Borrower on the
terms and conditions contained herein.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Bank and Borrower hereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.        LINE OF CREDIT.

 

(a)           Line of Credit.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including April 7, 2004, not to exceed at any time the aggregate
principal amount of Seven Million Dollars ($7,000,000.00) (“Line of Credit”),
the proceeds of which shall be used for Borrower’s working capital purposes. 
Borrower’s obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A attached
hereto (“Line of Credit Note”), all terms of which are incorporated herein by
this reference.

 

(b)           Borrowing and Repayment.  Borrower may from time to time during
the term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.

 

SECTION 1.2.        INTEREST/FEES.

 

(a)           Interest.  The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.

 

(b)           Computation and Payment.  Interest shall be computed on the basis
of a 360-day year, actual days elapsed.  Interest shall be payable at the times
and place set forth in each promissory note or other instrument or document
required hereby.

 

(c)           Commitment Fee.  Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $17,500.00, which fee shall be
due and payable in full upon the execution of this agreement.

 

I:T1/Corr Bkg. –West/CA /#5171/cbsc/Western Sierra
Bancorp.C-202CS_CA.DOC (Rev. 08/02) (Mod. – MG)
OBGR #83 0940 5464      AU #5171

[j0911ex10d26image002.gif]

 

1

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

 

 

(d)           Unused Commitment Fee.  Borrower shall pay to Bank a fee equal to
five hundredths of one percent (0.05%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line of Credit, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears within ten (10) days after each
billing is sent by Bank.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.

 

SECTION 2.1.        LEGAL STATUS.  Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.

 

SECTION 2.2.        AUTHORIZATION AND VALIDITY.  This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
“Loan Documents”) have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.

 

SECTION 2.3.        NO VIOLATION.  The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

 

SECTION 2.4.        LITIGATION.  There are no pending, or to the best of
Borrower’s knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

 

SECTION 2.5.        CORRECTNESS OF FINANCIAL STATEMENT.  The financial statement
of Borrower dated September 30, 2002, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied.  Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.

 

 

2

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

 

SECTION 2.6.        INCOME TAX RETURNS.  Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.

 

SECTION 2.7.        NO SUBORDINATION.  There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower’s
obligations subject to this Agreement to any other obligation of Borrower.

 

SECTION 2.8.        PERMITS, FRANCHISES.  Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.

 

SECTION 2.9.        ERISA.  Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time (“ERISA”); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a “Plan”); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.

 

SECTION 2.10.      OTHER OBLIGATIONS.  Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.        CONDITIONS OF INITIAL EXTENSION OF CREDIT.  The obligation
of Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank’s satisfaction of all of the following conditions:

 

(a)           Approval of Bank Counsel.  All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank’s counsel.

 

(b)           Documentation.  Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:

 

(i)        This Agreement and each promissory note or other instrument or
document required hereby.

(ii)       Corporate Resolution Borrowing.

(iii)      Certificate of Incumbency.

(iv)      Such other documents as Bank may require under any other Section of
this Agreement.

 

(c)           Financial Condition.  There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline,

 

 

3

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

 

as determined by Bank, in the market value of any collateral required hereunder
or a substantial or material portion of the assets of Borrower.

 

SECTION 3.2.        CONDITIONS OF EACH EXTENSION OF CREDIT.  The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank’s satisfaction of each of the following
conditions:

 

(a)           Compliance.  The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date of
the signing of this Agreement and on the date of each extension of credit by
Bank pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.

 

(b)           Documentation.  Bank shall have received all additional documents
which may be required in connection with such extension of credit.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Borrower covenants that so long as Bank remains committed to extend credit to
Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:

 

SECTION 4.1.        PUNCTUAL PAYMENTS.  Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.

 

SECTION 4.2.        ACCOUNTING RECORDS.  Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.

 

SECTION 4.3.        FINANCIAL STATEMENTS.  Provide to Bank all of the following,
in form and detail satisfactory to Bank:

 

(a)           not later than 90 days after and as of the end of each fiscal
year, an audited consolidated financial statement of Borrower, prepared by a
certified public accountant, to include balance sheet, income statement and
statement of cash flow;

 

(b)           not later than 45 days after and as of the end of each calendar
quarter, a consolidated financial statement of Borrower and each Bank
Subsidiary, with a separate unconsolidated financial statement of Borrower
alone, prepared by Borrower, to include balance sheet, income statement and
statement of cash flow;

 

(c)           contemporaneously with each annual and quarterly financial
statement of Borrower required hereby, a compliance certificate of the president
or chief financial officer of

 

 

4

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

 

Borrower that said financial statements are accurate, that there exists no Event
of Default nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute an Event of Default, and
demonstrating compliance with the financial covenants contained in this
Agreement;

 

(d)           as soon as available, and in any event within 45 days after the
end of each calendar quarter, the complete Call Report prepared by each Bank
Subsidiary at the end of such calendar quarter in compliance with the
requirements of any federal or state regulatory agency which has authority to
examine Borrower, all prepared in accordance with the requirements imposed by
the applicable regulatory authorities and applied on a basis consistent with the
accounting practices reflected in any previous Call Report(s) and similar
statements delivered to Bank prior to the date of this Agreement;

 

(e)           as soon as available, and in any event no later than 45 days after
the end of each fiscal quarter, the complete Parent Company Only Financial
Statements for Bank Holding Companies (FRY-9LP) required to be filed by Borrower
quarterly with the Federal Reserve Bank in the applicable Federal Reserve
District;

 

(f)            as soon as available (but without duplication of any other
requirements set forth in this Section 4.3) a copy of all reports which are
required by law to be furnished to any regulatory authority having jurisdiction
over Borrower or any Bank Subsidiary (including without limitation Call Reports,
but excluding any report which applicable law or regulation prohibits Borrower
or a Bank Subsidiary from furnishing to Bank);

 

(g)           from time to time such other information as Bank may reasonably
request.

 

SECTION 4.4.        COMPLIANCE.  Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower’s continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.

 

SECTION 4.5.        INSURANCE.  Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers’ compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank’s request schedules setting forth all
insurance then in effect.

 

SECTION 4.6.        FACILITIES.  Keep all properties useful or necessary to
Borrower’s business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.

 

SECTION 4.7.        TAXES AND OTHER LIABILITIES.  Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank’s satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.

 

 

5

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

 

SECTION 4.8.        LITIGATION.  Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower.

 

SECTION 4.9.        BORROWER’S FINANCIAL CONDITION.  Maintain Borrower’s
consolidated financial condition as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices:

 

(a)           Consolidated Tangible Net Worth not at any time less than
$41,000,000.00, determined as of each fiscal quarter end, with “Tangible Net
Worth” defined as the aggregate of total stockholders’ equity plus subordinated
debt less any intangible assets.

 

(b)           The ratio of investment in Bank Subsidiaries to Consolidated
Equity less goodwill for the Borrower not greater than 1.35 to 1.0, determined
as of each fiscal quarter end, with “Investment in Bank Subsidiaries” and
“Consolidated Equity” as reported in the then most recent Parent Company Only
Financial Statements for Bank Holding Companies (FRY-9LP).

 

SECTION 4.10       BANK SUBSIDIARY FINANCIAL CONDITION.  Cause Western Sierra
National Bank (“WSNB”) to maintain its financial condition as follows using
generally accepted accounting principles consistently applied and used
consistently with prior practices (except to the extent modified by the
definitions herein):

 

(a)           ROA not less than 1% on a rolling four quarter basis, determined
as of each fiscal quarter end, with “ROA” defined as the percentage arrived at
by dividing net income by Total Assets, as reported in the most recent Call
Report.

 

SECTION 4.11       BORROWER AND BANK SUBSIDIARIES FINANCIAL CONDITION.  Cause
the Borrower and the Bank Subsidiaries, (except as to sub-paragraphs (b) and (c)
below whereby it applies to Borrower and WSNB), as more specifically set forth
below, to maintain their consolidated financial condition as follows using
generally accepted accounting principles consistently applied and used
consistently with prior practices (except to the extent modified by the
definitions herein):

 

(a)           Leverage Ratio:  Ratio of Tier 1 Capital to Total Adjusted Assets
for the Borrower and the Bank Subsidiaries on a consolidated basis, of not less
than (i) 6%, determined as of each fiscal quarter end or (ii) the minimum ratio
required by any regulatory agency having authority over the applicable Bank
Subsidiary, whichever is greater, with “Tier 1 Capital” defined as set forth in
Section 38 of the Federal Deposit insurance Act and in 12 C.F.R. Part 325,
Subparts A and B, and with “Total Adjusted Assets” to be construed in conformity
with the Federal Reserve Board’s definition of ‘adjusted total assets’ referred
to by that agency as ‘average total consolidated assets which provides for the
elimination of goodwill and other disallowed intangible assets’.

 

(b)           Allowance for loan and lease losses for the Borrower on a
consolidated basis, and WSNB on an individual basis, not less than 100% of the
total amount of Non-Performing Assets, determined as of each fiscal quarter end,
with “Non-Performing Assets” defined as the sum of: (i) all loans classified as
past due 90 days or more and still accruing interest; (ii) all loans classified
as ‘non-accrual’ and no longer accruing interest; (iii) all loans classified as
‘restructured loans and leases’; and (iv) all other ‘non-performing assets’,
including those classified as ‘other real estate owned’ and ‘repossessed
property’, as reported in the then most recent Call Report.

 

 

6

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

 

(c)           Non-Performing Assets not greater than 10% of Primary Equity
Capital, for the Borrower on a consolidated basis, and WSNB on an individual
basis, determined as of each fiscal quarter end, with “Non-Performing Assets” as
defined above, and with “Primary Equity Capital” defined as the aggregate of
allowance for loan and lease losses, as reported in the then most recent Call
Report, plus Equity Capital defined as the aggregate of perpetual preferred
stock (and related surplus), common stock, surplus (excluding all surplus
related to perpetual preferred stock), undivided profits and capital reserves,
plus the net unrealized holding gains (or less the net realized holding losses)
on available-for-sale securities, less goodwill and other disallowed intangible
assets).

 

(d)           Borrower on a consolidated basis, and for each Bank Subsidiary on
an individual basis, must maintain its categorization as Well Capitalized as
defined by regulatory agencies having jurisdiction, which, pursuant to Section
38 of the Federal Deposit Insurance Act (created by Section 131 of the Federal
Deposit Insurance Corporation Improvement Act (FDICIA) of 1991) (entitled
“Prompt Corrective Action”) (herein, “Section 38”), considers an institution
“Well Capitalized”, among other things, if its Total Risk-Based Capital Ratio
equals or exceeds 10%, its Tier 1 Risk-Based Capital equals or exceeds 6% and
its Leverage equals or exceeds 5%, except of Borrower on a consolidated basis,
when its Leverage equals or exceeds 6%.  As used herein, “Total Risk-Based
Capital Ratio”, “Tier 1 Risk-Based Capital” and “Leverage” shall be defined and
calculated in conformity with Section 38.

 

SECTION 4.12.  NOTICE TO BANK.  Promptly (but in no event more than five (5)
days after the occurrence of each such event or matter) give written notice to
Bank in reasonable detail of:  (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; (d) any termination or cancellation
of any insurance policy which Borrower is required to maintain, or any uninsured
or partially uninsured loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower’s property in excess of an
aggregate of $1,000,000.00; (e) any change in Executive Management of Borrower
or of any Bank Subsidiary with “Executive Management” defined as the
President/Chief Executive Officer, or Executive Vice President/Chief Operating
Officer, or Executive Vice President/Chief Financial Officer; or (f) any
negotiations to sell any capital stock of Borrower and/or any Bank Subsidiary,
together with copies of any proposed buy/sell agreements; provided however, that
this clause shall not be deemed approval by Bank of any such negotiation and
shall not apply to information which under applicable law or regulation is
prohibited from disclosure to Bank.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank’s prior written
consent:

 

SECTION 5.1.        USE OF FUNDS.  Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.

 

 

7

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

 

SECTION 5.2.        OTHER INDEBTEDNESS.  Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
and (b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof.

 

SECTION 5.3.        MERGER, CONSOLIDATION, TRANSFER OF ASSETS.  Merge into or
consolidate with any other entity without Bank’s written consent, not to be
unreasonably withheld; make any substantial change in the nature of Borrower’s
business as conducted as of the date hereof; acquire all or substantially all of
the assets of any other entity; nor sell, lease, transfer or otherwise dispose
of all or a substantial or material portion of Borrower’s assets except in the
ordinary course of its business.

 

SECTION 5.4.        GUARANTIES.  Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.

 

SECTION 5.5.        LOANS, ADVANCES, INVESTMENTS.  Make any loans or advances to
or investments in any person or entity, except (i) any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and (ii) investments
consisting of (x) acquisitions of a bank, saving and loan association or any
other depositary institution (a “Financial Entity”) if the value of the total
consolidated assets of such Financial Entity does not exceed 35% of the value of
the total consolidated assets of the Borrower prior to giving effect to such
acquisition, (y) acquisitions of an entity other than a Financial Entity if the
value of the total consolidated assets of such entity does not exceed 10% of the
value of the total consolidated assets of the Borrower prior to giving effect to
such acquisition, and (z) investments in a subsidiary which is established to
effect an acquisition permitted by clauses (x) or (y) above, provided, that, at
the time of, and after giving effect to, such investment, no Event of Default
exists.

 

SECTION 5.6.        PLEDGE OF ASSETS.  Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower’s
assets now owned or hereafter acquired, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.

 

Bank shall reply to Borrower’s written request for consents to mergers, under
Section 5.3 or investments under Section 5.5 within five (5) business days after
Bank’s receipt. Thereby failing which, consent will be deemed to have been given
to the requested merger or acquisition. Borrower shall be the surviving entity
of any merger to which Bank’s consent is given or deemed given.

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1.        The occurrence of any of the following shall constitute an
“Event of Default” under this Agreement:

 

 

8

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

 

(a)                                  Borrower shall fail to pay when due any
principal, interest, fees or other amounts payable under any of the Loan
Documents.

 

(b)                                 Any financial statement or certificate
furnished to Bank in connection with, or any representation or warranty made by
Borrower or any other party under this Agreement or any other Loan Document
shall prove to be incorrect, false or misleading in any material respect when
furnished or made.

 

(c)                                  Any default in the performance of or
compliance with any obligation, agreement or other provision contained herein or
in any other Loan Document (other than those referred to in subsections (a) and
(b) above), and with respect to any such default which by its nature can be
cured, such default shall continue for a period of twenty (20) days from its
occurrence.

 

(d)                                 Any default in the payment or performance of
any obligation, or any defined event of default, under the terms of any contract
or instrument (other than any of the Loan Documents) pursuant to which Borrower
or any Bank Subsidiary has incurred any debt or other liability to any person or
entity, including Bank, with respect to each of the foregoing, the amount in
dispute exceeds $750,000.00.

 

(e)                                  The filing of a notice of judgment lien
against Borrower or any Bank Subsidiary; or the recording of any abstract of
judgment against Borrower or any Bank Subsidiary in any county in which Borrower
or such Bank Subsidiary has an interest in real property; or the service of a
notice of levy and/or of a writ of attachment or execution, or other like
process, against the assets of Borrower or any Bank Subsidiary; or the entry of
a judgment against Borrower or any Bank Subsidiary, with respect to each of the
foregoing, the amount in dispute exceeds $750,000.00.

 

(f)                                    Borrower or any Bank Subsidiary shall
become insolvent, or shall suffer or consent to or apply for the appointment of
a receiver, trustee, custodian or liquidator of itself or any of its property,
or shall generally fail to pay its debts as they become due, or shall make a
general assignment for the benefit of creditors; Borrower or any Bank Subsidiary
shall file a voluntary petition in bankruptcy, or seeking reorganization, in
order to effect a plan or other arrangement with creditors or any other relief
under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended
or recodified from time to time (“Bankruptcy Code”), or under any state or
federal law granting relief to debtors, whether now or hereafter in effect; or
any involuntary petition or proceeding pursuant to the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors is filed or commenced against Borrower or any Bank
Subsidiary, or Borrower or any Bank Subsidiary shall file an answer admitting
the jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any Bank Subsidiary shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any Bank Subsidiary by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.

 

(g)                                 There shall exist or occur any event or
condition which Bank in good faith believes impairs, or is substantially likely
to impair, the prospect of payment or performance by Borrower of its obligations
under any of the Loan Documents.

 

(h)                                 The dissolution or liquidation of Borrower
or any Bank Subsidiary; or Borrower or any Bank Subsidiary, or any of their
directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower or such Bank Subsidiary.

 

9

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

 

(i)                                     The issuance or proposed issuance
against Borrower, or any affiliate of Borrower (including without limitation,
any Bank Subsidiary) of any material informal or formal administrative action,
temporary or permanent, by any federal or state regulatory agency having
jurisdiction or control over Borrower or such affiliate, such action taking the
form of, but not limited to: (A) any informal or formal directive citing
conditions or activities deemed to be unsafe or unsound or breaches of fiduciary
duty or law or regulation; (B) a memorandum of understanding; (C) a cease and
desist order; (D) the termination of insurance coverage of customer deposits by
the Federal Deposit Insurance Corporation; (E) the suspension or removal of an
officer or director, or the prohibition of participation by any others in the
business affairs of Borrower or such affiliate; (F) any capital maintenance
agreement; or (G) any other regulatory action, agreement or understanding with
respect to Borrower or such affiliate.

 

(j)                                     Any change in ownership during the term
of this Agreement of an aggregate of twenty-five percent (25%) or more of the
common stock of Borrower.

 

SECTION 6.2.                       REMEDIES.  Upon the occurrence of any Event
of Default:  (a) all indebtedness of Borrower under each of the Loan Documents,
any term thereof to the contrary notwithstanding, shall at Bank’s option and
without notice become immediately due and payable without presentment, demand,
protest or notice of dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any further credit under
any of the Loan Documents shall immediately cease and terminate; and (c) Bank
shall have all rights, powers and remedies available under each of the Loan
Documents, or accorded by law, including without limitation the right to resort
to any or all security for any credit subject hereto and to exercise any or all
of the rights of a beneficiary or secured party pursuant to applicable law.  All
rights, powers and remedies of Bank may be exercised at any time by Bank and
from time to time after the occurrence of an Event of Default, are cumulative
and not exclusive, and shall be in addition to any other rights, powers or
remedies provided by law or equity.

 

ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1.                     NO WAIVER.  No delay, failure or discontinuance
of Bank in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor shall
any single or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof or the exercise
of any other right, power or remedy.  Any waiver, permit, consent or approval of
any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.

 

SECTION 7.2.                       NOTICES.  All notices, requests and demands
which any party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at the
following address:

 

BORROWER:

 

WESTERN SIERRA BANCORP

 

 

4080 Plaza Goldorado Circle

 

 

Cameron Park, CA 95682

 

 

 

10

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

 

BANK:                                                                WELLS FARGO
BANK, NATIONAL ASSOCIATION
Correspondent Banking Office
707 Wilshire Boulevard, 21st Floor
Los Angeles, CA 90017

 

or to such other address as any party may designate by written notice to all
other parties.  Each such notice, request and demand shall be deemed given or
made as follows:  (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

 

SECTION 7.3.                       COSTS, EXPENSES AND ATTORNEYS’ FEES. 
Borrower shall pay to Bank immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys’
fees (to include outside counsel fees and all allocated costs of Bank’s in-house
counsel), expended or incurred by Bank in connection with (a) the negotiation
and preparation of this Agreement and the other Loan Documents, Bank’s continued
administration hereof and thereof, and the preparation of any amendments and
waivers hereto and thereto, (b) the enforcement of Bank’s rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way related
to any of the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.

 

SECTION 7.4.                       SUCCESSORS, ASSIGNMENT.  This Agreement shall
be binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the parties;
provided however, that Borrower may not assign or transfer its interest
hereunder without Bank’s prior written consent.  Bank reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Bank’s rights and benefits under each of the Loan
Documents.  In connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any credit
subject hereto, Borrower, any Bank Subsidiary, or any collateral required
hereunder.

 

SECTION 7.5.                       ENTIRE AGREEMENT; AMENDMENT.  This Agreement
and the other Loan Documents constitute the entire agreement between Borrower
and Bank with respect to each credit subject hereto and supersede all prior
negotiations, communications, discussions and correspondence concerning the
subject matter hereof.  This Agreement may be amended or modified only in
writing signed by each party hereto.

 

SECTION 7.6.                       NO THIRD PARTY BENEFICIARIES.  This Agreement
is made and entered into for the sole protection and benefit of the parties
hereto and their respective permitted successors and assigns, and no other
person or entity shall be a third party beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement or any
other of the Loan Documents to which it is not a party.

 

SECTION 7.7.                       TIME.  Time is of the essence of each and
every provision of this Agreement and each other of the Loan Documents.

 

11

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

 

SECTION 7.8.                       SEVERABILITY OF PROVISIONS.  If any provision
of this Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any remaining
provisions of this Agreement.

 

SECTION 7.9.                       COUNTERPARTS.  This Agreement may be executed
in any number of counterparts, each of which when executed and delivered shall
be deemed to be an original, and all of which when taken together shall
constitute one and the same Agreement.

 

SECTION 7.10.                 GOVERNING LAW.  This Agreement shall be governed
by and construed in accordance with the laws of the State of California.

 

SECTION 7.11.                 ARBITRATION.

 

(a)                                  Arbitration.  The parties hereto agree,
upon demand by any party, to submit to binding arbitration all claims, disputes
and controversies between or among them (and their respective employees,
officers, directors, attorneys, and other agents), whether in tort, contract or
otherwise arising out of or relating to in any way (i) the loan and related Loan
Documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

 

(b)                                 Governing Rules.  Any arbitration proceeding
will (i) proceed in a location in California selected by the American
Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act
(Title 9 of the United States Code), notwithstanding any conflicting choice of
law provision in any of the documents between the parties; and (iii) be
conducted by the AAA, or such other administrator as the parties shall mutually
agree upon, in accordance with the AAA’s commercial dispute resolution
procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive
of claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA’s optional procedures for large,
complex commercial disputes (the commercial dispute resolution procedures or the
optional procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”).  If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein shall control. 
Any party who fails or refuses to submit to arbitration following a demand by
any other party shall bear all costs and expenses incurred by such other party
in compelling arbitration of any dispute.  Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. §91 or any similar applicable state law.

 

(c)                                  No Waiver of Provisional Remedies,
Self-Help and Foreclosure.  The arbitration requirement does not limit the right
of any party to (i) foreclose against real or personal property collateral; (ii)
exercise self-help remedies relating to collateral or proceeds of collateral
such as setoff or repossession; or (iii) obtain provisional or ancillary
remedies such as replevin, injunctive relief, attachment or the appointment of a
receiver, before during or after the pendency of any arbitration proceeding. 
This exclusion does not constitute a waiver of the right or obligation of any
party to submit any dispute to arbitration or reference hereunder, including
those arising from the exercise of the actions detailed in sections (i), (ii)
and (iii) of this paragraph.

 

(d)                                 Arbitrator Qualifications and Powers.  Any
arbitration proceeding in which the amount in controversy is $5,000,000.00 or
less will be decided by a single arbitrator selected

 

12

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

 

according to the Rules, and who shall not render an award of greater than
$5,000,000.00.  Any dispute in which the amount in controversy exceeds
$5,000,000.00 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.  The arbitrator will be a neutral attorney licensed
in the State of California or a neutral retired judge of the state or federal
judiciary of California, in either case with a minimum of ten years experience
in the substantive law applicable to the subject matter of the dispute to be
arbitrated.  The arbitrator will determine whether or not an issue is
arbitratable and will give effect to the statutes of limitation in determining
any claim.  In any arbitration proceeding the arbitrator will decide (by
documents only or with a hearing at the arbitrator’s discretion) any pre-hearing
motions which are similar to motions to dismiss for failure to state a claim or
motions for summary adjudication.  The arbitrator shall resolve all disputes in
accordance with the substantive law of California and may grant any remedy or
relief that a court of such state could order or grant within the scope hereof
and such ancillary relief as is necessary to make effective any award.  The
arbitrator shall also have the power to award recovery of all costs and fees, to
impose sanctions and to take such other action as the arbitrator deems necessary
to the same extent a judge could pursuant to the Federal Rules of Civil
Procedure, the California Rules of Civil Procedure or other applicable law. 
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction.  The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief.

 

(e)                                  Discovery.  In any arbitration proceeding
discovery will be permitted in accordance with the Rules.  All discovery shall
be expressly limited to matters directly relevant to the dispute being
arbitrated and must be completed no later than 20 days before the hearing date
and within 180 days of the filing of the dispute with the AAA.  Any requests for
an extension of the discovery periods, or any discovery disputes, will be
subject to final determination by the arbitrator upon a showing that the request
for discovery is essential for the party’s presentation and that no alternative
means for obtaining information is available.

 

(f)                                    Class Proceedings and Consolidations. 
The resolution of any dispute arising pursuant to the terms of this Agreement
shall be determined by a separate arbitration proceeding and such dispute shall
not be consolidated with other disputes or included in any class proceeding.

 

(g)                                 Payment Of Arbitration Costs And Fees.  The
arbitrator shall award all costs and expenses of the arbitration proceeding.

 

(h)                                 Miscellaneous.  To the maximum extent
practicable, the AAA, the arbitrators and the parties shall take all action
required to conclude any arbitration proceeding within 180 days of the filing of
the dispute with the AAA.  No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof, except for
disclosures of information by a party required in the ordinary course of its
business or by applicable law or regulation.  If more than one agreement for
arbitration by or between the parties potentially applies to a dispute, the
arbitration provision most directly related to the Loan Documents or the subject
matter of the dispute shall control.  This arbitration provision shall survive
termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.

 

13

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

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.

 

WESTERN SIERRA BANCORP

WELLS FARGO BANK,
NATIONAL ASSOCIATION

 

 

 

 

 

 

 

By:

/s/ Gary D. Gall

 

By:

/s/ Azim Rajan

 

 

 

 

 

 

Azim Rajan

 

 

 

 

 

 

Vice President

 

 

Title:

Presidnent/CEO

 

 

 

 

 

 

 

14

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