Exhibit
10.71


 


AGREEMENT AND PLAN OF REORGANIZATION AND MERGER


 


 


DATED: AUGUST 20, 2003


 


 


BY AND BETWEEN


 


 


WESTERN SIERRA BANCORP


 


AND


 


AUBURN COMMUNITY BANCORP


 

















 


AGREEMENT AND PLAN OF REORGANIZATION AND MERGER


 


This Agreement and Plan of
Reorganization and Merger (the “Agreement”) is entered into as of
August 20, 2003 by and between Western Sierra Bancorp, a California
corporation (“Western”), and Auburn Community Bancorp, a California corporation
(“Auburn”).


 


RECITALS:


 


WHEREAS, the respective
Boards of Directors of Auburn and Western have determined that it is in the
best interests of Auburn and Western and their respective shareholders for
Auburn to be merged with Western, upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the California Corporations
Code and other applicable laws;


 


WHEREAS, Auburn Community
Bank (“AC Bank”) is a wholly-owned subsidiary of Auburn;


 


WHEREAS, each of the Boards
of Directors of Auburn and Western have approved this Agreement and the
transactions contemplated hereby;


 


WHEREAS, Auburn’s Board of
Directors has resolved to recommend approval of the Merger of Auburn and
Western to its shareholders; and


 


WHEREAS, upon the
consummation of the Merger of Auburn with Western, AC Bank shall become a
wholly-owned subsidiary of Western.


 


NOW, THEREFORE, in
consideration of these premises and the representations, warranties and
agreements herein contained, Auburn and Western hereby agree as follows:


 


ARTICLE 1. 
DEFINITIONS


 


As used in this Agreement, the following
terms shall have the meanings set forth below:


 


“AC Bank” shall mean Auburn
Community Bank.


 


“Acquisition Event” shall
mean any of the following:


 


(a)                                  Auburn’s Board of Directors shall have
approved or Auburn shall have authorized, recommended, publicly proposed or
publicly announced an intention to authorize, recommend or propose, or shall
have entered or announced an intention to enter into a letter of intent, an
agreement-in-principle or a definitive agreement with any Person (other than
Western or any of its respective Subsidiaries) to effect, an Acquisition
Transaction or failed to publicly oppose a Tender Offer or an Exchange Offer
(as defined below).  As used herein, the
term “Acquisition Transaction” shall mean (i) a merger, consolidation or
similar transaction involving Auburn, (ii) the disposition, by sale, lease,
exchange, dissolution or liquidation, or otherwise, of all or substantially all
of the assets of Auburn or any asset or assets of Auburn the disposition or
lease of which would result in a material change in the business or business
operations of Auburn, a transfer of any shares of stock or other securities of
Auburn by Auburn, or a material change in the assets, liabilities or results of
operations or the future prospects of Auburn, including, but not limited to a
grant of an option entitling any Person to acquire any shares of stock of
Auburn or any assets material to the business of Auburn; or (iii) the issuance,
other than pursuant to outstanding stock options, sale or other disposition by
Auburn (including, without limitation, by way of merger, consolidation, share
exchange or any similar transaction) of shares of Auburn Common Stock or other
Equity Securities, or the grant of any option, warrant or other right to acquire
shares of Auburn Common Stock or other Equity Securities, representing
directly, or on an as-exercised, as-exchanged or as-converted


 


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basis (in the case of options, warrants, rights or exchangeable or
convertible Equity Securities), 15% or more of the voting securities of Auburn;
or


 


(b)                                 Prior to termination of this Agreement (i)
any Person (other than a person who is a party to a Director-Shareholder
Agreement) shall have increased the number of shares of Auburn Common Stock
over which such person has beneficial ownership (as such term is defined in
Rule 13d-3 promulgated under the Exchange Act) by a number that is greater than
1% of the then outstanding shares of Auburn Common Stock if, after giving
effect to such increase, such Person owns, beneficially, more than 5% of the
outstanding shares of Auburn Common Stock, or (ii) any “group” (as such term is
defined under the Exchange Act) shall have been formed which beneficially owns,
or has the right to acquire beneficial ownership of, more than 5% of the then
outstanding shares of Auburn Common Stock.


 


“Acquisition Proposal” shall
have the meaning given such term in Section 6.2.5.


 


“Affected Party” shall have
the meaning given to it in Section 5.7.


 


“Affiliate” or “affiliate”
shall mean, with respect to any other Person, any Person that, directly or
indirectly, controls or is controlled by or is under common control with such
Person.


 


“Affiliate Agreements” shall
have the meaning given to such term in Section 5.3.3.


 


“Auburn” shall mean Auburn
Community Bancorp.


 


“Auburn Collateralizing Real
Estate” shall have the meaning given such term in Section 3.23.1.


 


“Auburn Common Stock” shall
mean the common stock, no par value, of Auburn.


 


“Auburn Documents” shall
have the meaning given to such term in Section 3.6.2.


 


“Auburn Fairness Opinion”
shall have the meaning given to such term in Section 7.3.6.


 


“Auburn Filings” shall have
the meaning given such term in Section 3.6.1.


 


“Auburn Financial
Statements” shall have the meaning given to such term in Section 3.7.3.


 


“Auburn Material Adverse
Event” shall have the meaning given such term in Section 8.1.8.


 


“Auburn Properties” shall
have the meaning given such term in Section 3.23.1.


 


“Auburn Stock Options” shall
mean any options to purchase any shares of Auburn Common Stock or any other
Equity Securities of Auburn granted on or prior to the Effective Time, whether
pursuant to the Auburn Stock Option Plan or otherwise.


 


“Auburn Stock Option Plan”
shall mean Auburn’s written Stock Option Plan as described in Schedule 3.5
and 3.24 hereto.


 


“Auburn Superior Proposal”
shall have the meaning set forth in Section 6.2.5.


 


“Average Closing Price”
shall mean the average of the daily closing price of a share of Western Common
Stock reported on the NASDAQ National Market System during the 20 consecutive
trading days ending at the end of the third trading day immediately preceding
the Effective Time.


 


“Benefit Arrangement” shall
have the meaning given such term in Section 3.21.4.


 


“BHCA” shall mean the Bank
Holding Company Act of 1956, as amended.


 


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“Business Day” shall mean
any day, other than a Saturday, Sunday or any other day, such as a legal
holiday, on which California state banks in California are not open for
substantially all their banking business.


 


“California Corporations
Code” shall mean the General Corporation Law of the State of California, as
amended from time to time.


 


“CDFI” shall mean the
California Department of Financial Institutions.


 


“Certificates” shall have
the meaning given to such term in Section 2.6.4.


 


“Chapter 13” shall have the
meaning given to such term in Section 2.7.


 


“Classified Assets” shall
have the meaning given to such term in Section 6.1.15.


 


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“Closing” shall have the
meaning given to such term in Section 2.1.


 


“Closing Date” shall have
the meaning given to such term in Section 2.1.


 


“Closing Schedules” shall
have the meaning given to such term in Section 5.7.


 


“Conversion Rate of Stock
Options” shall have the meaning given to such term in Section 2.5.


 


“Default” shall mean, as to
any party to this Agreement, a failure by such party to perform, in any
material respect, any of the agreements or covenants of such party contained in
Articles 5 or 6.


 


“Determination Date” shall
mean the last business day of the calendar month immediately preceding the
calendar month in which the Effective Time occurs.


 


“Director-Shareholder
Agreement” shall have the meaning given such term in Section 7.2.9.


 


“Dissenters’ Set Aside”
shall have the meaning given such term in Section 2.6.1 (a).


 


“Dissenting Shares” shall
mean shares of Auburn Common Stock or Western Common Stock which come within
all of the descriptions set forth in Subparagraphs (1), (2), (3) and (4) of
Paragraph (b) of Section 1300 of the California Corporations Code.


 


“Dissenting Shareholder
Notices” shall mean the notice required to be given to record holders of
Dissenting Shares pursuant to Paragraph (a) of Section 1301 of the
California Corporations Code.


 


“Effective Time” shall have
the meaning given such term in Section 2.1.


 


“Employee Plan” shall have
the meaning given such term in Section 3.21.3.


 


“Environmental Laws” shall
mean and include any and all laws, statutes, ordinances, rules, regulations,
orders, or determinations of any Governmental Entity pertaining to health or to
the environment, including, without limitation, the Clean Air Act, as amended,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (“CERCLA”), the Federal Water Pollution Control Act
Amendments, the Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), the Hazardous
Materials Transportation Act of 1975, as amended, the Safe Drinking Water Act,
as amended, and the Toxic Substances Control Act, as amended.


 


“Equity Securities” shall
have the meaning given to such term in the Exchange Act.


 


“ERISA” shall mean the Employee
Retirement Income Security Act of 1974, as amended.


 


“Exchange Act” shall mean
the Securities Exchange Act of 1934, as amended.


 


“Exchange Agent” shall mean
Computershare or such other Person as Western shall have appointed to perform
the duties set forth in Section 2.6.1 (a).


 


“Exchange Offer” shall mean
the commencement (as such term is defined in Rule 14d-2 under the Exchange Act)
of an exchange offer or the filing by any Person of a registration statement
under the Securities Act with respect to an exchange offer to purchase any
shares of Auburn Common Stock or Western Common Stock such that, upon
consummation of such offer, such Person would own or control 15% or more of the
then outstanding shares of Auburn Common Stock or Western Common Stock.


 


“FDIC” shall mean the
Federal Deposit Insurance Corporation.


 


“Federal Reserve Board”
shall mean the Board of Governors of the Federal Reserve System.


 


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“GAAP” shall mean generally
accepted accounting principles.


 


“Governmental Entity” shall
mean any court, federal, state, local or foreign government or any
administrative agency or commission or other governmental authority or
instrumentality whatsoever.


 


“Hazardous Substances” shall
have the meaning given such term in Section 3.23.4.


 


“IRC” shall mean the
Internal Revenue Code of 1986, as amended.


 


“Knowledge” shall mean, with
respect to any representation or warranty contained in this Agreement; the
actual knowledge, after reasonable inquiry, of any director or executive
officer of Auburn or Western.


 


“Last Regulatory Approval”
shall mean the final Requisite Regulatory Approval required, from any
Governmental Entity under applicable federal laws of the United States and laws
of any state having jurisdiction over the Merger, to permit the parties to
consummate the Merger.


 


“Material Adverse Effect”
shall mean a material adverse effect: (i) on the business, assets, results of
operations, financial condition or prospects of a Person and its subsidiaries,
if any, taken as a whole (unless specifically indicated otherwise); or (ii) on
the ability of a Person that is a party to this Agreement to perform its
obligations under this Agreement or to consummate the transactions contemplated
by this Agreement.


 


“Merger” shall have the
meaning set forth in Section 2.1.


 


“Merger Agreement” shall
have the meaning given to such term in Section 2.1.


 


“No Election Shareholder”
shall have the meaning given to such term in Section 2.6.2 (c).


 


“OREO” shall have the
meaning given such term in Section 3.13.


 


“Perfected Dissenting
Shares” shall mean Dissenting Shares as to which the recordholder has made
demand on Auburn in accordance with Paragraph (b) of Section 1301 of the
California Corporations Code and has not withdrawn such demand prior to the
Effective Time.


 


“Persons” or “persons” shall
mean an individual, corporation, partnership, limited liability company, joint
venture, trust or unincorporated organization, Governmental Entity or any other
legal entity whatsoever.


 


“Proxy Statement/Prospectus”
shall have the meaning given to such term in Section 3.7.2.


 


“Registration Statement”
shall have the meaning given to such term in Section 3.7.2.


 


“Regulatory Authority” shall
mean any Governmental Entity, the approval of which is legally required for
consummation of the Merger.


 


“Requisite Regulatory
Approvals” shall have the meaning set forth in Section 7.1.2.


 


“Returns” shall mean all
returns, declarations, reports, statements, and other documents required to be
filed with respect to federal, state, local and foreign Taxes, and the term
“Return” means any one of the foregoing Returns.


 


“SEC” shall mean the
Securities and Exchange Commission.


 


“Securities Act” shall mean
the Securities Act of 1933, as amended.


 


“Subsidiary” shall mean,
with respect to any corporation (the “parent”), any other corporation,
association or other business entity of which more than 50% of the shares of
the Voting Stock are owned or controlled,


 


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directly or indirectly, by
the parent or by one or more Subsidiaries of the parent, or by the parent and
one or more of its Subsidiaries.


 


“Surviving Corporation”
shall have the meaning given to such term in Section 2.1.


 


“Taxes” shall mean all
federal, state, local and foreign net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties, or other
taxes, together with any interest and any penalties, additions to tax, or
additional amounts with respect thereto, and the term “Tax” means any one of
the foregoing Taxes.


 


“Tax Filings” shall mean any
applications, reports, statements or other Returns required to be filed with
any local, state or federal Governmental Entity before the Merger may become
effective, including, but not limited to, any filing required to be made with
the California Franchise Tax Board to obtain a Tax Clearance Certificate for
the Merger.


 


“Tender Offer” shall mean
the commencement (as such term is defined in Rule 14d-2 under the Exchange Act)
of a tender offer or the filing by any person of a registration statement under
the Securities Act with respect to, a tender offer to purchase any shares of
Auburn Common Stock or Western Common Stock such that, upon consummation of
such offer, such person would own or control 15% or more of the then
outstanding voting securities of Auburn or Western.


 


“Understanding” shall have
the meaning set forth in Section 6.1.5.


 


“Voting Securities” or
“Voting Stock” shall mean the stock or other securities or any other interest
entitling the holders thereof to vote in the election of the directors,
trustees or Persons performing similar functions of the Person in question,
including, without limitation, nonvoting securities that are convertible or
exchangeable into voting securities, but shall not include any stock or other
interest so entitling the holders thereof to vote only upon the happening of a
contingency (other than a conversion or exchange thereof into voting
securities), whether or not such contingency has occurred.


 


“Western” shall mean Western
Sierra Bancorp.


 


“Western Common Stock” shall
mean the common stock, no par value per share, of Western.


 


“Western Documents” shall
have the meaning given to such term in Section 4.5.2.


 


“Western Filings” shall have
the meanings given such term in Section 4.5.1.


 


“Western Financial
Statements” shall mean the financial statements of Western for the year ended
December 31, 2002.


 


“Western Material Adverse
Event” shall have the meaning given to such term in Section 8.1.9


 


“Western Stock Plans” shall
have the meaning set forth in Section 4.4.


 


ARTICLE 2.  THE
MERGER


 


Section 2.1  The Merger.  Subject to the terms and conditions of this Agreement, as
promptly as practicable following the receipt of the Last Regulatory Approval
and the expiration of all applicable waiting periods, Auburn shall be merged
with Western, with Western being the Surviving Corporation of the merger, all
pursuant to the Agreement of Merger attached to this Agreement as Exhibit 2.1
(the “Merger Agreement”) and in accordance with


 


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the
applicable provisions of the California Corporations Code (the “Merger”).  The closing of the Merger (the “Closing”)
shall take place at a location and time and Business Day to be designated by
Western and reasonably concurred to by Auburn (the “Closing Date”) which shall
not, however, be later than thirty (30) days after receipt of the Last
Regulatory Approval and expiration of all applicable waiting periods.  The Merger shall be effective when the
Merger Agreement (together with any other documents required by law to
effectuate the Merger) shall have been filed with the Secretary of State of the
State of California.  When used in this
Agreement, the term “Effective Time” shall mean the time of filing of the
Merger Agreement with the Secretary of State, and “Surviving Corporation” shall
mean Western.


 


Section 2.2  Effect of Merger.  By virtue of the Merger and at the Effective
Time, all of the rights, privileges, powers and franchises and all property and
assets of every kind and description of Auburn and Western shall be vested in
and be held and enjoyed by the Surviving Corporation, without further act or
deed, and all the estates and interests of every kind of Auburn and Western,
including all debts due to either of them, shall be as effectively the property
of the Surviving Corporation as they were of Auburn and Western immediately
prior to the Effective Time, and the title to any real estate vested by deed or
otherwise in either Auburn or Western shall not revert or be in any way
impaired by reason of the Merger; and all rights of creditors and liens upon
any property of Auburn and Western shall be preserved unimpaired and all debts,
liabilities and duties of Auburn and Western shall be debts, liabilities and
duties of the Surviving Corporation and may be enforced against it to the same
extent as if such debts, liabilities and duties had been incurred or contracted
by it, and none of such debts, liabilities or duties shall be expanded,
increased, broadened or enlarged by reason of the Merger.


 


Section 2.3  Articles of Incorporation and Bylaws.  The Articles of Incorporation and Bylaws of
Western in effect immediately prior to the Effective Time shall be the Articles
of Incorporation and Bylaws of the Surviving Corporation until amended, and the
name of the Surviving Corporation shall be “Western Sierra Bancorp.”


 


Section 2.4  Conversion of  Western Stock.  The
authorized and issued capital stock of Western immediately prior to the
Effective Time, on and after the Effective Time, pursuant to the Merger
Agreement and without any further action on the part of Western shall remain as
the common stock of the Surviving Corporation.


 


Section 2.5  Auburn Stock Options.  Prior to the Effective Time, Auburn shall
make arrangements satisfactory to Western for the cancellation of 4,000 of the
Auburn Stock Options and the delivery of an agreement between Auburn and each
Option Holder of those 4,000 Auburn Stock Options, canceling such Option
Holder’s Auburn Stock Options in return for receipt immediately preceding the
Effective Time of the difference between the exercise price of the option and
the Per Share Merger Consideration.  In
addition, as of the Effective Time, the outstanding rights with respect to the
remaining Auburn Stock Options for 5,000 shares of Auburn Common Stock pursuant
to stock options under the Auburn Stock Option Plan  shall be converted into and become equivalent rights with respect
to Western Common Stock determined by dividing the Per Share Merger
Consideration by the Average Closing Price (the “Conversion Rate of Stock
Options”) with a corresponding adjustment in the option price, and Western
shall assume each of those 5,000 Auburn Stock Options in accordance with the
terms of the Auburn Stock Option Plans and the stock option agreement by which
it is evidenced.


 


Section 2.6  Exchange Amount; Conversion of Auburn
Common Stock.


 


2.6.1  Conversion of Auburn Common Stock.


 


At the Effective Time the
conversion of each outstanding share of Auburn Common Stock shall proceed as
follows:


 


The terms used in this
provision shall have the following meanings:


 


Initial Cash Component shall
mean $7,500,000 in cash.


 


Initial Stock Component
shall mean 350,000 shares of Western Common Stock.


 


Adjusted Cash Component
shall mean the Initial Cash Component plus or minus the adjustment pursuant to Section 2.6.1
(c), if any.


 


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Adjusted Stock Component
shall mean the Initial Stock Component plus the adjustment pursuant to
Section 2.6.1 (d), if any.


 


Adjusted Value of the Stock
Component shall mean the Adjusted Stock Component multiplied by the Average
Closing Price.


 


Adjusted Merger
Consideration shall mean the sum of: (x) the Adjusted Cash Component, plus (y)
the Adjusted Value of the Stock Component.


 


Pro Forma Shares shall mean
the sum of all outstanding shares of Auburn Common Stock, issued and
outstanding immediately prior to the Effective Time.


 


Adjusted Per Share Merger
Consideration shall mean the Adjusted Merger Consideration divided by the Pro
Forma Shares.


 


Remaining Adjusted Cash
Component shall mean the remainder of (x) the Adjusted Cash Component, minus
(y) cash equal to the Adjusted Per Share Merger Consideration multiplied by the
total number of Perfected Dissenting Shares.


 


Adjusted Value of the Per
Share Stock Component shall mean the Adjusted Value of the Stock Component
divided by the remainder of (x) Pro Forma Shares, minus (y) the total number of
Perfected Dissenting Shares.


 


Remaining Adjusted Per Share
Cash Component shall mean the Remaining Adjusted Cash Component divided by the
remainder of (x) Pro Forma Shares, minus (y) the total number of Perfected
Dissenting Shares.


 


Per Share Merger
Consideration shall mean the combined value of the Adjusted Value of the Per
Share Stock Component and the Remaining Adjusted Per Share Cash Component as of
the Effective Time.


 


(a)  Western shall deliver to the Exchange Agent
the Adjusted Stock Component and the Remaining Adjusted Cash Component.  Each share of Auburn Common Stock, (except
for Perfected Dissenting Shares, if applicable) shall, by virtue of the Merger
and without any action on the part of the holder thereof, but subject to
Sections 2.6.2 and 2.6.5 hereof, be converted into the right to receive cash,
Western Common Stock, or a combination thereof.  Western shall set aside, in cash out of the Adjusted Cash
Component, for each Perfected Dissenting Share the Adjusted Per Share Merger
Consideration (the “Dissenters’ Set Aside”).


 


(b)  The holders of certificates formerly
representing shares of Auburn Common Stock shall cease to have any rights as
shareholders of Auburn, except such rights, if any, as they may have pursuant
to the California Corporations Code. 
Except as provided above, until certificates representing shares of
Auburn Common Stock are surrendered for exchange, the certificates of each
holder shall, after the Effective Time, represent for all purposes only the
right to receive the Per Share Merger Consideration.


 


(c)  If the Average Closing Price remains between
$30.00 and $34.00, there will be no adjustment to the Initial Cash
Component.  If the Average Closing Price
is less than $30.00, then Western will increase the Initial Cash Component by
an amount, up to $1,000,000, equal to $18,000,000 minus the sum of the Initial
Cash Component and the Adjusted Value of the Stock Component.  If the Average Closing Price is greater than
$34.00, Western will subtract from the Initial Cash Component an amount, up to
$1,000,000, equal to the sum of the Initial Cash Component and Adjusted Value
of the Stock Component minus $19,400,000.


 


(d)  If, subsequent to the date of this Agreement
but prior to the Effective Time, the outstanding shares of Western Common Stock
shall, through a reclassification, recapitalization, stock dividend, stock
split or reverse stock split have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities, appropriate
adjustment will be made to the Initial Stock Component.


 


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2.6.2  Cash/Stock Election.


 


The terms used in this
provision shall have the following meanings:


 


Cash/Stock Election shall
mean the process described herein by which each Auburn shareholder other than a
holder of Perfected Dissenting Shares shall be permitted to state a preference
to receive all cash or all stock or cash and/or stock in exchange for his or
her shares of Auburn Common Stock.


 


Stock Elector shall mean an
Auburn shareholder who has timely submitted the proper form expressing a
request to receive all shares of Western Common Stock as his or her Per Share
Merger Consideration.


 


Cash Elector shall mean an
Auburn shareholder who has timely submitted the proper form expressing a
request to receive all cash as his or her Per Share Merger Consideration.


 


Cash/Stock Elector shall
mean an Auburn shareholder who has timely submitted the proper form expressing
a request to receive cash and/or shares of Western Common Stock as his or her
Per Share Merger Consideration.


 


(a)  Each Auburn shareholder other than a holder
of Perfected Dissenting Shares may state a preference to receive his or her Per
Share Merger Consideration in any of the following: (x) all shares of Western
Common Stock; (y) all cash; or (z) cash and/or shares of Western Common
Stock.  The Adjusted Merger
Consideration shall be allocated in accordance with the following provisions of
this Section 2.6.2.


 


(b)  The Cash/Stock Election is subject to the
limitation that the aggregate shall not exceed the Remaining Adjusted Cash
Component and the Adjusted Stock Component. 
Shares of Western Common Stock paid pursuant to the Cash/Stock Election
shall be valued at the Average Closing Price.


 


(c)  First, the election of the Stock Electors
shall be fulfilled by providing to each Stock Elector for each share of Auburn
Common Stock he or she owns the Per Share Merger Consideration in shares of
Western Common Stock from the Adjusted Stock Component.  If the elections of all of the Stock
Electors cannot be fulfilled, then the Adjusted Stock Component shall be divided
among the Stock Electors pro rata by the number of shares of their Auburn
Common Stock, and each Stock Elector shall receive cash from the Remaining
Adjusted Cash Component for the remainder of the Per Share Merger Consideration
for each share of Auburn Common Stock which is not converted into shares of
Western Common Stock and all other shareholders will only receive cash.


 


If there are any shares of
Western Common Stock remaining from the Adjusted Stock Component after payment
to the Stock Electors, then each Cash/Stock Elector shall receive for each
share of Auburn Common Stock he or she owns the Per Share Merger Consideration
in shares of Western Common Stock.  In
the event there are insufficient shares of Western Common Stock available to
pay all the Cash/Stock Electors in full with shares of Western Common Stock,
then the left over Adjusted Stock Component shall be divided among the
Cash/Stock Electors pro rata by the number of shares of their Auburn Common
Stock and each such Cash/Stock Elector shall receive cash from the Remaining Adjusted
Cash Component for the remainder of the Per Share Merger Consideration for each
share of Auburn Common Stock which is not converted into shares of Western
Common Stock and all other shareholders will only receive cash.


 


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If there are any shares of
Western Common Stock remaining after payment to the Stock Electors and
Cash/Stock Electors, then, each holder of Auburn Common Stock other than a
holder of Perfected Dissenting Shares that makes no election or an improper
election (“No Election Shareholder”) shall receive for each share of Auburn
Common Stock he or she owns the Per Share Merger Consideration in shares of
Western Common Stock.  In the event
there are insufficient shares of Western Common Stock available to pay all the
No Election Shareholders in full with shares of Western Common Stock, then the
left over Adjusted Stock Component shall be divided among the No Election
Shareholders pro rata by the number of shares of their Auburn Common Stock and
each such No Election Shareholder shall receive cash from the Remaining
Adjusted Cash Component for the remainder of the Per Share Merger Consideration
for each share of Auburn Common Stock which is not converted into shares of
Western Common Stock and all other shareholders will only receive cash.


 


If there are any shares of
Western Common Stock remaining after payment to the Stock Electors, Cash/Stock
Electors and the No Election Shareholders, then the left over Adjusted Stock
Component shall be divided among the Cash Electors pro rata by the number of
shares of their Auburn Common Stock and each such Cash Elector shall receive
cash from the Remaining Adjusted Cash Component for the remainder of the Per
Share Merger Consideration for each share of Auburn Common Stock which is not
converted into shares of Western Common Stock.


 


(d)  An Auburn shareholder may not make a
Cash/Stock Election until after the Effective Time and need not make a
Cash/Stock Election at all.  Promptly
following the Effective Time, Western shall send to each Auburn shareholder a
letter of transmittal describing the Cash/Stock Election in more detail and
providing forms for making the Cash/Stock Election, as desired.


 


(e)  The Cash/Stock Election, if made, must be
made by the Auburn shareholder and received by the Exchange Agent within 30
calendar days following the Effective Time (the “Election Deadline”) for all
shares held in the name of the Auburn shareholder (the “Effective Election
Statement”).  An Auburn shareholder who
holds shares in two or more capacities or in different names may make a
separate Cash/Stock Election for each name or capacity in which shares are
held.  However, holders whose shares are
represented by one or more certificates may make only one Cash/Stock Election
for each such certificate.


 


(f)  Auburn shareholders who make Cash/Stock
Elections have no assurance that they will receive all cash or all stock or any
specific proportion thereof.


 


2.6.3  Reservation of Shares.  Prior to the Effective Time, the Board of
Directors of Western shall reserve for issuance a sufficient number of shares
of Western Common Stock for the purpose of issuing its shares to the
shareholders of Auburn in accordance herewith.


 


2.6.4  Exchange of Auburn Common Stock.


 


(a)  As soon as reasonably practicable after the
Effective Time, holders of record of certificates formerly representing shares
of Auburn Common Stock (“Certificates”) shall be instructed to tender such
Certificates to the Exchange Agent pursuant to a letter of transmittal that
Western shall deliver or cause to be delivered to such holders.  Such letter of transmittal shall specify
that risk of loss and title to Certificates shall pass only upon acceptance of
such Certificates by Western or the Exchange Agent.


 


(b)  After the Effective Time, each holder of a
Certificate that surrenders such Certificate to Western or the Exchange Agent
will, upon acceptance thereof by Western or the Exchange Agent, be entitled to
the Per Share Merger Consideration payable in respect of the shares represented
thereby as determined under Section 2.6.2.


 


(c)  Western or the Exchange Agent shall accept
Certificates upon compliance with such reasonable terms and conditions as
Western or the Exchange Agent may impose to effect an orderly exchange thereof
in accordance with customary exchange practices.  Certificates shall be appropriately endorsed or accompanied by
such instruments of transfer as Western or the Exchange Agent may reasonably
require.


 


(d)  Each outstanding Certificate, other than
those representing Perfected Dissenting Shares, shall until duly surrendered to
Western or the Exchange Agent be deemed to evidence the right to receive the
Per Share Merger Consideration payable in respect of the shares represented
thereby.


 


(e)  After the Effective Time, holders of
Certificates shall cease to have rights with respect to the Auburn Common Stock
previously represented by such Certificates, and their sole rights (other than
the holders of Certificates representing Perfected Dissenting Shares) shall be
to exchange such Certificates for the Per Share Merger Consideration.  At the Effective Time, Auburn shall deliver
a certified copy of a list of its shareholders to Western or the Exchange
Agent.  After the Effective Time, there
shall be no further transfer of Certificates on the records of Auburn, and if
such Certificates are presented to Auburn for transfer, they shall be canceled
against delivery of the Per Share Merger Consideration.  Western shall not be obligated to deliver
any Per Share Merger Consideration to any holder of Auburn Common Stock until
such holder surrenders the Certificates as


 


10

















 


provided
herein.  No dividends declared will be
remitted, nor any voting rights granted, to any person entitled to receive
Western Common Stock under this Agreement until such person surrenders the
Certificate representing the right to receive such Western Common Stock, at
which time such dividends on whole shares of Western Common Stock with a record
date on or after the Effective Time shall be remitted to such person, without
interest and less any taxes that may have been imposed thereon, and voting
rights will be restored.  Certificates
surrendered for exchange by any person constituting an “affiliate” of Auburn
for purposes of Rule 145 under the Securities Act of 1933 and the rules and
regulations thereunder (the “Securities Act”) shall not be exchanged for
certificates representing Western Common Stock until Western has received a
written agreement from such person as specified in Section 5.3.  Neither the Exchange Agent nor any party to
this Agreement nor any affiliate thereof shall be liable to any holder of
Auburn Common Stock represented by any Certificate for any consideration paid
to a public official pursuant to applicable abandoned property, escheat or
similar laws.  Western and the Exchange
Agent shall be entitled to rely upon the stock transfer books of Auburn to
establish the identity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive with respect
thereto.  In the event of a dispute with
respect to ownership of stock represented by any Certificate, Western or the
Exchange Agent shall be entitled to deposit any consideration in respect thereof
in escrow with an independent third party and thereafter be relieved with
respect to any claims thereto.


 


(f)  If any Per Share Merger Consideration is to
be issued to a person other than a person in whose name a surrendered
Certificate is registered, it shall be a condition of issuance that the
surrendered Certificate shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such issuance shall pay to Western
or the Exchange Agent any required transfer or other taxes or establish to the
satisfaction of Western or the Exchange Agent that such tax has been paid or is
not applicable.


 


(g)  In the event any Certificate shall have been
lost, stolen or destroyed, the owner of such lost, stolen or destroyed
Certificate shall deliver to Western or the Exchange Agent an affidavit stating
such fact, in form satisfactory to Western, and, at Western’s discretion, a
bond in such reasonable sum as Western or the Exchange Agent may direct as
indemnity against any claim that may be made against Western or Auburn or its
successor or any other party with respect to the Certificate alleged to have
been lost, stolen or destroyed.  Upon
such delivery, the owner shall have the right to receive the Per Share Merger
Consideration with respect to the shares represented by the lost, stolen or
destroyed Certificate.


 


2.6.5  No Fractional Shares.  Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Western
Common Stock shall be issued in the Merger. 
Each holder who otherwise would have been entitled to a fraction of a
share of Western Common Stock (after taking into account all Certificates of
such holder) shall receive in lieu thereof cash (without interest) in an amount
determined by multiplying the fractional share interest to which such holder
would otherwise be entitled by the Average Closing Price.  No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share
interest.


 


2.7 Dissenters’ Rights.  Shares of Auburn Common Stock, the holders
of which have lawfully dissented from the Merger in accordance with Chapter 13
of the California Corporations Code (“Chapter 13”) and have timely filed with
Auburn a written demand for purchase of his or her shares and have surrendered
his or her stock certificates pursuant to Section 1302 of Chapter 13, are
herein called “Dissenting Shares.” 
Dissenting Shares, the holders of which have not effectively withdrawn
or lost their dissenters’ rights under Chapter 13 (“Perfected Dissenting
Shares”), shall not be converted pursuant to Section 2.6 but the holders
thereof shall be entitled only to such rights as are granted by Chapter
13.  Each holder of Perfected Dissenting
Shares who is entitled to payment for his or her Auburn Common Stock pursuant
to the provisions of Chapter 13 shall receive payment therefor from Western
(but only after the amount thereof shall have been agreed upon or finally
determined pursuant to such provisions).


 


If any holder of Dissenting
Shares has effectively withdrawn or lost his or her dissenter’s rights under
Chapter 13 prior to the Election Deadline, an Effective Election Statement  submitted with respect to such shares will
be given effect in the same manner as other Effective Election Statements but
if no Effective Election Statement is submitted, such shares will be treated as
No Election Shares.  If any holder of
Dissenting Shares shall effectively withdraw or lose his or her dissenter’s
rights under Chapter 13 after the Election Deadline, the Dissenting Shares
owned by such holder shall be treated as No Election Shares.


 


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Section 2.8  Board of Directors of Western and AC Bank
following the Effective Time.  At
the Effective Time, Jan T. Haldeman, or another director of Auburn if Mr.
Haldeman is unable to serve, shall be appointed as a director of Western to
serve until the next annual meeting of shareholders of Western and until such
successors are elected and qualified. 
At the Effective Time, the then existing Board of Directors of AC Bank
shall total nine directors with the seven existing directors of AC Bank and two
persons to be selected by Western.  The
Chairman of the Board of Western shall be an attendee of the Board of Directors
of AC Bank and all committees of the Board of Directors of AC Bank.


 


ARTICLE 3. 
REPRESENTATIONS AND WARRANTIES OF AUBURN


 


Auburn represents and warrants to Western as
follows (it being understood that all references to Auburn relative to the
period on or before February 14, 2003 shall be deemed to refer to AC Bank
where appropriate in the context):


 


Section 3.1  Organization; Corporate Power; Etc.  Auburn is a California corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business
substantially as it is being conducted on the date of this Agreement.  Auburn is a bank holding company registered
under the BHCA.  Each of Auburn’s
Subsidiaries has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business substantially as it is
being conducted on the date of this Agreement, except where the failure to have
such power or authority would not have a Material Adverse Effect on Auburn
taken as a whole or the ability of Auburn to consummate the transactions
contemplated by this Agreement.  Auburn
has all requisite corporate power and authority to enter into this Agreement
and, subject to obtaining all requisite Regulatory Approvals, Auburn will have
the requisite corporate power and authority to perform its respective
obligations hereunder with respect to the consummation of the transactions
contemplated hereby.  Auburn is the sole
shareholder of AC Bank.  AC Bank is a
California state-chartered bank authorized by the CDFI to conduct a general
banking business in California.  AC Bank
is not a member of the Federal Reserve System. 
AC Bank’s deposits are insured by the FDIC in the manner and to the full
extent provided by law.  Neither the
scope of business or Auburn, or any Subsidiary of Auburn, including AC Bank,
nor the location of any of their respective properties, requires that Auburn or
any of its respective Subsidiaries be licensed or qualified to conduct business
in any jurisdiction other than those jurisdictions in which they are licensed
or qualified to do business as a foreign corporation, where the failure to be
so licensed or qualified would, individually or in the aggregate, have a
Material Adverse Effect on Auburn taken as a whole.


 


Section 3.2  Licenses and Permits.  Except as disclosed on Schedule 3.2,
Auburn and its Subsidiaries have all material licenses, certificates,
franchises, rights and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect, except
for any failure to be in full force and effect that would not, individually or
in the aggregate, have a Material Adverse Effect on Auburn or on the ability of
Auburn to consummate the transactions contemplated by this Agreement.  The properties, assets, operations and
businesses of Auburn, and those of its Subsidiaries, including AC Bank, are and
have been maintained and conducted, in all material respects, in compliance
with all applicable licenses, certificates, franchises, rights and permits.


 


Section 3.3  Subsidiaries.  Other than as set forth on
Schedule 3.3, there is no corporation, partnership, joint venture or other
entity in which Auburn owns, directly or indirectly (except as pledgee pursuant
to loans or stock or other interest held as the result of or in lieu of
foreclosure pursuant to pledge or other security arrangement) any equity or
other voting interest or position.


 


Section 3.4  Authorization of Agreement; No Conflicts.


 


3.4.1  The execution and delivery of this Agreement
and the Merger Agreement by Auburn, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Auburn, subject only to the approval of this
Agreement, the Merger Agreement and the Merger by Auburn’s shareholders.  This Agreement has been duly executed and
delivered by Auburn and constitutes a legal, valid and binding obligation of
Auburn, enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the


 


12

















 


rights
of creditors generally and by general equitable principles.  The Merger Agreement, upon the receipt of
all Requisite Regulatory Approvals and the due execution and filing of such
Merger Agreement in accordance with the applicable provisions of the California
Corporations Code, will constitute a legal, valid and binding obligation of
Auburn, enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally and by general equitable
principles.


 


3.4.2  Except as disclosed on Schedule 3.4,
the execution and delivery of this Agreement and the Merger Agreement, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with, or result in any violation of or default or loss of a
material benefit under, any provision of the Articles of Incorporation or
Bylaws of Auburn, or except for the necessity of obtaining Requisite Regulatory
Approvals, and the approval of the shareholders of Auburn, any material
mortgage, indenture, lease, agreement or other material instrument or any
permit, concession, grant, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Auburn or any of its
assets or properties, other than any such conflict, violation, default or loss
which (i) will not have a Material Adverse Effect on Auburn, or on Western
following consummation of the Merger; or (ii) will be cured or waived prior to
the Effective Time.  No material
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required in connection with the
execution and delivery of this Agreement or the Merger Agreement by Auburn or
the performance by Auburn of its obligations hereunder and thereunder, except
for (a) filings required in order to obtain the Requisite Regulatory Approvals;
(b) the filing and approval of the Merger Agreement with the Secretary of the
State of California; and (c) Tax Filings.


 


Section 3.5  Capital Structure .  The authorized capital stock of Auburn
consists of 10,000,000 shares of Auburn Common Stock, no par value per
share.  On the date of this Agreement, 62,958
shares of Auburn Common Stock were outstanding and 9,000 shares of Auburn
Common Stock were reserved for issuance pursuant to outstanding Auburn Stock
Options under the Auburn Stock Option Plan. 
All outstanding shares of Auburn Common Stock are validly issued, fully
paid and nonassessable and do not possess any preemptive rights and were not
issued in violation of any preemptive rights or any similar rights of any
Person.  Except for the Auburn Stock
Options described on Schedule 3.5 to this Agreement, Auburn does not have
outstanding any options, warrants, calls, rights, commitments, securities or
agreements of any character to which Auburn is a party or by which it is bound
obligating Auburn to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of Auburn or obligating Auburn to
grant, extend or enter into any such option, warrant, call, right, commitment
or agreement.


 


Section 3.6  Auburn Filings.


 


3.6.1  Since January 1, 2000, Auburn and its
Subsidiaries have filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that were
required to be filed with (a) the Federal Reserve Board or any Federal Reserve
Bank; (b) the CDFI; (c) the FDIC; and (d) any other applicable federal, state
or local governmental or regulatory authority. 
All such reports, registrations and filings, and all reports sent to
Auburn’s shareholders during the three-year period ended December 31, 2002
(whether or not filed with any Regulatory Authority), are collectively referred
to as the “Auburn Filings.”  Except to
the extent prohibited by law, copies of the Auburn Filings have been made
available to Western.  As of their
respective filing or mailing dates, each of the past Auburn Filings (a) was
true and complete in all material respects (or was amended so as to be so
promptly following discovery of any discrepancy); and (b) complied in all
material respects with all of the statutes, rules and regulations enforced or
promulgated by the governmental or regulatory authority with which it was filed
(or was amended so as to be so promptly following discovery of any such
noncompliance) and none contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.  The Auburn
Financial Statements, together with the financial statements contained in the
Auburn Filings, have been prepared in accordance with GAAP, or applicable
regulatory accounting principles, applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present (subject, in the case of the unaudited statements, to recurring
adjustments normal in nature and amount) the financial position of Auburn as of
the dates thereof and the results of its operations, cash flows and changes in
shareholders’ equity for the periods then ended.


 


13

















 


3.6.2  Auburn, or AC Bank, as the case may be, has
filed each report, schedule and amendments to each of the foregoing since
January 1, 2000 that Auburn or AC Bank was required to file with the
Federal Reserve Bank, the CDFI or the FDIC (the “Auburn Documents”), all of
which have been made available to Western. 
As of their respective dates, the Auburn Documents complied in all
material respects with the applicable requirements of the BHCA, the California
Financial Code and the FDIC Rules and Regulations, as the case may be, and the
rules and regulations of the Federal Reserve Bank, the CDFI and the FDIC
thereunder applicable to such Auburn Documents, and none of the Auburn
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  The financial statements
of Auburn included in the Auburn Filings comply in all material respects with
applicable regulatory accounting requirements and with the published rules and
regulations of the Federal Reserve Bank, the CDFI or the FDIC (as applicable)
with respect thereto, and have been prepared in accordance with GAAP, or
applicable regulatory accounting principles, applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by regulations of the
Federal Reserve Bank, the CDFI or the FDIC) and fairly present (subject, in the
case of the unaudited statements, to recurring adjustments normal in nature and
amount) the financial position of Auburn as of the dates thereof and the
consolidated results of its operations and cash flows or changes in financial
position for the periods then ended.


 


Section 3.7  Accuracy of Information Supplied.


 


3.7.1  No representation or warranty of Auburn
contained herein or any statement, schedule, exhibit or certificate given or to
be given by or on behalf of Auburn or any of its Subsidiaries, including AC
Bank, to Western in connection herewith and none of the information supplied or
to be supplied by Auburn or its Subsidiaries, including AC Bank, to Western
hereunder to the best of Auburn’s Knowledge contains or will contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.


 


3.7.2  None of the information supplied or to be
supplied by Auburn or relating to Auburn and approved by Auburn which is
included or incorporated by reference in (i) the Registration Statement on Form
S-4 to be filed with the SEC by Western in connection with the issuance of
shares of Western Common Stock in the Merger (including the Proxy Statement of
Auburn and the Prospectus of Western (“Proxy Statement/Prospectus”)
constituting a part thereof, the “Registration Statement”) will, at the time
the Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; (ii) the
Proxy Statement/Prospectus and any amendment or supplement thereto will, at all
times from the date of mailing to shareholders of Auburn through the date of
the meeting of shareholders of Auburn to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(iii) the applications and forms to be filed with securities or “blue sky”
authorities, self regulatory authorities, or any Governmental Entity in
connection with the Merger, the issuance of any shares of Western Common Stock
in connection with the Merger, or any Requisite Regulatory Approvals will, at
the time filed or at the time they become effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The Proxy Statement/Prospectus (except for
such portions thereof that relate only to Western and its Subsidiaries) will
comply in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder.


 


3.7.3  Auburn has delivered or will deliver to
Western copies of: (a) the audited balance sheets of AC Bank as of
December 31, 2002, 2001 and 2000 and the related statements of income,
changes in shareholders’ equity and cash flows for the years then ended and the
related notes to such financial statements, all as audited by Perry-Smith LLP,
independent public accountants (the “Auburn Financial Statements”), and Auburn
will hereafter until the Closing Date deliver to Western copies of additional
financial statements of Auburn and its Subsidiaries as provided in Sections
5.1.1(iii) and 6.1.11(iii).  The Auburn
Financial Statements have been prepared (and all of said additional financial
statements will be prepared) in accordance with GAAP, or applicable regulatory
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) consistently followed
throughout the periods covered by such statements, and present (and, when
prepared, will


 


14

















 


present)
fairly the financial position of Auburn and its Subsidiaries, including AC
Bank,  as of the respective dates
indicated and the results of operations, cash flows and changes in
shareholders’ equity at the respective dates and for the respective periods
covered by such financial statements (subject, in the case of the unaudited
statements, to recurring adjustments normal in nature and amount).  In addition, Auburn has delivered or made
available to Western copies of all management or other letters delivered to
Auburn or AC Bank by its independent accountants in connection with any of the
Auburn Financial Statements or by such accountants or any consultant regarding
the internal controls or internal compliance procedures and systems of Auburn
or AC Bank issued at any time since January 1, 2000, and will make
available for inspection by Western or its representatives, at such times and
places as Western may reasonably request, reports and working papers produced
or developed by such accountants or consultants.


 


Section 3.8  Compliance with Applicable Laws.  Except as disclosed on Schedule 3.8, to
the best of Auburn’s Knowledge the respective businesses of Auburn and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation, except for violations which individually or in the aggregate would
not have a Material Adverse Effect on Auburn, or Western at or following the
Effective Time.  Except as set forth in
Schedule 3.8, to the Knowledge of Auburn no investigation or review by any
Governmental Entity with respect to Auburn or AC Bank is pending or threatened,
nor has any Governmental Entity indicated to Auburn or AC Bank an intention to
conduct the same.


 


Section 3.9  Litigation.  Except as set forth in Schedule 3.9, to the Knowledge of
Auburn there is no suit, action or proceeding or investigation pending or
threatened against or affecting Auburn or any of its Subsidiaries which, if
adversely determined, would have a Material Adverse Effect on Auburn or its
Subsidiaries; nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against Auburn or any of its
Subsidiaries that has, or which, insofar as reasonably can be foreseen, in the
future would have, any such Material Adverse Effect.  Except as disclosed on Schedule 3.9, there are no facts or
circumstances to the Knowledge of Auburn that could reasonably be expected to
give rise to any material suit, action or proceeding against Auburn.  Schedule 3.9 contains a true, correct
and complete list, including identification of the applicable insurance policy
covering such litigation, if any, subject to reservation of rights, if any, the
applicable deductible and the amount of any reserve therefor, of all pending
litigation in which Auburn or any of its Subsidiaries is a named party of which
Auburn has Knowledge, and except as disclosed on Schedule 3.9, all of the
litigation shown on such Schedule is adequately covered by insurance in
force, except for applicable deductibles, or has been adequately reserved for
in accordance with Auburn’s prior business practices.


 


Section 3.10  Agreements with Banking Authorities.  Neither Auburn nor any Subsidiary of Auburn
is a party to any written agreement or memorandum of understanding with, or
order or directive from, any Governmental Entity.


 


Section 3.11  Insurance.  Auburn and its Subsidiaries have in full force and effect
policies of insurance with respect to their assets and businesses against such
casualties and contingencies and in such amounts, types and forms as are
customarily appropriate for their businesses, operations, properties and
assets.  Schedule 3.11 contains a
list of all policies of insurance and bonds carried and owned by Auburn or any
Subsidiary.  None of Auburn or any of
its Subsidiaries is in default under any such policy of insurance or bond such
that it can be canceled and all material current claims outstanding thereunder
have been filed in timely fashion. 
Auburn and its Subsidiaries have filed claims with, or given notice of
claim to, their insurers or bonding companies in timely fashion with respect to
all material matters and occurrences for which they believe they have coverage.


 


Section 3.12  Title to Assets other than Real Property.  Each of Auburn and its respective
Subsidiaries has good and marketable title to or a valid leasehold interest in
all properties and assets (other than real property which is the subject to
Section 3.13), it owns or leases, free and clear of all mortgages,
covenants, conditions, restrictions, easements, liens, security interests,
charges, claims, assessments and encumbrances, except for: (a) rights of lessors,
lessees or sublessees in such matters as are reflected in a written lease; (b)
encumbrances as set forth in the Auburn Financial Statements; (c) current Taxes
(including assessments collected with Taxes) not yet due which have been fully
reserved for; (d) encumbrances, if any, that are not individually in excess of
$25,000; and (e) other matters as described in Schedule 3.12.  Materially all such properties and assets
are, and require only routine maintenance to keep them, in good working
condition, normal wear and tear excepted. 
All properties used in Auburn’s operations are reflected in the Auburn
Financial Statements to the extent GAAP requires the same to be reflected.


 


15

















 


Section 3.13  Real Property.  Schedule 3.13 is an accurate list and
general description of all real property owned or leased by Auburn or any of
its Subsidiaries, including Other Real Estate Owned (“OREO”).  Each of Auburn and its respective
Subsidiaries has good and marketable title to the real properties that it owns,
as described in such Schedule, free and clear of all mortgages, covenants,
conditions, restrictions, easements, liens, security interests, charges,
claims, assessments and encumbrances, except for (a) rights of lessors, lessees
or sublessees in such matters as are reflected in a written lease; (b) current
Taxes (including assessments collected with Taxes) not yet due and payable; (c)
encumbrances, if any, that are not individually in excess of $25,000 and (d)
other matters as described in Schedule 3.13. Auburn and its Subsidiaries
have valid leasehold interests in the leaseholds they respectively hold, free
and clear of all mortgages, liens, security interest, charges, claims,
assessments and encumbrances, except for (a) claims of lessors, co-lessees or
sublessees in such matters as are reflected in a written lease; (b) title
exceptions affecting the fee estate of the lessor under such leases; and (c)
other matters as described in Schedule 3.13.  To the best of Auburn’s Knowledge, the activities of Auburn and
its Subsidiaries with respect to all real property owned or leased by them for
use in connection with their operations are in all material respects permitted
and authorized by applicable zoning laws, ordinances and regulations and all
laws and regulations of any Governmental Entity.  Except as set forth in Schedule 3.13, Auburn and its
Subsidiaries enjoy quiet possession under all real property leases to which
they are the lessees and all of such leases are valid and in full force and
effect, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles. 
Materially all buildings and improvements on real properties owned or
leased by Auburn or any of its Subsidiaries are in good condition and repair,
and do not require more than normal and routine maintenance, to keep them in
such condition, normal wear and tear excepted.


 


Section 3.14  Taxes.


 


3.14.1  Filing of Returns.  Except as set forth on Schedule 3.14.1,
Auburn and its Subsidiaries have duly prepared and filed or caused to be duly
prepared and filed all federal, state, and local Returns (for Tax or
informational purposes) which were required to be filed by or in respect of
Auburn and its Subsidiaries, or any of their properties, income and/or
operations on or prior to the Closing Date. 
As of the time they were filed, the foregoing Returns accurately reflected
the material facts regarding the income, business, asset, operations,
activities, status, and any other information required to be shown
thereon.  Except as set forth on
Schedule 3.14.1, no extension of time within which Auburn or any of its
Subsidiaries may file any Return is currently in force.


 


3.14.2  Payment of Taxes.  Except as disclosed on Schedule 3.14.2
with respect to all amounts in respect of Taxes imposed on Auburn or any
Subsidiary or for which Auburn or any Subsidiary is or could be liable, whether
to taxing authorities (as, for example, under law) or to other Persons (as, for
example, under Tax allocation agreements), with respect to all taxable periods
or portions of periods ending on or before the Closing Date, all applicable tax
laws and agreements have been or will be fully complied with in all material
respects, and all such amounts required to be paid by or on behalf of Auburn or
any Subsidiary to taxing authorities or others on or before the date hereof
have been paid.


 


3.14.3  Audit History.  Except as disclosed on Schedule 3.14.3,
there is no review or audit by any taxing authority of any Tax liability of
Auburn or any Subsidiary currently in progress of which Auburn has
Knowledge.  Except as disclosed on
Schedule 3.14.3, Auburn and its Subsidiaries have not received any written
notices within the three years preceding the Closing Date of any pending or
threatened audit, by the Internal Revenue Service or any state, local or
foreign agency, for any Returns or Tax liability of Auburn or any Subsidiary
for any period.  Auburn and its
Subsidiaries currently have no unpaid deficiencies assessed by the Internal
Revenue Service or any state, local or foreign taxing authority arising out of
any examination of any of the Returns of Auburn or any Subsidiaries filed for
fiscal years ended on or after December 31, 1998 through the Closing Date,
nor to the Knowledge of Auburn is there reason to believe that any material
deficiency will be assessed.


 


3.14.4  Statute of Limitations.  Except as disclosed on Schedule 3.14.4,
no agreements are in force or are currently being negotiated by or on behalf of
Auburn or any Subsidiaries for any waiver or for the extension of any statute
of limitations governing the time of assessments or collection of any Tax.  No closing agreements or compromises
concerning Taxes of Auburn or any Subsidiaries are currently pending.


 


16

















 


3.14.5  Withholding Obligations.  Except as set forth on Schedule 3.14.5,
Auburn and its Subsidiaries have withheld from each payment made to any of
their respective officers, directors and employees, the amount of all
applicable Taxes, including, but not limited to, income tax, social security
contributions, unemployment contributions, backup withholding and other
deductions required to be withheld therefrom by any Tax law and have paid the
same to the proper taxing authorities within the time required under any
applicable Tax law.


 


3.14.6  Tax Liens.  There are no Tax liens, whether imposed by any federal, state,
local or foreign taxing authority, outstanding against any assets owned by
Auburn or its Subsidiaries, except for liens for Taxes that are not yet due and
payable.


 


3.14.7  Tax Reserves.  Auburn and its Subsidiaries have made full
and adequate provision and reserve for all federal, state, local or foreign
Taxes for the current period for which Tax and information returns are not yet
required to be filed.  The Auburn
Financial Statements contain fair and sufficient accruals for the payment of
all Taxes for the periods covered by the Auburn Financial Statements and all
periods prior thereto.


 


3.14.8  IRC Section 382 Applicability.  None of Auburn or any of its Subsidiaries,
including any party joining in any consolidated return to which Auburn is a
member, underwent an “ownership change” as defined in IRC Section 382(g)
within the “testing period” (as defined in IRC Section 382) ending
immediately before the Effective Time, and not taking into account any
transactions contemplated by this Agreement.


 


3.14.9  Disclosure Information.  Within 45 days of the date of this
Agreement, Auburn will deliver to Western a schedule setting forth the
following information with respect to Auburn and as of the most recent
practicable date (as well as on an estimated pro forma basis as of the Closing
giving effect to the consummation of the transactions contemplated hereby): (a)
Auburn’s basis in its assets; (b) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to Auburn; and (c) the amount of any deferred
gain or loss allocable to Auburn and arising out of any deferred intercompany
transactions.


 


Section 3.15  Performance of Obligations.  Auburn and its Subsidiaries have performed
all material obligations required to be performed by them to date and none of
Auburn or any of its Subsidiaries is in material default under or in breach of
any term or provision of any covenant, contract, lease, indenture or any other
agreement, written or oral, to which any is a party, is subject or is otherwise
bound, and no event has occurred that, with the giving of notice or the passage
of time or both, would constitute such a default or breach, where such default
or breach or failure to perform would have a Material Adverse Effect on Auburn
or its Subsidiaries.  To Auburn’s
Knowledge, and except as disclosed on Schedule 3.15 or in the portion of
Schedule 3.16 that identifies 90-day past due or classified or nonaccrual
loans, no party with whom Auburn or any of its Subsidiaries has an agreement
that is of material importance to the businesses of Auburn or its Subsidiaries
is in default thereunder.


 


Section 3.16  Loans and Investments.  Except as set forth on Schedule 3.16,
all loans, leases and other extensions of credit, and guaranties, security
agreements or other agreements supporting any loans or extensions of credit,
and investments of Auburn or its Subsidiaries, including AC Bank,  are, and constitute, in all material respects,
the legal, valid and binding obligations of the parties thereto and are
enforceable against such parties in accordance with their terms, except as the
enforceability thereof may be limited by applicable law and otherwise by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors generally and by general equitable principles.  Except as described on Schedule 3.16,
as of June 30, 2003, no loans or investments held by Auburn or any
Subsidiary, including AC Bank are:  (i)
more than ninety days past due with respect to any scheduled payment of
principal or interest, other than loans on a nonaccrual status; (ii) classified
as “loss,” “doubtful,” “substandard” or “specially mentioned” by AC Bank or any
banking regulators; or (iii) on a nonaccrual status in accordance with AC
Bank’s loan review procedures.  Except
as set forth on Schedule 3.16, none of such assets (other than loans) are
subject to any restrictions, contractual, statutory or other, that would
materially impair the ability of the entity holding such investment to dispose
freely of any such assets at any time, except restrictions on the public
distribution or transfer of any such investments under the Securities Act and
the regulations thereunder or state securities laws and pledges or security interests
given in connection with government deposits. 
All loans, leases or other extensions of credit outstanding, or
commitments to make any loans, leases or other extensions of credit made by
Auburn or AC Bank to any Affiliates of Auburn or AC Bank are disclosed on
Schedule 3.16.  For


 


17

















 


outstanding
loans or extensions of credit where the original principal amounts are in
excess of $50,000 and which by their terms are either secured by collateral or
supported by a guaranty or similar obligation, the security interests have been
duly perfected in all material respects and have the priority they purport to
have in all material respects, other than by operation of law, and, in the case
of each guaranty or similar obligation, each has been duly executed and
delivered to Auburn or any Subsidiary, including AC Bank, and to Auburn’s
Knowledge, is still in full force and effect.


 


Section 3.17  Brokers and Finders.  Except as set forth on Schedule 3.17,
none of Auburn or any of its Subsidiaries is a party to or obligated under any
agreement with any broker or finder relating to the transactions contemplated
hereby, and neither the execution of this Agreement, the Merger Agreement, nor
the consummation of the transactions provided for herein or therein, will
result in any liability to any broker or finder.  Auburn agrees to indemnify and hold harmless Western and its
affiliates, and to defend with counsel selected by Western and reasonably
satisfactory to Auburn, from and against any liability, cost or expense,
including attorneys’ fees, incurred in connection with a breach of this
Section 3.17.


 


Section 3.18  Contracts.  (a) Schedule 3.18(a) to this Agreement contains a complete
and accurate written list of all agreements, obligations or understandings,
written and oral (each a “Contract” and collectively, the “Contracts”), each
involving payments or value in excess of $25,000, to which Auburn or any
Subsidiary is a party as of the date of this Agreement (true and complete
copies or, if none, reasonably complete and accurate written descriptions of
which, together with all amendments and supplements thereto and all waivers of
any terms thereof, have been made available to Western prior to the execution
of this Agreement), except for loans and other extensions of credit made by
Auburn or AC Bank in the ordinary course of its business and those items
specifically disclosed in the Auburn Financial Statements.


 


(b) Schedule 3.18(b)
contains a true and complete list of Contracts not terminable by Western upon
30 days (or less) notice by Western without penalty of at least $5,000 or
obligation to make payments totaling at least $5,000 based on such termination.


 


(c) Each Contract required
to be disclosed in Section 3.18(a) constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, and, to Auburn’s
Knowledge, no other party to such Contract, is nor has received notice that it
is, in violation or breach of or default under any such Contract, or with notice
or lapse of time or both, would be in violation or breach of or default under
any such Contract.


 


(d) Auburn is not a party to
or bound by any Contract that (i) automatically terminates or allows
termination by the other party thereto upon consummation of the transactions
contemplated by this Agreement, or (ii) contains any covenant or other
provision that limits Auburn’s or Western’s ability to compete with any Person
in a line of business or in any area or territory.


 


Section 3.19  Absence of Material Adverse Effect.  Since January 1, 2003, the respective
businesses of Auburn and its Subsidiaries, including AC Bank, have been
conducted only in the ordinary course, in the same manner as theretofore
conducted, and no event or circumstance has occurred or is expected to occur
which to Auburn’s Knowledge has had or which, with the passage of time or
otherwise, could reasonably be expected to have a Material Adverse Effect on
Auburn.


 


Section 3.20  Undisclosed Liabilities.  Except as disclosed on Schedule 3.20,
none of Auburn or any of its Subsidiaries to Auburn’s Knowledge has any
liabilities or obligations, either accrued, contingent or otherwise, that are
material to Auburn and its Subsidiaries and that have not been:  (a) reflected or disclosed in the Auburn
Financial Statements; or (b) incurred subsequent to December 31, 2002 in
the ordinary course of business.  Auburn
has no Knowledge of any basis for the assertion against Auburn, or any of its
Subsidiaries, of any liability, obligation or claim (including without
limitation that of any Governmental Entity) that will have or cause, or could
reasonably be expected to have or cause, a Material Adverse Effect on Auburn
that is not fully and fairly reflected and disclosed in the Auburn Financial
Statements or on Schedule 3.20.


 


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Section 3.21  Employees; Employee Benefit Plans; ERISA.


 


3.21.1  All material obligations of Auburn or its
Subsidiaries for payment to trusts or other funds or to any Governmental Entity
or to any individual, director, officer, employee or agent (or his or her
heirs, legatees or legal representatives) with respect to unemployment
compensation benefits, profit-sharing, pension or retirement benefits or social
security benefits, whether arising by operation of law, by contract or by past
custom, have been properly accrued for the periods covered thereby on the
Auburn Financial Statements and paid when due. 
All material obligations of Auburn or its Subsidiaries, whether arising
by operation of law, by contract or by past custom for vacation or holiday pay,
bonuses and other forms of compensation which are payable to their respective
directors, officers, employees or agents have been properly accrued on the
Auburn Financial Statements for the periods covered thereby and paid when
due.  Except as set forth on
Schedule 3.21.1, there are no unfair labor practice complaints, strikes,
slowdowns, stoppages or other controversies pending or, to the Knowledge of
Auburn, attempts to unionize or controversies threatened between Auburn or any
Subsidiary or Affiliate and or relating to, any of their employees that are
likely to have a Material Adverse Effect on Auburn and its Subsidiaries, taken
as a whole.  None of Auburn or any
Subsidiary is a party to any collective bargaining agreement with respect to
any of their employees and, except as set forth on Schedule 3.21.1, none
of Auburn or any Subsidiary is a party to a written employment contract with
any of their respective employees and there are no understandings with respect
to the employment of any officer or employee of Auburn or any Subsidiary which
are not terminable by Auburn or such Subsidiary without liability on not more
than thirty (30) days’ notice.  Except
as disclosed in the Auburn Financial Statements for the periods covered
thereby, all material sums due for employee compensation have been paid and all
employer contributions for employee benefits, including deferred compensation
obligations, and all material benefit obligations under any Employee Plan (as
defined in Section 3.21.3 hereof) or any Benefit Arrangement (as defined
in Section 3.21.4 hereof) have been duly and adequately paid or provided
for in accordance with plan documents. 
Except as set forth on Schedule 3.21.1, no director, officer or
employee of Auburn or any Subsidiary is entitled to receive any payment of any
amount under any existing agreement, severance plan or other benefit plan as a
result of the consummation of any transaction contemplated by this Agreement or
the Merger Agreement.  To Auburn’s
Knowledge, Auburn and its Subsidiaries have materially complied with all
applicable federal and state statutes and regulations which govern workers’
compensation, equal employment opportunity and equal pay, including, but not
limited to, all civil rights laws, Presidential Executive Order 1124, the Fair
Labor Standards Act of 1938, as amended, and the Americans with Disabilities
Act.


 


3.21.2 Auburn has delivered
as Schedule 3.21.2 a complete list of:


 


(a)                                  All current employees of Auburn or any of its
Subsidiaries together with each employee’s tenure with Auburn or such
Subsidiary, title or job classification, and the current annual rate of
compensation anticipated to be paid to each such employee; and


 


(b)                                 All Employee Plans and Benefit Arrangements,
including all plans or practices providing for current compensation or accruals
for active Employees, including, but not limited to, all employee benefit
plans, all pension, profit-sharing, retirement, bonus, stock option, incentive,
deferred compensation, severance, long-term disability, medical, dental,
health, hospitalization, life insurance or other insurance plans or related
benefits.


 


3.21.3  Except as disclosed on Schedule 3.21.3,
none of Auburn or any of its Subsidiaries maintains, administers or otherwise
contributes to any “employee benefit plan,” as defined in Section 3(3)
of  ERISA, which is subject to any
provisions of ERISA and covers any employee, whether active or retired, of
Auburn or any of its Subsidiaries (any such plan being herein referred to as an
“Employee Plan”).  True and complete
copies of each such Employee Plan, including amendments thereto, have been
previously delivered or made available to Western, together with (i) all
agreements regarding plan assets with respect to such Employee Plans, (ii) a
true and complete copy of the annual reports for the most recent three years
(Form 5500 Series including, if applicable, Schedules A and B thereto) prepared
in connection with any such Employee Plan, (iii) a true and complete copy of
the actuarial valuation reports for the most recent three years, if any,
prepared in connection with any such Employee Plan covering any active employee
of Auburn or its Subsidiaries, (iv) a copy of the most recent summary plan
description of each such Employee Plan, together with any modifications
thereto, and (v) a copy of the most recent favorable determination letter (if
applicable) from the Internal Revenue Service for each Employee Plan.  None of the Employee Plans is a “multiemployer
plan” as defined in Section 3(37) of ERISA or a “multiple employer plan”
as covered in Section 412(c) of the IRC, and none of Auburn or any of its
Subsidiaries has been obligated to make a contribution to any such
multiemployer or multiple employer plan within the past five years. 


 


19

















 


None
of the Employee Plans of Auburn or any of its Subsidiaries is, or for the last
five years has been, subject to Title IV of ERISA.  Each Employee Plan which is intended to be qualified under
Section 401(a) of the IRC is so qualified and each trust maintained
pursuant thereto is exempt from income tax under Section 501(a) of the
IRC, and none of Auburn or any of its Subsidiaries is aware of any fact which
has occurred which would cause the loss of such qualification or
exemption.  Except as disclosed in
Schedule 3.21.3, there are no Employee Plans or Benefit Arrangements as to
which, after the Closing, Western will be required to make any contributions or
with respect to which Western shall have any material obligation or liability
on behalf of any of the current employees of Auburn, or which Western will not
be able to terminate prior to or immediately after the Closing in accordance
with their terms and ERISA.


 


3.21.4  Except as disclosed in Schedule 3.21.4,
none of Auburn or any of its Subsidiaries maintains (other than base salary and
base wages) any form of current or deferred compensation, bonus, stock option,
stock appreciation right, severance pay, salary continuation, retirement or
incentive plan or arrangement for the benefit of any director, officer or
employee, whether active or retired, of Auburn or any of its Subsidiaries or
for any class or classes of such directors, officers or employees.  Except as disclosed in Schedule 3.21.4,
none of Auburn or any of its Subsidiaries maintains any group or individual
health insurance, welfare or similar plan or arrangement for the benefit of any
director, officer or employee of Auburn or any of its Subsidiaries, whether active
or retired, or for any class or classes of such directors, officers or
employees.  Any such plan or arrangement
described in this Section 3.21.4, copies of which have been delivered or
made available to Western, shall be herein referred to as a “Benefit
Arrangement.”


 


3.21.5  All Employee Plans and Benefit Arrangements
are operated in material compliance with the requirements prescribed by any and
all statutes, governmental or court orders, or governmental rules or
regulations currently in effect, including but not limited to ERISA and the
IRC, applicable to such plans or arrangements, and plan documents relating to
any such plans or arrangements, materially comply with or will be amended to
materially comply with applicable legal requirements.  None of Auburn or any of its Subsidiaries, nor any Employee Plan,
nor any trusts created thereunder, nor any trustee, administrator nor any other
fiduciary thereof, has engaged in a “prohibited transaction,” as defined in
Section 406 of ERISA and Section 4975 of the IRC, that could subject
Auburn or any of its Subsidiaries or Western to liability under
Section 409 or 502(i) of ERISA or Section 4975 of the IRC or that
would adversely affect the qualified status of such plans; each “plan official”
within the meaning of Section 412 of ERISA of each Employee Plan is bonded
to the extent required by such Section 412; with respect to each Employee
Plan, to Auburn’s Knowledge, no employee of Auburn or any Subsidiary, nor any
fiduciary of any Employee Plan, has engaged in any breach of fiduciary duty as
defined in Part 4 of Subtitle B of Title I of ERISA which could subject Auburn
or any of its Subsidiaries to liability if Auburn or any such Subsidiary is
obligated to indemnify such Person against liability.  Except as disclosed in Schedule 3.21.5, Auburn and its
Subsidiaries have not failed to make any material contribution or pay any
amount due and owing as required by law or the terms of any Employee Plan or
Benefit Arrangement.


 


3.21.6  Except as set forth on Schedule 3.21.6,
no Employee Plan or Benefit Arrangement has any material liability of any
nature, accrued or contingent, including, without limitation, liabilities for
federal, state, local or foreign taxes, interest or penalty other than
liability for claims arising in the course of the administration of each such
Employee Plan.  Except as set forth on
Schedule 3.21.6, to Auburn’s Knowledge there is no pending or threatened
legal action, proceeding or investigation against any Employee Plan which could
result in material liability to such Employee Plan, other than routine claims
for benefits, and there is no basis for any such legal action, proceeding or
investigation.


 


3.21.7  Each Benefit Arrangement which is a group
health plan (within the meaning of such term under IRC
Section 4980B(g)(2)) materially complies and has materially complied with
the requirements of Section 601 through 608 of ERISA or Section 4980B
of the IRC governing continuation coverage requirements for employee-provided
group health plans.


 


3.21.8  Except as disclosed in Schedule 3.21.8,
none of Auburn or any of its Subsidiaries maintains any Employee Plan or
Benefit Arrangement pursuant to which any benefit or other payment will be
required to be made by Auburn or any of its Subsidiaries or Affiliates or
pursuant to which any other benefit will accrue or vest in any director,
officer or employee of Auburn or any Subsidiary or Affiliate thereof, in either
case as a result of the consummation of the transactions contemplated by this
Agreement or the Merger Agreement.


 


20

















 


3.21.9  There have been no federal or state claims
based on sex, sexual or other harassment, age, disability, race or other
discrimination or common law claims, including claims of wrongful termination,
of which Auburn has notice by any employees or by any of the employees
performing work for Auburn but provided by an outside employment agency, and
there are no facts or circumstances known to Auburn that could reasonably be
expected to give rise to such complaint or claim.  Auburn has complied with all material respects with all laws
currently applicable to the employment of employees, and Auburn has not
received any notice of any claim that it has not complied in any material
respect with any laws, ordinances or regulations relating to the employment of
employees.


 


Section 3.22  Powers of Attorney.  No power of attorney or similar
authorization given by Auburn or any Subsidiary thereof is presently in effect
or outstanding other than powers of attorney given in the ordinary course of
business with respect to routine matters.


 


Section 3.23  Hazardous Materials.  Except as set forth on Schedule 3.23:


 


3.23.1  Except for ordinary and necessary quantities
of cleaning, pest control and office supplies, and other small quantities of
Hazardous Substances that are used in the ordinary course of the respective
businesses of Auburn and its Subsidiaries and in compliance with applicable
Environmental Laws, or ordinary rubbish, debris and nonhazardous solid waste
stored in garbage cans or bins for regular disposal off-site, or petroleum
contained in and de minimus quantities discharged from motor vehicles in their
ordinary operation on any of the Auburn Properties (as defined below), Auburn
and its Subsidiaries have not engaged in the generation, use, manufacture,
treatment, transportation, storage (in tanks or otherwise), or the disposal, of
Hazardous Substances other than as permitted by and only in compliance with
applicable law.  To Auburn’s Knowledge,
no material amount of Hazardous Substances have been released, emitted or
disposed of, or otherwise deposited, on, in or from any real property which is
now or has been previously owned since January 1, 2000, or which is
currently or during the past three years was leased, by Auburn or any of its
Subsidiaries, including OREO (collectively, the “Auburn Properties”), or to
Auburn’s Knowledge, on or in any real property in which Auburn or any of its
Subsidiaries now holds any security interest, mortgage or other lien or
interest with an underlying obligation in excess of $25,000 (“Auburn
Collateralizing Real Estate”), except for (i) matters disclosed on
Schedule 3.23; (ii) ordinary and necessary quantities of cleaning, pest
control and office supplies used and stored in compliance with applicable
Environmental Laws, or ordinary rubbish, debris and nonhazardous solid waste
stored in garbage cans or bins for regular disposal off-site, or petroleum
contained in, and de minimus quantities discharged from, motor vehicles in
their ordinary operation on such Auburn Properties; and (iii) such releases,
emissions, disposals or deposits which constituted a violation of an
Environmental Law but did not have a Material Adverse Effect on the Auburn
Property involved and would not result in the incurrence or imposition of any
liability, expense, penalty or fine against Auburn or any of its Subsidiaries
in excess of $25,000 individually or in the aggregate.  To Auburn’s Knowledge, no activity has been
undertaken on any of the Auburn Properties since January l, 2000, and to
the Knowledge of Auburn no activities have been or are being undertaken on any
of the Auburn Collateralizing Real Estate, that would cause or contribute to:


 


(a)                                  any of the Auburn Properties or Auburn Collateralizing
Real Estate becoming a treatment, storage or disposal facility within the
meaning of RCRA or any similar state law or local ordinance;


 


(b)                                 a release or threatened release of any
Hazardous Substances under circumstances which would violate any Environmental
Laws; or


 


(c)                                  the discharge of Hazardous Substances into
any soil, subsurface water or ground water or into the air, or the dredging or
filling of any waters, that would require a permit or any other approval under
the Federal Water Pollution Control Act, 33 U.S.C. §1251 et seq., the Clean Air
Act, as amended, 42 U.S.C. §7401 et seq., or any similar federal or state law
or local ordinance; the cumulative effect of which would have a material
adverse effect on the Auburn Property or Auburn Collateralizing Real Estate
involved.


 


3.23.2  To the Knowledge of Auburn, there are not,
and never have been, any underground storage tanks located in or under any of
the Auburn Properties or the Auburn Collateralizing Real Estate.


 


21

















 


3.23.3  None of Auburn or any of its Subsidiaries
has received any written notice of, and to the Knowledge of Auburn none has
received any verbal notice of, any pending or threatened claims,
investigations, administrative proceedings, litigation, regulatory hearings or
requests or demands for remedial or responsive actions or for compensation,
with respect to any of the Auburn Properties or Auburn Collateralizing Real
Estate, alleging noncompliance with or violation of any Environmental Law or
seeking relief under any Environmental Law and none of the Auburn Properties or
Auburn Collateralizing Real Estate is listed on the United States Environmental
Protection Agency’s National Priorities List of Hazardous Waste Sites, or, to
the Knowledge of Auburn, any other list, schedule, log, inventory or record of
hazardous waste sites maintained by any federal, state or local agency.


 


3.23.4 “Hazardous
Substances” shall mean any hazardous, toxic or infectious substance, material,
gas or waste which is regulated by any local, state or federal Governmental
Entity, or any of their agencies.


 


Section 3.24  Stock Options.   Schedule 3.24 to this Agreement
contains a description of the Auburn Stock Option Plan and list of all Auburn
Stock Options outstanding, indicating for each: (a) the grant date and
expiration date; (b) whether vested or unvested; (c) exercise price; and (d) a
vesting schedule by optionee.


 


Section 3.25 Parachute Payments.  Except as set forth in Schedule 3.25, the consummation of
the Merger will not entitle any director, officer, shareholder, independent
contractor or employee of Auburn to any payment that would constitute a
parachute payment under IRC 280G or would result in an excise tax to a
recipient of such payment under Section 4999 of the IRC.





 


Section 3.26  Affiliate Transactions.  Other than in the ordinary course of
Auburn’s business, (i) there are no Contracts or liabilities between Auburn and
any current or former officer, director or 10% or more shareholder, (ii) Auburn
does not provide or cause to be provided any assets, services or facilities to
any such current or former officer, director or shareholder, (iii) neither
Auburn nor any such current or former officer, director or shareholder provides
for fees or causes to be provided for fees any assets, services or facilities
to Auburn, and (iv) Auburn does not beneficially own, directly or directly any
debentures, notes, other evidence of indebtedness, stock, securities (including
rights to purchase and securities convertible into or exchangeable for other
securities), or interests in other assets of any such current or former
officer, director or shareholder.


 


Section 3.27  Risk Management Instruments.  Neither Auburn nor any Subsidiary of Auburn
is a party or has agreed to enter into an exchange traded or over-the-counter
equity, interest rate, foreign exchange or other swap, forward, future, option,
cap, floor or collar or any other contract that is not included on the balance
sheet and is a derivatives contract (including various combinations thereof)
(each, a “Derivatives Contract”) or owns securities that (i) are referred to
generally as “structured notes,” “high risk mortgage derivatives,” “capped
floating rate notes” or “capped floating rate mortgage derivatives,” or (ii)
are likely to have changes in value as a result of interest or exchange rate
changes that significantly exceed normal changes in value attributable to
interest or exchange rate changes, except for those Derivatives Contracts and
other instruments legally purchased or entered into in the ordinary course of
business consistent with safe and sound banking practices and regulatory
guidance.


 


Section 3.28  Liability Under Regulation C, Truth in
Lending Law and HMDA.  Auburn has no
liabilities or obligations, accrued, contingent or otherwise that are material
to Auburn with respect to Regulation C, Truth in Lending Law and HMDA
disclosures.


 


Section 3.29  Effective Date of Representations,
Warranties, Covenants and Agreements. 
Each representation, warranty, covenant and agreement of Auburn set
forth in this Agreement shall be deemed to be made on and as of the date hereof
and as of the Effective Time.


 


ARTICLE 4. 
REPRESENTATIONS AND WARRANTIES OF WESTERN


 


Western represents and
warrants to Auburn that:


 


Section 4.1  Organization; Corporate Power; Etc.  Western is a California corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power


 


22

















 


and
authority to own, lease and operate its properties and assets and to carry on
its business substantially as it is being conducted on the date of this
Agreement.  Western is a bank holding
company registered under the BHCA.  Each
of Western’s Subsidiaries has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business
substantially as it is being conducted on the date of this Agreement, except
where the failure to have such power or authority would not have a Material
Adverse Effect on Western taken as a whole or the ability of Western to
consummate the transactions contemplated by this Agreement.  Western has all requisite corporate power
and authority to enter into this Agreement and, subject to obtaining all
Requisite Regulatory Approvals, Western will have the requisite corporate power
and authority to perform its respective obligations hereunder with respect to
the consummation of the transactions contemplated hereby.  Neither the scope of business of Western or
any Subsidiary, nor the location of any of their respective properties,
requires that Western or any of its respective Subsidiaries be licensed to
conduct business in any jurisdiction other than those jurisdictions in which
they are licensed or qualified to do business as a foreign corporation, where
the failure to be so licensed or qualified would, individually or in the
aggregate, have a Material Adverse Effect on Western taken as a whole.


 


Section 4.2  Licenses and Permits.  Except as disclosed on Schedule 4.2,
Western and its Subsidiaries have all material licenses, certificates,
franchises, rights and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect, except
for any failure to be in full force and effect that would not, individually or
in the aggregate, have a Material Adverse Effect on Western taken as a whole,
or on the ability of Western to consummate the transactions contemplated by
this Agreement.  The properties, assets,
operations and businesses of Western and those of its Subsidiaries are and have
been maintained and conducted, in all material respects, in compliance with all
applicable licenses, certificates, franchises, rights and permits.


 


Section 4.3  Authorization of Agreement; No Conflicts.


 


4.3.1  The execution and delivery of this Agreement
and the Merger Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Western.  This Agreement
has been duly executed and delivered by Western and constitutes a legal, valid
and binding obligation of Western, enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally
and by general equitable principles. 
The Merger Agreement, upon the receipt of all Requisite Regulatory Approvals
and the due execution and filing of such Merger Agreement in accordance with
the applicable provisions of the California Corporations Code, will constitute
a legal, valid and binding obligation of Western, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the rights
of creditors generally or by general equitable principles.


 


4.3.2 Except as discussed on
Schedule 4.3, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby does not and will not
conflict with, or result in any violation of or default or loss of a material
benefit under, any provision of the Articles of Incorporation or Bylaws of
Western, or except for the necessity of obtaining the Requisite Regulatory
Approvals, any material mortgage, indenture, lease, agreement or other material
instrument, or any permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Western or any of its assets or properties or any of its Subsidiaries, other
than any such conflict, violation, default or loss which (i) will not have a
Material Adverse Effect on Western taken as a whole; or (ii) will be cured or
waived prior to the Effective Time.  No
material consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required in connection
with the execution and delivery of this Agreement by Western or the performance
by Western of its obligations hereunder, except for (a) filings required in
order to obtain Requisite Regulatory Approvals; (b) the filing of the
Registration Statement (including the Proxy Statement/Prospectus constituting a
part thereof) with the SEC relating to the Merger and the declaration of
effectiveness of the Registration Statement by the SEC and any applicable state
securities law regulatory authorities; (c) the filing and approval of the
Merger Agreement with the Secretary of the State of California; (d) any
approvals required to be obtained pursuant to the BHCA or the Federal Deposit
Insurance Act or any other required governmental approval for the execution and
delivery of this Agreement by Western or the consummation of the Merger; and
(e) any consents, authorizations, approvals, filings or exemptions required to
be made or obtained under the securities or “blue sky” laws of various
jurisdictions in connection with the issuance of shares of Western Common Stock
contemplated by this Agreement.


 


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Section 4.4  Capital Structure of Western.  The authorized capital stock of Western
consists of 10,000,000 shares of Western Common Stock, no par value per share
and 10,000,000 shares of Western preferred stock.  On August 1, 2003, 4,600,760 shares of Western Common Stock
were outstanding, 420,796 shares of Western Common Stock were reserved for
issuance pursuant to employee stock option and other employee stock plans (the
“Western Stock Plans”), and no shares of Western preferred stock were
outstanding or were reserved for issuance by Western.  All outstanding shares of Western Common Stock are validly
issued, fully paid and nonassessable and do not possess any preemptive rights
and were not issued in violation of any preemptive rights or any similar rights
of any Person.  The issuance of the
shares of Western Common Stock proposed to be issued pursuant to this Agreement
at the Effective Time will have been duly authorized by all requisite corporate
action of Western, and such shares, when issued as contemplated by this
Agreement, will constitute duly authorized, validly issued, fully paid and
nonassessable shares of Western Common Stock, and will not have been issued in
violation of any preemptive or similar rights of any Person.  As of the date of this Agreement, and except
for this Agreement and the Western Stock Plans, Western does not have
outstanding any options, warrants, calls, rights, commitments, securities or
agreements of any character to which Western is a party or by which it is bound
obligating Western to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of Western or obligating Western to
grant, extend or enter into any such option, warrant, call, right, commitment
or agreement.


 


Section 4.5  Western Filings.


 


4.5.1  Since January 1, 2000, Western and its
Subsidiaries have filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that were
required to be filed with (a) the Federal Reserve Board or any Federal Reserve
Bank; (b) the SEC; and (c) any other applicable federal, state or local
governmental or regulatory authority. 
All such reports, registrations and filings including the Western
Financial Statements are collectively referred to as the “Western
Filings.”  Except to the extent
prohibited by law, copies of the Western Filings have been made available to
Auburn.  As of their respective filing
or mailing dates, each of the past Western Filings (a) was true and complete in
all material respects (or was amended so as to be so promptly following
discovery of any discrepancy); and (b) complied in all material respects with
all of the statutes, rules and regulations enforced or promulgated by the
governmental or regulatory authority with which it was filed (or was amended so
as to be so promptly following discovery of any such noncompliance) and none
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The Western Financial
Statements, together with the financial statements contained in the Western
Filings, have been prepared in accordance with GAAP, or applicable regulatory
accounting principles, applied on a consistent basis during the period involved
(except as may be indicated in the notes thereto) and fairly present (subject,
in the case of the unaudited statements, to recurring adjustments normal in
nature and amount) the consolidated financial position of Western as of the
dates thereof and the consolidated results of its operations, cash flows and
changes in shareholders’ equity for the period then ended.


 


4.5.2  Western has filed each report, schedule, and
amendments to each of the foregoing since January 1, 2000 that Western was
required to file with the Federal Reserve Bank (the “Western Documents”), all
of which have been made available to Auburn. 
As of their respective dates, the Western Documents complied in all
material respects with the applicable requirements of the BHCA and the rules
and regulations of the Federal Reserve Bank thereunder applicable to such
Western Documents, and none of the Western Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  The financial statements of Western included
in the Western Filings comply in all material respects with applicable
accounting requirements and have been prepared in accordance with GAAP, or
applicable regulatory accounting principles, applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto,
or in the case of the unaudited statements, as permitted by regulations of the
Federal Reserve Bank), and fairly present (subject, in the case of the
unaudited statements, to recurring adjustments normal in nature and amount) the
consolidated financial position of Western as of the dates thereof and the
consolidated results of its operations and cash flows or changes in financial
position for the periods then ended.


 


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Section 4.6  Accuracy of Information Supplied.


 


4.6.1  No representation or warranty of Western
contained herein or any statement, schedule, exhibit or certificate given or to
be given by or on behalf of Western or any of its Subsidiaries to Auburn in
connection herewith and none of the information supplied or to be supplied by
Western or any of its Subsidiaries to Auburn hereunder to the best of Western’s
Knowledge contains or will contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.


 


4.6.2  None of the information supplied or to be
supplied by Western or relating to Western which is included or incorporated by
reference in (i) the Registration Statement on Form S-4 to be filed with the
SEC by Western in connection the issuance of shares of Western Common Stock in
the Merger will, at the time the Registration Statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) the Proxy Statement/Prospectus and any amendment or
supplement thereto will, at all times from the date of mailing to shareholders
of Auburn through the date of the meeting of shareholders of Auburn to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; and (iii) the applications and forms to be filed
with securities or “blue sky” authorities, self regulatory authorities, or any
Governmental Entity in connection with the Merger, the issuance of any shares
of Western Common Stock in connection with the Merger, or any Requisite
Regulatory Approvals will, at the time filed or at the time they become
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The Registration Statement
(except for such portions thereof that relate only to Auburn and its
Subsidiaries) will comply in all material respects with the applicable
provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder.


 


4.6.3  Western has delivered or will deliver to
Auburn copies of:  (a) the audited
balance sheets of Western and its Subsidiaries as of December 31, 2002,
2001 and 2000 and the related statements of income, changes in shareholders’
equity and cash flows for the years then ended and the related notes to such
financial statements, all as audited by Perry-Smith LLP, independent public
accountants (the “Western Financial Statements”), and Western will hereafter
until the Closing Date deliver to Auburn copies of additional financial
statements of Western as provided in Section 5.1.1(iii).  The Western Financial Statements have been
prepared (and all of said additional financial statements will be prepared) in
accordance with GAAP, or applicable regulatory accounting principles, applied
on a consistent basis during the periods involved (except as may be indicated
in the notes thereto) consistently followed throughout the periods covered by
such statements, and present (and, when prepared, will present) fairly the
financial position of Western and its Subsidiaries as of the respective dates
and for the respective periods covered by such financial statements (subject,
in the case of the unaudited statements, to recurring adjustments normal in
nature and amount).  In addition,
Western has delivered or made available to Auburn copies of all management or
other letters delivered to Western by its independent accountants in connection
with any of the Western Financial Statements or by such accountants or any
consultant regarding the internal controls or internal compliance procedures
and systems of Western issued at any time since January 1, 2000, and will
make available for inspection by Auburn or its representatives, at such times
and places as Auburn may reasonably request, reports and working papers
produced or developed by such accountants or consultants.


 


Section 4.7  Compliance With Applicable Laws.  Except as disclosed on Schedule 4.7, to
the best of Western’s Knowledge, the respective businesses of Western and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation, except for violations which individually or in the aggregate would
not have a Material Adverse Effect on Western and its Subsidiaries, taken as a
whole.  No investigation or review by
any Governmental Entity with respect to Western is pending or, to the Knowledge
of Western, threatened, nor has any Governmental Entity indicated to Western an
intention to conduct the same, other than those the outcome of which, as far as
can be reasonably foreseen, will not have a Material Adverse Effect on Western
and its Subsidiaries, taken as a whole.


 


Section 4.8  Litigation.  Except as set forth in Schedule 4.8, to the Knowledge of
Western there is no suit, action or proceeding or investigation pending or
threatened against or affecting Western which, if adversely determined, would
have a Material Adverse Effect on Western, taken as a whole; nor is there any
judgment, decree,


 


25

















 


injunction,
rule or order of any Governmental Entity or arbitrator outstanding against
Western or its Subsidiaries, that has, or which, insofar as reasonably can be
foreseen, in the future would have, any such Material Adverse Effect.  Schedule 4.8 contains a true, correct
and complete list, including identification of the applicable insurance policy
covering such litigation, if any, subject to reservation of rights, if any, the
applicable deductible and the amount of any reserve therefor, of all pending
litigation in which Western or its Subsidiaries, is a named party of which
Western has Knowledge, and except as disclosed on Schedule 4.8, all of the
litigation shown on such Schedule is adequately covered by insurance in
force, except for applicable deductibles, or has been adequately reserved for
in accordance with Western’s prior business practices.


 


Section 4.9  Agreements with Banking Authorities.  Neither Western nor any Subsidiary of
Western is a party to any written agreement or memorandum of understanding
with, or order or directive from, any Governmental Entity.


 


Section 4.10  Performance of Obligations.  Western and its Subsidiaries have performed
all material obligations required to be performed by them to date and none of
Western or any of its Subsidiaries is in material default under or in breach of
any term or provision of any covenant, contract, lease, indenture or any other
agreement, written or oral, to which any is a party, is subject or is otherwise
bound, and no event has occurred that, with the giving of notice or the passage
of time or both, would constitute such a default or breach, where such default
or breach or failure to perform would have a Material Adverse Effect on Western
and its Subsidiaries, taken as a whole. 
To Western’s Knowledge, and except as disclosed on Schedule 4.10,
no party with whom Western or any of its Subsidiaries has an agreement that is
of material importance to the business of Western and its Subsidiaries, taken
as a whole, is in default thereunder.


 


Section 4.11  Absence of Material Adverse Effect.  Since January 1, 2003, the respective
businesses of Western and its Subsidiaries have been conducted only in the ordinary
course, in substantially the same manner as theretofore conducted, and no event
or circumstance has occurred or is expected to occur which to Western’s
Knowledge has had or which, with the passage of time or otherwise, could
reasonably be expected to have a Material Adverse Effect on Western and its
Subsidiaries, taken as a whole.


 


Section 4.12  Undisclosed Liabilities.  Except as disclosed on Schedule 4.12,
none of Western or any of its Subsidiaries to Western’s Knowledge has any
liabilities or obligations, either accrued, contingent or otherwise, that are
material to Western and its Subsidiaries, taken as a whole, and that have not
been: (a) reflected or disclosed in the Western Financial Statements; or (b)
incurred subsequent to December 31, 2002 in the ordinary course of
business.  Western has no Knowledge of
any basis for the assertion against Western or any of its Subsidiaries, of any
liability, obligation or claim (including without limitation that of any
Governmental Entity) that will have or cause, or could reasonably be expected
to have or cause, a Material Adverse Effect on Western and its Subsidiaries,
taken as a whole, that is not fairly reflected in the Western Financial
Statements or on Schedule 4.12.


 


Section 4.13  Effective Date of Representations,
Warranties, Covenants and Agreements. 
Each representation, warranty, covenant and agreement of Western set
forth in this Agreement shall be deemed to be made on and as of the date hereof
and as of the Effective Time.


 


ARTICLE 5. 
ADDITIONAL AGREEMENTS


 


Section 5.1  Access to Information, Due Diligence, etc.


 


5.1.1  Upon reasonable notice, each party shall
permit the other party and its accountants, counsel and other representatives
reasonable access to their officers, employees, properties, books, contracts,
commitments and records and from the date hereof through the Effective Time,
and shall furnish or provide access to each other as soon as practicable, (i) a
copy of each of Auburn’s Filings or Western’s Filings filed subsequent to the
date of this Agreement promptly after such document has been filed with the
appropriate Governmental Entity, provided, however, that copies of any Returns
relating to Taxes of Auburn or any of its Subsidiaries shall be furnished to
Western at least 15 Business Days prior to the proposed date of filing thereof
and shall not be filed without the prior approval of Western, which approval
shall not be unreasonably withheld or delayed; (ii) unless otherwise prohibited
by law, a copy of each report, schedule and other documents filed or
received by it during such period with any


 


26

















 


Regulatory
Authority or the Internal Revenue Service, as to documents other than related
to employees or customers and other than those distributed to banks generally;
(iii) as promptly as practicable following the end of each calendar month after
the date hereof, a balance sheet of Auburn or Western as of the end of such
month; and (iv) all other information concerning its business, properties,
assets, financial condition, results of operations, liabilities, personnel and
otherwise as Auburn or Western may reasonably request.


 


5.1.2  Until the Effective Time, a representative
of Western shall be entitled and shall be invited to attend meetings of the
Boards of Directors of Auburn, at least five (5) days’ prior to written notice
of the dates, times and places of such meetings shall be given to Western
except that in the case of special meetings Western shall receive the same
number of days’ prior notice as Auburn’s directors receive for such meetings;
provided, however, that such representative shall excuse himself or herself
from any portion of any such meetings that (i) relate to approval of, or the
exercise of any rights under, this Agreement by Auburn, (ii) involve
discussions between such Boards of Directors or such Loan Committees and legal
counsel for Auburn  that are entitled to
be protected from disclosure under an attorney-client privilege which would be
lost due to the presence of such representative of Western, or (iii) constitute
the Executive Session of any Board of Directors meeting.


 


5.1.3  Western and Auburn each agrees to keep
confidential and not divulge to any other party or Person (other than to the
employees, attorneys, accountants and consultants of each who have a need to
receive such information and other than as may be required by law) any
information received from the other, unless and until such documents and other
information otherwise becomes publicly available or unless the disclosure of
such information is authorized by each party. 
In the event of termination of this Agreement for any reason, the
parties shall promptly return, or at the election of the other party destroy,
all nonpublic documents obtained from the other and any copies or notes of such
documents (except as otherwise required by law) and, upon the request of the
other party, confirm such destruction to the other in writing.


 


Section 5.2  Shareholder Approval.


 


5.2.1  Auburn shall promptly call a meeting of its
shareholders to be held at the earliest practicable date after the date on
which the initial Registration Statement is filed with the SEC, but in no event
later than December 31, 2003, for the purpose of approving this Agreement
and authorizing the Merger Agreement and the Merger.  Auburn’s Board of Directors will recommend to its shareholders
approval of this Agreement, the Merger Agreement and the Merger; provided,
however, that Auburn’s Board of Directors may withdraw its recommendation if
such Board of Directors believes in good faith (based on a written opinion of a
financial advisor that is experienced in evaluating the fairness of Acquisition
Proposals) that an Auburn Superior Proposal (defined below) has been made and
shall have determined in good faith, after consultation with and based on
written advice of its outside legal counsel, that the withdrawal of such
recommendation is necessary for such Board of Directors to comply with its
fiduciary duties under applicable law.


 


5.2.2  If the Merger is approved by vote of the
shareholders of Auburn, then, within ten (10) days thereafter Auburn shall send
a Dissenting Shareholder Notice to each recordholder of any Dissenting Shares.


 


Section 5.3  Taking of Necessary Action.


 


5.3.1  Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees, subject to applicable laws and
the fiduciary duties of Auburn’s or Western’s Boards of Directors, as advised
in writing by their respective counsel, to use all reasonable efforts promptly
to take or cause to be taken all action and promptly to do or cause to be done
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement and the Merger Agreement, including, without limitation, the delivery
of any certificate or other document reasonably requested by counsel to a party
to this Agreement.  Without limiting the
foregoing, Western and Auburn will use their reasonable efforts to obtain all
consents of third parties and Government Entities necessary or, in the
reasonable opinion of Western or Auburn advisable for the consummation of the
transactions contemplated by this Agreement. 
Without limiting the foregoing, Western shall take all actions necessary
to execute and file the Merger Agreement and to effect all transactions


 


27

















 


contemplated
by this Agreement and Auburn shall take all actions necessary to effect all
transactions contemplated by this Agreement and the Merger Agreement.  In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the Merger Agreement, or to vest the Surviving Corporation with full
title to all properties, assets, rights, approvals, immunities and franchises
of Auburn, the proper officers or directors of Western or Auburn, as the case
may be, shall take all such necessary action.


 


5.3.2  The obligations of Auburn contained in
Section 6.2.5 of this Agreement shall continue to be in full force and
effect despite any Default under Section 6.2.5 or Auburn’s receipt of an
Auburn Superior Proposal (defined below) and any Default under
Section 6.2.5 by Auburn shall entitle Western to such legal or equitable
remedies as may be provided in this Agreement or by law notwithstanding that
any action or inaction of the Board of Directors or officers of the defaulting
party which is required to enable such party to fulfill such obligations may be
excused based on the continuing fiduciary obligations of such party’s Board of
Directors and officers to its shareholders. 
Notwithstanding the foregoing, however, in the event of a termination of
this Agreement by Western or Auburn and the actual payment of the liquidated
damages to the other party as provided for in Section 8.5 of this
Agreement, neither Western, Auburn or their respective directors or officers
shall have any obligations or liabilities of any kind under this Agreement by
reason of any such Default, and Western or Auburn shall have no further
obligations of any kind under this Agreement.


 


5.3.3  Auburn shall use its best efforts to cause
each director, executive officer and other Person who is an “Affiliate” of
Auburn (for purposes of Rule 145 under the Securities Act) to deliver to
Western, on the date of this Agreement, a written agreement in the form
attached hereto as Exhibit 5.3 (the “Affiliate Agreements”).


 


Section 5.4  Registration Statement and Applications.


 


5.4.1  Western and Auburn will cooperate and
jointly prepare and file as promptly as practicable the Registration Statement,
the statements, applications, correspondence or forms to be filed with
appropriate tate securities law regulatory authorities, and the statements,
correspondence or applications to be filed to obtain the Requisite Regulatory
Approvals to consummate the transactions contemplated by this Agreement.  Each of Western and Auburn shall use all
reasonable efforts to have the S-4 Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing, and
thereafter mail the Proxy Statement/Prospectus to the shareholders of
Auburn.  Each party will furnish all
financial or other information, including accountant comfort letters relating thereto,
certificates, consents and opinions of counsel concerning it and its
Subsidiaries received by such party.


 


5.4.2  Each party shall provide to the other at the
request of the other party: (i) immediately prior to the filing thereof, copies
of all material statements, applications, correspondence or forms to be filed
with state securities law regulatory authorities, the SEC and other appropriate
regulatory authorities to obtain the Requisite Regulatory Approvals to
consummate the transactions contemplated by this Agreement; provided, however,
that no approval need be obtained from any party to which such materials are
provided; and (ii) promptly after delivery to, or receipt from, such regulatory
authorities all written communications, letters, reports or other documents
relating to the transactions contemplated by this Agreement.


 


Section 5.5  Expenses.


 


5.5.1  Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring the same,
including, without limitation, all costs associated with any resales of Western
Common Stock by Affiliates of Auburn; provided, however, that Western will file
on a timely basis at its own expense the reports required by Rule 144(c) of the
Securities Act.


 


5.5.2  Auburn and Western shall use their best
efforts to ensure that their attorneys, accountants, financial advisors,
investment bankers and other consultants engaged by them in connection with the
transaction contemplated by this Agreement submit full and final bills on or
before the Determination Date and that all such expenses are paid or properly
accrued prior to the Determination Date.


 


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Section 5.6  Notification of Certain Events .


 


5.6.1  Auburn shall provide to Western, as soon as
practicable, written notice (sent via facsimile and overnight mail or courier)
of the occurrence or failure to occur of any of the events, circumstances or
conditions that are the subject of Sections 6.1 and 6.2, which notice shall
provide reasonable detail as to the subject matter thereof.


 


5.6.2  Western shall provide to Auburn, as soon as
practicable, written notice (sent via facsimile and overnight mail or courier)
of the occurrence or failure to occur of any of the events, circumstances or
conditions that are the subject of Section 6.3 and 6.4, which notice shall
provide reasonable detail as to the subject matter thereof.


 


5.6.3  Each party shall promptly advise the others
in writing of any change or event which could reasonably be expected to have a
Material Adverse Effect on the business, properties, assets, financial
condition, results of operations, liabilities or personnel of such party or on
its ability to consummate the transactions contemplated by this Agreement or
the Merger Agreement.


 


5.6.4  Auburn and Western shall immediately notify
the other in writing in the event that such party becomes aware that the
Registration Statement or Proxy Statement/Prospectus at any time contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statement therein, in
light of the circumstances under which they were made, not misleading or that
the Registration Statement or the Proxy Statement/Prospectus otherwise is
required to be amended and supplemented, which notice shall specify, in
reasonable detail, the circumstances thereof. 
Western shall promptly amend and supplement such materials and
disseminate the new or modified information so as to fully comply with the
Securities Act.  If the amendment or
supplement so required relates to information concerning Auburn, the
out-of-pocket costs and expenses of preparing, filing and disseminating such
amendment or supplement shall be borne by Auburn.


 


Section 5.7  Closing Schedules.  Auburn has delivered to Western on or before
the date of this Agreement all of the Schedules to this Agreement which Auburn
is required to deliver to Western hereunder (the “Auburn Schedules”).  Western has delivered to Auburn on or before
the date of this Agreement all of the Schedules to this Agreement which Western
is required to deliver to Auburn hereunder (the “Western Schedules”).  Immediately prior to the Closing Date,
Auburn shall have prepared updates of the Auburn Schedules provided for in this
Agreement and shall deliver to Western revised schedules containing the updated
information (or a certificate signed by Auburn’s Chief Executive Officer
stating that there have been no changes on the applicable schedules); and
Western shall have prepared updates of the Western Schedules provided for in
this Agreement and shall deliver to Auburn revised Schedules containing updated
information (or a certificate signed by Western’s Chief Executive Officer
stating that there has been no change on the applicable schedules).  Such updated schedules shall sometimes be
referred to collectively, as the “Closing Schedules.”  The Closing Schedules shall be dated as of the day prior to the
Closing Date and shall contain information as of the day prior to the Closing
Date or as of such earlier date as is practicable under the circumstances.  In the event the Closing Schedules disclose
an event, occurrence or circumstance that has had or could reasonably be
expected to have a Material Adverse Effect on Auburn, on the one hand, or on
Western, on the other hand, or on consummation of the transactions contemplated
by this Agreement, that was not disclosed in the previously delivered Schedules
hereto, the party delivering such Closing Schedules (the “Affected Party”)
shall so notify the other party in the letter of transmittal for such Closing
Schedules, the Closing Date shall be delayed for seven (7) Business Days and
such other party shall be entitled to terminate this Agreement within five (5)
Business Days after receiving such Closing Schedules that disclose such event,
occurrence or circumstance.  In the
event of any such termination, the terminating party shall have no liability
for such termination.  The Affected
Party shall have no liability to the terminating party in such an event unless
(i) as a result of the existence of such event, occurrence or circumstance so
disclosed in the Closing Schedules any of the representations or warranties of
the Affected Party contained in this Agreement are found to have been untrue in
any material respect as of the date of this Agreement, or (ii) the event,
occurrence or circumstance could have been prevented in the exercise of
reasonable diligence by any officers or directors of the Affected Party, in
either of which cases the Affected Party shall be liable to the terminating
party for Liquidated Damages as provided in Section 8.5 hereof.


 


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Section 5.8  Additional Accruals/Appraisals.  Prior to the Closing Date, but after the
Determination Date, at Western’s request, Auburn and/or AC Bank shall,
consistent with GAAP and applicable banking regulations, establish such
additional accruals and reserves immediately prior to the Determination Date as
may be necessary to conform Auburn’s or AC Bank’s accounting and credit and
OREO loss reserve practices and methods to those of Western, provided, however,
that no accrual or reserve made by Auburn or AC Bank pursuant to this
Section 5.8, or any litigation or regulatory proceeding arising out of any
such accrual or reserve, or any other effect on Auburn or AC Bank resulting
from Auburn’s or AC Bank’s compliance with this Section 5.8, shall constitute
or be deemed to be a breach, violation of or failure to satisfy any
representation, warranty, covenant, condition or other provision of this
Agreement or otherwise be considered in determining whether any such breach,
violation or failure to satisfy shall have occurred.


 


ARTICLE 6. 
CONDUCT OF BUSINESS


 


Section 6.1  Affirmative Conduct of Auburn .  During the period from the date of execution
of this Agreement through the Effective Time, Auburn shall carry on its
business, and shall cause each of its respective Subsidiaries to carry on its
business, in the ordinary course in substantially the manner in which
heretofore conducted, subject to changes in law applicable to all national
banks or all member banks insured by the FDIC and directives from regulators,
and use all commercially reasonable efforts to preserve intact its business
organization, keep available the services of its officers and employees, (other
than terminations in the ordinary course of business) and preserve its
relationships with customers, depositors, suppliers and others having business
dealings with it; and, to these ends, shall fulfill each of the following:


 


6.1.1  Use its commercially reasonable efforts, or
cooperate with others, to expeditiously bring about the satisfaction of the
conditions specified in Article 7 hereof;


 


6.1.2  Advise Western promptly in writing of any
change that would have a Material Adverse Effect on its capital structure,
financial condition, assets, results of operations, business or prospects or of
any matter which would make the representations and warranties set forth in
Article 3 hereof not true and correct in any material respect as of the
effective date of the Registration Statement and at the Effective Time;


 


6.1.3  Keep in full force and effect all of its
existing material permits and licenses and those of its Subsidiaries;


 


6.1.4  Use its commercially reasonable efforts to
maintain insurance or bonding coverage on all material properties for which it
is responsible and on its business operations, and carry not less than the same
coverage for fidelity, public liability, personal injury, property damage and
other risks equal to that which is in effect as of the date of this Agreement;
and notify Western in writing promptly of any facts or circumstances which could
affect its ability, or that of any of its Subsidiaries, to maintain such
insurance or bonding coverage;


 


6.1.5  Perform its contractual obligations and not
breach or come into default on any of such obligations, and not amend, modify,
or, except as they may be terminated in accordance with their terms, terminate
any material contract, agreement, understanding, commitment, or offer, whether
written or oral, (collectively referred to as an “Understanding”) or materially
default in the performance of any of its obligations under any Understanding
where such default would have a Material Adverse Effect on Auburn;


 


6.1.6  Duly observe and conform to all legal
requirements applicable to its business, except for any failure to so observe
and conform that would not, individually or in the aggregate, and, in the
future will not, have a Material Adverse Effect on Auburn;


 


6.1.7  Duly and timely file as and when due all
reports and Returns required to be filed with any Governmental Entity;


 


6.1.8  Maintain its tangible assets and properties
in good condition and repair, normal wear and tear excepted in accordance with
prior practices;


 


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6.1.9  Promptly advise Western in writing of any
event or any other transaction within the Knowledge of Auburn, whereby any
Person or related group of Persons acquires, after the date of this Agreement,
directly or indirectly, record or beneficial ownership (as defined in Rule
13d-3 promulgated by the SEC pursuant to the Exchange Act) or control of 5% or
more of the outstanding shares of Auburn Common Stock either prior to or after
the record date fixed for the Auburn shareholders’ meeting or any adjourned
meeting thereof to approve the transactions contemplated herein;


 


6.1.10 (a)                                                 Maintain a reserve for loan and lease losses
(“Loan Loss Reserve”) at a level which is adequate to provide for all known and
reasonably expected losses on loans, leases and other extensions of credit
outstanding and other inherent risks in Auburn’s or AC Bank’s portfolio of
loans and leases, in accordance with GAAP and applicable regulatory accounting
principles and banking laws and regulations;


 


(b)                                 Charge off all loans, receivables and other
assets, or portions thereof, deemed uncollectible in accordance with GAAP,
regulatory accounting principles, and applicable law or regulation, or which
have been classified as “loss” or as directed by any regulatory authority,
unless such classification or direction has been disregarded in good faith by
Auburn or AC Bank, Auburn or AC Bank has submitted in writing to such
regulatory authority the basis upon which it has so disregarded such
classification or direction, and such regulatory authority retracts its
direction requiring such charge-off;


 


6.1.11  Furnish to Western, as soon as practicable,
and in any event within five days after it is prepared, or concurrent with
distribution to the Board of Directors or any committees thereof if prepared
for such purpose: (i) a copy of any report or agenda submitted to the Board of
Directors of Auburn or AC Bank or any of their committees and access to the
working papers and materials related thereto prepared for and distributed to
the Board of Directors, whether prior to, at or subsequent to a meeting,
provided, however, that Auburn need not furnish Western any materials relating
to deliberations of Auburn’s Board of Directors or AC Bank’s Board of Directors
with respect to its approval of this Agreement, communications of Auburn’s
legal counsel with the Board of Directors or officers of Auburn regarding
Auburn’s rights against or obligations to Western or its Subsidiaries under
this Agreement, or books, records and documents covered by the attorney-client
privilege or which are attorneys’ work product; (ii) copies of all material reports,
renewals, filings, certificates, statements, correspondence and other documents
specific to Auburn or AC Bank or filed with or received from any Federal
Reserve Bank, the CDFI, the FDIC or any Governmental Entity; (iii) monthly
unaudited balance sheets, statements of income and changes in shareholders’
equity for Auburn and AC Bank and quarterly unaudited balance sheets,
statements of income and changes in shareholders’ equity for Auburn and AC
Bank, in each case prepared on a basis consistent with past practice; and (iv)
such other reports as Western may reasonably request (which are otherwise
deliverable under this Section 6.1.11) relating to Auburn.  Each of the financial statements of Auburn
or AC Bank delivered pursuant to this Section 6.1.11 shall be accompanied
by a certificate of the Chief Financial Officer of Auburn or AC Bank to the
effect that such financial statements fairly present the financial information
presented therein of Auburn or AC Bank, for the periods covered, subject to
recurring adjustments normal in nature and amount, necessary for a fair
presentation and are prepared on a basis consistent with past practice.  Any Board or committee materials to be
concurrently distributed to Western pursuant to this Section 6.1.11 shall
be delivered via facsimile to Gary D. Gall at the number listed in
Section 9.2 hereof;


 


6.1.12  Auburn agrees that through the Effective
Time, as of their respect dates, (i) each Auburn Filing will be true and
complete in all material respects; and (ii) each Auburn Filing will comply in
all material respects with all of the statutes, rules and regulations enforced
or promulgated by the Governmental Entity with which it will be filed and none
will contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they will be made, not
misleading.  Any financial statement
contained in any of such Auburn Filings that is intended to present the
financial position of Auburn during the periods involved to which it relates
will fairly present in all material respects the financial position of Auburn
and will be prepared in accordance with GAAP or consistent with applicable
regulatory accounting principles and banking law and banking regulations,
except as stated therein;


 


6.1.13  Maintain reserves for contingent liabilities
in accordance with GAAP or applicable regulatory accounting principles and
consistent with past practices;


 


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6.1.14  Promptly notify Western of the filing, or
threatened filing, of any litigation, or the filing or threatened filing of any
government or regulatory action, including an investigation or notice of
investigation, or similar proceeding or notice of any material claims against
Auburn or any of its assets;


 


6.1.15  Inform Western of the amounts and categories
of any loans, leases or other extensions of credit, or other assets, that have
been classified by any bank regulatory authority or by any unit of AC Bank as
“Specially Mentioned,” “Renegotiated,” “Substandard,” “Doubtful,” “Loss” or any
comparable classification (“Classified Assets”).  Auburn will furnish to Western, as soon as practicable, and in
any event within fifteen days after the end of each calendar month, schedules
including the following: (i) Classified Assets by type (including each credit
or other asset in an amount equal to or greater than $10,000), and its
classification category; (ii) nonaccrual credits by type (including each credit
in an amount equal to or greater than $10,000); (iii) renegotiated loans by
type (loans on which interest has been renegotiated to lower than market rates
because of the financial condition of the borrowers); (iv) delinquent credits
by type (including each delinquent credit in an amount equal to or greater than
$10,000), including an aging into 30-89 and 90+ day categories; (v) loans or
leases or other assets charged off, in whole or in part, during the previous
month by type (including each such loan or lease or other asset in an amount
equal to or greater than $10,000); and (vi) OREO or assets owned stating with
respect to each its type;


 


6.1.16  Furnish to Western, upon Western’s request,
schedules with respect to the following: (i) participating loans and leases,
stating, with respect to each, whether it is purchased or sold and the loan or
lease type; (ii) loans or leases (including any commitments) by Auburn to any
director or officer (at or above the Vice President level) of Auburn or any of
its Subsidiaries, or to any Person holding 5% or more of the capital stock of
Auburn, including, with respect to each such loan or lease, the identity and,
to the best Knowledge of Auburn, the relation of the borrower to Auburn or AC
Bank, the loan or lease type and the outstanding and undrawn amounts; and (iii)
standby letters of credit, by type, (including each letter of credit in a face
amount equal to or greater than $10,000);


 


6.1.17  Make available to Western copies of each credit
authorization package, consisting of all applications for and financial
information regarding loans, renewals of loans or other extensions of credit of
$250,000 or more (on a noncumulative basis) for secured loans or secured
extensions of credit and $25,000 in the case of unsecured loans or unsecured
extensions of credit, which are approved by Auburn after the date of this
Agreement, within ten Business Days of preparation of such packages; and


 


6.1.18  The Board of Directors of Auburn shall
promptly adopt resolutions required to cause the 401(k) Plan to be rolled into
the 401(k) Plan for Western Sierra at the Effective Time. Except for the Auburn
Stock Option Plan the Board of Directors of Auburn shall promptly adopt
resolutions to terminate any other plan or agreement providing shares of Auburn
Common Stock or equity-based rights to any Person.


 


Section 6.2  Negative Covenants of Auburn.  During the period from the date of execution
of this Agreement through the Effective Time, Auburn agrees that without
Western’s prior written consent, it shall not and its Subsidiaries shall not:


 


6.2.1 (a)  Declare or pay any dividend on or make any
other distribution in respect of any of its capital stock; (b) split, combine
or reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock; or (c) repurchase or otherwise acquire any shares of its
capital stock.  Notwithstanding the
foregoing, the parties agree that prior to the completion of the Merger, Auburn
shall pay a cash dividend to its shareholders in an aggregate amount equal to
the lesser of $350,000 or 35% of Auburn’s pretax income from January 1,
2003 through the Determination Date after expensing the payout for the 4,000
options to be canceled and other normal expenses and accruals identified with
the Merger;


 


6.2.2  Take any action that would or might result
in any of the representations and warranties of Auburn set forth in the
Agreement becoming untrue in any material respect or any of the conditions to
the Merger set forth in Article 7 not being satisfied, except to the
extent such actions are required to be undertaken by applicable law, regulation
or at the direction of any Regulatory Authority;


 


6.2.3  Issue, deliver, sell, or grant, or authorize
the issuance, delivery, sale or grant of, or purchase, any shares of the
capital stock of Auburn or any securities convertible or exercisable into or
exchangeable for such


 


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capital
stock, or any rights, warrants or options, including options under any stock
option plans or enter into any agreements to do any of the foregoing, except in
connection with the issuance of Auburn Common Stock pursuant to the exercise of
Auburn Stock Options;


 


6.2.4  Amend its Articles of Incorporation or
Bylaws, except as required by applicable law or by the terms of this Agreement;


 


6.2.5  Authorize or knowingly permit any of its
representatives, directly or indirectly, to solicit or encourage any
Acquisition Proposal (as hereinafter defined) or participate in any discussions
or negotiations with, or provide any nonpublic information to, any Person or
group of persons (other than Western, and its representatives) concerning any
such solicited Acquisition Proposal. 
Auburn shall notify Western immediately if any inquiry regarding an
Acquisition Proposal is received by Auburn, including the terms thereof.  For purposes of this Section 6.2.5,
“Acquisition Proposal” shall mean any (a) proposal pursuant to which any Person
other than Western would acquire or participate in a merger or other business
combination or reorganization involving Auburn or any of its Subsidiaries; (b)
proposal by which any Person or group, other than Western, would acquire the
right to vote ten percent (10%) or more of the capital stock of Auburn entitled
to vote for the election of directors; (c) acquisition of the assets of Auburn
other than in the ordinary course of business; or (d) acquisition in excess of
ten percent (10%) of the outstanding capital stock of Auburn, other than as
contemplated by this Agreement. 
Notwithstanding the foregoing, nothing contained in this Agreement shall
prevent Auburn or Auburn’s Board of Directors from (i) furnishing nonpublic
information to, or entering into discussions or negotiations with, any person
or entity in connection with an unsolicited bona fide written Acquisition
Proposal by such person or entity, or recommending an unsolicited bona fide
written Acquisition Proposal to the shareholders of Auburn, if and only to the
extent that (A) the Board of Directors of Auburn has determined and believes in
good faith (after consultation with and the concurrence of its financial
advisor) that such Acquisition Proposal would, if consummated, result in a
transaction materially more favorable, from a financial point of view, to
Auburn’s shareholders than the transaction contemplated by this Agreement (any
such more favorable Acquisition Proposal being referred to in this Agreement as
an “Auburn Superior Proposal”) and Auburn’s Board of Directors has determined
in good faith, after consultation with and based on written advice from its
outside legal counsel, that such action is necessary for Auburn to comply with
its fiduciary duties to shareholders under applicable law, and (B) prior to
furnishing such nonpublic information to, or entering into discussions or
negotiations with, such person or entity, Auburn’s Board of Directors has
received from such person or entity an executed confidentiality agreement, with
terms no more favorable to such party than those contained in the
Confidentiality Agreement between Auburn and Western, or (ii) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal, if such Rule is applicable thereto;


 


6.2.6  Acquire or agree to acquire by merging,
consolidating with, or by purchasing all or a substantial portion of the assets
of, or in any other manner, any business or any Person or otherwise acquire or
agree to acquire any assets which are material to Auburn, other than in the
ordinary course of business consistent with prior practice;


 


6.2.7  Sell, lease or otherwise dispose of any of
its assets which are material, individually or in the aggregate, to Auburn,
except in the ordinary course of business consistent with prior practice;


 


6.2.8  Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of Auburn
or any of its Subsidiaries or guarantee any debt securities of others other
than in the ordinary course of business consistent with prior practice;


 


6.2.9  Enter into any Understanding, except:  (a) deposits incurred, and short-term debt
securities (obligations maturing within one year) issued, in its ordinary
course of business consistent with prior practice, and liabilities arising out
of, incurred in connection with, or related to the consummation of this
Agreement; (b) commitments to make loans or other extensions of credit in the
ordinary course of business consistent with prior practice; and (c) loan sales
in the ordinary course of business, without any recourse, provided that no
commitment to sell loans shall extend beyond the Effective Time;


 


6.2.10  Make or enter into a commitment to make any
loan or other extension of credit to any director, officer or employee of
Auburn or any of its Subsidiaries, except in accordance with practice or policy
in


 


33

















 


existence
on the date of this Agreement and in compliance with all applicable laws and
all applicable regulations and directives of any Governmental Entity;


 


6.2.11  Except in the ordinary course of business
consistent with prior practice or as required by an existing contract, and
provided prior disclosure thereof has been made in Schedule 6.2.11, grant
any general or uniform increase in the rates of pay of employees or employee
benefits or any increase in salary or employee benefits of any officer,
employee or agent or pay any bonus to any Person;


 


6.2.12  Sell, transfer, mortgage, encumber or
otherwise dispose of any assets or other liabilities except in the ordinary
course of business consistent with prior practice or as required by any
existing contract;


 


6.2.13  Make the credit underwriting policies, standards
or practices relating to the making of loans and other extensions of credit, or
commitments to make loans and other extensions of credit, or the Loan Loss
Reserve policies, less stringent than those in effect on December 31, 2002
or reduce the amount of the Loan Loss Reserves or any other reserves for
potential losses or contingencies;


 


6.2.14  Make any capital expenditures, or
commitments with respect thereto, except those in the ordinary course of
business which do not exceed $10,000 individually or $30,000 in the aggregate;


 


6.2.15  Renew, extend or amend any existing
employment contract or agreement, enter into any new employment contract or
agreement or make any bonus or any special or extraordinary payments to any
Person;


 


6.2.16  Except in the ordinary course of business
consistent with prior practice, and in compliance with applicable laws and
regulations, make any material investments, by purchase of stock or securities,
contributions of capital, property transfers, purchases of any property or
assets or otherwise, in any other individual, corporation or other entity;


 


6.2.17  Except as otherwise required to correct a
prior filing, compromise or otherwise settle or adjust any assertion or claim
of a deficiency in Taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency except in a form
previously approved by Western, which approval will not be unreasonably
withheld, in writing, or file or amend any federal, foreign, state or local Tax
Return or report or make any tax election or change any method or period of
accounting unless required by GAAP or applicable law and, then, only after
submitting such Tax return or report or proposed Tax election or change in any
method or period of accounting, to Western for its approval, which it shall not
unreasonably withhold or delay;


 


6.2.18  Except as contemplated in this Agreement,
terminate any Employee Plan or Benefit Arrangement;


 


6.2.19  Change its fiscal year or methods of
accounting in effect at December 31, 2002, except as required by changes
in GAAP or regulatory accounting principles as concurred to by Auburn’s
independent public accountants;


 


6.2.20  Take or cause to be taken any action which
would disqualify the Merger as a “reorganization” within the meaning of
Section 368(a) of the IRC as a tax-free reorganization;


 


6.2.21  Take or cause to be taken into OREO any
commercial property without an environmental report reporting no adverse
environmental condition on such property, with a copy of such report delivered
to Western prior to taking such property into OREO;


 


6.2.22  Make any new elections with respect to Taxes
or any changes in current elections with respect to Taxes affecting the assets
owned by Auburn or its Subsidiaries. 
Western shall be deemed to have consented in writing to any election
Auburn or its Subsidiaries shall desire to make if: (i) the electing Person
shall have notified the Chief Executive Officer of Western in writing of its
desire to make such election, including in such notice a reasonably complete
summary of the election it desires to make and the reasons it desires to make
such election at least 20 Business Days prior to the due date (including
extensions thereof) for filing such election; and


 


34

















 


(ii)
Western shall not have responded in writing to such notice by the fifth
Business Day prior to the due date (including extensions thereof) for filing
such election; or


 


6.2.23  Materially change its pricing practices on
loans or deposit products.


 


Section 6.3  Affirmative Conduct of Western.  During the period from the date of execution
of this Agreement through the Effective Time, Western shall carry on its
business, and shall cause each of its respective Subsidiaries to carry on its
business, in the ordinary course in substantially the manner in which
heretofore conducted, subject to changes in law applicable to all national
banks or all member banks insured by the FDIC and directives from regulators
(except to the extent Auburn shall otherwise consent in writing), and use all
commercially reasonable efforts to preserve intact its business organization,
keep available the services of its officers and employees, (other than
terminations in the ordinary course of business) and preserve its relationships
with customers, depositors, suppliers and others having business dealings with
it; and, to these ends, shall fulfill each of the following:


 


6.3.1  Use its commercially reasonable efforts, or
cooperate with others, to expeditiously bring about the satisfaction of the
conditions specified in Article 7 hereof;


 


6.3.2  Advise Auburn promptly in writing of any
change that would have a Material Adverse Effect on its capital structure,
consolidated financial condition, consolidated assets, consolidated results of
operations, business or prospects or of any matter which would make the
representations and warranties set forth in Article 4 hereof not true and
correct in any material respect as of the effective date of the Registration
Statement and at the Effective Time;


 


6.3.3  Duly observe and conform to all legal
requirements applicable to its business, except for any failure to so observe
and conform that would not, individually or in the aggregate, and, in the
future will not, have a Material Adverse Effect on Auburn;


 


6.3.4  Duly and timely file as and when due all
reports and Returns required to be filed with any Governmental Entity;


 


6.3.5  File all necessary applications with the
Federal Reserve and the CDFI for the transaction as soon as possible, but no
later than October 31, 2003 and furnish to Auburn, as soon as practicable,
and in any event within fifteen days after it has prepared all applications to
be submitted to the Federal Reserve and CDFI for approval of the Merger; and


 


6.3.6  Western agrees that through the Effective
Time, as of their respect dates, (i) each Western Filing will be true and
complete in all material respects; and (ii) each Western Filing will comply in
all material respects with all of the statutes, rules and regulations enforced
or promulgated by the Governmental Entity with which it will be filed and none
will contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they will be made, not
misleading.  Any financial statement
contained in any of such Western Filings that is intended to present the
financial position of Western, on a consolidated basis, during the periods
involved to which it relates will fairly present in all material respects the
financial position of Western, on a consolidated basis, and will be prepared in
accordance with GAAP or consistent with applicable regulatory accounting
principles and banking law and regulations, except as stated therein.


 


Section 6.4  Negative Covenants of Western.  During the period from the date of execution
of this Agreement through the Effective Time, Western agrees that without
Auburn’s prior written consent, it shall not and its Subsidiaries shall not:


 


6.4.1 (a)  Declare or pay any dividend on, other than
regular cash dividends consistent with past practices or stock dividends in
which the Initial Stock Component will be adjusted pursuant to
Section 2.6.1(d), or make any other distribution in respect of any of its
capital stock; or (b) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock;


 


35

















 


6.4.2  Take any action that would or might result
in any of the representations and warranties of Western set forth in the
Agreement becoming untrue in any material respect or any of the conditions to the
Merger set forth in Article 7 not being satisfied, except to the extent
such actions are required to be undertaken by applicable law, regulation or at
the direction of any Regulatory Authority; or


 


6.4.3  Take or cause to be taken any action which
would disqualify the Merger as a “reorganization” within the meaning of
Section 368(a) of the IRC as a tax-free reorganization;


 


ARTICLE 7. 
CONDITIONS PRECEDENT TO CLOSING


 


Section 7.1  Conditions to the Parties’ Obligations.  The obligations of all the parties to this
Agreement to effect the Merger shall be subject to the fulfillment of the
following conditions:


 


7.1.1  This Agreement, the Merger Agreement and the
Merger shall have been validly approved by the holders of a majority of the
outstanding shares of Auburn Common Stock entitled to vote;


 


7.1.2  All permits, approvals and consents required
to be obtained, and all waiting periods required to expire, prior to the
consummation of the Merger under applicable federal laws of the United States
or applicable laws of any state having jurisdiction over the transactions
contemplated by this Agreement and the Merger Agreement shall have been
obtained or expired, as the case may be (all such permits, approvals and
consents and the lapse of all such waiting periods being referred to as the
“Requisite Regulatory Approvals”), without the imposition of any condition
which in the reasonable judgment of any party to be affected by such condition
is materially burdensome upon such party or its respective Affiliates or the
Surviving Corporation;


 


7.1.3  There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any Government Entity which: (i) makes the
consummation of the Merger illegal; (ii) requires the divestiture by Western of
any material asset or of a material portion of the business of Western; or
(iii) imposes any condition upon Western or its Subsidiaries (other than
general provisions of law applicable to all banks and bank holding companies)
which in the judgment of Western would be materially burdensome;


 


7.1.4  The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and shall
remain in effect.  No legal,
administrative, arbitration, investigatory or other proceeding by any
Governmental Entity or any other Person shall have been instituted and, at what
otherwise would have been the Effective Time, remain pending by or before any
Governmental Entity to restrain or prohibit the transactions contemplated
hereby;


 


7.1.5  Western and Auburn shall have received an
opinion from Perry-Smith LLP, dated the Effective Time, subject to assumptions
and exceptions normally included, and in form and substance reasonably
satisfactory to Western and Auburn, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the IRC and that Western and Auburn will each be a
party to that reorganization within the meaning of Section 368(b) of the
IRC;


 


7.1.6  Western and Auburn shall have received
opinions of counsel for the other party in substantially the forms previously
agreed to by the parties as set forth in Exhibits 7.1.6A and 7.1.6B,
respectively, dated as of the Closing Date; and


 


7.1.7  No action, suit or proceeding shall have
been instituted or threatened before any court or governmental body seeking to
challenge or restrain the transactions contemplated by this Agreement or the
Merger Agreement which presents a substantial risk that such transactions will
be restrained or that either party hereto may suffer material damages or other
relief as a result of consummating such transactions.


 


Section 7.2  Conditions to Western’s Obligations.
The obligations of Western to effect the Merger shall be subject to the
fulfillment (or waiver, in writing, by Western) of the following conditions:


 


36

















 


7.2.1  Except as otherwise provided in this
Section 7.2, (a) the representations and warranties of Auburn contained in
Article 3 shall be true in all material respects as of the Effective Time
as though made at the Effective Time, except to the extent they expressly refer
to an earlier time and except where the failure to be true, individually or in
the aggregate, would not have or would not be reasonably likely to have, a
Material Adverse Effect on the Surviving Corporation or AC Bank, or upon the
consummation of the transactions contemplated hereby; (b) Auburn shall have
duly performed and complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
prior to or at the Effective Time, except where the failure to so perform and
comply, individually or in the aggregate, would not have or would not be
reasonably likely to have a Material Adverse Effect on Auburn or AC Bank, or
upon the consummation of the transactions contemplated hereby; (c) none of the
events or conditions entitling Western to terminate this Agreement under
Article 8 shall have occurred and be continuing; and (d) Auburn shall have
delivered to Western certificates dated the date of the Effective Time and
signed by the President and Chief Executive Officer to the effect set forth in
Subsections 7.2.1(a), (b) and (c);


 


7.2.2  There shall have been obtained, without the
imposition of any material burden or restriction on any of the parties hereto
not in existence on the date hereof, each consent to the consummation of the
Merger required to be obtained from any Person under any agreement, contract or
license to which Auburn is a party or by or under which it is bound or
licensed, the withholding of which might have a Material Adverse Effect on
Auburn, the Surviving Corporation or Western at or following the Effective
Time, or on the transactions contemplated by this Agreement;


 


7.2.3  Auburn shall have delivered its Closing
Schedules to Western on the day immediately preceding the Closing Date and none
of such Closing Schedules shall reflect any item that was not on the Auburn
Schedules (or in the Auburn Financial Statements) delivered on the date of
execution of this Agreement that has had, would have, or could be reasonably
likely to have, a Material Adverse Effect on Auburn, the Surviving Corporation
or Western at or after the Effective Time, or on the consummation of the
transactions contemplated hereby;


 


7.2.4  Between the date of this Agreement and the
Effective Time, no event or circumstance shall have occurred which has had or
could reasonably be expected to have a Material Adverse Effect on Auburn, or
its Subsidiaries, and Western shall have received a certificate signed on
behalf of Auburn by the President and Chief Executive Officer of Auburn to such
effect;


 


7.2.5  Counsel for Western shall have approved, in
the exercise of counsel’s reasonable discretion, the validity of all
transactions herein contemplated, as well as the form and substance of all
opinions, certificates, instruments of transfer and other documents to be
delivered to Western hereunder or that are reasonably requested by such
counsel;


 


7.2.6  The sale of the Western Common Stock
resulting from the Merger shall have been qualified or registered with the
appropriate State securities law or “blue sky” regulatory authorities of all
States in which qualification or registration is required under the State
securities laws, and such qualifications or registration shall not have been
suspended or revoked;


 


7.2.7  Auburn shall have delivered to Western not
later than the date of this Agreement all of the executed Affiliate Agreements
in the form attached hereto as Exhibit 5.3;


 


7.2.8  None of Auburn or any of its Subsidiaries
shall be subject to any memorandum of understanding, cease and desist order, or
other agreement with any Governmental Entity restricting the conduct of any of
their respective businesses, prospects and operations, so as to have a Material
Adverse Effect;


 


7.2.9  All of Auburn’s director-shareholders shall
have delivered to Western on the date of this Agreement the
Director-Shareholder Agreements in the form attached hereto as Exhibit 7.2.9;
and


 


7.2.10 Auburn’s
shareholders’ equity as of the Determination Date shall be no less than the
December 31, 2002 shareholders’ equity of Auburn.


 


37

















 


Section 7.3  Conditions to Auburn’s Obligations.  The obligations of Auburn to effect the
Merger shall be subject to the fulfillment (or waiver, in writing, by Auburn)
of the following conditions:


 


7.3.1  Except as otherwise provided in this
Section 7.3, (a) the representations and warranties of Western contained
in Article 4 shall be true in all material respects as of the Effective
Time as though made at the Effective Time, except to the extent they expressly
refer to an earlier time and except where the failure to be true, individually
or in the aggregate, would not have or would not be reasonably likely to have,
a Material Adverse Effect on Western, taken as a whole, or upon consummation of
the transactions contemplated hereby; (b) Western shall have duly performed and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with it prior to or at the Effective
Time, except where the failure to so perform and comply, individually or in the
aggregate, would not have or would not be reasonably likely to have a Material
Adverse Effect on Western, taken as a whole, or upon the consummation of the
transactions contemplated hereby; (c) none of the events or conditions
entitling Auburn to terminate this Agreement under Article 8 shall have
occurred and be continuing; and (d) Western shall have delivered to Auburn
certificates dated the date of the Effective Time and signed by a duly
authorized officer to the effect set forth in Subsections 7.3.1(a), (b) and
(c);


 


7.3.2  Counsel for Auburn shall have approved, in
the exercise of counsel’s reasonable discretion, the validity of all
transactions herein contemplated, as well as the form and substance of all
opinions, certificates, instruments of transfer and other documents to be
delivered to Auburn hereunder or that are reasonably requested by such counsel;


 


7.3.3  Western has taken such action as appropriate
to convert the Auburn stock options for 5,000 shares into Western stock options
adjusted for the Conversion Rate of Stock Options;


 


7.3.4  Prior to the Closing Date, Western shall
have taken all corporate action required to effectuate the appointment of Jan
T. Haldeman, or another director of Auburn if Mr. Haldeman is unable to serve,
to its Board of Directors effective immediately after the Effective Time;


 


7.3.5  Western shall have delivered its Closing
Schedules to Auburn on the day immediately preceding the Closing Date and none
of such Closing Schedules shall reflect any item that was not on the Western
Schedules (or in the Western Financial Statements) delivered on the date of
execution of this Agreement that has had, or would have a Material Adverse
Effect on Western and its Subsidiaries, taken as a whole, at or after the
Effective Time, or on the consummation of the transactions contemplated hereby;


 


7.3.6  The fairness opinion (the “Auburn Fairness
Opinion”) to be commissioned by Auburn’s Board of Directors shall provide that
the terms of the Merger, from a financial standpoint, are fair to the
shareholders of Auburn, and shall not have been revoked, at any time prior to
the meeting of Auburn’s shareholders at which the Merger is to be voted on;


 


7.3.7  The sale of the Western Common Stock
resulting from the Merger shall have been qualified or registered with the
appropriate State securities law or “blue sky” regulatory authorities of all
States in which qualification or registration is required under the State securities
laws, and such qualifications or registration shall not have been suspended or
revoked; and


 


7.3.8  Western shall have obtained a three-year
director and officer liability insurance tail coverage policy for the benefit
of the current directors and executive officers of Auburn.


 


ARTICLE 8. 
TERMINATION, AMENDMENTS AND WAIVERS


 


Section 8.1  Termination .  This Agreement may be terminated at any time
prior to the Effective Time:


 


8.1.1  By mutual consent of the Boards of Directors
of Western and Auburn;


 


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8.1.2  By Western or Auburn upon the failure to
satisfy any conditions specified in Section 7.1 if such failure is not
caused by any action or inaction of the party requesting termination of this
Agreement;


 


8.1.3  By Western if an Acquisition Event involving
Auburn shall have occurred;


 


8.1.4  By Auburn if there shall have been a
material breach of any of the representations or warranties of Western set
forth in this Agreement, which breach, in the reasonable opinion of Auburn, by
its nature cannot be cured or is not cured prior to the Closing and which
breach would, in the reasonable opinion of Auburn, individually or in the
aggregate, have, or be reasonably likely to have, a Material Adverse Effect on
Western and its Subsidiaries, taken as a whole, or upon the consummation of the
transactions contemplated hereby;


 


8.1.5  By Western if there shall have been a
material breach of any of the representations or warranties of Auburn set forth
in this Agreement, which breach, in the reasonable opinion of Western, by its
nature cannot be cured or is not cured prior to the Closing and which breach
would, in the reasonable opinion of Western, individually or in the aggregate,
have, or be reasonably likely to have, a Material Adverse Effect on Auburn and
its Subsidiaries, taken as a whole, or upon the consummation of the
transactions contemplated hereby;


 


8.1.6  By Auburn after the occurrence of a Default
by Western and the continuance of such Default for a period of 20 Business Days
after written notice of such Default, if such Default, in the reasonable
opinion of Auburn, cannot be cured prior to the Closing or, even though curable
by the Closing, it is not cured prior to the Closing;


 


8.1.7  By Western after the occurrence of a Default
by Auburn and the continuance of such Default for a period of 20 Business Days
after written notice of such Default, if such Default, in the reasonable
opinion of Western, cannot be cured prior to the Closing or, even though
curable by the Closing, it is not cured prior to the Closing;


 


8.1.8  By Western if the Closing Schedules
delivered by Auburn disclose the occurrence of an event or the existence of any
facts or circumstances, not disclosed in the Schedules or the Auburn Financial Statements
delivered to Western on or before the date hereof, that has had or could
reasonably be expected to have a Material Adverse Effect on Auburn and its
Subsidiaries, taken as a whole, or after the Effective Time, on Western, or on
the consummation of the transactions contemplated hereby (an “Auburn Material
Adverse Event”);


 


8.1.9  By Auburn if the Closing Schedules delivered
by Western disclose the occurrence of an event or the existence of any facts or
circumstances, not disclosed in the Schedules or the Western Financial
Statements delivered to Auburn on or before the date hereof, that has had or
could reasonably be expected to have a Material Adverse Effect on Western and
its Subsidiaries, taken as a whole, or on the consummation of the transactions
contemplated hereby (a “Western Material Adverse Event”);


 


8.1.10  By Auburn upon the failure of any of the
conditions specified in Section 7.3 to have been satisfied prior to
March 31, 2004 (or April 30, 2004 if any applicable waiting period
for Requisite Regulatory Approval requires additional time) provided that
Auburn may not terminate this Agreement under this Section 8.1.10 if the
relevant condition shall have failed to occur as a result of any act, delay or
omission by Auburn; or


 


8.1.11  By Western upon the failure of any of the
conditions specified in Section 7.2 to have been satisfied prior to
March 31, 2004 (or April 30, 2004 if any applicable waiting period
for Requisite Regulatory Approval requires additional time) provided that
Western may not terminate this Agreement under this Section 8.1.11 if the
relevant conditions shall have failed to occur as a result of any act, delay or
omission by Western.


 


Section 8.2  Effect of Termination; Survival.  Except as provided in Section 8.5, no
termination of this Agreement as provided in Section 8.1 for any reason or
in any manner shall release, or be construed as so releasing, any party hereto
from its obligations pursuant to Sections 5.1.3, 5.5, 8.5 or 9.5 hereof or from
any liability or damage to any other party hereto arising out of, in connection
with, or otherwise relating to, directly or indirectly, said party’s material
breach, Default or failure in performance of any of its covenants, agreements,
duties or


 


39

















 


obligations
arising hereunder, or any breaches of any representation or warranty contained
herein arising prior to the date of termination of this Agreement.


 


Section 8.3  Amendment.  This Agreement may be amended by written consent of the parties
hereto, at any time before or after approval hereof by the shareholders of
Auburn; provided, however, that after any such approval by such shareholders,
no amendments shall be made which by law require further approval by such
shareholders without such further approval.


 


Section 8.4  Waiver.  Any term or provision of this Agreement, other than regulatory
approval or any of the provisions required by law, may be waived in writing at
any time by the party which is, or whose shareholders are, entitled to the
benefits thereof.


 


Section 8.5  Liquidated Damages; Cancellation Fee.


 


8.5.1  In the event of the occurrence of an
Acquisition Event involving Auburn, then Auburn shall pay to Western the sum of
Eight Hundred Thousand Dollars ($800,000) in cash.


 


8.5.2  In the event of termination of this
Agreement by Auburn pursuant to Section 8.1.10 as a result of the
revocation of the Auburn Fairness Opinion; or a termination of this Agreement
by Western pursuant to (i) Section 8.1.2, only as a result of
Section 7.1.1 (no approval by Auburn shareholders), or (ii) pursuant to
Section 8.1.5 (breach of representations or warranties of Auburn) or
Section 8.1.7 (Default) or Section 8.1.8 (disclosure in the Closing
Schedules of an Auburn Material Adverse Event), where such breach of
representation or warranty, Default or Auburn Material Adverse Event shall have
been caused in whole or in material part by any action or inaction within the
control of Auburn or any of its Subsidiaries, or any of their directors or
executive officers (it being understood that any breach or Default or Auburn
Material Adverse Event that occurs after the date of this Agreement and was
outside of the control of Auburn, its directors and executive officers, shall
not come within this Section 8.5.2), then, Auburn shall pay to Western the
sum of Five Hundred Thousand Dollars ($500,000), in cash; provided, however,
that if an Acquisition Event occurs involving Auburn within one year following
any termination by Western to which this Section 8.5.2 applies, Auburn
shall pay to Western an additional Three Hundred Thousand Dollars ($300,000) in
cash.


 


8.5.3  In the event of the termination of this
Agreement by Western pursuant to Section 8.1.11 as a result of a
termination of this Agreement by Auburn pursuant to 8.1.4 (breach of
representations and warranties of Western) or Section 8.1.6 (Default), or
Section 8.1.9 (disclosure in Closing Schedules of a Western Material
Adverse Event), where such breach of representation or warranty, or such Default
or Western Material Adverse Event shall have been caused in whole or in
material part by any action or inaction within the control of Western or any of
its Subsidiaries, or any of their directors or executive officers (it being
understood that any breach or Default or Western Material Adverse Event that
occurs after the date of this Agreement and was outside of the control of
Western, its Subsidiaries and their directors and executive officers, shall not
come within this Section 8.5.3), then, Western shall pay to Auburn the sum
of Five Hundred Thousand Dollars ($500,000), in cash.


 


8.5.4  The parties have determined that the
occurrence of any of the events or circumstances set forth in Sections 8.5.1,
8.5.2 and 8.5.3 would cause a substantial damage and loss and lost business
opportunities to the party terminating this Agreement as a result thereof and
that the payments contemplated by Sections 8.5.1, 8.5.2 and 8.5.3 above provide
reasonable and fair compensation for such damage, loss and lost business
opportunities and are not intended to be and do not constitute a penalty or
forfeiture.  Such payments will be made
within 10 Business Days following a termination of the Agreement that gives
rise to the payment of such liquidated damages pursuant to Sections 8.5.1,
8.5.2 or 8.5.3, as applicable.  Upon the
making and receipt of payments due under this Section 8.5, neither party,
nor any Affiliates of any party, shall have any further obligation or liability
of any kind under this Agreement to the other party, except pursuant to
Section 5.1.3, 5.5, 8.5.2 (in case of an Acquisition Event) and 9.5.


 


8.5.5  In the event of the termination of this
Agreement by Western or Auburn and for any reason other than as specified in
Sections 8.5.1, 8.5.2 or 8.5.3 above, none of the parties hereto, nor any
Affiliates of any such parties, shall have any further obligation or liability
of any kind to the other party, except pursuant to Sections 5.1.3, 5.5 and 9.5.


 


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ARTICLE 9. 
GENERAL PROVISIONS


 


Section 9.1  Nonsurvival of Representations and
Warranties .  None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for those covenants and agreements contained herein and therein
which by their terms apply in whole or in part after the Effective Time or to a
termination of this Agreement.


 


Section 9.2  Notices.  All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally, mailed by registered or
certified mail (return receipt requested), sent by confirmed overnight courier
or telecopied (with electronic confirmation and verbal confirmation for the
person to whom such telecopy is addressed), on the date such notice is so
delivered, mailed or sent, as the case may be, to the parties at the following
addresses (or any such other address for a party as shall be specified by like
notice):


 


If to Auburn at:


 


Auburn Community Bancorp


11795 Atwood Road


Auburn, California 95603


Fax No. (530) 889-2750


Attention: John G. Briner,
President/CEO


 


with a copy to:


 


Gary Steven Findley &
Associates


1470 North Hundley Street


Anaheim, California 92806


Fax No. (714) 630-7910


Attention: Gary Steven
Findley, Esq.


 


If to Western at:


 


Western Sierra Bancorp


4080 Plaza Goldorado Circle


Cameron Park, California
95682


Fax No. (530) 698-2279


Attention: Gary D. Gall,
President/CEO


 


with a copy to:


 


Bartel Eng & Schroder


300 Capitol Mall, Suite 1100


Sacramento, California 95814


Fax No. (916) 442-3442


Attention: Daniel B. Eng,
Esq.


 


Section 9.3  Counterparts.  This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.


 


Section 9.4  Entire Agreement/No Third Party
Rights/Assignment.  This Agreement
(including the documents and instruments referred to herein): (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) except as expressly set forth herein, is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder;
(c) shall not be assigned by a party, by operation of law or otherwise, without
the consent of the other parties; and (d) subject to the foregoing, shall be
binding upon and shall inure to the benefit of the parties hereto and their
permitted successors and assigns.


 


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Section 9.5  Nondisclosure of Agreement.  Western and Auburn agree, except as required
by law or the rules of the NASDAQ, so long as this Agreement is in effect, not
to issue any public notice, disclosure or press release with respect to the
transactions contemplated by this Agreement without seeking the consent of the
other party, which consent shall not be unreasonably withheld.


 


Section 9.6  Governing Law.  This Agreement shall be governed and
construed in accordance with the laws of the State of California, without
regard to any applicable conflicts of law.


 


Section 9.7  Headings/Table of Contents.  The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.


 


Section 9.8  Enforcement of Agreement.  The parties hereto agree that irreparable
damage will occur in the event that any of the provisions of this Agreement or
the Bank Merger Agreement is not performed in accordance with its specific
terms or is otherwise breached.  It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the State of California or any
state having jurisdiction, this being in addition to any remedy to which they
are entitled at law or in equity.


 


Section 9.9  Severability.  Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction.  If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.


 


Section 9.10  Attorneys’ Fees.  If any legal action or any arbitration upon
mutual agreement is brought for the enforcement of this Agreement or because of
an alleged dispute, breach or default in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys’ fees and
other costs and expenses incurred in that action or proceeding, in addition to
any other relief to which it may be entitled.


 


 


IN WITNESS WHEREOF, Western and Auburn have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first above written.


 


	
  WESTERN
  SIERRA BANCORP

  	
  AUBURN
  COMMUNITY BANCORP

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Gary D. Gall

  	
   

  	
  By:

  	
  /s/ John G. Briner

  	
   

  
	
  Name:

  	
  Gary D. Gall, President
  and CEO

  	
   

  	
  Name:

  	
  John G. Briner, President
  and CEO

  	
   

  
										



 


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