**Exhibit10.26**

 

CREDIT AGREEMENT

 

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

 

RECITALS

 

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

 

NOW, THEREFORE, for valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, Bank and Borrowerhereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.        LINEOF CREDIT.

 

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

 

(b)           Borrowingand Repayment.  Borrower may fromtime to time during the term of the Line of Credit borrow, partially or whollyrepay its outstanding borrowings, and reborrow, subject to all of thelimitations, terms and conditions contained herein or in the Line of CreditNote; provided however, that the total outstanding borrowings under the Line ofCredit shall not at any time exceed the maximum principal amount availablethereunder, as set forth above.

 

SECTION 1.2.        INTEREST/FEES.

 

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

 

(b)           Computationand Payment.  Interest shall becomputed on the basis of a 360-day year, actual days elapsed.  Interest shall be payable at the times andplace set forth in each promissory note or other instrument or documentrequired hereby.

 

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

 
| I:T1/Corr Bkg. –West/CA /#5171/cbsc/Western Sierra  Bancorp.C-202CS_CA.DOC (Rev. 08/02) (Mod. – MG)  OBGR #83 0940 5464      AU #5171 |  |
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(d)           UnusedCommitment Fee.  Borrower shall payto Bank a fee equal to five hundredths of one percent (0.05%) per annum(computed on the basis of a 360-day year, actual days elapsed) on the averagedaily unused amount of the Line of Credit, which fee shall be calculated on aquarterly basis by Bank and shall be due and payable by Borrower in arrearswithin ten (10) days after each billing is sent by Bank.

 

ARTICLE II

REPRESENTATIONS ANDWARRANTIES

 

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

 

SECTION 2.1.        LEGALSTATUS.  Borrower is a corporation, dulyorganized and existing and in good standing under the laws of the State ofCalifornia, and is qualified or licensed to do business (and is in goodstanding as a foreign corporation, if applicable) in all jurisdictions in whichsuch qualification or licensing is required or in which the failure to soqualify or to be so licensed could have a material adverse effect on Borrower.

 

SECTION 2.2.        AUTHORIZATIONAND VALIDITY.  This Agreement and eachpromissory note, contract, instrument and other document required hereby or atany time hereafter delivered to Bank in connection herewith (collectively, the“Loan Documents”) have been duly authorized, and upon their execution anddelivery in accordance with the provisions hereof will constitute legal, validand binding agreements and obligations of Borrower or the party which executesthe same, enforceable in accordance with their respective terms.

 

SECTION 2.3.        NOVIOLATION.  The execution, delivery andperformance by Borrower of each of the Loan Documents do not violate anyprovision of any law or regulation, or contravene any provision of the Articlesof Incorporation or By-Laws of Borrower, or result in any breach of or defaultunder any contract, obligation, indenture or other instrument to which Borroweris a party or by which Borrower may be bound.

 

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

 

SECTION 2.5.        CORRECTNESSOF FINANCIAL STATEMENT.  The financialstatement of Borrower dated September 30, 2002, a true copy of which has beendelivered by Borrower to Bank prior to the date hereof, (a) is complete andcorrect and presents fairly the financial condition of Borrower, (b) disclosesall liabilities of Borrower that are required to be reflected or reservedagainst under generally accepted accounting principles, whether liquidated orunliquidated, fixed or contingent, and (c) has been prepared in accordance withgenerally accepted accounting principles consistently applied.  Since the date of such financial statementthere has been no material adverse change in the financial condition ofBorrower, nor has Borrower mortgaged, pledged, granted a security interest inor otherwise encumbered any of its assets or properties except in favor of Bankor as otherwise permitted by Bank in writing.

 

 

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SECTION 2.6.        INCOMETAX RETURNS.  Borrower has no knowledgeof any pending assessments or adjustments of its income tax payable withrespect to any year.

 

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

 

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

 

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

 

SECTION 2.10.      OTHEROBLIGATIONS.  Borrower is not in defaulton any obligation for borrowed money, any purchase money obligation or anyother material lease, commitment, contract, instrument or obligation.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.        CONDITIONSOF INITIAL EXTENSION OF CREDIT.  Theobligation of Bank to extend any credit contemplated by this Agreement issubject to the fulfillment to Bank’s satisfaction of all of the followingconditions:

 

(a)           Approvalof Bank Counsel.  All legal mattersincidental to the extension of credit by Bank shall be satisfactory to Bank’scounsel.

 

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

 

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

(ii)       Corporate Resolution Borrowing.

(iii)      Certificate of Incumbency.

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

 

(c)           FinancialCondition.  There shall have been nomaterial adverse change, as determined by Bank, in the financial condition orbusiness of Borrower, nor any material decline,

 

 

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

 

SECTION 3.2.        CONDITIONSOF EACH EXTENSION OF CREDIT.  Theobligation of Bank to make each extension of credit requested by Borrowerhereunder shall be subject to the fulfillment to Bank’s satisfaction of each ofthe following conditions:

 

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

 

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

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

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

 

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

 

SECTION 4.2.        ACCOUNTINGRECORDS.  Maintain adequate books andrecords in accordance with generally accepted accounting principlesconsistently applied, and permit any representative of Bank, at any reasonabletime, to inspect, audit and examine such books and records, to make copies ofthe same, and to inspect the properties of Borrower.

 

SECTION 4.3.        FINANCIALSTATEMENTS.  Provide to Bank all of thefollowing, in form and detail satisfactory to Bank:

 

(a)           notlater than 90 days after and as of the end of each fiscal year, an auditedconsolidated financial statement of Borrower, prepared by a certified publicaccountant, to include balance sheet, income statement and statement of cashflow;

 

(b)           notlater than 45 days after and as of the end of each calendar quarter, aconsolidated financial statement of Borrower and each Bank Subsidiary, with aseparate unconsolidated financial statement of Borrower alone, prepared byBorrower, to include balance sheet, income statement and statement of cashflow;

 

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

 

 

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Borrower that said financial statements are accurate, that there existsno Event of Default nor any condition, act or event which with the giving ofnotice or the passage of time or both would constitute an Event of Default, anddemonstrating compliance with the financial covenants contained in thisAgreement;

 

(d)           assoon as available, and in any event within 45 days after the end of eachcalendar quarter, the complete Call Report prepared by each Bank Subsidiary atthe end of such calendar quarter in compliance with the requirements of anyfederal or state regulatory agency which has authority to examine Borrower, allprepared in accordance with the requirements imposed by the applicableregulatory authorities and applied on a basis consistent with the accountingpractices reflected in any previous Call Report(s) and similar statementsdelivered to Bank prior to the date of this Agreement;

 

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

 

(f)            assoon as available (but without duplication of any other requirements set forthin this Section 4.3) a copy of all reports which are required by law to befurnished to any regulatory authority having jurisdiction over Borrower or anyBank Subsidiary (including without limitation Call Reports, but excluding anyreport which applicable law or regulation prohibits Borrower or a BankSubsidiary from furnishing to Bank);

 

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

 

SECTION 4.4.        COMPLIANCE.  Preserve and maintain all licenses, permits,governmental approvals, rights, privileges and franchises necessary for theconduct of its business; and comply with the provisions of all documentspursuant to which Borrower is organized and/or which govern Borrower’scontinued existence and with the requirements of all laws, rules, regulationsand orders of any governmental authority applicable to Borrower and/or itsbusiness.

 

SECTION 4.5.        INSURANCE.  Maintain and keep in force insurance of thetypes and in amounts customarily carried in lines of business similar to thatof Borrower, including but not limited to fire, extended coverage, publicliability, flood, property damage and workers’ compensation, with all suchinsurance carried with companies and in amounts satisfactory to Bank, anddeliver to Bank from time to time at Bank’s request schedules setting forth allinsurance then in effect.

 

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

 

SECTION 4.7.        TAXESAND OTHER LIABILITIES.  Pay anddischarge when due any and all indebtedness, obligations, assessments andtaxes, both real or personal, including without limitation federal and stateincome taxes and state and local property taxes and assessments, except such(a) as Borrower may in good faith contest or as to which a bona fide disputemay arise, and (b) for which Borrower has made provision, to Bank’ssatisfaction, for eventual payment thereof in the event Borrower is obligatedto make such payment.

 

 

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

 

SECTION 4.9.        BORROWER’SFINANCIAL CONDITION.  MaintainBorrower’s consolidated financial condition as follows using generally acceptedaccounting principles consistently applied and used consistently with priorpractices:

 

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

 

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

 

SECTION 4.10       BANKSUBSIDIARY FINANCIAL CONDITION.  CauseWestern Sierra National Bank (“WSNB”) to maintain its financial condition asfollows using generally accepted accounting principles consistently applied andused consistently with prior practices (except to the extent modified by thedefinitions herein):

 

(a)           ROAnot less than 1% on a rolling four quarter basis, determined as of each fiscalquarter end, with “ROA” defined as the percentage arrived at by dividing netincome by Total Assets, as reported in the most recent Call Report.

 

SECTION 4.11       BORROWERAND BANK SUBSIDIARIES FINANCIAL CONDITION. Cause the Borrower and the Bank Subsidiaries, (except as tosub-paragraphs (b) and (c) below whereby it applies to Borrower and WSNB), asmore specifically set forth below, to maintain their consolidated financialcondition as follows using generally accepted accounting principlesconsistently applied and used consistently with prior practices (except to theextent modified by the definitions herein):

 

(a)           LeverageRatio:  Ratio of Tier 1 Capital to TotalAdjusted Assets for the Borrower and the Bank Subsidiaries on a consolidatedbasis, of not less than (i) 6%, determined as of each fiscal quarter end or(ii) the minimum ratio required by any regulatory agency having authority overthe applicable Bank Subsidiary, whichever is greater, with “Tier 1 Capital”defined as set forth in Section 38 of the Federal Deposit insurance Act and in12 C.F.R. Part 325, Subparts A and B, and with “Total Adjusted Assets” to beconstrued in conformity with the Federal Reserve Board’s definition of‘adjusted total assets’ referred to by that agency as ‘average totalconsolidated assets which provides for the elimination of goodwill and otherdisallowed intangible assets’.

 

(b)           Allowancefor loan and lease losses for the Borrower on a consolidated basis, and WSNB onan individual basis, not less than 100% of the total amount of Non-PerformingAssets, determined as of each fiscal quarter end, with “Non-Performing Assets”defined as the sum of: (i) all loans classified as past due 90 days or more andstill accruing interest; (ii) all loans classified as ‘non-accrual’ and nolonger accruing interest; (iii) all loans classified as ‘restructured loans andleases’; and (iv) all other ‘non-performing assets’, including those classifiedas ‘other real estate owned’ and ‘repossessed property’, as reported in thethen most recent Call Report.

 

 

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(c)           Non-PerformingAssets not greater than 10% of Primary Equity Capital, for the Borrower on aconsolidated basis, and WSNB on an individual basis, determined as of eachfiscal quarter end, with “Non-Performing Assets” as defined above, and with“Primary Equity Capital” defined as the aggregate of allowance for loan andlease losses, as reported in the then most recent Call Report, plus EquityCapital defined as the aggregate of perpetual preferred stock (and relatedsurplus), common stock, surplus (excluding all surplus related to perpetualpreferred stock), undivided profits and capital reserves, plus the netunrealized holding gains (or less the net realized holding losses) onavailable-for-sale securities, less goodwill and other disallowed intangibleassets).

 

(d)           Borroweron a consolidated basis, and for each Bank Subsidiary on an individual basis,must maintain its categorization as Well Capitalized as defined by regulatoryagencies having jurisdiction, which, pursuant to Section 38 of the FederalDeposit Insurance Act (created by Section 131 of the Federal Deposit InsuranceCorporation Improvement Act (FDICIA) of 1991) (entitled “Prompt CorrectiveAction”) (herein, “Section 38”), considers an institution “Well Capitalized”,among other things, if its Total Risk-Based Capital Ratio equals or exceeds10%, its Tier 1 Risk-Based Capital equals or exceeds 6% and its Leverage equalsor exceeds 5%, except of Borrower on a consolidated basis, when its Leverageequals or exceeds 6%.  As used herein,“Total Risk-Based Capital Ratio”, “Tier 1 Risk-Based Capital” and “Leverage”shall be defined and calculated in conformity with Section 38.

 

SECTION 4.12. NOTICE TO BANK.  Promptly (but inno event more than five (5) days after the occurrence of each such event ormatter) give written notice to Bank in reasonable detail of:  (a) the occurrence of any Event of Default,or any condition, event or act which with the giving of notice or the passageof time or both would constitute an Event of Default; (b) any change in thename or the organizational structure of Borrower; (c) the occurrence and natureof any Reportable Event or Prohibited Transaction, each as defined in ERISA, orany funding deficiency with respect to any Plan; (d) any termination orcancellation of any insurance policy which Borrower is required to maintain, orany uninsured or partially uninsured loss through liability or property damage,or through fire, theft or any other cause affecting Borrower’s property inexcess of an aggregate of $1,000,000.00; (e) any change in Executive Managementof Borrower or of any Bank Subsidiary with “Executive Management” defined asthe President/Chief Executive Officer, or Executive Vice President/ChiefOperating Officer, or Executive Vice President/Chief Financial Officer; or (f)any negotiations to sell any capital stock of Borrower and/or any BankSubsidiary, together with copies of any proposed buy/sell agreements; providedhowever, that this clause shall not be deemed approval by Bank of any suchnegotiation and shall not apply to information which under applicable law orregulation is prohibited from disclosure to Bank.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower further covenants that so long as Bankremains committed to extend credit to Borrower pursuant hereto, or anyliabilities (whether direct or contingent, liquidated or unliquidated) ofBorrower to Bank under any of the Loan Documents remain outstanding, and untilpayment in full of all obligations of Borrower subject hereto, Borrower willnot without Bank’s prior written consent:

 

SECTION 5.1.        USEOF FUNDS.  Use any of the proceeds ofany credit extended hereunder except for the purposes stated in Article Ihereof.

 

 

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

 

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

 

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

 

SECTION 5.5.        LOANS,ADVANCES, INVESTMENTS.  Make any loansor advances to or investments in any person or entity, except (i) any of theforegoing existing as of, and disclosed to Bank prior to, the date hereof, and(ii) investments consisting of (x) acquisitions of a bank, saving and loanassociation or any other depositary institution (a “Financial Entity”) if thevalue of the total consolidated assets of such Financial Entity does not exceed35% of the value of the total consolidated assets of the Borrower prior togiving effect to such acquisition, (y) acquisitions of an entity other than aFinancial Entity if the value of the total consolidated assets of such entitydoes not exceed 10% of the value of the total consolidated assets of theBorrower prior to giving effect to such acquisition, and (z) investments in asubsidiary which is established to effect an acquisition permitted by clauses(x) or (y) above, provided, that, at the time of, and after giving effect to,such investment, no Event of Default exists.

 

SECTION 5.6.        PLEDGEOF ASSETS.  Mortgage, pledge, grant orpermit to exist a security interest in, or lien upon, all or any portion of Borrower’sassets now owned or hereafter acquired, except any of the foregoing in favor ofBank or which is existing as of, and disclosed to Bank in writing prior to, thedate hereof.

 

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

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1.        Theoccurrence of any of the following shall constitute an “Event of Default” underthis Agreement:

 

 

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(a)                                  Borrowershall fail to pay when due any principal, interest, fees or other amountspayable under any of the Loan Documents.

 

(b)                                 Anyfinancial statement or certificate furnished to Bank in connection with, or anyrepresentation or warranty made by Borrower or any other party under thisAgreement or any other Loan Document shall prove to be incorrect, false ormisleading in any material respect when furnished or made.

 

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

 

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

 

(e)                                  Thefiling of a notice of judgment lien against Borrower or any Bank Subsidiary; orthe recording of any abstract of judgment against Borrower or any BankSubsidiary in any county in which Borrower or such Bank Subsidiary has aninterest in real property; or the service of a notice of levy and/or of a writof attachment or execution, or other like process, against the assets ofBorrower or any Bank Subsidiary; or the entry of a judgment against Borrower orany Bank Subsidiary, with respect to each of the foregoing, the amount indispute exceeds $750,000.00.

 

(f)                                    Borroweror any Bank Subsidiary shall become insolvent, or shall suffer or consent to orapply for the appointment of a receiver, trustee, custodian or liquidator ofitself or any of its property, or shall generally fail to pay its debts as theybecome due, or shall make a general assignment for the benefit of creditors;Borrower or any Bank Subsidiary shall file a voluntary petition in bankruptcy,or seeking reorganization, in order to effect a plan or other arrangement withcreditors or any other relief under the Bankruptcy Reform Act, Title 11 of theUnited States Code, as amended or recodified from time to time (“BankruptcyCode”), or under any state or federal law granting relief to debtors, whethernow or hereafter in effect; or any involuntary petition or proceeding pursuantto the Bankruptcy Code or any other applicable state or federal law relating tobankruptcy, reorganization or other relief for debtors is filed or commencedagainst Borrower or any Bank Subsidiary, or Borrower or any Bank Subsidiaryshall file an answer admitting the jurisdiction of the court and the materialallegations of any involuntary petition; or Borrower or any Bank Subsidiaryshall be adjudicated a bankrupt, or an order for relief shall be enteredagainst Borrower or any Bank Subsidiary by any court of competent jurisdictionunder the Bankruptcy Code or any other applicable state or federal law relatingto bankruptcy, reorganization or other relief for debtors.

 

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

 

(h)                                 Thedissolution or liquidation of Borrower or any Bank Subsidiary; or Borrower orany Bank Subsidiary, or any of their directors, stockholders or members, shalltake action seeking to effect the dissolution or liquidation of Borrower orsuch Bank Subsidiary.

 

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

 

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

 

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

 

ARTICLE VII

MISCELLANEOUS

 

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

 

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

 
| BORROWER: |   | WESTERN SIERRA  BANCORP      |
|-----------|--------|------------------------------|
|      |   | 4080 Plaza  Goldorado Circle |
|      |   | Cameron Park, CA  95682      |
|      |   |                         |

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BANK:                                                                WELLSFARGO BANK, NATIONAL ASSOCIATIONCorrespondent Banking Office707 Wilshire Boulevard, 21st FloorLos Angeles, CA 90017

 

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

 

SECTION 7.3.                       COSTS,EXPENSES AND ATTORNEYS’ FEES.  Borrowershall pay to Bank immediately upon demand the full amount of all payments,advances, charges, costs and expenses, including reasonable attorneys’ fees (toinclude outside counsel fees and all allocated costs of Bank’s in-housecounsel), expended or incurred by Bank in connection with (a) thenegotiation and preparation of this Agreement and the other Loan Documents,Bank’s continued administration hereof and thereof, and the preparation of anyamendments and waivers hereto and thereto, (b) the enforcement of Bank’srights and/or the collection of any amounts which become due to Bank under anyof the Loan Documents, and (c) the prosecution or defense of any action inany way related to any of the Loan Documents, including without limitation, anyaction for declaratory relief, whether incurred at the trial or appellatelevel, in an arbitration proceeding or otherwise, and including any of theforegoing incurred in connection with any bankruptcy proceeding (includingwithout limitation, any adversary proceeding, contested matter or motionbrought by Bank or any other person) relating to any Borrower or any otherperson or entity.

 

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

 

SECTION 7.5.                       ENTIREAGREEMENT; AMENDMENT.  This Agreementand the other Loan Documents constitute the entire agreement between Borrowerand Bank with respect to each credit subject hereto and supersede all priornegotiations, communications, discussions and correspondence concerning thesubject matter hereof.  This Agreementmay be amended or modified only in writing signed by each party hereto.

 

SECTION 7.6.                       NO THIRDPARTY BENEFICIARIES.  This Agreement ismade and entered into for the sole protection and benefit of the parties heretoand their respective permitted successors and assigns, and no other person orentity shall be a third party beneficiary of, or have any direct or indirectcause of action or claim in connection with, this Agreement or any other of theLoan Documents to which it is not a party.

 

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

 

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SECTION 7.8.                       SEVERABILITYOF PROVISIONS.  If any provision of thisAgreement shall be prohibited by or invalid under applicable law, suchprovision shall be ineffective only to the extent of such prohibition orinvalidity without invalidating the remainder of such provision or anyremaining provisions of this Agreement.

 

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

 

SECTION 7.10.                 GOVERNINGLAW.  This Agreement shall be governedby and construed in accordance with the laws of the State of California.

 

SECTION 7.11.                 ARBITRATION.

 

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

 

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

 

(c)                                  NoWaiver of Provisional Remedies, Self-Help and Foreclosure.  The arbitration requirement does not limitthe right of any party to (i) foreclose against real or personal property collateral;(ii) exercise self-help remedies relating to collateral or proceeds ofcollateral such as setoff or repossession; or (iii) obtain provisional orancillary remedies such as replevin, injunctive relief, attachment or theappointment of a receiver, before during or after the pendency of anyarbitration proceeding.  This exclusiondoes not constitute a waiver of the right or obligation of any party to submitany dispute to arbitration or reference hereunder, including those arising fromthe exercise of the actions detailed in sections (i), (ii) and (iii) of thisparagraph.

 

(d)                                 ArbitratorQualifications and Powers.  Anyarbitration proceeding in which the amount in controversy is $5,000,000.00 orless will be decided by a single arbitrator selected

 

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according to the Rules, and who shall not render anaward of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00shall be decided by majority vote of a panel of three arbitrators; providedhowever, that all three arbitrators must actively participate in all hearingsand deliberations.  The arbitrator willbe a neutral attorney licensed in the State of California or a neutral retiredjudge of the state or federal judiciary of California, in either case with aminimum of ten years experience in the substantive law applicable to thesubject matter of the dispute to be arbitrated.  The arbitrator will determine whether or not an issue isarbitratable and will give effect to the statutes of limitation in determiningany claim.  In any arbitrationproceeding the arbitrator will decide (by documents only or with a hearing atthe arbitrator’s discretion) any pre-hearing motions which are similar tomotions to dismiss for failure to state a claim or motions for summaryadjudication.  The arbitrator shallresolve all disputes in accordance with the substantive law of California andmay grant any remedy or relief that a court of such state could order or grantwithin the scope hereof and such ancillary relief as is necessary to makeeffective any award.  The arbitratorshall also have the power to award recovery of all costs and fees, to imposesanctions and to take such other action as the arbitrator deems necessary tothe same extent a judge could pursuant to the Federal Rules of Civil Procedure,the California Rules of Civil Procedure or other applicable law.  Judgment upon the award rendered by thearbitrator may be entered in any court having jurisdiction.  The institution and maintenance of an actionfor judicial relief or pursuit of a provisional or ancillary remedy shall notconstitute a waiver of the right of any party, including the plaintiff, tosubmit the controversy or claim to arbitration if any other party contests suchaction for judicial relief.

 

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

 

(f)                                    ClassProceedings and Consolidations.  Theresolution of any dispute arising pursuant to the terms of this Agreement shallbe determined by a separate arbitration proceeding and such dispute shall notbe consolidated with other disputes or included in any class proceeding.

 

(g)                                 PaymentOf Arbitration Costs And Fees**.** The arbitrator shall award all costs and expenses of the arbitrationproceeding.

 

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

 

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

 
| WESTERN SIERRA BANCORP | WELLS FARGO  BANK,  NATIONAL ASSOCIATION |   |
|------------------------|------------------------------------------|--------|
|                   |                                     |   |
|                   |                                     |   |
| By:                    | /s/ Gary D. Gall                         |   | By: | /s/ Azim Rajan |   |   |
|                   |                                     |   |   | Azim Rajan |   |   |
|                   |                                     |   |   | Vice President |   |   |
| Title:                 | Presidnent/CEO                           |   |   |   |
|                   |                                     |   |
|                        |                                          |        |  |  |  |  |  |

 

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