Unassociated Document


    EXHIBIT
10.2

     

    REGISTRATION
RIGHTS AGREEMENT

     

    This
Registration Rights Agreement (this “Agreement”) is made and
entered into as of August 25, 2009, by and among Pacific Financial Corporation,
a Washington corporation (the “Company”), and the several
purchasers signatory hereto (each a “Purchaser” and collectively,
the “Purchasers”).

     

    This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of the
date hereof between the Company and each Purchaser (the “Purchase
Agreement”).

     

    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and each of the Purchasers agree as
follows:

     

    1.           Definitions.  Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase
Agreement.  As used in this Agreement, the following terms shall have
the following meanings:

     

    “Advice” shall have the
meaning set forth in Section 6(d).

     

    “Affiliate” means, with
respect to any person, any other person which directly or indirectly controls,
is controlled by, or is under common control with, such person.

     

    “Agreement” shall have the
meaning set forth in the Preamble.

     

    “Business Day” means a day,
other than a Saturday or Sunday, on which banks in New York City are open for
the general transaction of business.

     

    “Closing” has the meaning set
forth in the Purchase Agreement.

     

    “Closing Date” has the meaning
set forth in the Purchase Agreement.

     

    “Commission” means the
Securities and Exchange Commission.

     

    “Common Stock” means the
common stock of the Company, par value $1.00 per share, and any securities into
which such shares of common stock may hereinafter be reclassified.

     

    “Company” shall have the
meaning set forth in the Preamble.

     

    “Effective Date” means the
date that the Registration Statement filed pursuant to Section 2(a) is first
declared effective by the Commission.

     

    “Effectiveness Deadline”
means, with respect to the Initial Registration Statement or the New
Registration Statement, the earlier of (i) the 90th
calendar day following the Closing Date (or the 120th
calendar day following the Closing Date in the event that such registration
statement is subject to review by the Commission)and (ii) the 5th Trading
Day after the date the Company is notified (orally or in writing, whichever is
earlier) by the Commission that such Registration Statement will not be
“reviewed” or will not be subject to further review; provided, that if the
Effectiveness Deadline falls on a Saturday, Sunday or other day that the
Commission is closed for business, the Effectiveness Deadline shall be extended
to the next Business Day on which the Commission is open for
business.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Effectiveness Period” shall
have the meaning set forth in Section 2(b).

     

    “Event” shall have the meaning
set forth in Section 2(c).

     

    “Event Date” shall have the
meaning set forth in Section 2(c).

     

    “Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

     

    “Filing Deadline” means, with
respect to the Initial Registration Statement required to be filed pursuant to
Section 2(a), the 45th
calendar day following the Closing Date, provided, however, that if
the Filing Deadline falls on a Saturday, Sunday or other day that the Commission
is closed for business, the Filing Deadline shall be extended to the next
business day on which the Commission is open for business.

     

    “Holder” or “Holders” means the holder or
holders, as the case may be, from time to time of Registrable
Securities.

     

    “Indemnified Party” shall have
the meaning set forth in Section 5(c).

     

    “Indemnifying Party” shall
have the meaning set forth in Section 5(c).

     

    “Initial Registration
Statement” means the initial Registration Statement filed pursuant to
Section 2(a) of this Agreement.

     

    “Liquidated Damages” shall
have the meaning set forth in Section 2(c).

     

    “Losses” shall have the
meaning set forth in Section 5(a).

     

    “New Registration Statement”
shall have the meaning set forth in Section 2(a).

     

     “Person” means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.

     

    “Principal Market” means the
Trading Market on which the Common Stock is primarily listed on and quoted for
trading, which, as of the Closing Date, shall be the OTC Bulletin
Board.

     

    “Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced or
threatened.

     

    “Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

     

    
      
        
        

      

      
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    “Purchase Agreement” shall
have the meaning set forth in the Recitals.

     

    “Purchaser” or “Purchasers” shall have the
meaning set forth in the Preamble.

     

    “Registrable Securities” means
all of (i) the Shares, (ii) the Warrant Shares issuable upon exercise of the
Warrants and (iii) any securities issued or issuable upon any stock split,
dividend or other distribution, recapitalization or similar event with respect
to the Shares or Warrant Shares, provided, that the Holder
has completed and delivered to the Company a Selling Shareholder Questionnaire;
and provided, further,
that Shares and Warrant Shares shall cease to be Registrable Securities upon the
earliest to occur of the following: (A) a sale pursuant to a Registration
Statement or Rule 144 under the Securities Act (in which case, only such
security sold shall cease to be a Registrable Security); or (B) becoming
eligible for sale without the requirement for the Company to be in compliance
with the current public information required under Rule 144 and without volume
or manner of sale restrictions by Holders who are not Affiliates of the
Company.

     

    “Registration Statements”
means any one or more registration statements of the Company filed under the
Securities Act that covers the resale of any of the Registrable Securities
pursuant to the provisions of this Agreement (including without limitation the
Initial Registration Statement, the New Registration Statement and any Remainder
Registration Statements), amendments and supplements to such Registration
Statements, including post-effective amendments, all exhibits and all material
incorporated by reference or deemed to be incorporated by reference in such
Registration Statements.

     

    “Remainder Registration
Statement” shall have the meaning set forth in Section 2(a).

     

    “Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    “Rule 415” means Rule 415
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    “Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

     

    "SEC Guidance" means (i) any
publicly-available written or oral guidance, comments, requirements or requests
of the Commission staff and (ii) the Securities Act.

     

    “Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.

     

    “Selling Shareholder
Questionnaire” means a questionnaire in the form attached as Annex B hereto, or
such other form of questionnaire as may reasonably be adopted by the Company
from time to time.

     

    “Shares” means the shares of
Common Stock issued or issuable to the Purchasers pursuant to the Purchase
Agreement.

     

    
      
        
        

      

      
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    “Trading Day” means (i) a day
on which the Common Stock is listed or quoted and traded on its Principal Market
(other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed
on a Trading Market (other than the OTC Bulletin Board), a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization
or agency succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean a Business Day.

     

    “Trading Market” means
whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

     

    “Warrant Shares” means the
shares of Common Stock issued or issuable upon exercise of the
Warrants.

     

    2.           Registration.

     

    (a)           On
or prior to the Filing Deadline, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all of the
Registrable Securities not already covered by an existing and effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 or, if Rule 415 is not available for offers and sales of the
Registrable Securities, by such other means of distribution of Registrable
Securities as the Company may reasonably determine (the “Initial Registration
Statement”).  The Initial Registration Statement shall be on
such form available to the Company to register for resale of the Registrable
Securities as a secondary offering and shall contain (except if otherwise
required pursuant to written comments received from the Commission upon a review
of such Registration Statement) the “Plan of Distribution” section substantially
in the form attached hereto as Annex
A.    Notwithstanding the registration obligations
set forth in this Section 2, in the event the Commission informs the Company
that all of the Registrable Securities cannot, as a result of the application of
Rule 415, be registered for resale as a secondary offering on a single
registration statement, the Company agrees to promptly (i) inform each of the
Holders thereof and use its commercially reasonable efforts to file amendments
to the Initial Registration Statement as required by the Commission and/or (ii)
withdraw the Initial Registration Statement and file a new registration
statement (a “New Registration
Statement”), in either case covering the maximum number of Registrable
Securities permitted to be registered by the Commission, on such form available
to the Company to register for resale the Registrable Securities as a secondary
offering; provided,
however, that prior to filing such amendment or New Registration
Statement, the Company shall be obligated to use its commercially reasonable
efforts to advocate with the Commission for the registration of all of the
Registrable Securities in accordance with the SEC Guidance, including without
limitation, Compliance and Disclosure Interpretation
612.09.  Notwithstanding any other provision of this Agreement, if any
SEC Guidance sets forth a limitation of the number of Registrable Securities or
other shares of Common Stock permitted to be registered on a particular
Registration Statement as a secondary offering (and notwithstanding that the
Company used diligent efforts to advocate with the Commission for the
registration of all or a greater number of Registrable Securities), the number
of Registrable Securities or other shares of Common Stock to be registered on
such Registration Statement will be reduced as follows: first, the Company shall
reduce or eliminate the shares of Common Stock to be included by any Person
other than a Holder; second, the Company shall reduce or eliminate any shares of
Common Stock to be included by any Affiliate of the Company; and third, the
Company shall reduce the number of Registrable Securities to be included by all
other Holders on a pro rata basis based on the total number of unregistered
Registrable Securities held by such Holders, subject to a determination by the
Commission that certain Holders must be reduced before other Holders based on
the number of Registrable Securities held by such Holders; provided that, any
reduction of Registrable Securities pursuant to the foregoing will first reduce
Warrant Shares.  In the event the Company amends the Initial
Registration Statement or files a New Registration Statement, as the case may
be, under clauses (i) or (ii) above, the Company will use its commercially
reasonable efforts to file with the Commission, as promptly as reasonably
requested and allowed by Commission or SEC Guidance provided to the Company or
to registrants of securities in general, one or more registration statements on
such form available to the Company to register for resale those Registrable
Securities that were not registered for resale on the Initial Registration
Statement, as amended, or the New Registration Statement (the “Remainder Registration
Statements”).  No Holder shall be named as an “underwriter” in
any Registration Statement without such Holder’s prior written
consent.

     

    
      
        
        

      

      
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    (b)           The
Company shall use its commercially reasonable efforts to cause each Registration
Statement to be declared effective by the Commission as soon as practicable and,
with respect to the Initial Registration Statement or the New Registration
Statement, as applicable, no later than the Effectiveness Deadline, and shall
use its commercially reasonable efforts to keep each Registration Statement
continuously effective under the Securities Act until the earlier of (i) such
time as all of the Registrable Securities covered by such Registration Statement
have been publicly sold by the Holders or (ii) the date that all Registrable
Securities covered by such Registration Statement may be sold by non-affiliates
without volume or manner of sale restrictions under Rule 144, without the
requirement for the Company to be in compliance with the current public
information requirements under Rule 144 (the “Effectiveness
Period”).  The Company shall promptly notify the Holders via
facsimile or electronic mail of a “.pdf” format data file of the effectiveness
of a Registration Statement and promptly thereafter file a final Prospectus with
the Commission, as required by Rule 424(b) and in accordance with the time
periods required by Rule 424(b).

     

    (c)           If:
(i) the Initial Registration Statement is not filed with the Commission on or
prior to the Filing Deadline, (ii) the Initial Registration Statement or the New
Registration Statement, as applicable, is not declared effective by the
Commission (or otherwise does not become effective) on or prior to the
Effectiveness Deadline, (iii) after its Effective Date, (A) such Registration
Statement ceases to remain continuously effective as to all Registrable
Securities for which it is required to be effective or (B) the Holders are not
permitted to utilize the Prospectus therein to resell such Registrable
Securities, in the case of (A) and (B) (other than during an Allowable Grace
Period (as defined in Section 2(e) of this Agreement)), (iv) a Grace Period (as
defined in Section 2(e) of this Agreement) exceeds the length of an Allowable
Grace Period, or (v) after the date six months following the Closing Date, the
Company fails to file with the SEC any required reports under Section 13 or
15(d) of the 1934 Act such that it is not in compliance with Rule 144(c)(1) and
as a result of which the Holders who are not affiliates are unable to sell
Registrable Securities without restriction under Rule 144 (or any successor
thereto) or pursuant to a then effective Registration Statement (any such
failure or breach in clauses (i) through (v) above being referred to as an
“Event,” and, for
purposes of clauses (i), (ii), (iii) or (v), the date on which such Event
occurs, or for purposes of clause (iv) the date on which such Allowable Grace
Period is exceeded, being referred to as an “Event Date”), then in
addition to any other rights the Holders may have hereunder or under applicable
law, on each such Event Date and on each quarterly anniversary of each such
Event Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as liquidated damages and not as a penalty (“Liquidated Damages”), equal
to the lesser of (A) 1.0% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement for any Registrable Securities held by such
Holder on the Event Date and (B) $20,000.  The parties agree that
notwithstanding anything to the contrary herein or in the Purchase Agreement, no
Liquidated Damages shall be payable with respect to any period after the
expiration of the Effectiveness Period (it being understood that this sentence
shall not relieve the Company of any Liquidated Damages accruing prior to the
Effectiveness Period), and in no event shall, the aggregate amount of Liquidated
Damages payable to a Holder exceed, in the aggregate, ten percent (10%) of the
aggregate purchase price paid by such Holder pursuant to the Purchase Agreement
at the Closing.  The Liquidated Damages pursuant to the terms hereof
shall apply on a daily pro-rata basis for any portion of a quarter prior to the
cure of an Event, except in the case of the first Event Date.  The
Effectiveness Deadline for a Registration Statement shall be extended without
default or Liquidated Damages hereunder in the event that the Company’s failure
to obtain the effectiveness of the Registration Statement on a timely basis
results from the failure of a Purchaser to timely provide the Company with
information requested by the Company and necessary to complete the Registration
Statement in accordance with the requirements of the Securities
Act.

     

    
      
        
        

      

      
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    (d)          Each
Holder agrees to furnish to the Company a completed Selling Shareholder Questionnaire not
more than five (5) Trading Days following the date of this Agreement. At least
five (5) Trading Days prior to the first anticipated filing date of a
Registration Statement for any registration under this Agreement, the Company
will notify each Holder of the information the Company requires from that Holder
other than the information contained in the Selling Shareholder Questionnaire,
if any, which shall be completed and delivered to the Company promptly upon
request and, in any event, within two (2) Trading Days prior to the applicable
anticipated filing date.  Each Holder further agrees that it shall not
be entitled to be named as a selling securityholder in the Registration
Statement or use the Prospectus for offers and resales of Registrable Securities
at any time, unless such Holder has returned to the Company a completed and
signed Selling Shareholder Questionnaire and a response to any requests for
further information as described in the previous sentence. If a Holder of
Registrable Securities returns a Selling Shareholder Questionnaire or a request
for further information, in either case, after its respective deadline, the
Company shall use its commercially reasonable efforts at the expense of the
Holder who failed to return the Selling Shareholder Questionnaire or to respond
for further information to take such actions as are required to name such Holder
as a selling security holder in the Registration Statement or any pre-effective
or post-effective amendment thereto and to include (to the extent not
theretofore included) in the Registration Statement the Registrable Securities
identified in such late Selling Shareholder Questionnaire or request for further
information. Each Holder acknowledges and agrees that the information in the
Selling Shareholder Questionnaire or request for further information as
described in this Section 2(d) will be used by the Company in the preparation of
the Registration Statement and hereby consents to the inclusion of such
information in the Registration Statement.

     

    (e)           Notwithstanding
anything to the contrary herein, at any time after the Registration Statement
has been declared effective by the Commission, the Company may delay the
disclosure of material non-public information concerning the Company if the
disclosure of such information at the time is not, in the good faith judgment of
the Company, in the best interests of the Company (a “Grace Period”); provided, however, the
Company shall promptly (i) notify the Holders in writing of the existence of
material non-public information giving rise to a Grace Period (provided that the
Company shall not disclose the content of such material non-public information
to the Holders) or the need to file a post-effective amendment, as applicable,
and the date on which such Grace Period will begin, (ii) use reasonable best
efforts to terminate a Grace Period as promptly as practicable and (iii) notify
the Holders in writing of the date on which the Grace Period ends; provided, further, that no
single Grace Period shall exceed sixty (60) consecutive days, and during any
three hundred sixty-five (365) day period, the aggregate of all Grace Periods
shall not exceed an aggregate of ninety (90) days (each Grace Period complying
with this provision being an “Allowable Grace
Period”).   For purposes of determining the length of a
Grace Period, the Grace Period shall be deemed to begin on and include the date
the Holders receive the notice referred to in clause (i) above and shall end on
and include the later of the date the Holders receive the notice referred to in
clause (iii) above and the date referred to in such notice; provided, however, that no
Grace Period shall be longer than an Allowable Grace
Period.    Notwithstanding anything to the contrary, the
Company shall cause the Transfer Agent to deliver unlegended Common Stock to a
transferee of a Holder in accordance with the terms of the Purchase Agreement in
connection with any sale of Registrable Securities with respect to which a
Holder has entered into a contract for sale prior to the Holder’s receipt of the
notice of a Grace Period and for which the Holder has not yet
settled.

     

    
      
        
        

      

      
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    (f)           In
the event that Form S-3 is not available for the registration of the resale
of Registrable Securities hereunder, the Company shall (i) register the resale
of the Registrable Securities on another appropriate form and (ii) undertake to
register the Registrable Securities on Form S-3 promptly after such form is
available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the
Commission.

     

    3.           Registration
Procedures

     

    In
connection with the Company's registration obligations hereunder:

     

    (a)           the
Company shall not less than three (3) Trading Days prior to the filing of a
Registration Statement and not less than one (1) Trading Day prior to the filing
of any related Prospectus or any amendment or supplement thereto (except for
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K and any similar or successor reports), the Company shall, furnish to
the Holder copies of such Registration Statement, Prospectus or amendment or
supplement thereto, as proposed to be filed, which documents will be subject to
the review of such Holder (it being acknowledged and agreed that if a Holder
does not object to or comment on the aforementioned documents within such three
(3) Trading Day or one (1) Trading Day period, as the case may be, then the
Holder shall be deemed to have consented to and approved the use of such
documents).  The Company shall not file any Registration Statement or
amendment or supplement thereto in a form to which a Holder reasonably objects
in good faith, provided that, the Company is notified of such objection in
writing within the three (3) Trading Day or one (1) Trading Day period described
above, as applicable, and the period of any resulting delay is added to any
deadline or compliance period set forth in this Agreement.

     

    (b)           (i)  the
Company shall prepare and file with the Commission such amendments (including
post-effective amendments) and supplements, to each Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep such
Registration Statement continuously effective as to the applicable Registrable
Securities for its Effectiveness Period (except during an Allowable Grace
Period); (ii) the Company shall cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424
(except during an Allowable Grace Period); (iii) the Company shall respond as
promptly as reasonably practicable to any comments received from the Commission
with respect to each Registration Statement or any amendment thereto and, as
promptly as reasonably possible, provide the Holders (pursuant to the notice
provision of the Purchase Agreement) true and complete copies of all
correspondence from and to the Commission relating to such Registration
Statement that pertains to the Holders as “Selling Shareholders”; and (iv) the
Company shall comply with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by a
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of (subject to the terms of this Agreement) in
accordance with the intended methods of disposition by the Holders thereof as
set forth in such Registration Statement as so amended or in such Prospectus as
so supplemented; provided,
however, that each Purchaser shall be responsible for the delivery of the
Prospectus to the Persons to whom such Purchaser sells any of the Registrable
Securities (including in accordance with Rule 172 under the Securities Act), and
each Purchaser agrees to dispose of Registrable Securities in compliance with
the plan of distribution described in the Registration Statement and otherwise
in compliance with applicable federal and state securities laws. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Exchange Act, the Company shall have incorporated
such report by reference into such Registration Statement, if applicable, or
shall file such amendments or supplements with the Commission on the same day on
which the Exchange Act report which created the requirement for the Company to
amend or supplement such Registration Statement was filed.

     

    
      
        
        

      

      
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    (c)           the
Company shall notify the Holders (which notice shall, pursuant to clauses (iii)
through (v) hereof, be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made) as promptly as reasonably
practicable and (if requested by any such Person) confirm such notice in writing
no later than one Trading Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to a Registration Statement is
proposed to be filed; (B) when the Commission notifies the Company whether there
will be a “review” of such Registration Statement and whenever the Commission
comments in writing on any Registration Statement (in which case the Company
shall provide to each of the Holders true and complete copies of all comments
that pertain to the Holders as a “Selling Shareholder” or to the “Plan of
Distribution” and all written responses thereto, but not information that the
Company believes would constitute material and non-public information); and (C)
with respect to each Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to a
Registration Statement or Prospectus or for additional information that pertains
to the Holders as “Selling Shareholders” or the “Plan of Distribution”; (iii) of
the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that makes
the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
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 the case of any Prospectus, form of prospectus or supplement thereto, in
light of the circumstances under which they were made), not
misleading.

     

    (d)           the
Company shall use commercially reasonable efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of (i) any order suspending the effectiveness
of a Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as practicable.

     

    (e)           the
Company shall, if requested by a Holder, furnish to such Holder, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing of
such documents with the Commission; provided, that the Company
shall have no obligation to provide any document pursuant to this clause that is
available on the Commission’s EDGAR system.

     

    (f)           the
Company shall, prior to any resale of Registrable Securities by a Holder, use
its commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from the registration or qualification) of such Registrable Securities
for the resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests in
writing, to keep each registration or qualification (or exemption therefrom)
effective during the Effectiveness Period and to do any and all other acts or
things reasonably necessary to enable the disposition in such jurisdictions of
the Registrable Securities covered by each Registration Statement; provided, that the Company
shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.

     

    
      
        
        

      

      
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    (g)           the
Company shall, cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be delivered
to a transferee pursuant to the Registration Statement, which certificates shall
be free, to the extent permitted by the Purchase Agreement and under law, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may reasonably
request.  Certificates for Registrable Securities free from all
restrictive legends may be transmitted by the transfer agent to a Holder by
crediting the account of such Holder’s prime broker with DTC as directed by such
Holder.

     

    (h)           the
Company shall following the occurrence of any event contemplated by Section
3(c)(iii)-(v), as promptly as reasonably practicable (taking into account the
Company’s good faith assessment of any adverse consequences to the Company and
its shareholders of the premature disclosure of such event), prepare and file a
supplement or amendment, including a post-effective amendment, to the affected
Registration Statements or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, no
Registration Statement nor any Prospectus will contain an 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 the case of any Prospectus, form of
prospectus or supplement thereto, in light of the circumstances under which they
were made), not misleading.

     

    (i)      
     the Company may require each selling Holder to
furnish to the Company a certified statement as to (i) the number of shares of
Common Stock beneficially owned by such Holder and any Affiliate thereof, (ii)
any Financial Industry Regulatory Authority (“FINRA”) affiliations, (iii)
any natural persons who have the power to vote or dispose of the Common Stock
and (iv) any other information as may be requested by the Commission, FINRA or
any state securities commission. During any periods that the Company is unable
to meet its obligations hereunder with respect to the registration of
Registrable Securities because any Holder fails to furnish such information
within three Trading Days of the Company’s request, any Liquidated Damages that
are accruing at such time as to such Holder only shall be tolled and any Event
that may otherwise occur solely because of such delay shall be suspended as to
such Holder only, until such information is delivered to the
Company.

     

    (j)     
      the Company shall reasonably cooperate with
any registered broker through which a Holder proposes to resell its Registrable
Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110 as
requested by any such Holder.

     

    (k)           if
requested by a Holder, the Company shall (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the Company reasonably agrees should be included therein and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as reasonably practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (l)           
the Company shall otherwise use commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission under the Securities Act
and the Exchange Act, including Rule 172, notify the Holders promptly if the
Company no longer satisfies the conditions of Rule 172 and take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its security holders, as
soon as reasonably practicable, but not later than the Availability Date (as
defined below), an earnings statement covering a period of at least twelve (12)
months, beginning after the effective date of each Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act, including Rule 158 promulgated thereunder (for the purpose of
this Section 3, “Availability Date” means the 45th day following the end of the
fourth fiscal quarter that includes the effective date of such Registration
Statement, except that, if such fourth fiscal quarter is the last quarter of the
Company’s fiscal year, “Availability Date” means the 90th day after the end of
such fourth fiscal quarter).

     

    4.           Registration
Expenses.  All fees and expenses incident to the Company’s
performance of or compliance with its obligations under this Agreement
(excluding any underwriting discounts and selling commissions and all legal fees
and expenses of legal counsel for any Holder) shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement.  The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with any Trading Market on which the Common Stock is then
listed for trading and (B) with respect to compliance with applicable state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by the Holders), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the Holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company, (v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement.  In addition, the Company shall be responsible for all
of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties) and the expense of any annual audit.  In no event
shall the Company be responsible for any underwriting, broker or similar fees or
commissions of any Holder or, except to the extent provided for in the
Transaction Documents, any legal fees or other costs of the
Holders.

     

    5.           Indemnification.

     

    (a)           Indemnification by the
Company.  The Company shall, notwithstanding any termination of
this Agreement but at all times subject to Section 5(c) of this Agreement,
indemnify, defend and hold harmless each Holder, the officers, directors,
agents, partners, members, managers, shareholders, Affiliates and employees of
each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, partners, members, managers, shareholders, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable attorneys' fees
and expenses) and expenses (collectively, “Losses”), as incurred, that
arise out of or are based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (A) such
untrue statements, alleged untrue statements, omissions or alleged omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and approved by such
Holder expressly for use in the Registration Statement, such Prospectus or such
form of Prospectus or in any amendment or supplement thereto (it being
understood that each Holder has approved Annex A hereto for
this purpose), or (B) in the case of an occurrence of an event of the type
specified in Section 3(c), related to the use by a Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated and defined in Section 6(d) below, but only if and to
the extent that following the receipt of the Advice the misstatement or omission
giving rise to such Loss would have been corrected.  The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions contemplated by
this Agreement of which the Company is aware.  Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of an Indemnified Party (as defined in Section 5(c)) and shall survive
the transfer of the Registrable Securities by the Holders.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (b)           Indemnification by
Holders. Each Holder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, arising out of or are
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus, or any form of prospectus or supplement thereto, in
light of the circumstances under which they were made) not misleading (i) to the
extent, but only to the extent, that such untrue statements or omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein or (ii) to the extent, but only
to the extent, that such information relates to such Holder or such Holder’s
proposed method of distribution of Registrable Securities and was reviewed and
approved by such Holder expressly for use in a Registration Statement (it being
understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (iii) in the case of an occurrence of an event of the type
specified in Section 3(c), to the extent, but only to the extent, related to the
use by such Holder of an outdated or defective Prospectus after the Company has
notified such Holder in writing that the Prospectus is outdated or defective and
prior to the receipt by such Holder of the Advice contemplated in Section 6(d),
but only if and to the extent that following the receipt of the Advice the
misstatement or omission giving rise to such Loss would have been
corrected.  In no event shall the liability of any selling Holder
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

     

    (c)           Conduct of Indemnification
Proceedings. If any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is sought
(the “Indemnifying
Party”) in writing, and the Indemnifying Party shall have the right to
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all reasonable fees and
expenses incurred in connection with defense thereof; provided, that the failure of
any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have materially and adversely prejudiced the
Indemnifying Party.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding, in which case the
Indemnifying Party will be responsible for such fees and expenses through the
date of any assumption of defense by the Indemnified Party with counsel
reasonably satisfactory to such Indemnified Party; or (3) the named parties to
any such Proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised in writing by counsel reasonably acceptable to the
Indemnifying Party that a conflict of interest exists if the same counsel were
to represent such Indemnified Party and the Indemnifying Party; provided, that the
Indemnifying Party shall not be liable for the fees and expenses of more than
one separate firm of attorneys at any time for all Indemnified
Parties.  The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent may be given in its sole discretion so long as it has agreed to assume
defense and has the financial and other means to do so
effectively.  No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

     

    Subject
to the terms of this Agreement, all fees and expenses of the Indemnified Party
(including reasonable attorney fees and expenses to the extent incurred in
connection with such Proceeding in a manner not inconsistent with this Section
5(c)) shall be paid to the Indemnified Party, as incurred, within twenty Trading
Days of written notice thereof to the Indemnifying Party; provided, that the
Indemnified Party shall promptly reimburse the Indemnifying Party for that
portion of such fees and expenses applicable to such actions for which such
Indemnified Party is finally judicially determined to not be entitled to
indemnification hereunder). The failure to deliver written notice to the
Indemnifying Party within a reasonable time of the commencement of any such
action shall not relieve such Indemnifying Party of any liability to the
Indemnified Party under this Section 5, except to the extent that the
Indemnifying Party is materially and adversely prejudiced in its ability to
defend such action.

     

    (d)           Contribution.  If
a claim for indemnification under Section 5(a) or 5(b) is unavailable to an
Indemnified Party or insufficient to hold an Indemnified Party harmless for any
Losses, then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission.  The amount paid or payable by a party
as a result of any Losses shall be deemed to include, subject to the limitations
set forth in this Agreement, any reasonable attorneys' or other reasonable fees
or expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section 5(d) was available to such party in
accordance with its terms.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph.  Notwithstanding the provisions of this Section 5(d), no
Holder shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the net proceeds actually received by such Holder from
the sale of the Registrable Securities subject to the Proceeding exceeds the
amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.

     

    The
indemnity and contribution agreements contained in this Section 5 are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties and are not in diminution or limitation of the
indemnification provisions under the Purchase Agreement.

     

    6.           Miscellaneous.

     

    (a)           Remedies.  In
the event of a breach by the Company or by a Holder of any of their obligations
under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement.  The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

     

    (b)           No Piggyback on
Registrations; Prohibit on Filing Other Registration
Statements.  Except for other purchasers in the Offering,
neither the Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto) may include securities of the Company in a
Registration Statement other than the Registrable Securities and the Company
shall not prior to the Effective Date enter into any agreement providing any
such right to any of its security holders. The Company shall not, from the date
hereof until the date that is 60 days after the Effective Date of the Initial
Registration Statement, prepare and file with the Commission a registration
statement relating to an offering for its own account under the Securities Act
of any of its equity securities, other than (i) a registration statement on Form
S-8, (ii) in connection with an acquisition, on Form S-4 or (iii) a registration
statement to register for resale securities issued by the Company pursuant to
acquisitions or strategic transactions approved by the Company’s board of
directors.  For the avoidance of doubt, the Company shall not be
prohibited from preparing and filing with the Commission a registration
statement relating to an offering of Common Stock by existing shareholders of
the Company under the Securities Act or from filing amendments to registration
statements filed prior to the date of this Agreement.

     

    (c)           Compliance.  Each
Holder covenants and agrees that it will comply with the prospectus delivery and
other requirements of the Securities Act and applicable state securities laws as
applicable to it (unless an exemption therefrom is available) in connection with
sales of Registrable Securities pursuant to the Registration Statement and shall
sell the Registrable Securities only in accordance with a method of distribution
described in the Registration Statement

     

    (d)           Discontinued
Disposition.  By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(c)(iii)-(v), such
Holder will forthwith discontinue disposition of such Registrable Securities
under a Registration Statement until it is advised in writing (the “Advice”) by the Company that
the use of the applicable Prospectus (as it may have been supplemented or
amended) may be resumed.    The Company may provide
appropriate stop orders to enforce the provisions of this
paragraph.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (e)           No Inconsistent
Agreements.  Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date hereof, enter into any agreement with respect
to its securities, that conflicts with the provisions hereof.

     

    (f)           Amendments and
Waivers.  The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, or
waived unless the same shall be in writing and signed by the Company and Holders
holding at least two-thirds of the then outstanding Registrable Securities,
provided that any party may give a waiver as to
itself.  Notwithstanding the foregoing,  a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of all of the
Registrable Securities to which such waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
Notwithstanding the foregoing, if any such amendment, modification or waiver
would adversely affect in any material respect any Holder or group of Holders
who have comparable rights under this Agreement disproportionately to the other
Holders having such comparable rights, such amendment, modification, or waiver
shall also require the written consent of the Holder(s) so adversely
affected.

     

    (g)           Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be delivered as set forth in the Purchase
Agreement.

     

    (h)           Successors and
Assigns.  This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and
shall inure to the benefit of each Holder.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.  The Company may not assign its
rights (except by merger or in connection with another entity acquiring all or
substantially all of the Company’s assets) or obligations hereunder without the
prior written consent of all the Holders of the then outstanding Registrable
Securities.  Each Holder may assign its respective rights hereunder in
the manner and to the Persons as permitted under the Purchase
Agreement.

     

    (i)           Execution and
Counterparts.  This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature were the original
thereof.

     

    (j)           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.

     

    (k)           Cumulative
Remedies.  Except as provided in Section 2(c) with respect to
Liquidated Damages, the remedies provided herein are cumulative and not
exclusive of any other remedies provided by law.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (l) 
          Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their good faith reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

     

    (m)           Headings.  The
headings in this Agreement are for convenience only and shall not limit or
otherwise affect  the meaning hereof.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first written above.

     

    
      
        
          
            
              
                	
                        PACIFIC
      FINANCIAL CORPORATION

                      
	 
      	 
      
	
                        By:

                      	
                        /s/ Denise Portmann

                      	
                          

                      
	 
      	
                        Name:  Denise
      Portmann

                      
	 
      	
                        Title:  Executive
      Vice President, Chief Financial
Officer

                      


              

            

          

        

      

    

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,

    SIGNATURE
PAGES OF HOLDERS TO FOLLOW]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the parties have
executed this Registration Rights Agreement as of the date first written
above.

     

    
      
        
          	
                  NAME
      OF INVESTING ENTITY

                
	 
      
	
                  ITHAN
      CREEK MASTER INVESTORS (CAYMAN) L.P.

                
	 
      
	
                  AUTHORIZED
      SIGNATORY

                
	 
      
	
                  By:  Wellington
      Management Company, LLP

                
	
                         
      an Investment Adviser

                
	 
      	 
      
	
                  By:

                	
                  /s/ Robert J. Toner

                
	 
      	
                  Name:  Robert
      J. Toner

                
	 
      	
                  Title:  Vice
      President and Counsel

                
	 
      	 
      
	
                  ADDRESS
      FOR NOTICE

                
	 
      
	
                  c/o:
      Wellington Management Company, LLP

                
	
                         
      75 State Street, Boston,
MA  02109

                


        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    Annex A

     

    PLAN
OF DISTRIBUTION

    


    We are registering the Common Stock
issued, or issuable upon the exercise of warrants, to the selling shareholder to
permit the resale of these shares of Common Stock by the holders of the Common
Stock from time to time after the date of this prospectus.  We will
not receive any of the proceeds from the sale by the selling shareholders of the
Common Stock.  We will bear all fees and expenses incident to our
obligation to register the Common Stock.

    


    The
selling shareholders may sell all or a portion of the Common Stock beneficially
owned by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents.  If the Common Stock is
sold through underwriters or broker-dealers, the selling shareholders will be
responsible for underwriting discounts or commissions or agent's
commissions.  The Common Stock may be sold on any national securities
exchange or quotation service on which the securities may be listed or quoted at
the time of sale, in the over-the-counter market or in transactions otherwise
than on these exchanges or systems or in the over-the-counter market and in one
or more transactions at fixed prices, at prevailing market prices at the time of
the sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve crosses
or block transactions.  The selling shareholders may use any one or
more of the following methods when selling shares:

     

    
      	
               
      

            	
              ·

            	
              ordinary
      brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

            


    

     

    
      	
               
      

            	
              ·

            	
              block
      trades in which the broker-dealer will attempt to sell the shares as agent
      but may position and resell a portion of the block as principal to
      facilitate the transaction;

            


    

     

    
      	
               
      

            	
              ·

            	
              purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

            


    

     

    
      	
               
      

            	
              ·

            	
              an
      exchange distribution in accordance with the rules of the applicable
      exchange;

            


    

     

    
      	
               
      

            	
              ·

            	
              privately
      negotiated transactions;

            


    

     

    
      	
               
      

            	
              ·

            	
              settlement
      of short sales entered into after the effective date of the registration
      statement of which this prospectus is a
part;

            


    

     

    
      	
               
      

            	
              ·

            	
              broker-dealers
      may agree with the selling shareholders to sell a specified number of such
      shares at a stipulated price per
share;

            


    

     

    
      	
               
      

            	
              ·

            	
              through
      the writing or settlement of options or other hedging transactions,
      whether such options are listed on an options exchange or
      otherwise;

            


    

     

    
      	
               
      

            	
              ·

            	
              a
      combination of any such methods of sale;
and

            


    

     

    
      	
               
      

            	
              ·

            	
              any
      other method permitted pursuant to applicable
  law.

            


    

     

    The
selling shareholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, as
permitted by that rule, or Section 4(1) under the Securities Act, if available,
rather than under this prospectus, provided that they meet the criteria and
conform to the requirements of those provisions.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Broker-dealers
engaged by the selling shareholders may arrange for other broker-dealers to
participate in sales. If the selling shareholders effect such transactions by
selling Common Stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling shareholders or
commissions from purchasers of the Common Stock for whom they may act as agent
or to whom they may sell as principal. Such commissions will be in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction will not be in excess of a customary brokerage
commission in compliance with NASD Rule 2440; and in the case of a principal
transaction a markup or markdown in compliance with NASD IM-2440.

     

    In
connection with sales of the Common Stock or otherwise, the selling shareholders
may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the Common Stock in the
course of hedging in positions they assume.  The selling shareholders
may also sell Common Stock short and if such short sale shall take place after
the date that this Registration Statement is declared effective by the
Commission, the selling shareholders may deliver Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales.  The selling shareholders may also
loan or pledge Common Stock to broker-dealers that in turn may sell such shares,
to the extent permitted by applicable law. The selling shareholders may also
enter into option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction). Notwithstanding the foregoing, the selling
shareholders have been advised that they may not use shares registered on this
registration statement to cover short sales of our Common Stock made prior to
the date the registration statement, of which this prospectus forms a part, has
been declared effective by the SEC.

     

    The
selling shareholders may, from time to time, pledge or grant a security interest
in some or all of the Common Stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the Common Stock from time to time pursuant to this prospectus or
any amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933, as amended, amending, if necessary, the
list of selling shareholders to include the pledgee, transferee or other
successors in interest as selling shareholders under this
prospectus.  The selling shareholders also may transfer and donate the
Common Stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.

     

    The
selling shareholders and any broker-dealer or agents participating in the
distribution of the Common Stock may be deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act in connection with such
sales.  In such event, any commissions paid, or any discounts or
concessions allowed to, any such broker-dealer or agent and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Selling shareholders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will be
subject to the applicable prospectus delivery requirements of the Securities Act
and may be subject to certain statutory liabilities of, including but not
limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Securities Exchange Act of 1934, as amended, or the Exchange
Act.

     

    Each
selling shareholder has informed the Company that it is not a registered
broker-dealer and does not have any written or oral agreement or understanding,
directly or indirectly, with any person to distribute the Common
Stock.  Upon the Company being notified in writing by a selling
shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of Common Stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of
each such selling shareholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such the Common Stock
was sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the
transaction.  In no event shall any broker-dealer receive fees,
commissions and markups, which, in the aggregate, would exceed eight percent
(8%).


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Under the
securities laws of some states, the Common Stock may be sold in such states only
through registered or licensed brokers or dealers.  In addition, in
some states the Common Stock may not be sold unless such shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.

     

    There can
be no assurance that any selling shareholder will sell any or all of the Common
Stock registered pursuant to the shelf registration statement, of which this
prospectus forms a part.

     

    Each
selling shareholder and any other person participating in such distribution will
be subject to applicable provisions of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, including, without
limitation, to the extent applicable, Regulation M of the Exchange Act, which
may limit the timing of purchases and sales of any of the Common Stock by the
selling shareholder and any other participating person.  To the extent
applicable, Regulation M may also restrict the ability of any person engaged in
the distribution of the Common Stock to engage in market-making activities with
respect to the Common Stock.  All of the foregoing may affect the
marketability of the Common Stock and the ability of any person or entity to
engage in market-making activities with respect to the Common
Stock.

     

    We will
pay all expenses of the registration of the Common Stock pursuant to the
registration rights agreement, including, without limitation, Securities and
Exchange Commission filing fees and expenses of compliance with state securities
or “blue sky” laws; provided, however, that each selling
shareholder will pay all underwriting discounts and selling commissions, if any
and any related legal expenses incurred by it.  We will indemnify the
selling shareholders against certain liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreement,
or the selling shareholders will be entitled to contribution.  We may
be indemnified by the selling shareholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling shareholders specifically for use in
this prospectus, in accordance with the related registration rights agreements,
or we may be entitled to contribution.



    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    Annex B

     

    PACIFIC
FINANCIAL CORPORATION

    


    SELLING
SHAREHOLDER NOTICE AND QUESTIONNAIRE

    


    The
undersigned holder of common stock, par value $1.00 per share, of Pacific
Financial Corporation, a Washington corporation (the “Company”), issued pursuant to
a certain Securities Purchase Agreement by and among the Company and the
Purchasers named therein, dated as of August 25, 2009, understands that the
Company intends to file with the Securities and Exchange Commission a
registration statement (the “Resale Registration
Statement”) for the registration and the resale under Rule 415 of the
Securities Act of 1933, as amended (the “Securities Act”), of the
Registrable Securities in accordance with the terms of a certain Registration
Rights Agreement by and among the Company and the Purchasers named therein,
dated as of August 25, 2009 (the “Agreement”).  All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Agreement.

    


    In order
to sell or otherwise dispose of any Registrable Securities pursuant to the
Resale Registration Statement, a holder of Registrable Securities generally will
be required to be named as a selling shareholder in the related prospectus or a
supplement thereto (as so supplemented, the “Prospectus”), deliver the
Prospectus to purchasers of Registrable Securities (including pursuant to Rule
172 under the Securities Act) and be bound by the provisions of the Agreement
(including certain indemnification provisions, as described
below).  Holders must complete and deliver this Notice and
Questionnaire in order to be named as selling shareholders in the
Prospectus.  Holders
of Registrable Securities who do not complete, execute and return this Notice
and Questionnaire within five (5)Trading Days following the date of the
Agreement (1) will not be named as selling shareholders in the Resale
Registration Statement or the Prospectus and (2) may not use the Prospectus for
resales of Registrable Securities.

    


    Certain
legal consequences arise from being named as a selling shareholder in the Resale
Registration Statement and the Prospectus.  Holders of Registrable
Securities are advised to consult their own securities law counsel regarding the
consequences of being named or not named as a selling shareholder in the Resale
Registration Statement and the Prospectus.

    NOTICE

     

    The
undersigned holder (the “Selling Shareholder”) of
Registrable Securities hereby gives notice to the Company of its intention to
sell or otherwise dispose of Registrable Securities owned by it and listed below
in Item (3), unless otherwise specified in Item (3), pursuant to the Resale
Registration Statement.  The undersigned, by signing and returning
this Notice and Questionnaire, understands and agrees that it will be bound by
the terms and conditions of this Notice and Questionnaire and the
Agreement.

    


    The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate and
complete:

    


    
      QUESTIONNAIRE

    

     

    
      	
              1.

            	
              Name.

            


    

     

    
      
        	
                 
      

              	
                (a)

              	
                Full
      Legal Name of Selling Shareholder:

              
	 	 	 
	 	 	 


      

    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      
        	
                 
      

              	
                (b)

              	
                Full
      Legal Name of Registered Holder (if not the same as (a) above) through
      which Registrable Securities Listed in Item 3 below are
    held:

              
	 	 	 
	 	 	 


      

    

     

    
      
        	
                 
      

              	
                (c)

              	
                Full
      Legal Name of Natural Control Person (which means a natural person who
      directly or indirectly alone or with others has power to vote or dispose
      of the securities covered by the questionnaire):

              
	 	 	 
	 	 	 


      

    

     

    
      2.  Address
for Notices to Selling Shareholder:

    

     

    
      
        
          	 
      
	 
      
	 
      
	
                  Telephone: 

                	 
      


        

      

    

    
      
        
          	
                  Fax: 

                	 
      


        

      

    

    
      
        
          	
                  Contact Person: 

                	 
      


        

      

    

    
      
        
          	
                  E-mail
      address of Contact Person: 

                	
                     

                


        
  

    

    3.  Beneficial
Ownership of Registrable Securities Issuable Pursuant to the Purchase
Agreement:

     

    
      
        	
                 
      

              	
                (a)

              	
                Type
      and Number of Registrable Securities beneficially owned and issued
      pursuant to the Agreement:

              
	 	 	 
	 	 	 
	 	 	 
	 	 	 


      

    

     

    
      
        	
                 
      

              	
                (b)

              	
                Number
      of shares of Common Stock to be registered pursuant to this Notice for
      resale:

              
	 	 	 
	 	 	 
	 	 	 
	 	 	 


      

    

     

    
      4.  Broker-Dealer
Status:

    

     

    
      	
               
      

            	
              (a)

            	
              Are
      you a broker-dealer?

            


    

     

    Yes    ̈    No    ̈


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      
        	
              	
                (b) 

              	
                If
      “yes” to Section 4(a), did you receive your Registrable Securities as
      compensation for investment banking services to the
    Company?

              


      

    

     

    Yes    ̈    No    ̈

     

    
      	
              Note: 

            	
              If
      no, the Commission’s staff has indicated that you should be identified as
      an underwriter in the Registration
Statement.

            


    

     

    
      	
               
      

            	
              (c)

            	
              Are
      you an affiliate of a
broker-dealer?

            


    

     

    Yes    ̈    No    ̈

     

    
      
        	 	
                Note:

              	
                If
      yes, provide a narrative explanation below:

              
	 	 	 
	 	 	 
	 	 	 


      

    

     

    
      	
               
      

            	
              (c)

            	
              If
      you are an affiliate of a broker-dealer, do you certify that you bought
      the Registrable Securities in the ordinary course of business, and at the
      time of the purchase of the Registrable Securities to be resold, you had
      no agreements or understandings, directly or indirectly, with any person
      to distribute the Registrable
Securities?

            


    

     

    Yes    ̈    No    ̈

     

    
      	
            	
              Note:

            	
              If
      no, the Commission’s staff has indicated that you should be identified as
      an underwriter in the Registration
Statement.

            


    

     

    
      5.  Beneficial
Ownership of Other Securities of the Company Owned by the Selling
Shareholder.

    

     

    Except
as set forth below in this Item 5, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the Registrable
Securities listed above in Item 3.

     

    
      
        
          
            
              
                
                  
                    	
                             

                          	
                            Type and
      amount of other securities beneficially owned:

                          
	 	 
	 	 
	 	 
	 	 


                  

                

              

            

          

        

      

    

     

    6.  Relationships
with the Company:

     

    Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.

     

    
      
        	
                 
      

              	
                State
      any exceptions here:

              
	 	 
	 	 
	 	 


      

    

     

    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    
      7.  Plan
of Distribution:

    

     

    The
undersigned has reviewed the form of Plan of Distribution attached as Annex A to
the Registration Rights Agreement, and hereby confirms that, except as set forth
below, the information contained therein regarding the undersigned and its plan
of distribution is correct and complete.

     

    
      
        	
                 
      

              	
                State
      any exceptions here:

              
	 	 
	 	 
	 	 


      

    

     

    
      ***********

    

     

    By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items (1) through (7) above and the inclusion
of such information in the Resale Registration Statement and the
Prospectus.  The undersigned understands that such information will be
relied upon by the Company in connection with the preparation or amendment of
any such Registration Statement and the Prospectus.

     

    By
signing below, the undersigned acknowledges that it understands its obligation
to comply, and agrees that it will comply, with the provisions of the Exchange
Act and the rules and regulations thereunder, particularly Regulation M in
connection with any offering of Registrable Securities pursuant to the Resale
Registration Statement.  The undersigned also acknowledges that it
understands that the answers to this Questionnaire are furnished for use in
connection with Registration Statements filed pursuant to the Registration
Rights Agreement and any amendments or supplements thereto filed with the
Commission pursuant to the Securities Act.

     

    I confirm
that, to the best of my knowledge and belief, the foregoing statements
(including without limitation the answers to this Questionnaire) are
correct.

     

    IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this
Questionnaire to be executed and delivered either in person or by its duly
authorized agent.

     

    
      
        
          
            
              
                
                  
                    	
                            Dated: 

                          	 
      	 
      	
                            Beneficial Owner: 

                          	 
      


                  

                

              

            

          

        

      

    

    


    
      
        
          	 
      	
                  By: 

                	 
      
	 
      	 
      	
                  Name:

                
	 
      	 
      	
                  Title: