Unassociated Document


    
      EXHIBIT
10.1

       

      SECURITIES
PURCHASE AGREEMENT

       

      This
Securities Purchase Agreement (this “Agreement”) is dated as of
August 25, 2009, by and among Pacific Financial Corporation, a Washington
corporation (the “Company”), and each purchaser
identified on the signature pages hereto (each, including its successors and
assigns, a “Purchaser”
and collectively, the “Purchasers”).

       

      RECITALS

       

      A.           The
Company is raising approximately $12,750,000 in capital through the offer and
sale of shares of Common Stock and warrants to purchase Common Stock (the “Offering”) and has prior to
or concurrent with the date of this Agreement sold a total of $10,091,619 in
such securities, including 2,242,582 shares of Common Stock and warrants to
purchase an additional 560,642 shares of Common Stock, in three prior
closings.

       

      B.           The
Company and each Purchaser is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and
Rule 506 of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the “Commission”) under the
Securities Act.

       

      C.           Each
Purchaser, severally and not jointly, wishes to purchase, and the Company wishes
to sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate number of shares of common stock, par value $1.00 per share (the
“Common Stock”), of the
Company, set forth below such Purchaser’s name on the signature page of this
Agreement (which aggregate amount for all Purchasers together shall be 556,000
shares of Common Stock and shall be collectively referred to herein as the
“Shares”) and (ii) a
warrant, in the form attached hereto as Exhibit A (each, a
“Warrant” and,
collectively, the “Warrants”), to acquire up to
that number of additional shares of Common Stock set forth below such
Purchaser’s name on the signature page of this Agreement (which aggregate number
of shares underlying the Warrants for all Purchasers together shall be 139,000
shares of Common Stock and such shares shall be collectively referred to herein
as the “Warrant
Shares”).  The Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the “Securities.”

       

      D.           The
Company has engaged McAdams Wright Ragen, Inc. as its exclusive placement agent
(the “Placement Agent”)
for a portion of the Offering.

       

      E.           Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B (the
“Registration Rights
Agreement”), pursuant to which, among other things, the Company will
agree to provide certain registration rights with respect to the Registrable
Securities (as defined in the Registration Rights Agreement) under the
Securities Act and the rules and regulations promulgated thereunder and
applicable state securities laws.

       

                      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 the Purchasers hereby agree as
follows:

       

      ARTICLE
I.

      DEFINITIONS

       

                      1.1          Definitions. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:


      
        
           


        

        
           


          
            

          

        

        
           


        

      

       

                       “Action” means any action,
suit, inquiry, notice of violation, proceeding (including any partial proceeding
such as a deposition) or investigation pending or, to the Company’s Knowledge,
threatened in writing against the Company, any Subsidiary or any of their
respective properties or any officer, director or employee of the Company or any
Subsidiary acting in his or her capacity as an officer, director or employee
before or by any federal, state, county, local or foreign court, arbitrator,
governmental or administrative agency, regulatory authority, stock market, stock
exchange or trading facility.

       

                      “Affiliate” means, with
respect to any Person, any other Person that, directly or indirectly through one
or more intermediaries, Controls, is controlled by or is under common control
with such Person, as such terms are used in and construed under Rule 405 under
the Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such
Purchaser.

       

                      “Agreement” shall have the
meaning ascribed to such term 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” means the closing of
the purchase and sale of the Shares and Warrants pursuant to this
Agreement.

       

                      “Closing Date” means the
Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all of the conditions set forth
in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied, or such other date as
the parties may agree.

       

                      “Commission” has the meaning
set forth in the Recitals.

       

                      “Common Stock” has the meaning
set forth in the Recitals, and also includes any securities into which the
Common Stock may hereafter be reclassified or changed.

       

                      “Common Stock Equivalents”
means any securities of the Company or any Subsidiary which would entitle the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.

       

                      “Company Counsel” means Miller
Nash LLP.

       

                      “Company Deliverables” has the
meaning set forth in Section 2.2(a).

       

                      “Company’s Knowledge” means
with respect to any statement made to the knowledge of the Company, that the
statement is based upon the actual knowledge of the executive officers of the
Company having responsibility for the matter or matters that are the subject of
the statement.

       

                      “Control” (including the terms
“controlling”, “controlled by” or “under common control with”) means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.

       

                      “Disclosure Materials” has the
meaning set forth in Section 3.1(h).

       

                      “Effective Date” means the
date on which the initial Registration Statement required by Section 2(a) of the
Registration Rights Agreement is first declared effective by the
Commission.

       

                      “Environmental Laws” has the
meaning set forth in Section 3.1(l).

       

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

       

                      “GAAP” means U.S. generally
accepted accounting principles, as applied by the Company.

       

                      “Indemnified Person” has the
meaning set forth in Section 4.9(b).

       

                      “Intellectual Property” has
the meaning set forth in Section 3.1(r).


      
        
           


        

        
          2

          
            

          

        

        
           


        

      

       

                      “Lien” means any lien, charge,
claim, encumbrance, security interest, right of first refusal, preemptive right
or other restrictions of any kind.

       

                      “Material Adverse Effect”
means any of (i) a material and adverse effect on the legality, validity or
enforceability of any Transaction Document , (ii) a material and adverse effect
on the results of operations, assets, properties, business or financial
condition of the Company and the Subsidiaries, taken as a whole, or (iii) any
adverse impairment to the Company’s ability to perform in any material respect
on a timely basis its obligations under any Transaction Document, except that
any of the following, either alone or in combination, shall not be deemed a
Material Adverse Effect: (A) effects caused by changes or circumstances
affecting general market conditions in the U.S. economy or which are generally
applicable to the industry in which the Company operates, which do not affect
the Company in a materially disproportionate manner, (B) effects resulting from
or relating to the announcement or disclosure of the sale of the Securities or
other transactions contemplated by this Agreement, or (C) effects caused by any
event, occurrence or condition resulting from or relating to the taking of any
action in accordance with the Transaction Documents.

       

                     
“Material Contract”
means any contract of the Company that was filed as an exhibit to the SEC
Reports pursuant to Item 601 of Regulation S-K.

       

                      “Material Permits” has the
meaning set forth in Section 3.1(p).

       

      “Offering Memorandum” means
that certain Confidential Private Placement Memorandum, dated as of June 15,
2009, relating to the Company’s sale of Common Stock and warrants to purchase
Common Stock.

       

                      “Outside Date” means the tenth
day following the date of this Agreement; provided that if such day is not a
Business Day, the first day following such day that is a Business
Day.

       

                      “Person” means an individual,
corporation, partnership, limited liability company, trust, business trust,
association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.

       

      “Placement Agent” has the
meaning set forth in the Recitals.

       

                      “Principal Trading Market”
means the Trading Market on which the Common Stock is primarily listed on and
quoted for trading, which, as of the date of this Agreement and 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.

       

                      “Purchaser Deliverables” has
the meaning set forth in Section 2.2(b).

       

                      “Purchaser Party” has the
meaning set forth in Section 4.9(a).

       

                      “Registration Rights
Agreement” has the meaning set forth in the Recitals.

       

                      “Registration Statement” means
a registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Registrable
Securities (as defined in the Registration Rights Agreement).

       

      “Regulation D” has the meaning
set forth in the Recitals.

       

                      “Required Approvals” has the
meaning set forth in Section 3.1(e).

       

                      “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.

       

                      “SEC Reports” has the meaning
set forth in Section 3.1(h).

       

                      “Secretary’s Certificate” has
the meaning set forth in Section 2.2(a)(vi).

       

      “Securities” has the meaning
set forth in the Recitals.


      
        
           


        

        
          3

          
            

          

        

        
           


        

      

       

                      “Securities Act” means the
Securities Act of 1933, as amended.

       

      “Shares” has the meaning set
forth in the Recitals.

       

                      “Subscription Amount” means
with respect to each Purchaser, the aggregate amount to be paid for the Shares
and Warrants purchased hereunder as indicated on such Purchaser’s signature page
to this Agreement next to the heading “Aggregate Purchase Price (Subscription
Amount)”.

       

                      “Subsidiary” means any entity
in which the Company, directly or indirectly, owns sufficient capital stock or
holds a sufficient equity or similar interest such that it is consolidated with
the Company in the financial statements of the Company.

       

                      “Trading Day” means (i) a
day on which the Common Stock is listed or quoted and traded on its Principal
Trading 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 the OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

       

                      “Transaction Documents” means
this Agreement, the schedules and exhibits attached hereto, the Registration
Rights Agreement, the Warrants and any other documents or agreements executed in
connection with the transactions contemplated hereunder.

       

                      “Transfer Agent” means BNY
Mellon Shareholder Services, or any successor transfer agent for the
Company.

       

      “Warrants” has the meaning set
forth in the Recitals.

       

      “Warrant Shares” has the
meaning set forth in the Recitals.

       

      ARTICLE
II.

      PURCHASE
AND SALE

       

      2.1         
Closing.

       

      (a)           Purchase of
Securities.  Subject to the terms and conditions set forth in
this Agreement, at the Closing the Company shall issue and sell to each
Purchaser, and each Purchaser shall, severally and not jointly, purchase from
the Company, (i) the number of Shares set forth below such Purchaser’s name on
the signature page of this Agreement and (ii) a Warrant to acquire the number of
Warrant Shares set forth below such Purchaser’s name on the signature page of
this Agreement.

       

      (b)           Closing.  The
Closing of the purchase and sale of the Shares and Warrants shall take place at
the offices of Miller Nash LLP, 111 S.W. Fifth Avenue, Suite 3400, Portland,
Oregon, on the Closing Date or at such other locations or remotely by facsimile
transmission or other electronic means as the parties may mutually
agree.

       

      (c)           Form of
Payment.  Unless otherwise agreed to by the Company and a
Purchaser (as to itself only), on the Closing Date, (1) the Company shall
deliver to each Purchaser (A) one or more stock certificates, evidencing the
number of Shares set forth on such Purchaser’s signature page to this Agreement
and (B) a Warrant to acquire the number of Warrant Shares set forth on such
Purchaser’s signature page to this Agreement, in all cases duly executed by the
Company and registered in the name of such Purchaser or its designee, and (2)
upon receipt thereof, each Purchaser shall wire its Subscription Amount, in
United States dollars and in immediately available funds, in accordance with the
Company’s written wire transfer instructions.


      
        
           


        

        
          4

          
            

          

        

        
           


        

      

       

      2.2          Closing
Deliveries.

       

      (a)           At
or prior to the Closing, the Company shall issue, deliver or cause to be
delivered to each Purchaser the following (the “Company
Deliverables”):

       

      
        (i)        
this
Agreement, duly executed by the Company;

      

       

      
        (ii) 
      one or
more stock certificates, evidencing the Shares subscribed for by Purchaser
hereunder, registered in the name of such Purchaser or as otherwise set forth on
the Stock Certificate and Warrant Questionnaire included as Exhibit C-2
hereto (the “Stock
Certificates”);

      

       

      
        (iii)      
a
Warrant to acquire the number of Warrant Shares set forth below such Purchaser’s
name on the signature page of this Agreement, duly executed by the Company and
registered in the name of such Purchaser or its designee (as set forth on the
Stock Certificate and Warrant Questionnaire included as Exhibit C-2
hereto);

      

       

      
        (iv)      
a
legal opinion of Company Counsel, dated as of the Closing Date and in the form
attached hereto as Exhibit D,
executed by such counsel and addressed to the Purchasers;

      

       

      (v)        the
Registration Rights Agreement, duly executed by the Company;

       

      
        (vi)      
a
certificate of the Secretary of the Company (the “Secretary’s Certificate”),
dated as of the Closing Date, (a) certifying the resolutions adopted by the
Board of Directors of the Company approving the transactions contemplated by
this Agreement and the other Transaction Documents and the issuance of the
Shares, Warrants and Warrant Shares, (b) certifying the current versions of
the articles of incorporation and by-laws of the Company and (c) certifying
as to the signatures and authority of persons signing the Transaction Documents
and related documents on behalf of the Company, in the form attached hereto as
Exhibit E;
and

      

       

      
        (vii)    
 the
Compliance Certificate referred to in Section 5.1(g).

      

       

      (b)         
At or prior to the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following (the “Purchaser
Deliverables”):

       

      
        (i)        
this
Agreement, duly executed by such Purchaser;

      

       

      
        (ii)       
its
Subscription Amount, in U.S. dollars and in immediately available funds, by wire
transfer in accordance with the Company’s written
instructions;

      

       

      
        (iii)      
the
Registration Rights Agreement, duly executed by such Purchaser;
and

      

       

      
        (iv)     
a
fully completed and duly executed Accredited Investor Questionnaire, reasonably
satisfactory to the Company, and Stock Certificate and Warrant Questionnaire in
the forms attached hereto as Exhibits C-1 and C-2 ,
respectively.

      

       

      ARTICLE
III.

      REPRESENTATIONS
AND WARRANTIES

       

                      3.1           Representations and
Warranties of the Company. The Company hereby represents and warrants as
of the date hereof and the Closing Date (except for the representations and
warranties that speak as of a specific date, which shall be made as of such
date), to each of the Purchasers that:

       

                                      (a)           Subsidiaries. The
Company has no direct or indirect Subsidiaries other than those listed in the
SEC Reports. Except as disclosed in the SEC Reports, the Company owns, directly
or indirectly, all of the capital stock or comparable equity interests of each
Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase
securities.


      
        
           


        

        
          5

          
            

          

        

        
           


        

      

       

                                      (b)           Organization and
Qualification. The Company and each of its “Significant Subsidiaries” (as
defined in Rule 1-02 of Regulation S-X) is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own or lease and use its properties and assets
and to carry on its business as currently conducted. Neither the Company nor any
Significant Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. The Company and each of its Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, would not in the reasonable judgment of the Company be expected to have a
Material Adverse Effect.  The Company is duly registered as a bank
holding company under the Bank Holding Company Act of 1956, as
amended.  Each of the Company’s depository institution Subsidiaries’
deposit accounts are insured up to applicable limits by the Federal Deposit
Insurance Corporation, and all premiums and assessments required to be paid in
connection therewith have been paid when due. The Company has conducted its
business in compliance with all applicable federal, state and foreign laws,
orders, judgments, decrees, rules, regulations and applicable stock exchange
requirements, including all laws and regulations restricting activities of bank
holding companies and banking organizations, except for any noncompliance that,
individually or in the aggregate, has not had and would not be reasonably
expected to have a Material Adverse Effect.

       

                                      (c)           Authorization; Enforcement;
Validity. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the
Transaction Documents to which it is a party and otherwise to carry out its
obligations hereunder and thereunder, including, without limitation, to issue
the Securities in accordance with the terms hereof and thereof. The Company’s
execution and delivery of each of the Transaction Documents to which it is a
party and the consummation by it of the transactions contemplated hereby and
thereby (including, but not limited to, the sale and delivery of the Shares and
Warrants and the reservation for issuance and the issuance of the Warrant Shares
issuable upon exercise of the Warrants) have been duly authorized by all
necessary corporate action on the part of the Company, and no further corporate
action is required by the Company, its Board of Directors or its stockholders in
connection therewith other than in connection with the Required Approvals. Each
of the Transaction Documents to which it is a party has been (or upon delivery
will have been) duly executed by the Company and is, or when delivered in
accordance with the terms hereof, will constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and
remedies or by other equitable principles of general application, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law. Except for Material
Contracts, there are no stockholder agreements, voting agreements, or other
similar arrangements with respect to the Company’s capital stock to which the
Company is a party or, to the Company’s Knowledge, between or among any of the
Company’s stockholders.

       

                                      (d)           No Conflicts. The
execution, delivery and performance by the Company of the Transaction Documents
to which it is a party and the consummation by the Company of the transactions
contemplated hereby or thereby (including, without limitation, the issuance of
the Shares, the Warrants and the Warrant Shares and the reservation for issuance
of the Warrant Shares) do not and will not (i) conflict with or violate any
provisions of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or otherwise result in a violation of the organizational
documents of the Company or any Subsidiary, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would result in a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any Material Contract, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations and the rules and regulations, assuming the correctness of the
representations and warranties made by (A) the Purchasers in this Agreement and
(B) other purchasers that have participated or will participate in the
Offering), or by which any property or asset of the Company is bound or
affected, except in the case of clauses (ii) and (iii) such as would
not have or reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.


      
        
           


        

        
          6

          
            

          

        

        
           


        

      

       

                                      (e)           Filings, Consents and
Approvals. Neither the Company nor any of its Subsidiaries is required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents
(including, without limitation, the issuance of the Shares, the Warrants and the
Warrant Shares and the reservation for issuance of the Warrant Shares), other
than (i) the filing with the Commission of one or more Registration
Statements in accordance with the requirements of the Registration Rights
Agreement, (ii) filings required by applicable state securities laws,
(iii) the filing of a Notice of Sale of Securities on Form D with the
Commission under Regulation D of the Securities Act, (iv) the filings
required in accordance with Section 4.6 of this Agreement and
(v) those that have been made or obtained prior to the date of this
Agreement (collectively, the “Required
Approvals”).

       

                                      (f)         
  Issuance
of the Securities. The issuance of the Shares, Warrants and Warrant
Shares have been duly authorized and the Shares and Warrant Shares, when issued
and paid for in accordance with the terms of the Transaction Documents, will be
duly and validly issued, fully paid and non-assessable and free and clear of all
Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights.   Assuming the accuracy of the
representations and warranties of the Purchasers in this Agreement and other
purchasers that have participated or will participate in the Offering, the
Securities will be issued in compliance with all applicable federal and state
securities laws.

       

                                      (g)           Capitalization. The
number of shares and type of all authorized, issued and outstanding capital
stock, options and other securities of the Company (whether or not presently
convertible into or exercisable or exchangeable for shares of capital stock of
the Company) has been set forth in the SEC Reports and has changed since the
date of such SEC Reports only due to stock grants or other equity awards or
stock option and warrant exercises that do not, individually or in the
aggregate, have a material effect on the issued and outstanding capital stock,
options and other securities. All of the outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and non-assessable,
have been issued in compliance in all material respects with all applicable
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase any capital stock of the Company. Except as specified in the SEC
Reports or elsewhere in this Agreement: (i) no shares of the Company’s
outstanding capital stock are subject to preemptive rights or any other similar
rights; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional shares of capital stock of the Company or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company, other than those
issued or granted pursuant to Material Contracts or equity or incentive plans or
arrangements described in the SEC Reports; (iii) there are no material
outstanding debt securities, notes, credit agreements, credit facilities or
other agreements, documents or instruments evidencing indebtedness of the
Company or by which the Company is bound; (iv) except for the Registration
Rights Agreement, there are no agreements or arrangements under which the
Company is obligated to register the sale of any of their securities under the
Securities Act; (v) there are no outstanding securities or instruments of
the Company that contain any redemption or similar provisions, and there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to redeem a security of the Company; (vi) the Company
does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (vii) the Company has no
liabilities or obligations required to be disclosed in the SEC Reports but not
so disclosed, which, individually or in the aggregate, will have or would
reasonably be expected to have a Material Adverse Effect.  There are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities.


      
        
           


        

        
          7

          
            

          

        

        
           


        

      

       

                                      (h)           SEC Reports; Disclosure
Materials. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC
Reports” and together with this Agreement, the Schedules to this
Agreement and the Offering Memorandum, the “Disclosure Materials”), on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective filing dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

       

                                      (i)       
    Financial Statements.
The financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto and except
that unaudited financial statements may not contain all footnotes required by
GAAP, and fairly present in all material respects the balance sheet of the
Company and its consolidated subsidiaries taken as a whole as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments.

       

                                      (j)       
    Tax Matters. The
Company (i) has prepared and filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject, (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith, with respect to which adequate reserves have been set aside on the
books of the Company and (iii) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply, except, in the
case of clauses (i) and (ii) above, where the failure to so file or
pay any such tax, assessment, charge or return would not have or reasonably be
expected to have a Material Adverse Effect.

       

                                      (k)           Material Changes.
Since the date of the latest audited financial statements included within the
SEC Reports, except as disclosed in subsequent SEC Reports filed prior to the
date hereof, (i) there have been no events, occurrences or developments
that have had or would reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect, (ii) the Company has not incurred
any material liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary course
of business consistent with past practice and (B) liabilities not required
to be reflected in the Company’s financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) the
Company has not altered materially its method of accounting or the manner in
which it keeps its accounting books and records, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock (other than in connection with repurchases of
unvested stock issued to employees of the Company), (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
Common Stock issued pursuant to existing Company stock option or stock purchase
plans or executive and director arrangements disclosed in the SEC Reports and
(vi) there has not been any material change or amendment to, or any waiver
of any material right by the Company under, any Material Contract under which
the Company or any of its Subsidiaries is bound or subject. Except for the
transactions contemplated by this Agreement, no event, liability or development
has occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition that would be
required to be disclosed by the Company under applicable securities laws at the
time this representation is made that has not been publicly disclosed at least
one Trading Day prior to the date that this representation is
made.


      
        
           


        

        
          8

          
            

          

        

        
           


        

      

       

                                      (l)        
   Environmental
Matters. To the Company’s Knowledge, neither the Company nor any of its
Subsidiaries (i) is in violation of any statute, rule, regulation, decision
or order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure
to hazardous or toxic substances (collectively, “Environmental Laws”),
(ii) owns or operates any real property contaminated with any substance
that is in violation of any Environmental Laws, or (iii) is liable for any
off-site disposal or contamination pursuant to any Environmental Laws; in each
case, which violation, contamination or liability has had or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
The Company is not subject to any claim relating to any Environmental Laws and,
to the Company’s Knowledge, there is no pending or threatened investigation that
might lead to such a claim.

       

                                      (m)          Litigation. There is
no Action which (i) adversely affects or challenges the legality, validity
or enforceability of any of the Transaction Documents or the Shares or
(ii) except as disclosed in the SEC Reports, is reasonably likely to have a
Material Adverse Effect, individually or in the aggregate, if there were an
unfavorable decision. Neither the Company nor any Subsidiary, nor, to the
Company’s Knowledge, any director or officer thereof, is or has been the subject
of any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty.  There
has not been, and to the Company’s Knowledge there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.  The Commission
has not issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any of its Subsidiaries under the
Exchange Act or the Securities Act.

       

                                      (n)           Employment Matters.
No material labor dispute exists or, to the Company’s Knowledge, is imminent
with respect to any of the employees of the Company which would have or
reasonably be expected to have a Material Adverse Effect. None of the Company’s
employees is a member of a union that relates to such employee’s relationship
with the Company, and neither the Company nor any of its Subsidiaries is a party
to a collective bargaining agreement, and the Company and each Subsidiary
believes that its relationship with its employees is good. To the Company’s
Knowledge, no executive officer is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of a third party, and
to the Company’s Knowledge, the continued employment of each such executive
officer does not subject the Company or any Subsidiary to any liability with
respect to any of the foregoing matters. The Company is in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance would not have or
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

       

                                      (o)           Compliance. Neither
the Company nor any of its Subsidiaries (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any
of its Subsidiaries under), nor has the Company or any of its Subsidiaries
received written notice of a claim that it is in default under or that it is in
violation of, any Material Contract (whether or not such default or violation
has been waived), (ii) is in violation of any order of which the Company
has been made aware in writing of any court, arbitrator or governmental body
having jurisdiction over the Company or its properties or assets, or
(iii) is in violation of, or in receipt of written notice that it is in
violation of, any statute, rule or regulation of any governmental authority
applicable to the Company, or which would have the effect of revoking or
limiting FDIC deposit insurance, except in each case as would not have or
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.


      
        
           


        

        
          9

          
            

          

        

        
           


        

      

       

                                      (p)           Regulatory Permits.
The Company and each of its Subsidiaries possess or have applied for all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as currently conducted and as described in the SEC
Reports, except where the failure to possess such permits, individually or in
the aggregate, has not and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect (“Material Permits”), and
(i) neither the Company nor any of its Subsidiaries has received any notice
in writing of proceedings relating to the revocation or material adverse
modification of any such Material Permits and (ii) the Company is unaware
of any facts or circumstances that would give rise to the revocation or material
adverse modification of any Material Permits.

       

                                      (q)           Title to Assets. The
Company and its Subsidiaries have good and marketable title to all real property
and tangible personal property owned by them which is material to the business
of the Company and its Subsidiaries, taken as a whole, in each case free and
clear of all Liens except such as do not materially affect the value of such
property or do not interfere with the use made and proposed to be made of such
property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company and any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.

       

                                      (r)        
   Patents and
Trademarks. The Company and its Subsidiaries own, possess, license or
have other rights to use all foreign and domestic patents, patent applications,
trade and service marks, trade and service mark registrations, trade names,
copyrights, inventions, trade secrets, technology, Internet domain names,
know-how and other intellectual property (collectively, the “Intellectual Property”)
necessary for the conduct of their respective businesses as now conducted or as
proposed to be conducted in the SEC Reports except where the failure to own,
possess, license or have such rights would not have or reasonably be expected to
have a Material Adverse Effect. Except as set forth in the SEC Reports and
except where such violations or infringements would not have or reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, (a) there are no rights of third parties to any such Intellectual
Property; (b) there is no infringement by third parties of any such
Intellectual Property; (c) there is no pending or threatened action, suit,
proceeding or claim by others challenging the Company’s and its Subsidiaries’
rights in or to any such Intellectual Property; (d) there is no pending or
threatened action, suit, proceeding or claim by others challenging the validity
or scope of any such Intellectual Property; and (e) there is no pending or
threatened action, suit, proceeding or claim by others that the Company and/or
any Subsidiary infringes or otherwise violates any patent, trademark, copyright,
trade secret or other proprietary rights of others.

       

                                      (s)           Insurance. The
Company and each of the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
the Company believes to be prudent and customary in the businesses and locations
in which the Company and the Subsidiaries are engaged. Neither the Company nor
any of its Subsidiaries has received any notice of cancellation of any such
insurance.

       

                                      (t)       
    Transactions With Affiliates
and Employees. Except as set forth in the SEC Reports and other than the
grant of stock options or other equity awards that are not individually or in
the aggregate material in amount, none of the officers or directors of the
Company and, to the Company’s Knowledge, none of the employees of the Company,
is presently a party to any transaction with the Company or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act.

       

                                      (u)           Internal Accounting
Controls. The Company maintains internal control over financial reporting
(as such term is defined in Rule 13a-15(f) under the Exchange Act) designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.

       

                                      (v)           Sarbanes-Oxley; Disclosure
Controls. The Company is in compliance in all material respects with all
of the provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it.
The Company maintains disclosure controls and procedures (as such term is
defined in Rule 13a-15(e) and 15d-15(e) under the Exchange
Act).


      
        
           


        

        
          10

          
            

          

        

        
           


        

      

       

                                      (w)          Certain Fees. No
person or entity will have, as a result of the transactions contemplated by this
Agreement, any valid right, interest or claim against or upon the Company or a
Purchaser for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Company, other than the Placement Agent with respect to the offer and sale of
the Shares and Warrants (which placement agent fees are being paid by the
Company). The Company shall indemnify, pay, and hold each Purchaser harmless
against, any liability, loss or expense (including, without limitation,
attorneys’ fees and out-of-pocket expenses) arising in connection with any such
right, interest or claim.

       

                                      (x)           Private Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2 of this Agreement, the accuracy of the information
disclosed in the Accredited Investor Questionnaires and the accuracy of the
representations made by all other purchasers participating in the Offering, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchasers under the Transaction
Documents.  The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Principal Trading
Market.

       

                                      (y)           Registration Rights.
Other than each of the Purchasers, no Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the
Company other than those securities which are currently registered on an
effective registration statement on file with the Commission.

       

                                      (z)           No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2 and the accuracy of the representations
made by all other purchasers participating in the Offering, none of the Company,
its Subsidiaries nor, to the Company’s Knowledge, any of its Affiliates or any
Person acting on its behalf has, directly or indirectly, at any time within the
past six months, made any offers or sales of any Company security or solicited
any offers to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Regulation D under
the Securities Act in connection with the offer and sale by the Company of
securities in the Offering.

       

                                      (aa)         Listing and Maintenance
Requirements. The Company’s Common Stock is registered pursuant to
Section 12(g) of the Exchange Act, and the Company has taken no action designed
to terminate the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration. The Company has not, in the 12 months
preceding the date hereof, received written notice from any Trading Market on
which the Common Stock is listed or quoted to the effect that the Company is not
in compliance with the listing or maintenance requirements of such Trading
Market.

       

                                      (bb)         Investment Company.
Neither the Company nor any of its Subsidiaries is required to be registered as,
and is not an Affiliate of, and immediately following the Closing will not be
required to register as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.

       

                                      (cc)         Questionable
Payments. Neither the Company nor any of its Subsidiaries, nor any
directors, officers, nor to the Company’s Knowledge, employees, agents or other
Persons acting at the direction of or on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the
Company: (a) directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
foreign or domestic political activity; (b) made any direct or indirect unlawful
payments to any foreign or domestic governmental officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds;
(c) violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or (d) made any other unlawful bribe, rebate, payoff, influence
payment, kickback or other material unlawful payment to any foreign or domestic
government official or employee.


      
        
           


        

        
          11

          
            

          

        

        
           


        

      

       

                                      (dd)        Application of Takeover
Protections; Rights Agreements. The Company has not adopted any
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the
Company.  The Company and its board of directors have taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company’s
articles of incorporation or other organizational documents or the laws of the
jurisdiction of its incorporation or otherwise which is or could become
applicable to any Purchaser solely as a result of the transactions contemplated
by this Agreement, including, without limitation, the Company’s issuance of the
Securities and any Purchaser’s ownership of the Securities.

       

                                      (ee)         Disclosure. The
Company confirms that neither it nor any of its officers or directors nor any
other Person acting on its or their behalf has provided, and it has not
authorized the Placement Agent to provide, any Purchaser or its respective
agents or counsel with any information that it believes constitutes or could
reasonably be expected to constitute material, non-public information except
insofar as the existence, provisions and terms of the Transaction Documents and
the proposed transactions hereunder may constitute such information, all of
which will be disclosed by the Company in the Press Release(s) as contemplated
by Section 4.6 hereof. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in effecting transactions
in securities of the Company. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed, except
for the announcement of this Agreement and related transactions and as may be
disclosed on the Form 8-K filed pursuant to Section 4.6.

       

                                      (ff)          Off Balance Sheet
Arrangements. There is no transaction, arrangement, or other relationship
between the Company (or any Subsidiary) and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its
Exchange Act filings and is not so disclosed and would have or reasonably be
expected to have a Material Adverse Effect.

       

                                      (gg)        Acknowledgment Regarding
Purchasers’ Purchase of Shares.  The Company acknowledges and agrees
that each of the Purchasers is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby.  The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. 

       

                                      (hh)        Regulation M
Compliance.  In the last thirty days, the Company has not, and to
the Company’s Knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Shares, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
securities of the Company or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii) compensation
paid to the Placement Agent in connection with the placement of the
Securities.

       

                                      (ii)           OFAC. Neither the
Company nor any Subsidiary nor, to the Company’s Knowledge, any director,
officer, agent, employee, Affiliate or Person acting on behalf of the Company or
any Subsidiary is currently subject to any U.S. sanctions administered by the
Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will
not knowingly directly or indirectly use the proceeds of the sale of the
Securities, or lend, contribute or otherwise make available such proceeds to any
Subsidiary, joint venture partner or other Person or entity, towards any sales
or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country
sanctioned by OFAC or for the purpose of financing the activities of any Person
currently subject to any U.S. sanctions administered by OFAC.

       

                                      (jj)           Money Laundering
Laws. The operations of each of the Company and any Subsidiary are and
have been conducted at all times in material compliance with the money
laundering statutes of applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any applicable governmental agency (collectively,
the “Money Laundering
Laws”) and to the Company’s Knowledge, no action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company and/or any Subsidiary with respect to the Money Laundering
Laws is pending or threatened.


      
        
           


        

        
          12

          
            

          

        

        
           


        

      

       

      (kk)  
  No Additional
Agreements. The Company does not have any agreement or understanding with
any Purchaser with respect to the transactions contemplated by the Transaction
Documents other than as specified in the Transaction Documents.

       

      (ll)  
    Reports, Registrations and
Statements.  Since December 31, 2008, the Company and each
Subsidiary have filed all material reports, registrations and statements,
together with any required amendments thereto, that it was required to file with
the Board of Governors of the Federal Reserve System (the “Federal Reserve”),
the Office of the Comptroller of the Currency (the “OCC”), and any other
applicable federal or state securities or banking authorities, except where the
failure to file any such report, registration or statement would not have or
reasonably be expected to have a Material Adverse Effect. All such reports and
statements filed with any such regulatory body or authority are collectively
referred to herein as the “Company Reports.” As of their respective dates, the
Company Reports complied as to form in all material respects with all the rules
and regulations promulgated by the Federal Reserve, the OCC and any other
applicable foreign, federal or state securities or banking authorities, as the
case may be.

      


       

      (mm)   Adequate
Capitalization.  As of December 31, 2008, the Company’s
Subsidiary insured depository institutions meet or exceed the standards
necessary to be considered “adequately capitalized” under the Federal Deposit
Insurance Company’s regulatory framework for prompt corrective
action.

      


      (nn)        Agreements with Regulatory
Agencies; Compliance with Certain Banking Regulations.  Neither
the Company nor any Subsidiary is subject to any cease-and-desist or other
similar order or enforcement action issued by, or is a party to any commitment
letter or similar undertaking to, or is subject to any capital directive by, or
since December 31, 2007, has adopted any board resolutions at the request of,
any governmental entity that currently restricts in any material respect the
conduct of its business or that in any material manner relates to its capital
adequacy, its liquidity and funding policies and practices, its credit, risk
management or compliance policies, its internal controls, its management or its
operations or business (each item in this sentence, a “Regulatory Agreement”),
nor has the Company or any Subsidiary been advised since December 31, 2007 by
any governmental entity that it is considering issuing, initiating, ordering, or
requesting any such Regulatory Agreement.

      


      To the Company’s Knowledge, there are
no facts or circumstances, and the Company has no reason to believe that any
facts or circumstances exist, that would cause any of its Subsidiary banking
institutions: (i) to be deemed not to be in satisfactory compliance with the
Community Reinvestment Act and the regulations promulgated thereunder or to be
assigned a CRA rating by federal or state banking regulators of lower than
“satisfactory”; (ii) to be deemed to be operating in violation, in any material
respect, of the Bank Secrecy Act, the Patriot Act, any order issued with respect
to anti-money laundering by the U.S. Department of the Treasury’s Office of
Foreign Assets Control, or any other anti-money laundering statute, rule or
regulation; or (iii) to be deemed not to be in satisfactory compliance, in any
material respect, with all applicable privacy of customer information
requirements contained in any federal and state privacy laws and regulations as
well as the provisions of all information security programs adopted by the
Subsidiaries.

      


      (oo)        No General Solicitation or
General Advertising.  Neither the Company nor any person acting
on its behalf has engaged or will engage in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) in connection with any offer or sale of the Securities.

      


      (pp)        Mortgage Banking
Business.  Except as has not had and would not reasonably be
expected to have a Material Adverse Effect:


      
        
           


        

        
          13

          
            

          

        

        
           


        

      

      


      (i)        
   To the Company’s Knowledge, the Company and each of its
Subsidiaries has complied with, and all documentation in connection with the
origination, processing, underwriting and credit approval of any mortgage loan
originated, purchased or serviced by the Company or any of its Subsidiaries
satisfied, (A) all applicable federal, state and local laws, rules and
regulations with respect to the origination, insuring, purchase, sale, pooling,
servicing, subservicing, or filing of claims in connection with mortgage loans,
including all laws relating to real estate settlement procedures, consumer
credit protection, truth in lending laws, usury limitations, fair housing,
transfers of servicing, collection practices, equal credit opportunity and
adjustable rate mortgages, (B) the responsibilities and obligations relating to
mortgage loans set forth in any agreement between the Company or any of its
Subsidiaries and any Agency, Loan Investor or Insurer, (C) the applicable rules,
regulations, guidelines, handbooks and other requirements of any Agency, Loan
Investor or Insurer and (D) the terms and provisions of any mortgage or other
collateral documents and other loan documents with respect to each mortgage
loan; and

      


      (ii)           No
Agency, Loan Investor or Insurer has (A) claimed in writing that the Company or
any of its Subsidiaries has violated or has not complied with the applicable
underwriting standards with respect to mortgage loans sold by the Company or any
of its Subsidiaries to a Loan Investor or Agency, or with respect to any sale of
mortgage servicing rights to a Loan Investor, (B) imposed in writing
restrictions on the activities (including commitment authority) of the Company
or any of its Subsidiaries or (C) indicated in writing to the Company or any of
its Subsidiaries that it has terminated or intends to terminate its relationship
with the Company or any of its Subsidiaries for poor performance, poor loan
quality or concern with respect to the Company’s or any of its Subsidiaries’
compliance with laws,

      


      For
purposes of this Section 3(pp):  (A) “Agency” means the Federal
Housing Administration, the Federal Home Loan Mortgage Corporation, the Farmers
Home Administration (now known as Rural Housing and Community Development
Services), the Federal National Mortgage Association, the Federal National
Mortgage Association, the United States Department of Veterans’ Affairs, the
Rural Housing Service of the U.S. Department of Agriculture or any other federal
or state agency with authority to (i) determine any investment, origination,
lending or servicing requirements with regard to mortgage loans originated,
purchased or serviced by the Company or any of its Subsidiaries or (ii)
originate, purchase, or service mortgage loans, or otherwise promote mortgage
lending, including state and local housing finance authorities; (B) “Loan
Investor” means any person (including an Agency) having a beneficial interest in
any mortgage loan originated, purchased or serviced by the Company or any of its
Subsidiaries or a security backed by or representing an interest in any such
mortgage loan; and (C) “Insurer” means a person who insures or guarantees for
the benefit of the mortgagee all or any portion of the risk of loss upon
borrower default on any of the mortgage loans originated, purchased or serviced
by the Company or any of its Subsidiaries, including the Federal Housing
Administration, the United States Department of Veterans’ Affairs, the Rural
Housing Service of the U.S. Department of Agriculture and any private mortgage
insurer, and providers of hazard, title or other insurance with respect to such
mortgage loans or the related collateral.

      


      (qq)        ERISA.  To
the Company’s Knowledge, the Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder (herein called “ERISA”); no “reportable event” (as
defined in ERISA) has occurred with respect to any “pension plan” (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any “pension plan”; or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including
the regulations and published interpretations thereunder (the “Code”); and each
“Pension Plan” for which the Company would have liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.


      
        
           


        

        
          14

          
            

          

        

        
           


        

      

      


        
(rr)          Shell Company Status.
The Company is not, and has never been, an issuer identified in Rule
144(i)(1).


       

                      3.2           Representations and
Warranties of the Purchasers. Each Purchaser hereby, for itself and for
no other Purchaser, represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows:

       

                                      (a)           Organization;
Authority. If such Purchaser is an entity, it is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. If such purchaser is an entity, the execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Purchaser is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Purchaser. If such Purchaser is an
entity, each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

       

                                      (b)           No Conflicts. The
execution, delivery and performance by such Purchaser of this Agreement and the
Registration Rights Agreement and the consummation by such Purchaser of the
transactions contemplated hereby and thereby will not (i) result in a
violation of the organizational documents of such Purchaser (if such Purchaser
is an entity), (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Purchaser
is a party, or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws)
applicable to such Purchaser, except in the case of clauses (ii) and
(iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of such Purchaser to perform its obligations
hereunder.

       

                                      (c)           Investment Intent.
Such Purchaser understands that the Securities are “restricted securities” and
have not been registered under the Securities Act or any applicable state
securities law and is acquiring the Securities as principal for its own account
and not with a view to, or for distributing or reselling such Securities or any
part thereof in violation of the Securities Act or any applicable state
securities laws, provided,
however, that by making the representations herein, such Purchaser does
not agree to hold any of the Securities for any minimum period of time and
reserves the right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. Such
Purchaser does not presently have any agreement, plan or understanding, directly
or indirectly, with any Person to distribute or effect any distribution of any
of the Securities (or any securities which are derivatives thereof) to or
through any person or entity.

       

                                      (d)           Purchaser Status. At
the time such Purchaser was offered the Shares and Warrants, it was, and at the
date hereof it is, an “accredited investor” as defined in Rule 501(a) under the
Securities Act.

       

                                      (e)           General Solicitation.
Such Purchaser is not purchasing the Securities as a result of any
advertisement, article, notice or other communication regarding the Securities
published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
advertisement.


      
        
           


        

        
          15

          
            

          

        

        
           


        

      

       

                                      (f)           Experience of Such
Purchaser. Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Such Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.

       

                                      (g)           Access to
Information. Such Purchaser acknowledges that it has had the opportunity
to review the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the
Subsidiaries and their respective financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Purchaser or its representatives
or counsel shall modify, amend or affect such Purchaser’s right to rely on the
truth and accuracy of the Company’s representations and warranties contained in
the Transaction Documents. Such Purchaser has sought such accounting, legal and
tax advice as it has considered necessary or appropriate to make an informed
decision with respect to its acquisition of the Securities.

       

                                      (h)           Brokers and Finders.
Other than the Placement Agent with respect to the Company, no Person will have,
as a result of the transactions contemplated by this Agreement, any valid right,
interest or claim against or upon the Company or any Purchaser for any
commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Purchaser.

       

                                      (i)      
     Independent Investment
Decision. Such Purchaser has independently evaluated the merits of its
decision to purchase Securities pursuant to the Transaction Documents, and such
Purchaser confirms that it has not relied on the advice of any other Purchaser’s
business and/or legal counsel in making such decision. Such Purchaser
understands that nothing in this Agreement or any other materials presented by
or on behalf of the Company to the Purchaser in connection with the purchase of
the Securities constitutes legal, tax or investment advice. Such Purchaser has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of the
Securities. Such Purchaser understands that the Placement Agent has acted solely
as the agent of the Company in this placement of the Shares and Warrants and
such Purchaser has not relied on the business or legal advice of the Placement
Agent or any of its agents, counsel or Affiliates in making its investment
decision hereunder, and confirms that none of such Persons has made any
representations or warranties to such Purchaser in connection with the
transactions contemplated by the Transaction Documents.

       

                                     (j)       
     Reliance on
Exemptions. Such Purchaser understands that the Securities being offered
and sold to it in reliance on specific exemptions from the registration
requirements of U.S. federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such Purchaser’s compliance
with, the representations, warranties, agreements, acknowledgements and
understandings of such Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of such Purchaser to acquire
the Securities.

       

                                      (k)           No Governmental
Review. Such Purchaser understands that no U.S. federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities or the fairness or suitability
of the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

       

                                      (l)       
    Residency. Such
Purchaser’s residence (if an individual) or office in which its investment
decision with respect to the Securities was made (if an entity) are located at
the address immediately below such Purchaser’s name on its signature page
hereto.

       

      The
Company and each of the Purchasers acknowledge and agree that no party to this
Agreement has made or makes any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Article III and the Transaction Documents.


      
        
           


        

        
          16

          
            

          

        

        
           


        

      

       

      ARTICLE
IV.

      OTHER
AGREEMENTS OF THE PARTIES

       

                      4.1           Transfer
Restrictions.

       

                                      (a)           Compliance with Laws.
Notwithstanding any other provision of this Article IV, each Purchaser covenants
that the Securities may be disposed of only pursuant to an effective
registration statement under, and in compliance with the requirements of, the
Securities Act, or pursuant to an available exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act, and in
compliance with any applicable state, federal or foreign securities
laws.  In connection with any transfer of the Securities other than
(i) pursuant to an effective registration statement, (ii) to the Company or
(iii) pursuant to Rule 144 (provided that the transferor provides the Company
with reasonable assurances (in the form of seller and broker representation
letters) that such securities may be sold pursuant to such rule), the Company
may require the transferor thereof to provide to the Company and the Transfer
Agent, at the transferor’s expense, an opinion of counsel selected by the
transferor and reasonably acceptable to the Company and the Transfer Agent, the
form and substance of which opinion shall be reasonably satisfactory to the
Company and the Transfer Agent, to the effect that such transfer does not
require registration of such transferred Securities under the Securities
Act.  As a condition of transfer (other than pursuant to clauses (i),
(ii) or (iii) of the preceding sentence), any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement and the Registration Rights Agreement with
respect to such transferred Securities.

       

                                      (b)           Legends. Certificates
or other instruments evidencing the Securities shall bear any legend as required
by the “blue sky” laws of any state and a restrictive legend in substantially
the following form, until such time as they are not required under Section
4.1(c) or applicable law:

      


      THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
(B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT
OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT (PROVIDED THAT
THE TRANSFEROR PROVIDES THE COMPANY WITH REASONABLE ASSURANCES (IN THE FORM OF
SELLER AND BROKER REPRESENTATION LETTERS) THAT THE SECURITIES MAY BE SOLD
PURSUANT TO SUCH RULE).  NO REPRESENTATION IS MADE BY THE ISSUER AS TO
THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
FOR RESALES OF THESE SECURITIES.

       

                                      (c)           Removal of Legends.
Certificates or other instruments evidencing the Securities shall not be
required to contain the restrictive legend set forth in Section 4.1(b) above if
(i) such Securities are registered for resale under the Securities Act, (ii)
such Securities are sold or transferred pursuant to Rule 144 (if the transferor
is not an Affiliate of the Company), or (iii) such Securities are eligible for
sale under Rule 144, without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
securities and without volume or manner-of-sale restrictions.  If a
legend is not required pursuant to the foregoing, the Company will, as soon as
practicable following the delivery by a Purchaser to the Company or the Transfer
Agent (with notice to the Company) of a legended certificate or instrument
representing such Securities (endorsed or with stock powers attached, signatures
guaranteed, and otherwise in form necessary to affect the reissuance and/or
transfer) and an opinion of counsel to the extent required by Section 4.1(a),
deliver or cause to be delivered to such Purchaser a certificate or instrument
(as the case may be) representing such Securities that is free from all
restrictive legends.  In connection therewith, the Company shall
instruct the Transfer Agent to remove the legend from the Securities and shall
cause its counsel to issue any legend removal opinion required by the Transfer
Agent.  The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in Section 4.1(b).  Certificates for Shares and Warrant Shares
free from all restrictive legends may be transmitted by the Transfer Agent to a
Purchaser by electronic delivery by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company (“DTC”) as directed by such
Purchaser.


      
        
           


        

        
          17

          
            

          

        

        
           


        

      

    

     

                                    (d)           Acknowledgement. Each
Purchaser hereunder acknowledges its primary responsibilities under the
Securities Act and accordingly will not sell or otherwise transfer the
Securities or any interest therein without complying with the requirements of
the Securities Act. Each Purchaser, if it sells Shares or Warrant Shares
pursuant to an effective registration statement, will do so in accordance with
the plan of distribution contained therein and will comply therewith and with
the related prospectus delivery requirements unless an exemption therefrom is
available or unless the Shares or Warrant Shares are sold pursuant to Rule
144.  Each Purchaser, severally and not jointly with the other
Purchasers, agrees that if it is notified by the Company in writing at any time
that the registration statement registering the resale of the Shares and Warrant
Shares is not effective or that the prospectus included in such registration
statement no longer complies with the requirements of Section 10 of the
Securities Act, the Purchaser will refrain from selling such Shares and Warrant
Shares until such time as the Purchaser is notified by the Company that such
registration statement is effective or such prospectus is compliant with
Section 10 of the Exchange Act, unless such Purchaser is able to, and does,
sell such Shares or Warrant Shares pursuant to an available exemption from the
registration requirements of Section 5 of the Securities Act. Both the
Company and its Transfer Agent, and their respective directors, officers,
employees and agents, may rely on this subsection (d) and each Purchaser
hereunder will indemnify and hold harmless each of such persons from any
breaches or violations of this paragraph.

     

                    4.2           Acknowledgment of
Dilution.  The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common
Stock.  The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Securities pursuant to the Transaction Documents, are unconditional and absolute
and not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

     

                    4.3           Furnishing of
Information. In order to enable the Purchasers to sell the Securities
under Rule 144 of the Securities Act, for a period of one year from the Closing,
the Company shall maintain the registration of the Common Stock under Section
12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act.  During such one year period, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make publicly available the information described in Rule
144(c)(2), if the provision of such information will allow resales of the
Securities pursuant to Rule 144.

     

                    4.4           Form D and Blue
Sky. The Company agrees to timely file a Form D with respect to the
Securities as required under Regulation D.  The Company, on or
before the Closing Date, shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Purchasers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification). The Company shall
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.


    
      
         


      

      
        18

        
          

        

      

      
         


      

    

     

                    4.5           No Integration. The
Company shall not, and shall use its commercially reasonable efforts to ensure
that no Affiliate of the Company shall, sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that will be integrated with the offer or
sale of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers, or that will be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require stockholder
approval prior to the closing of such other transaction unless stockholder
approval is obtained before the closing of such subsequent
transaction.

     

                    4.6           Securities Laws Disclosure;
Publicity. On or before 5:30 p.m., New York City time, on the fourth
Trading Day immediately following the execution of this Agreement, the Company
will file a Current Report on Form 8-K with the Commission describing the terms
of the Transaction Documents (and including as exhibits to such Current Report
on Form 8-K the material Transaction Documents (including, without limitation,
this Agreement and the Registration Rights Agreement)). Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser or
any Affiliate or investment adviser of any Purchaser, or include the name of any
Purchaser or any Affiliate or investment adviser of any Purchaser in any press
release or filing with the Commission (other than the Registration Statement) or
any regulatory agency or Trading Market, without the prior written consent of
such Purchaser, except (i) as required by federal securities law in
connection with (A) any registration statement contemplated by the
Registration Rights Agreement and (B) the filing of final Transaction
Documents with the Commission and (ii) to the extent such disclosure is
required by law, at the request of the Staff of the Commission or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
written notice of such disclosure permitted under this subclause
(ii).  From and after the issuance of such Form 8-K, no Purchaser
shall be in possession of any material, non-public information received from the
Company, any Subsidiary or any of their respective officers, directors or
employees, that is not disclosed in such Form 8-K.

     

                    4.7           Non-Public
Information. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, and except with the
express written consent of such Purchaser and unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information, the Company shall not, and shall cause each
Subsidiary and each of their respective officers, directors, employees and
agents, not to, and each Purchaser shall not directly solicit the Company, any
of its Subsidiaries or any of their respective officers, directors, employees or
agents to provide any Purchaser with any material, non-public information
regarding the Company or any of its Subsidiaries from and after the filing of
the Press Release(s).

     

                    4.8           Indemnification.

     

                                    (a)           Indemnification of
Purchasers. In addition to the indemnity provided in the Registration
Rights Agreement, the Company will indemnify and hold each Purchaser and its
directors, officers, stockholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers,
stockholders, agents, members, partners or employees (and any other Persons with
a functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
“Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
(i) any breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction
Documents or (ii) any action instituted against a Purchaser Party in any
capacity, or any of them or their respective affiliates, by any stockholder of
the Company who is not an affiliate of such Purchaser Party, with respect to any
of the transactions contemplated by this Agreement.  The Company will not
be liable to any Purchaser Party under this Agreement to the extent, but only to
the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents.


    
      
         


      

      
        19

        
          

        

      

      
         


      

    

     

                                    (b)           Conduct of Indemnification
Proceedings.
Promptly after receipt by any Person (the "Indemnified Person”) of
notice of any demand, claim or circumstances which would or might give rise to a
claim or the commencement of any action, proceeding or investigation in respect
of which indemnity may be sought pursuant to Section 4.8(a), such
Indemnified Person shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall assume the payment of all
fees and expenses; provided,
however , that the failure of any Indemnified Person so to notify the
Company shall not relieve the Company of its obligations hereunder except to the
extent that the Company is actually and materially and adversely prejudiced by
such failure to notify. In any such proceeding, any Indemnified Person shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless: (i) the
Company and the Indemnified Person shall have mutually agreed to the retention
of such counsel; (ii) the Company shall have failed promptly to assume the
defense of such proceeding and to employ counsel reasonably satisfactory to such
Indemnified Person in such proceeding; or (iii) in the reasonable judgment
of counsel to such Indemnified Person, representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, delayed or conditioned. Without the prior written consent
of the Indemnified Person, which consent shall not be unreasonably withheld,
delayed or conditioned, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.

     

                    4.9           Use of Proceeds. The
Company intends to use the net proceeds from the sale of the Securities
hereunder for general corporate purposes.

     

    ARTICLE
V.

    CONDITIONS
PRECEDENT TO CLOSING

     

    5.1           Conditions Precedent to the
Obligations of the Purchasers to Purchase Shares and Warrants. The
obligation of each Purchaser to acquire Shares and Warrants at the Closing is
subject to the fulfillment to such Purchaser’s satisfaction, on or prior to the
Closing Date, of each of the following conditions, any of which may be waived by
such Purchaser (as to itself only):

     

                                    (a)           Representations and
Warranties. The representations and warranties of the Company contained
herein shall be true and correct as of the date when made and as of the Closing
Date, as though made on and as of such date, except for such representations and
warranties that speak as of a specific date.

     

                                    (b)           Performance. The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by it at or prior to the
Closing.

     

                                    (c)           No Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents.

     

                                    (d)           Consents. The Company
shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary for consummation of the purchase
and sale of the Securities (including all Required Approvals), all of which
shall be and remain so long as necessary in full force and effect.

     

                                    (e)           No Suspensions of Trading in
Common Stock; Listing . The Common Stock (including the Shares and
Warrant Shares) (i) shall be designated for quotation or listed on the
Principal Trading Market and (ii) shall not have been suspended, as of the
Closing Date, by the Commission or the Principal Trading Market from trading on
the Principal Trading Market nor shall suspension by the Commission or the
Principal Trading Market have been threatened, as of the Closing Date, in
writing by the Commission or the Principal Trading Market.


    
      
         


      

      
        20

        
          

        

      

      
         


      

    

     

                                    (f)           Company Deliverables
.. The Company shall have delivered the Company Deliverables in accordance with
Section 2.2(a).

     

                                    (g)           Compliance
Certificate . The Company shall have delivered to each Purchaser a
certificate, dated as of the Closing Date and signed by its Chief Executive
Officer or its Chief Financial Officer, dated as of the Closing Date, certifying
to the fulfillment of the conditions specified in Sections 5.1(a) and
(b) in the form attached hereto as Exhibit F.

     

                                    (h)           Termination . This
Agreement shall not have been terminated as to such Purchaser in accordance with
Section 6.17 herein.

     

                    5.2           Conditions Precedent to the
Obligations of the Company to sell Shares and Warrants. The Company’s
obligation to sell and issue the Shares and Warrants at the Closing is subject
to the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the
Company:

     

                                    (a)           Representations and
Warranties. The representations and warranties made by the Purchaser in
Section 3.2 hereof shall be true and correct as of the date when made, and
as of the Closing Date as though made on and as of such date, except for
representations and warranties that speak as of a specific date.

     

                                    (b)           Performance. Such
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by such Purchaser at or
prior to the Closing Date.

     

                                    (c)           No Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents.

     

                                    (d)           Consents. The Company
shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary for consummation of the purchase
and sale of the Securities, all of which shall be and remain so long as
necessary in full force and effect.

     

                                    (e)           Purchasers
Deliverables. Such Purchaser shall have delivered its Purchaser
Deliverables in accordance with Section 2.2(b).

     

                                    (f)           Termination. This
Agreement shall not have been terminated as to such Purchaser in accordance with
Section 6.17 herein.

     

    ARTICLE
VI.

    MISCELLANEOUS

     

    6.1           Fees and
Expenses.  The Company shall reimburse the Purchasers for all
legal fees and expenses incurred in connection with this Agreement not to exceed
$20,000, which amount shall be paid directly by the Company at the
Closing.  Except as set forth in this Section 6.1, the Company and the
Purchasers shall each pay the fees and expenses of their respective advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement.  The Company shall pay all
amounts owed to the Placement Agent relating to or arising out of the
transactions contemplated hereby.  The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
sale and issuance of the Securities to the Purchasers.


    
      
         


      

      
        21

        
          

        

      

      
         


      

    

     

    6.2           Entire Agreement. The
Transaction Documents, together with the Exhibits and Schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements, understandings, discussions and
representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules. At or after the Closing, and without further consideration, the
Company and the Purchasers will execute and deliver to the other such further
documents as may be reasonably requested in order to give practical effect to
the intention of the parties under the Transaction Documents.

     

                    6.3           Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile (provided the sender receives a
machine-generated confirmation of successful transmission and follows such
transmission with a mailed copy sent via U.S. Mail, first class) at the
facsimile number specified in this Section prior to 5:00 p.m., New York City
time, on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 5:00 p.m., New York City time, on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service with next day delivery specified, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as follows:

    


    
      
        
          
            
              	
                      If
      to the Company:

                    	
                      Pacific
      Financial Corporation

                    
	 
      	
                      1101
      S. Boone Street

                    
	 
      	
                      Aberdeen,
      Washington 98520

                    
	 
      	
                      Telephone
      No.: (360) 533-8870

                    
	 
      	
                      Facsimile
      No.:  (360) 533-6049

                    
	 
      	
                      Attention:  Chief
      Executive Officer

                    
	 	 
	
                      With
      a copy to:

                    	
                      Miller
      Nash LLP

                    
	 
      	
                      111
      S.W. Fifth Avenue, Suite 3400

                    
	 
      	
                      Portland,
      Oregon 97204

                    
	 
      	
                      Telephone
      No.: (503) 224-5858

                    
	 
      	
                      Facsimile
      No.: (503) 224-0155

                    
	 
      	
                      Attention:  David
      Post

                    
	 	 
	
                      If
      to a Purchaser:

                    	
                      To
      the address set forth under such Purchaser’s name on the signature page
      hereof;

                    
	 
      	 
      
	
                      With
      a copy to:

                    	
                      Greenberg
      Traurig, LLP

                    
	 
      	
                      One
      International Place

                    
	 
      	
                      Boston,
      Massachusetts 02110

                    
	 
      	
                      Telephone
      No.: (617) 310-6000

                    
	 
      	
                      Facsimile
      No.: (617) 279-8402

                    
	 
      	
                      Attention:  Bradley
      A. Jacobson

                    


            

          

        

      

    

    


    or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

     

                    6.4           Amendments; Waivers; No
Additional Consideration. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right. No consideration shall be
offered or paid to any Purchaser to amend or consent to a waiver or modification
of any provision of any Transaction Document unless the same consideration is
also offered to all Purchasers who then hold Shares.


    
      
         


      

      
        22

        
          

        

      

      
         


      

    

     

                    6.5           Construction. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction
Documents.

     

                    6.6           Successors and
Assigns. The provisions of this Agreement shall inure to the benefit of
and be binding upon the parties and their successors and permitted assigns. This
Agreement, or any rights or obligations hereunder, may not be assigned by the
Company without the prior written consent of the Purchasers. Any Purchaser may
assign its rights hereunder in whole or in part to any Person to whom such
Purchaser assigns or transfers any Securities in compliance with the Transaction
Documents and applicable law, provided such transferee shall agree in writing to
be bound, with respect to the transferred Securities, by the terms and
conditions of this Agreement that apply to the “Purchasers”.

     

                    6.7           No Third-Party
Beneficiaries. This Agreement is intended for the benefit of the parties
hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other
Person.

     

                    6.8           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Washington, without regard to the principles of conflicts of law
thereof.

     

                    6.9           Survival. Subject to
applicable statute of limitations, the representations, warranties, agreements
and covenants contained herein shall survive the Closing and the delivery of the
Securities, provided representations and warranties will survive for a period of
18 months from the Closing Date.

     

                    6.10         Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered 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 signature page were an original thereof.

     

                    6.11         Severability. If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

     

                    6.12         Replacement of
Securities.  If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company and the Transfer Agent of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is required by the Transfer
Agent. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities. If a replacement certificate or
instrument evidencing any Securities is requested due to a mutilation thereof,
the Company may require delivery of such mutilated certificate or instrument as
a condition precedent to any issuance of a replacement.


    
      
         


      

      
        23

        
          

        

      

      
         


      

    

     

                    6.13         Remedies. In addition
to being entitled to exercise all rights provided herein or granted by law,
including recovery of damages, each of the Purchasers and the Company will be
entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agree to waive in any action for specific performance of any
such obligation (other than in connection with any action for a temporary
restraining order) the defense that a remedy at law would be
adequate.

     

                    6.14         Payment Set Aside. To
the extent that the Company makes a payment or payments to any Purchaser
pursuant to any Transaction Document or a Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

     

                    6.15         Adjustments in Common Stock
Numbers and Prices . In the event of any stock split, subdivision,
dividend or distribution payable in shares of Common Stock (or other securities
or rights convertible into, or entitling the holder thereof to receive directly
or indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof and prior to the
Closing, each reference in any Transaction Document to a number of shares or a
price per share shall be deemed to be amended to appropriately account for such
event.

     

                    6.16         Termination. This
Agreement may be terminated and the sale and purchase of the Shares abandoned at
any time prior to the Closing by either the Company or any Purchaser (with
respect to itself only) upon written notice to the other, if the Closing has not
been consummated on or prior to 5:00 p.m., New York City time, on the Outside
Date; provided, however
, that the right to terminate this Agreement under this Section 6.17 shall
not be available to any Person whose failure to comply with its obligations
under this Agreement has been the cause of or resulted in the failure of the
Closing to occur on or before such time.  Nothing in this
Section 6.17 shall be deemed to release any party from any liability for
any breach by such party of the terms and provisions of this Agreement or the
other Transaction Documents or to impair the right of any party to compel
specific performance by any other party of its obligations under this Agreement
or the other Transaction Documents. In the event of a termination pursuant to
this Section, the Company shall promptly notify all non-terminating Purchasers.
Upon a termination in accordance with this Section, the Company and the
terminating Purchaser(s) shall not have any further obligation or liability
(including arising from such termination) to the other, and no Purchaser will
have any liability to any other Purchaser under the Transaction Documents as a
result therefrom.

     

                    6.17         Rescission and Withdrawal
Right. Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights.


    
      
         


      

      
        24

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated 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 FOR PURCHASERS FOLLOW]


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    

    


    
      
        
          
            
              
                
                  
                    
                      	
                              NAME
      OF PURCHASER:

                            
	 
      
	
                              ITHAN
      CREEK MASTER INVESTORS (CAYMAN) L.P.

                            
	 
      
	
                              By: 

                            	
                              Wellington
      Management Company, LLP,

                            
	 
      	
                              an
      Investment Adviser

                            
	 
      
	
                              By:
      /s/ Robert J. Toner

                            
	
                              Name:
      Robert J. Toner

                            
	
                              Title:
      Vice President and Counsel

                            
	 
      
	
                              Aggregate
      Purchase Price (Subscription Amount): $2,502,000

                            
	 
      
	
                              Number
      of Shares to be Acquired: 556,000

                            
	
                              (Equal to Subscription Amount
      divided by $4.50 per Share)

                            
	 
	
                              Warrant
      Shares Underlying Warrant to be Acquired: 139,000

                            
	
                              (Equal to 25% of the Number of
      Shares listed to be Acquired above)

                            
	 
	
                              Tax
      ID No.: ___________________

                            
	 
	
                              Address
      for Notice:

                            
	 
	
                              c/o
      Wellington Management Company, LLP

                            
	
                              75
      State Street, Boston, MA 02109

                            
	 
	
                              Telephone
      No.:  (617) 790-7535

                            
	 
      
	
                              Facsimile
      No.:  (617) 289-5699

                            
	 
      
	
                              E-mail
      Address:  seclaw@wellington.com

                            
	 
      
	
                              Attention:  Legal/Compliance

                            


                    

                  

                

              

            

          

        

      

    

    


    Delivery
Instructions:

    (if
different than above)

    


    c/o  _______________________________

    


    Street:   ____________________________

    


    City/State/Zip:
______________________

    


    Attention:
__________________________

    


    Telephone
No.: ____________________________


    
      
         


      

      
        
        

        
          

        

      

      
         


      

    


    EXHIBITS

     

    
      
        	
                A:

              	
                Form
      of Warrant

              
	
                B:

              	
                Form
      of Registration Rights Agreement

              
	
                C-1:

              	
                Accredited
      Investor Questionnaire

              
	
                C-2:

              	
                Stock
      Certificate and Warrant Questionnaire

              
	
                D:

              	
                Form
      of Opinion of Company Counsel

              
	
                E:

              	
                Form
      of Secretary’s Certificate

              
	
                F:

              	
                Form
      of Officer’s Certificate

              


      

    

     

    SCHEDULES

     

    None