Document:

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

     

    NoneUnassociated Document

    EXHIBIT
10.2

     

    REGISTRATION
RIGHTS AGREEMENT

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    “Commission” means the
Securities and Exchange Commission.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    2.           Registration.

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

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

     

    3.           Registration
Procedures

     

    In
connection with the Company's registration obligations hereunder:

     

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

     

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

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    5.           Indemnification.

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    6.           Miscellaneous.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
          
            
              
                	
                        PACIFIC
      FINANCIAL CORPORATION

                      
	 
      	 
      
	
                        By:

                      	
                        /s/ Denise Portmann

                      	
                          

                      
	 
      	
                        Name:  Denise
      Portmann

                      
	 
      	
                        Title:  Executive
      Vice President, Chief Financial
Officer

                      

              

            

          

        

      

    

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK,

    SIGNATURE
PAGES OF HOLDERS TO FOLLOW]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
          	
                  NAME
      OF INVESTING ENTITY

                
	 
      
	
                  ITHAN
      CREEK MASTER INVESTORS (CAYMAN) L.P.

                
	 
      
	
                  AUTHORIZED
      SIGNATORY

                
	 
      
	
                  By:  Wellington
      Management Company, LLP

                
	
                         
      an Investment Adviser

                
	 
      	 
      
	
                  By:

                	
                  /s/ Robert J. Toner

                
	 
      	
                  Name:  Robert
      J. Toner

                
	 
      	
                  Title:  Vice
      President and Counsel

                
	 
      	 
      
	
                  ADDRESS
      FOR NOTICE

                
	 
      
	
                  c/o:
      Wellington Management Company, LLP

                
	
                         
      75 State Street, Boston,
MA  02109

                

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Annex A

     

    PLAN
OF DISTRIBUTION

    

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

    

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

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

            	
              privately
      negotiated transactions;

            

    

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

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

            

    

     

    
      	
               
      

            	
              ·

            	
              a
      combination of any such methods of sale;
and

            

    

     

    
      	
               
      

            	
              ·

            	
              any
      other method permitted pursuant to applicable
  law.

            

    

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Annex B

     

    PACIFIC
FINANCIAL CORPORATION

    

    SELLING
SHAREHOLDER NOTICE AND QUESTIONNAIRE

    

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

    

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

    

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

    NOTICE

     

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

    

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

    

    
      QUESTIONNAIRE

    

     

    
      	
              1.

            	
              Name.

            

    

     

    
      
        	
                 
      

              	
                (a)

              	
                Full
      Legal Name of Selling Shareholder:

              
	 	 	 
	 	 	 

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      
        	
                 
      

              	
                (b)

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

              
	 	 	 
	 	 	 

      

    

     

    
      
        	
                 
      

              	
                (c)

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

              
	 	 	 
	 	 	 

      

    

     

    
      2.  Address
for Notices to Selling Shareholder:

    

     

    
      
        
          	 
      
	 
      
	 
      
	
                  Telephone: 

                	 
      

        

      

    

    
      
        
          	
                  Fax: 

                	 
      

        

      

    

    
      
        
          	
                  Contact Person: 

                	 
      

        

      

    

    
      
        
          	
                  E-mail
      address of Contact Person: 

                	
                     

                

        
  

    

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

     

    
      
        	
                 
      

              	
                (a)

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

              
	 	 	 
	 	 	 
	 	 	 
	 	 	 

      

    

     

    
      
        	
                 
      

              	
                (b)

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

              
	 	 	 
	 	 	 
	 	 	 
	 	 	 

      

    

     

    
      4.  Broker-Dealer
Status:

    

     

    
      	
               
      

            	
              (a)

            	
              Are
      you a broker-dealer?

            

    

     

    Yes    ̈    No    ̈

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      
        	
              	
                (b) 

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

              

      

    

     

    Yes    ̈    No    ̈

     

    
      	
              Note: 

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

            

    

     

    
      	
               
      

            	
              (c)

            	
              Are
      you an affiliate of a
broker-dealer?

            

    

     

    Yes    ̈    No    ̈

     

    
      
        	 	
                Note:

              	
                If
      yes, provide a narrative explanation below:

              
	 	 	 
	 	 	 
	 	 	 

      

    

     

    
      	
               
      

            	
              (c)

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

            

    

     

    Yes    ̈    No    ̈

     

    
      	
            	
              Note:

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

            

    

     

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

    

     

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

     

    
      
        
          
            
              
                
                  
                    	
                             

                          	
                            Type and
      amount of other securities beneficially owned:

                          
	 	 
	 	 
	 	 
	 	 

                  

                

              

            

          

        

      

    

     

    6.  Relationships
with the Company:

     

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

     

    
      
        	
                 
      

              	
                State
      any exceptions here:

              
	 	 
	 	 
	 	 

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      7.  Plan
of Distribution:

    

     

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

     

    
      
        	
                 
      

              	
                State
      any exceptions here:

              
	 	 
	 	 
	 	 

      

    

     

    
      ***********

    

     

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

     

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

     

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

     

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

     

    
      
        
          
            
              
                
                  
                    	
                            Dated: 

                          	 
      	 
      	
                            Beneficial Owner: 

                          	 
      

                  

                

              

            

          

        

      

    

    

    
      
        
          	 
      	
                  By: 

                	 
      
	 
      	 
      	
                  Name:

                
	 
      	 
      	
                  Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00162-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00162-of-00352.parquet"}]]