Document:

EXHIBIT 10.1

 

 

 

CITI TRENDS, INC.

ANNUAL INCENTIVE BONUS PLAN

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1 ESTABLISHMENT OF PLAN

  	
  1

  
	
  1.1

  	
  Background

  	
  1

  
	
  1.2

  	
  Purpose

  	
  1

  
	
  1.3

  	
  Effective Date

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2 DEFINITIONS

  	
  1

  
	
  2.1

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3 ADMINISTRATION

  	
  3

  
	
  3.1

  	
  Committee

  	
  3

  
	
  3.2

  	
  Authority of Committee

  	
  3

  
	
  3.3

  	
  Decisions Binding

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4 ELIGIBILITY

  	
  4

  
	
  4.1

  	
  Designation of
  Participants

  	
  4

  
	
  4.2

  	
  Partial Year Participation

  	
  4

  
	
  4.3

  	
  Demotions

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5 OPERATION OF THE PLAN

  	
  4

  
	
  5.1

  	
  Plan Structure

  	
  4

  
	
  5.2

  	
  Establishment of Target
  Bonuses

  	
  5

  
	
  5.3

  	
  Company Financial
  Objectives

  	
  5

  
	
  5.4

  	
  Individual Performance
  Objectives

  	
  5

  
	
  5.5

  	
  Minimum Required
  Performance Goal and Individual Award Limits

  	
  5

  
	
  5.6

  	
  Payout Form and Timing

  	
  6

  
	
  5.7

  	
  Terminations of Employment

  	
  6

  
	
  5.8

  	
  Change in Control

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6 AMENDMENT,
  MODIFICATION AND TERMINATION

  	
  6

  
	
  6.1

  	
  Amendment, Modification
  and Termination

  	
  6

  
	
  6.2

  	
  Termination After or
  During Plan Year

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7 GENERAL PROVISIONS

  	
  7

  
	
  7.1

  	
  No Right to Participate

  	
  7

  
	
  7.2

  	
  No Right to Employment

  	
  7

  
	
  7.3

  	
  Withholding

  	
  7

  
	
  7.4

  	
  Funding

  	
  7

  
	
  7.5

  	
  Expenses

  	
  7

  
	
  7.6

  	
  Titles and Headings

  	
  7

  
	
  7.7

  	
  Gender and Number

  	
  7

  
	
  7.8

  	
  Governing Law

  	
  7

  

 

i

 

CITI TRENDS, INC.

ANNUAL INCENTIVE BONUS PLAN

 

ARTICLE 1

ESTABLISHMENT OF PLAN

 

1.1                                 BACKGROUND.  The Citi
Trends, Inc. Annual Incentive Bonus Plan (the “Plan”) provides a program
for the grant of annual Performance Bonuses. This Plan has been established and
approved, and will be administered by, the Committee.  It is intended that the Performance Bonuses
earned under this Plan shall be Qualified Performance-Based Cash Awards with
respect to Participants who are Covered Employees, with the intent that the
Performance Bonuses will be fully deductible by the Company without regard to
the limitations of Code Section 162(m). 
The aggregate dollar value of any Performance Bonus that may be paid to
any one Participant during any one calendar year under the Plan is $2 million.

 

1.2.                              PURPOSE.  The purpose of this Plan is to provide for
the payment of a cash bonus to key employees of the Company, the payment of
which will be based on the achievement of Performance Objectives during a Plan
Year.  Company Financial Objectives are
designed to focus on overall corporate financial results that drive shareholder
value.  Unless otherwise specified by the
Committee, the Performance Objectives include Minimum Required Performance,
Company Financial Objectives and Individual Performance Objectives.

 

1.3.                              EFFECTIVE DATE.  This Plan was approved by the
Committee on March 19, 2009, to be effective as of the beginning of the
Company’s 2009 fiscal year.  The Plan was
approved by the shareholders of the Company on May 27, 2009.

 

ARTICLE 2

DEFINITIONS

 

2.1.                              DEFINITIONS.  The following terms shall have the following
meanings for purposes of this Plan, unless the context in which they are used
clearly indicates that some other meaning is intended.

 

Beneficiary. A person
designated, in the manner determined by the Committee, to exercise the rights
of the Participant and to receive any distribution with respect to any
Performance Bonus upon the Participant’s death.

 

Change in Control. The occurrence of any one
of the following events:

 

(a)                                  The acquisition
by any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the “1934 Act”))
(a “Person”) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 50% or more of the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition by a Person who is on the Effective Date the beneficial owner of
50% or more of the Outstanding Company Voting Securities, (ii) any
acquisition directly from the Company, (iii) any acquisition by the
Company, (iv) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, or (v) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this definition; or

 

(b)                                 Individuals who,
as of the Effective Date, constitute the Board of Directors of the Company (the
“Incumbent Board”) cease for any reason to constitute at least a majority of
the Board of Directors of the Company; provided, however, that any individual
becoming a director subsequent to the Effective Date whose election, or
nomination for election by the Company’s

 

1

 

shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors of the Company; or

 

(c)                                  Consummation of
a reorganization, merger, consolidation or share exchange or sale or other
disposition of all or substantially all of the assets of the Company (a “Business
Combination”), in each case, unless, following such Business Combination, (i) all
or substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of
the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors of the corporation resulting from
such Business Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially all of
the Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Voting Securities, and (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or indirectly,
20% or more of the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or

 

(d)                                 Approval by the
shareholders of the Company of a complete liquidation or dissolution of the
Company.

 

Code
Section 162(m). Section 162(m) of the Internal Revenue
Code of 1986, as amended from time to time, and includes a reference to the
underlying final regulations.

 

Committee.  The Compensation Committee of the Board of
Directors of the Company.

 

Company
Financial Objectives.  The Company
Financial Objectives established by the Committee for a Plan Year, as provided
in Article 5.

 

Covered
Employee. A covered employee as defined in Code Section 162(m)(3).

 

Disability. Any illness or
other physical or mental condition of a Participant that renders the
Participant incapable of performing his customary and usual duties for the
Company, or any medically determinable illness or other physical or mental
condition resulting from a bodily injury, disease or mental disorder which, in
the judgment of the Committee, is permanent and continuous in nature. The
Committee may require such medical or other evidence as it deems necessary to
judge the nature and permanency of the Participant’s condition.

 

Effective
Date.  February 1, 2009.

 

GAAP.  Generally accepted accounting principles for
U.S. companies.

 

Individual
Award Limit.  Has the
meaning described in Section 5.5.

 

Individual
Performance Objectives.  The
Individual Performance Objectives established by the Committee for a Plan Year,
as provided in Article 5.

 

2

 

Minimum
Required Performance.  Has the
meaning given such term in Section 5.5.

 

Participant. A person who,
as an employee of the Company or a Subsidiary, has been granted a Performance
Bonus under the Plan; provided that in the case of the death of a Participant,
the term “Participant” refers to a Beneficiary or the legal guardian or other
legal representative acting in a fiduciary capacity on behalf of the
Participant under applicable state law and court supervision.

 

Performance
Bonus.  The bonus payable to a
Participant under this Plan calculated by reference to the achievement of
applicable Performance Objectives, as determined in accordance with Article 5.

 

Performance
Objectives.  Collectively
with respect to a Participant, Minimum Required Performance and any other
Company Financial Objectives and Individual Performance Objectives (applicable
to the Participant), as provided in Article 5.

 

Plan.  The Citi Trends, Inc. Annual Incentive
Bonus Plan, as set forth in this document together with any subsequent
amendments hereto.

 

Plan
Year.  The Company’s fiscal year.

 

Qualified
Business Criteria. One or more of the criteria listed in Section 5.5
upon which the Minimum Required Performance goals for Qualified
Performance-Based Cash Awards may be established by the Committee.

 

Qualified
Performance-Based Cash Award. A Performance Bonus that is
intended to qualify for the exemption from the limitation on deductibility
imposed by Code Section 162(m) that is set forth in Code Section 162(m)(4)(C) or
any successor provision thereto and is made subject to performance goals based
on Qualified Business Criteria as set forth in Section 5.5.

 

Retirement. Termination of
employment with the Company or a Subsidiary after attaining age 65.

 

Schedule.  Means a document setting forth Company
Financial Objectives for a Plan Year and the relative weightings of such
measures and such other information as the Committee determines is appropriate.

 

Subsidiary. Any
corporation, limited liability company, partnership or other entity of which a
majority of the outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.

 

Target
Bonus.  Has the meaning described in Section 5.2.

 

ARTICLE 3

ADMINISTRATION

 

3.1.                              COMMITTEE.  This Plan shall be administered by the
Committee.

 

3.2.                              AUTHORITY OF
COMMITTEE.  The
Committee has the exclusive power, authority and discretion to:

 

(a)  Designate Participants for each Plan Year;

 

(b)  Establish and review Performance Objectives and weightings for
different Performance Objectives for each Plan Year;

 

(c)  Establish Target Bonuses for Participants for each Plan Year;

 

(d)  Determine whether and to what extent Performance Objectives
were achieved for each Plan Year;

 

3

 

(e)  Increase (subject to the Individual Award Limit) or decrease
the Performance Bonus otherwise payable to any Participant resulting from the
achievement of financial Performance Objectives in any Plan Year, based on such
subjective factors as the Committee shall deem relevant;

 

(f)  Establish, adopt or revise any rules and regulations as
it may deem necessary or advisable to administer this Plan;

 

(g)  Make all other decisions and determinations that may be
required under this Plan or as the Committee deems necessary or advisable to
administer this Plan; and

 

(h)  Amend this Plan as provided herein.

 

3.3.                              DECISIONS
BINDING.  The Committee’s interpretation
of this Plan and all decisions and determinations by the Committee with respect
to this Plan are final, binding, and conclusive on all parties.

 

ARTICLE 4

ELIGIBILITY

 

4.1.                              DESIGNATION OF
PARTICIPANTS.  Officers of
the Company or its Subsidiaries are eligible to participate in the Plan.  Exhibit A hereto lists the officers who
are designated as Participants in this Plan for the 2009 Plan Year.  The Chief Executive Officer may designate
additional Senior Vice Presidents or Executive Vice Presidents as Participants
and shall promptly report such additional names to the Committee; provided,
however, that such delegated authority shall be limited to individuals who are
not anticipated to be Covered Employees for the Plan Year.  The Committee, in its discretion, may
determine whether other positions may qualify for participation in all or any
portion of this Plan for any subsequent Plan Year or change Target Bonuses of
existing Participants.  Within the first
90 days of each Plan Year, the Committee shall approve and substitute a new Exhibit A
indicating the Participants and their Target Bonuses for that Plan Year.  The Company will notify Participants of their
eligibility to participate, and the terms thereof, in writing.

 

4.2.                              PARTIAL YEAR
PARTICIPATION.  If a
Participant begins employment or is promoted to an eligible position after the
beginning of a Plan Year, the Committee, in its discretion, may determine
whether such person may participate in this Plan and if so, the terms of such
participation, which will be prorated based on the number of days such person
participated in this Plan during the Plan Year, unless the Committee determines
otherwise.  If a Participant takes a
leave of absence during the Plan Year for any reason the Participant will
receive a pro rata share of a Performance Bonus, if any, for such Plan Year,
unless the Committee decides otherwise.

 

4.3.                              DEMOTIONS.  If a Participant is demoted during the Plan
Year, the Committee will determine whether Plan participation ends at that
time, or is continued, perhaps at a reduced level.  If participation ends, any Performance Bonus
earned during the time of participation will be prorated for the Plan Year.

 

ARTICLE 5

OPERATION OF THE PLAN

 

5.1.                              PLAN STRUCTURE.  Each Participant shall be eligible to receive
a Performance Bonus for the Plan Year if the Company meets or exceeds certain
Performance Objectives set by the Committee. 
It is anticipated that the Committee shall establish or approve
Performance Objectives and their respective weightings, and Target Bonuses as
provided in Sections 5.2, 5.3 and 5.4. 
In establishing Performance Objectives, the Committee may take into
account such factors as it deems appropriate, including, without limitation,
prior year results, planned business results, anticipated business trends,
performance relative to peer companies and macroeconomic conditions.  Those Performance Objectives

 

4

 

shall
provide the framework for the Committee in determining the appropriate amount
of incentive awards to payout in each Plan Year.  However, this Plan is designed to provide the
Committee discretion to make pay-outs that differ from those that would result
from the application of Sections 5.2, 5.3 and 5.4, if circumstances warrant, so
long as, at a minimum, the requirements of Section 5.5 are met.  Such circumstances could include, for example
and without limitation, events that are not anticipated at the time the
Performance Objectives are established or extenuating circumstances or
extraordinary performance that is not recognized through the Performance
Objectives.

 

5.2.                              ESTABLISHMENT OF
TARGET BONUSES.  The
Committee plans to establish Performance Objectives (in addition to Minimum
Required Performance) and Target Bonuses (other than the Individual Award
Limit) for each Plan Year, by approving the percentage of each Participant’s
base salary that will be awarded to the Participant for that Plan Year if
Minimum Required Performance is achieved and if the other established
Performance Objectives are achieved at the target level (the “Target Bonus”).  Each Participant’s Target Bonus percentage
will be communicated in writing to the Participant.  The actual Performance Bonus to a Participant
may be greater or less than his or her Target Bonus, depending on the level of
achievement of Company Financial Objectives, as provided in the relevant
Schedule, and Individual Performance Objectives, and depending on whether the
Committee exercises its discretion to increase or reduce a resulting
Performance Bonus as provided herein.

 

5.3.                              COMPANY
FINANCIAL OBJECTIVES.  Within the
first 90 days of each Plan Year, it is anticipated that the Committee will
approve Company Financial Objectives for that Plan Year in addition to Minimum
Required Performance, and shall set forth such Company Financial Objectives in
one or more Schedules.  The Schedule
shall provide the formula that the Committee will use as a guide for
determining a Participant’s Performance Bonus at a level below the Individual
Award Limit.

 

5.4.                              INDIVIDUAL
PERFORMANCE OBJECTIVES. 
Within the first 90 days of each Plan Year, it is anticipated that the
Committee will approve Individual Performance Objectives for Participants who
are executive officers and that the Chief Executive Officer or other
appropriate officers will approve Individual Performance Objectives for other
Participants.  Any such Individual
Performance Objectives will be communicated to Participants in writing.  The Committee shall consider the degree of
achievement of Individual Performance Objectives as a guide in exercising its
discretion in determining a Participant’s Performance Bonus at a level below
the Individual Award Limit.

 

5.5                                 MINIMUM REQUIRED PERFORMANCE GOAL AND INDIVIDUAL AWARD LIMITS.  The Committee will establish for each Plan Year beginning with the 2009 Plan Year a minimum performance goal (“Minimum Required Performance”) under the Plan based on one or more of the following Qualified Business Criteria:
 
·                  EBITDA
·                  EBIT
·                  Earnings Per Share
·                  Net Income
·                  Pretax Income
·                  Sales
·                  Comparable Store Sales
 

In any Plan Year in
which Minimum Required Performance is achieved, the Performance Bonus payable
to each Participant under the Plan for such Plan Year shall be $2 million (the “Individual
Award Limit”) or any lesser amount determined by the Committee based on the
level of actual performance compared to Company Financial Objectives and/or
Individual Performance Objectives and

 

5

 

such other Performance Objectives or any other
criteria determined by the Committee.  As
described herein, it is anticipated that the Committee will exercise discretion
such that the Performance Bonus paid to a Participant for a Plan Year would
represent the amount that would be payable pursuant to the applicable Company
Financial Objectives and/or Individual Performance Objectives, rather than the
full Individual Award Limit.  In any Plan
Year in which the Committee fails to set a Target Bonus for a Participant, the
Performance Bonus for that Participant shall be zero for that year unless the
Committee determines otherwise (but in no event shall the bonus exceed the
Individual Award Limit).

 

The Minimum Required
Performance shall be communicated in writing to each Participant within the
first 90 days of each Plan Year.

 

5.6.                              PAYOUT FORM AND
TIMING.  Performance Bonuses will be
paid within thirty (30) days after the Committee determines whether and to what
extent Performance Objectives were achieved, but no later than the 15th day of the third month following the end of
the Plan Year for which the Performance Bonuses, if any, were earned.

 

5.7.                              TERMINATION OF
EMPLOYMENT.  In the event
of the termination of a Participant’s employment prior to the end of the Plan
Year, the Participant shall not be entitled to payment of any Performance
Bonus; provided, however, that (i) if such termination is by reason of the
Participant’s death, Disability or Retirement, or (ii) if such termination
occurs for any reason other than death, Disability or Retirement and the
Committee, in its discretion, shall so determine, the Participant will be paid
a Performance Bonus equal to the pro rata portion (based on the number of days
worked during the Plan Year) of the Performance Bonus, if any, that would
otherwise be payable if the Participant had continued employment through the
end of the Plan Year, based on actual performance.  For example, no Performance Bonus shall be
paid if Minimum Required Performance is not achieved.  If Minimum Required Performance is achieved,
then the Participant’s Performance Bonus shall be based on the applicable
performance matrix.  Any such Performance
Bonus shall be paid at the normal time for payment of Performance Bonuses
hereunder.  Any amounts paid on behalf of
a deceased Participant will be paid to the Participant’s Beneficiary.  For terminations after the end of the Plan
Year, but before payout from this Plan, payout will be made as though the
termination had not occurred.

 

5.8.                              CHANGE IN
CONTROL.  In the event a Change in
Control occurs during the Plan Year, a pro rata portion of the Target Bonus
amounts for that Plan Year (based on the number of days in the Plan Year
preceding the Change in Control, divided by 365) shall be deemed earned,
notwithstanding the level of achievement of Performance Objectives or Minimum
Required Performance. Such pro rata Target Bonuses shall be paid to
Participants no later than 30 days after the effective date of the Change in
Control.

 

ARTICLE 6

AMENDMENT, MODIFICATION AND TERMINATION

 

6.1.                              AMENDMENT,
MODIFICATION AND TERMINATION.  The Committee may, at any time and from time
to time, amend, modify or terminate this Plan. 
The Committee may condition any amendment or modification on the
approval of shareholders of the Company if such approval is necessary or deemed
advisable with respect to tax, securities or other applicable laws, policies or
regulations, including without limitation Code Section 162(m).

 

6.2.                              TERMINATION
AFTER OR DURING PLAN YEAR.  Termination
of this Plan after a Plan Year but before Performance Bonuses are paid for that
Plan Year will not reduce Participants’ rights to receive Performance Bonuses
for the Plan Year.  Termination or
amendment of this Plan during a Plan Year may be retroactive to the beginning
of the Plan Year, at the discretion of the Committee.  If a Change in Control occurs, no amendment
or termination may adversely affect amounts payable to a Participant without
the consent of the Participant.

 

6

 

ARTICLE 7

GENERAL PROVISIONS

 

7.1.                              NO RIGHT TO
PARTICIPATE.  No employee
has any right to be selected to participate in this Plan.

 

7.2.                              NO RIGHT TO
EMPLOYMENT.  Nothing in
this Plan shall interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant’s employment at any time, nor
confer upon any Participant any right to continue in the employ of the Company
or any Subsidiary.

 

7.3.                              WITHHOLDING.  The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant’s FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of this Plan.

 

7.4.                              FUNDING.  Benefits payable under this Plan to a Participant or to a Beneficiary will be paid by the Company from its general assets.  The Company is not required to segregate on its books or otherwise establish any funding procedure for any amount to be used for the payment of benefits under this Plan.  The Company may, however, in its sole discretion, set funds aside in investments to meet its anticipated obligations under this Plan.  Any such action or set-aside may not be deemed to create a trust of any kind between the Company and any Participant or beneficiary or to constitute the funding of any Plan benefits.  Consequently, any person entitled to a payment under this Plan will have no rights greater than the rights of any other unsecured creditor of the Company.
 

7.5.                              EXPENSES.  The expenses of administering this Plan shall
be borne by the Company and its Subsidiaries.

 

7.6.                              TITLES AND
HEADINGS.  The titles
and headings of the Sections in this Plan are for convenience of reference
only, and in the event of any conflict, the text of this Plan, rather than such
titles or headings, shall control.

 

7.7.                              GENDER AND
NUMBER.  Except where otherwise
indicated by the context, any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular shall include
the plural.

 

7.8.                              GOVERNING LAW.  To the extent not governed by federal law,
this Plan shall be construed in accordance with and governed by the laws of the
State of Delaware.

 

The
foregoing is hereby acknowledged as being the Citi Trends, Inc. Annual
Incentive Bonus Plan as adopted by the Committee on March 19, 2009 and by
the shareholders on May 27, 2009.

 

	
   

  	
  CITI TRENDS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Bruce D. Smith

  

 

7

 

EXHIBIT A

 

PARTICIPANTS AND TARGET BONUS PERCENTAGES EFFECTIVE MARCH 19,
2009

UNDER THE ANNUAL INCENTIVE BONUS PLAN

 

	
  Name

  	
   

  	
  % of Base Salary Payable at Target

  Achievement of

  Performance Objectives*

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  R. David Alexander, Jr.

  	
   

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Elizabeth R. Feher

  	
   

  	
  65

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Bruce D. Smith

  	
   

  	
  50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  James A. Dunn

  	
   

  	
  50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Ivy D. Council

  	
   

  	
  50

  	
  %

  

 

*Subject
to the achievement of Minimum Required PerformanceEXHIBIT
4.1

    

    THIS
WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ANY STATE SECURITIES LAWS, OR
THE LAWS OF ANY FOREIGN JURISDICTION.  NEITHER THIS WARRANT NOR THE
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD, OFFERED FOR
SALE, OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR OTHER
ACTIONS AS TO THE APPLICABLE SECURITIES UNDER SUCH ACT, STATE LAWS, OR LAWS OF
FOREIGN JURISDICTIONS OR AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY
SATISFACTORY TO THE ISSUER STATING THAT SUCH REGISTRATION OR OTHER ACTION IS NOT
REQUIRED.

    

    
      
        	
                No.
      W-«No»

              	
                WARRANT
      TO PURCHASE «Shares»

              
	
                Issue
      Date:  ____________, 2009

              	
                SHARES
      OF COMMON STOCK

              

      

    

    

    FORM
OF WARRANT

    TO
PURCHASE SHARES OF COMMON STOCK

    

    PACIFIC
FINANCIAL CORPORATION

    

    For value received, PACIFIC FINANCIAL
CORPORATION, a Washington corporation (the “Company”), grants to «Name» or its
assigns (the “Holder”) the right, subject to the terms of this Warrant, to
purchase at any time during the period commencing on the “Issue Date” (as
defined below), and ending on the “Expiration Date” (as defined below), «Shares»
fully paid and nonassessable shares of Common Stock of the Company at the
“Exercise Price” (as defined below).  This Warrant may be exercised in
whole or in part.  The Exercise Price and the number of shares that
may be purchased hereunder are subject to adjustment from time to time under the
terms of this Warrant.  This Warrant is one of the Warrants to
purchase Common Stock issued pursuant to that certain Securities Purchase
Agreement, dated as of August __, 2009, by and among the Company and the
investors referred to therein (the “Purchase Agreement”).

    

    Section 1.             Definitions.  In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein shall have the meanings given to such terms in
the Purchase Agreement.  As used in this Warrant, unless the context
otherwise requires:

    

    “Common Stock” means the Common
Stock, par value $1.00 per share, of the Company.

    

    “Company” has the meaning
specified in the introductory paragraph.

    

    “Exercise Amount” means the
number of Warrant Shares filled in on the attached Exercise Form (Attachment A)
delivered to the Company by the Holder in connection with exercise of all or a
portion of this Warrant.

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

    

    “Exercise Date” means any date
on which this Warrant is exercised in the manner indicated in Section
2.2.

    

    “Exercise Price” means $6.50
per share (adjusted as necessary in accordance with
Section 6).

    

    “Expiration Date” means 5:00
p.m. (Pacific time) on the fifth anniversary of the Issue Date.

    

    “Holder” has the meaning
specified in the introductory paragraph.

    

    “Issue Date” has the meaning
specified on the first page of this Warrant.

    

    “Person” means an individual,
corporation, partnership, limited liability company, trust, joint venture or
other form of business entity.

    

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

    

    “Warrant Shares” means the
shares of Common Stock issued or issuable upon exercise of this Warrant,
adjusted as necessary in accordance with Section 6.

    

    Section 2.            Duration and Exercise of
Warrant.

    

    2.1         Exercise
Period.  Subject to the provisions hereof, this Warrant may be
exercised at any time during the period commencing on the Issue Date and ending
on the Expiration Date.  After the Expiration Date, this Warrant shall
become void and all rights to purchase Warrant Shares hereunder shall thereupon
cease.

    

    2.2         Exercise.  This
Warrant may be exercised by the Holder, in whole or in part, by executing and
delivering (whether via facsimile or otherwise) to the Company the attached
Exercise Form (Attachment A).  On the first (1st)
business day following an exercise of this Warrant, the Holder shall deliver
payment to the Company of an amount equal to the aggregate Exercise Price for
the Exercise Amount by cash, check, or wire transfer (unless the Holder
indicates in the Exercise Form that such exercise is being effected pursuant to
a “cashless exercise” under Section 2.3 below).  The Holder shall not
be required to deliver the original Warrant in order to effect an exercise
hereunder.  Execution and delivery of the Exercise Form shall have the
same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant
Shares.

    

    2.3         Cashless
Exercise.  The Holder may satisfy its obligation to pay the
Exercise Price through a “cashless exercise,” in which event the Company shall
issue to the Holder the number of Warrant Shares determined as
follows:

     

    
      	 
      	
              X =
      Y [(A-B)/A]

            
	
              where:

            	 
      

    

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

    

    
      	 
      	
              X =
      the number of Warrant Shares to be issued to the
Holder.

            
	 
      	 
      
	 
      	
              Y =
      the number of Warrant Shares with respect to which this Warrant is being
      exercised.

            
	 
      	 
      
	 
      	
              A =
      the arithmetic average of the last reported trade price for the Company’s
      Common Stock reported for each Trading Day during the 30 calendar day
      period immediately prior to (but not including) the Exercise
      Date.

            
	 
      	 
      
	 
      	
              B =
      the Exercise Price.

            

    

    

    For purposes of Rule 144 promulgated
under the Securities Act, it is intended, understood and acknowledged that under
applicable rules, regulations and interpretations in effect as of the Issue
Date, the Warrant Shares issued in a cashless exercise transaction will be
deemed to have been acquired by the Holder, and the holding period for the
Warrant Shares will be deemed to have commenced, on the Issue Date.

    

    2.4         Delivery of Warrant
Shares.  Upon exercise of this Warrant, the Company, at the
Company’s expense, shall promptly deliver or cause to be delivered to the Holder
or its designee certificates for Warrant Shares issuable upon such exercise,
free of restrictive legends unless (i) a Registration Statement covering the
resale of the Warrant Shares by the Holder is not then effective and (ii) the
Warrant Shares are not eligible for sale pursuant to Rule 144 under the
Securities Act, without the requirement for the Company to be in compliance with
the current public information required under Rule 144 as to such shares and
without volume or manner-of-sale restrictions.  The Company shall,
upon request of the Holder, use its best efforts to deliver Warrant Shares
hereunder electronically through the Depository Trust Corporation or another
established clearing corporation performing similar functions.

    

    2.5         Effective Time of
Exercise.  Upon delivery of the Exercise Form, the person
entitled to receive the Warrant Shares shall be treated for all purposes as the
holder of record of such shares as of the close of business on the date the
Holder is deemed to have exercised this Warrant under Section 2.2 above,
provided that payment is received in accordance with that section.

    

    2.6         New Warrants.  Upon
surrender of this Warrant following one or more partial exercises, the Company
shall issue or cause to be issued, at its expense, a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares.  Any such
new Warrant shall have an issuance date, as indicated on the face of such new
Warrant, which is the same as the Issue Date.

    

    2.7         Securities Law
Compliance.  By delivering an Exercise Form, the Holder
represents and warrants and acknowledges, as the case may be, that:

     

    2.7.1      Investment
Purpose.  Holder is acquiring Warrant Shares for Holder’s own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to an effective
registration statement or an exemption from the registration requirements of the
Securities Act.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    2.7.2      Sophistication:  Adequate
Means; Acknowledgements.  Holder has such substantial knowledge
in financial and business matters in general, and in similar investments in
particular, that Holder is capable of evaluating the merits and risks of an
investment in the Warrant Shares.  Holder has adequate means of
providing for Holder’s current needs and personal contingencies so that Holder
can afford a complete loss of the funds invested in the Warrant
Shares.

     

    2.7.3      Investor
Qualifications.  The Holder is an “accredited investor” as
defined in Rule 501 promulgated under the Securities Act.

     

    2.8         Validity and Reservation of Warrant
Shares.  The Company covenants that all Warrant Shares issued
upon exercise of this Warrant will be validly issued, fully paid and
non-assessable.  The Company will have duly authorized and reserved
for issuance upon exercise of this Warrant a sufficient number of shares of
Common Stock or other shares of capital stock of the Company as are from time to
time issuable upon exercise of this Warrant.  If, notwithstanding the
foregoing, and not in limitation thereof, at any time while any of the Warrants
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of all of the Warrants then outstanding (the
“Required Reserve Amount”) (an “Authorized Share Failure”), then the Company
shall promptly as reasonably necessary to assure that the Holder can receive the
benefits of the rights provided under this Warrant without delay take all action
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for all the Warrants then outstanding, including, without limitation, the prompt
calling and holding of a meeting of shareholders to approve an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each shareholder with a proxy statement and shall use
its commercially reasonable efforts to solicit its shareholders’ approval of
such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the shareholders that they approve such
proposal.

    

    2.9         Obligations and
Remedies.  The Company’s obligations to issue and deliver
Warrant Shares in accordance with the terms of this Warrant are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company (other than the obligation under Section 2.2 to pay or otherwise
satisfy the total Exercise Price) or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of Warrant Shares.  Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver shares of Common Stock (whether via physical certificates or
electronically, as appropriate) upon exercise of the Warrant.

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    

    2.10       Charges, Taxes and
Expenses.  Issuance and delivery of certificates for shares of
Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or
other incidental tax or expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the
Holder.  The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise of this Warrant, or reselling or otherwise
transferring the Warrant Shares to third parties.

    

    Section 3.            Fractional
Shares.

    

    No fractional Warrant Shares shall be
issued upon the exercise of this Warrant, and the number of Warrant Shares to be
issued shall be rounded down to the nearest whole number.

    

    Section 4.            No Rights as
Shareholder.

    

    Except as otherwise specifically
provided herein, the Holder shall not, solely by virtue of being the Holder of
this Warrant, have any of the rights of a shareholder of the Company, either at
law or equity, until this Warrant shall have been duly exercised.  In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the
Company.

    

    Section 5.            Loss of Warrant.

    

    Upon receipt by the Company of
satisfactory evidence of the loss, theft, destruction or mutilation of this
Warrant and either (in the case of loss, theft or destruction) reasonable and
customary indemnification or (in the case of mutilation) the surrender of this
Warrant for cancellation, the Company will execute and deliver to the Holder,
without charge, a new Warrant of like denomination.  Any such new
Warrant shall have an issuance date, as indicated on the face of such new
Warrant, which is the same as the Issue Date.

    

    Section 6.            Certain
Adjustments.

    

    6.1         Adjustment of Warrant
Shares.  The number, class and Exercise Price per share of
securities for which this Warrant may be exercised are subject to adjustment
from time to time upon the happening of certain events as hereinafter
provided:

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    (a)         Stock Splits or
Dividends.  If the outstanding shares of the Company’s Common
Stock are divided into a greater number of shares or if the Company shall effect
a stock dividend, the number of shares of Common Stock purchasable upon the
exercise of this Warrant shall be proportionately increased and the Exercise
Price per share shall be proportionately reduced.  Conversely, if the
outstanding shares of Common Stock are combined into a smaller number of shares
of Common Stock, the number of shares of Common Stock purchasable upon the
exercise of this Warrant shall be proportionately reduced and the Exercise Price
per share shall be proportionately increased.  The increases and
reductions provided for in this Section 6.1(a) shall be made with the intent
and, as nearly as practicable, the effect that neither the percentage of the
total equity of the Company obtainable on exercise of this Warrant nor the
aggregate price payable for such percentage shall be affected by any event
described in this Section 6.1(a).

    

    (b)         Merger or Reorganization,
Etc.  In the event of any change in the Common Stock through
merger, consolidation, reclassification, reorganization, share exchange or other
change in the capital structure of the Company (other than by stock dividend or
stock split), or if the Company effects a sale of all or substantially all of
its assets in one or a series of related transactions, or if a tender offer or
exchange offer is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then, the Holder of
this Warrant will have the right thereafter to receive upon the exercise of this
Warrant the kind and amount of shares of stock or other securities or property
to which it would have been entitled if, immediately before such Fundamental
Transaction, it had held the number of shares of Common Stock obtainable upon
the exercise of this Warrant (the “Alternate Consideration”).  The
aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 6 with respect to the
rights of the Holder after the Fundamental Transaction to the end that the
provisions of this Section 6 (including adjustment of the Exercise Price
then in effect and the number of shares issuable upon exercise of this Warrant)
shall be applicable after that event as nearly equivalent as may be
practicable.  The Company shall not enter into or be party to a
Fundamental Transaction unless the surviving entity or purchasing Person, as the
case may be, assumes in writing all of the obligations of the Company under this
Warrant and the other Transaction Documents (as defined in the Securities
Purchase Agreement).

    

    (c)         Adjustments for Dilutive
Issuances.

    

    
      	
              1.

            	
              In
      the event the Company shall, at any time and from time to time issue or
      sell any additional shares of Common Stock (“Additional Shares of Common
      Stock”), but excluding any Excluded Securities (as defined below), at a
      price per share less than both (i) the Fair Market Value per Share (as
      defined below) at the time of such issuance and (ii) the Exercise Price
      then in effect, or without consideration, the Exercise Price then in
      effect upon each such issuance shall be adjusted to that price (rounded to
      the nearest cent) determined by multiplying the Exercise Price by a
      fraction:

            

    

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              (a)

            	
              the
      numerator of which shall be equal to the sum of (A) the number of shares
      of Common Stock outstanding immediately prior to the issuance of such
      Additional Shares of Common Stock plus (B) the
      number of shares of Common Stock (rounded to the nearest whole share)
      which the aggregate consideration for the total number of such Additional
      Shares of Common Stock so issued would purchase at a price per share equal
      to the Exercise Price then in effect,
and

            

    

    

    
      	
               
      

            	
              (b)

            	
              the
      denominator of which shall be equal to the number of shares of Common
      Stock outstanding immediately after the issuance of such Additional Shares
      of Common Stock.

            

    

    

    Upon each
such adjustment of the Exercise Price pursuant to this Section 6.1(c)(1), the
number of Warrant Shares shall be adjusted to the number of shares of Common
Stock determined by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares issuable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment. The provisions of
this Section 6.1(c)(1) shall similarly apply to successive issuances of
Additional Shares of Common Stock at a price per share less than both (i) the
Fair Market Value per Share at the time of such issuance and (ii) the Exercise
Price then in effect.  No adjustment of the Exercise Price shall be
made pursuant to this Section 6.1(c)(1) upon the issuance of any Additional
Shares of Common Stock which are issued pursuant to the exercise of any warrants
or other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Common Stock Equivalents (as defined
below).

    

    For
purposes of this Section 6.1(c), the term “Fair Market Value per Share” shall
mean, at the time of issuance (or deemed issuance) of Additional Shares of
Common Stock, the arithmetic average of the last reported trade price for the
Company’s Common Stock reported for each Trading Day during the 30 calendar day
period immediately prior to (but not including) the date of such
issuance.

    

    Notwithstanding
the foregoing, in the event the price used in a particular transaction (such
price a "Transaction Price") is based on the Company’s board of directors’ good
faith estimate of fair market value on the date a particular Transaction Price
is determined, no adjustment shall be required under this Section 6.1(c) in
connection with any sale or issuance at the Transaction Price so long as such
sale or issuance is completed within 90 days of such pricing determination and
the Transaction Price is not less than 90% of the Fair Market Value per Share as
of the date the transaction is completed.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    
      	
              2.

            	
              In
      the event the Company shall, at any time and from time to time, issue or
      sell any securities convertible into or exchangeable for, directly or
      indirectly, Common Stock (“Convertible Securities”) or any rights or
      warrants or options to purchase any such Common Stock or Convertible
      Securities, shall be issued or sold (collectively, “Common Stock
      Equivalents”), but excluding any Excluded Securities, and the aggregate of
      the price per share for which Additional Shares of Common Stock may be
      issuable thereafter pursuant to such Common Stock Equivalent, plus the
      consideration received by the Company for issuance of such Common Stock
      Equivalent divided by the number of shares of Common Stock issuable
      pursuant to such Common Stock Equivalent (the “Aggregate Per Common Share
      Price”) shall be less than both (i) the Fair Market Value per Share at the
      time of such issuance and (ii) the Exercise Price then in effect, or if,
      after any such issuance of Convertible Securities or Common Stock
      Equivalents, the price per share for which Additional Shares of Common
      Stock may be issuable thereafter is amended or adjusted, and such price as
      so amended or adjusted shall make the Aggregate Per Common Share Price
      less than both the Fair Market Value per Share and the Exercise Price then
      in effect at the time of such amendment or adjustment, then the Exercise
      Price then in effect shall be adjusted pursuant to the formula set forth
      in Section 6.1(c)(1) above assuming that all Additional Shares of Common
      Stock have been issued pursuant to the Convertible Securities or Common
      Stock Equivalents for a purchase price equal to the Aggregate Per Common
      Share Price.

            

    

    

    Upon each
such adjustment of the Exercise Price pursuant to this Section 6.1(c)(2), the
number of Warrant Shares shall be adjusted to the number of shares of Common
Stock determined by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of Warrant Shares issuable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment. The provisions of
this Section 6.1(c)(2) shall similarly apply to successive issuances of
Convertible Securities or Common Stock Equivalents with an Aggregate Per Common
Share Price less than both (i) the Fair Market Value per Share at the time of
such issuance and (ii) the Exercise Price then in effect.  No
adjustment of the Exercise Price shall be made under this Section 6.1(c)(2) upon
the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights
therefor.  No adjustment shall be made to the Exercise Price upon the
issuance of Common Stock pursuant to the exercise, conversion or exchange of any
Convertible Security or Common Stock Equivalent.

    

    
      	
              3.

            	
              In
      the event any consideration received by the Company for any securities
      consists of property other than cash, the fair market value thereof at the
      time of issuance or as otherwise applicable shall be as determined in good
      faith by the Board.  In the event any Additional Shares of
      Common Stock or Common Stock Equivalents are issued with other assets of
      the Company for consideration which covers both, the consideration
      computed as provided in this Section 6.1(c)(3) shall be allocated among
      such securities and assets as determined in good faith by the
      Board.

            

    

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    
      	
              4.

            	
              Notwithstanding
      anything herein to the contrary, the Company shall not be required to make
      any adjustment to the Exercise Price pursuant to Section 6.1(c) upon (i)
      the Company’s issuance of Common Stock or the issuance or grant of options
      to purchase Common Stock pursuant to the Company’s stock option and
      dividend reinvestment plans as they currently exist or may be amended in
      the future, (ii) the Company’s issuance of Common Stock or the issuance or
      grant of options to purchase Common Stock pursuant to any future stock
      option, stock purchase or similar plan that is approved by the
      shareholders of the Company, (iii) the issuance of Common Stock or Common
      Stock Equivalents in connection with a merger, consolidation, stock
      exchange or similar transaction with an unaffiliated third party approved
      by the Company’s board of directors, (iv) the issuance of securities
      issued pursuant to the exercise or conversion of Common Stock Equivalents
      granted or issued prior to the Issue Date; provided that such Common Stock
      Equivalents have not been amended since the Issue Date to increase the
      number of shares issuable thereunder or to lower the exercise or
      conversion price thereof, and (v) the issuance of Warrant Shares upon
      exercise of the Warrants.  The securities described in clauses
      (i) through (v) above shall be referred to herein as “Excluded
      Securities.”

            

    

    

    6.2        Notice of
Adjustment.  Whenever an event occurs requiring any adjustment
to be made pursuant to Section 6.1, the Company, at its own expense, shall
promptly cause its President or Chief Financial Officer (or similar officer) to
compute such adjustment and prepare a certificate setting forth such adjustment
(including a statement of the adjusted Exercise Price and adjusted number or
type of Warrant Shares or other securities issuable upon exercise of this
Warrant, as applicable), setting forth in reasonable detail the acts requiring
such adjustment, and stating such other facts as shall be necessary to show the
manner and figures used to compute such adjustment.  Promptly (but in
no event more than 10 days) after each such adjustment, the Company shall give a
copy of such certificate by certified mail to the Holder.

    

    Section 7.            Registration of Warrant and
Transfers.

    

    7.1.1      Registration of
Warrant.  The Company shall register this Warrant, upon records
to be maintained by the Company for that purpose (the “Warrant Register”), in
the name of the Holder hereof from time to time.  The Company may deem
and treat the registered Holder of this Warrant as the absolute owner hereof for
the purpose of any exercise, and for all other purposes, absent actual notice to
the contrary.

    

    7.1.2      Registration of
Transfers.  The Company shall register the assignment and
transfer of any portion of this Warrant in compliance with its terms in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto as Attachment B duly completed and signed, to the
Company.  Upon any such registration or transfer in compliance with
the terms of this Warrant, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring
Holder.  The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a holder of a Warrant.

    

    Section 8.            Miscellaneous.

    

    8.1        
Binding Effect;
Assignment.  This Warrant shall inure to the benefit of and be
binding upon the Company and the Holder and their respective successors, heirs,
legal representatives and permitted assigns.  Subject to the
restrictions on transfer set forth in the legend on the first page hereof, this
Warrant may be assigned by the Holder without the consent of the
Company.  This Warrant may not be assigned by the Company except to a
successor in the event of a Fundamental Transaction.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    

    8.2         Amendment and
Waiver.  This Warrant may be amended only by an instrument in
writing signed by the Company and the Holder of this Warrant.  No
waiver shall be effective unless it is in writing and signed by an authorized
representative of the waiving party.

    

    8.3         Notices. 

    

    (a)         Whenever
notice is given under this Warrant, unless otherwise provided herein, such
notice shall be given in accordance with Section 6.3 of the Purchase
Agreement.

    

    (b)         If
the Company (i) declares a dividend or any other distribution of cash,
securities or other property in respect of its Common Stock, other than a
regular annual or quarterly dividend involving cash or stock, but including
without limitation any granting of rights or warrants to subscribe for or
purchase any capital stock of the Company or any subsidiary, (ii) enters into
any agreement contemplating or solicits shareholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such transaction
at least 10 calendar days prior to the applicable record or effective date in
order to enable the Holder to exercise this Warrant and become the record owner
of the Warrant Shares in order to participate in or vote with respect to such
transaction as a shareholder; provided, however, that the failure to deliver
such notice or any defect therein shall not affect the validity of the corporate
action required to be described in such notice.

    

    8.4         Governing Law.  The
validity, interpretation and performance of this Warrant shall be governed by
the laws of the State of Delaware, exclusive of conflicts of law
rules.

    

    8.5         Saturdays, Sundays and
Holidays.  If the Expiration Date falls on a Saturday, Sunday
or legal holiday, the Expiration Date shall automatically be extended until 5:00
p.m. Pacific Time on the next business day.

    

    8.6         Headings.  The
headings herein are for convenience only and shall not control or affect the
meaning or construction of this Warrant.

    

    8.7         No Impairment.  The
Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment.

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    

    8.8         Severability.  If
any provision of this Warrant or the application thereof becomes or is declared
by a court of competent jurisdiction to be illegal, void or unenforceable, the
remainder of the terms of this Warrant will continue in full force and
effect.

    

    
      
        
          
            	
                    PACIFIC
      FINANCIAL CORPORATION

                  
	 
      	 
      	 
      	 
      
	
                    By:

                  	  
      
	 
      	 
      	
                     

                  	 
      
	 
      	 
      	
                    President

                  	 
      

          

        

      

    

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    Attachment
A

    

    EXERCISE
FORM

    

    (To Be
Executed by the Warrant Holder to Exercise the Warrant)

    

    The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of Pacific
Financial Corporation, a Washington corporation (the “Company”), evidenced by
Warrant No. _______ (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

     

    1.           Form of Exercise
Price.  The Holder intends that payment of the Exercise Price
shall be made as:

     

    
      	
               
      

            	
              ____________
      

            	
              a
      “Cash
      Exercise” with respect to _________________ Warrant Shares;
      and/or

            

    

     

    
      	
               
      

            	
              ____________
      

            	
              a
      “Cashless
      Exercise” with respect to _______________ Warrant
      Shares.

            

    

     

    2.           Payment of Exercise
Price. In the event that the Holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
Holder shall pay the aggregate Exercise Price in the sum of $___________________
to the Company in accordance with the terms of the Warrant.

     

    3.           Delivery of Warrant
Shares.  The Company shall deliver to Holder, or its designee
or agent as specified below, __________ Warrant Shares in accordance with the
terms of the Warrant.  Delivery shall be made to Holder, or for its
benefit, to the following address:

     

    
      
        
          	
                  _______________________

                
	
                  _______________________

                
	
                  _______________________

                
	
                  _______________________

                

        

      

    

     

    4.           Indemnity.  To
induce the Company to allow exercise of the Warrant without delivery of the
original Warrant, the undersigned agrees to indemnify and hold the Company
harmless from any and all liabilities, charges, damages and other losses
incurred by reason of the exercise of the Warrant without the surrender of the
Warrant, whether based on honoring or refusal to honor the original of the
Warrant or otherwise.

     

    
      
        
          	
                  Date:

                	
                  _______________
      __, ______

                
	 
      	 
      
	  
      
	
                  Name
      of Registered Holder

                
	 
      
	
                  By:

                	 
      
	
                   

                	

                  Name:  
      

                
	
                   

                	

                  Title 
      

                

        

      

    

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

    Attachment
B

    

    ASSIGNMENT
FORM

    

    [To be
completed and signed only upon transfer of Warrant]

     

    FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase  ____________ shares of Common Stock of Pacific Financial
Corporation to which the within Warrant relates and instructs the Company to
transfer said right on the books of Pacific Financial Corporation.

     

    
      
        
          
            
              
                
                  
                    
                      	
                                    
                                Dated:                      ,           

                              

                            	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                              (Signature
      must conform in all respects to name of holder as specified on the face of
      the Warrant)

                            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      
	 
      	
                              Address
      of Transferee

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"}]]