FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK

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.

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.

“ 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 (1 ^st ) 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:

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.

2.7.2       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.

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