ex4-2.htm


     

    EXHIBIT
4.2

     


     

    
      
        
          
            
              
                
                  
                    	
                             

                            UST Seq. No.:
      747

                             

                          


                  

                

              

            

          

        

      

    

     

    

      WARRANT
TO PURCHASE COMMON STOCK

       

      THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.  THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON
TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE
ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH
IS ON FILE WITH THE ISSUER.  THE SECURITIES REPRESENTED BY THIS
INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH
SAID AGREEMENT.  ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH
SAID AGREEMENT WILL BE VOID.

       

      WARRANT

      to
purchase

      584,084

      Shares
of Common Stock

       

      of
Northern States Financial Corporation

       

      Issue
Date:  February 20, 2009

       

      1.           Definitions.  Unless
the context otherwise requires, when used herein the following terms shall have
the meanings indicated.

       

      “Affiliate”
has the meaning ascribed to it in the Purchase Agreement.

       

      “Appraisal
Procedure” means a procedure whereby two independent appraisers, one
chosen by the Company and one by the Original Warrantholder, shall mutually
agree upon the determinations then the subject of appraisal.  Each
party shall deliver a notice to the other appointing its appraiser within 15
days after the Appraisal Procedure is invoked.  If within 30 days
after appointment of the two appraisers they are unable to agree upon the amount
in question, a third independent appraiser shall be chosen within 10 days
thereafter by the mutual consent of such first two appraisers.  The
decision of the third appraiser so appointed and chosen shall be given within 30
days after the selection of such third appraiser.  If three appraisers
shall be appointed and the determination of one appraiser is disparate from the
middle determination by more than twice the amount by which the other
determination is disparate from the middle determination, then the determination
of such appraiser shall be excluded, the remaining two determinations shall be
averaged and such average shall be binding and conclusive upon the Company and
the Original Warrantholder; otherwise, the average of all three determinations
shall be binding upon the Company and the Original Warrantholder.  The
costs of conducting any Appraisal Procedure shall be borne by the
Company.

       


      
        
           


        

        
           

          
            
 

        

        
           


        

      


      “Board of
Directors” means the board of directors of the Company, including any
duly authorized committee thereof.

       

      “Business
Combination” means a merger, consolidation, statutory share exchange or
similar transaction that requires the approval of the Company’s
stockholders.

       

      “business
day” means any day except Saturday, Sunday and any day on which banking
institutions in the State of New York generally are authorized or required by
law or other governmental actions to close.

       

      “Capital
Stock” means (A) with respect to any Person that is a corporation or
company, any and all shares, interests, participations or other equivalents
(however designated) of capital or capital stock of such Person and
(B) with respect to any Person that is not a corporation or company, any
and all partnership or other equity interests of such Person.

       

      “Charter”
means, with respect to any Person, its certificate or articles of incorporation,
articles of association, or similar organizational document.

       

      “Common
Stock” has the meaning ascribed to it in the Purchase
Agreement.

       

      “Company”
means the Person whose name, corporate or other organizational form and
jurisdiction of organization is set forth in Item 1 of Schedule A
hereto.

       

      “conversion”
has the meaning set forth in Section 13(B).

       

      “convertible
securities” has the meaning set forth in Section 13(B).

       

      “CPP” has the
meaning ascribed to it in the Purchase Agreement.

       

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

       

      “Exercise
Price” means the amount set forth in Item 2 of Schedule A
hereto.

       

      “Expiration
Time” has the meaning set forth in Section 3.

       

      “Fair Market
Value” means, with respect to any security or other property, the fair
market value of such security or other property as determined by the Board of
Directors, acting in good faith or, with respect to Section 14, as
determined by the Original Warrantholder acting in good faith.  For so
long as the Original Warrantholder holds this Warrant or any portion thereof, it
may object in writing to the Board of Director’s calculation of fair market
value within 10 days of receipt of written notice thereof.  If the
Original Warrantholder and the Company are unable to agree on fair market value
during the 10-day period following the delivery of the Original Warrantholder’s
objection, the Appraisal Procedure may be invoked by either party to determine
Fair Market Value by delivering written notification thereof not later than the
30th day after delivery of the Original Warrantholder’s objection.

       

      “Governmental
Entities” has the meaning ascribed to it in the Purchase
Agreement.

       


      
        
           


        

        
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      “Initial
Number” has the meaning set forth in Section 13(B).

       

      “Issue Date”
means the date set forth in Item 3 of Schedule A hereto.

       

      “Market
Price” means, with respect to a particular security, on any given day,
the last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the last closing bid and ask prices regular
way, in either case on the principal national securities exchange on which the
applicable securities are listed or admitted to trading, or if not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and ask prices as furnished by two members of the Financial Industry
Regulatory Authority, Inc. selected from time to time by the Company for that
purpose.  “Market Price” shall be determined without reference to
after hours or extended hours trading.  If such security is not listed
and traded in a manner that the quotations referred to above are available for
the period required hereunder, the Market Price per share of Common Stock shall
be deemed to be (i) in the event that any portion of the Warrant is held by
the Original Warrantholder, the fair market value per share of such security as
determined in good faith by the Original Warrantholder or (ii) in all other
circumstances, the fair market value per share of such security as determined in
good faith by the Board of Directors in reliance on an opinion of a nationally
recognized independent investment banking corporation retained by the Company
for this purpose and certified in a resolution to the
Warrantholder.  For the purposes of determining the Market Price of
the Common Stock on the “trading day” preceding, on or following the occurrence
of an event, (i) that trading day shall be deemed to commence immediately
after the regular scheduled closing time of trading on the New York Stock
Exchange or, if trading is closed at an earlier time, such earlier time and
(ii) that trading day shall end at the next regular scheduled closing time,
or if trading is closed at an earlier time, such earlier time (for the avoidance
of doubt, and as an example, if the Market Price is to be determined as of the
last trading day preceding a specified event and the closing time of trading on
a particular day is 4:00 p.m. and the specified event occurs at
5:00 p.m. on that day, the Market Price would be determined by reference to
such 4:00 p.m. closing price).

       

      “Ordinary Cash
Dividends” means a regular quarterly cash dividend on shares of Common
Stock out of surplus or net profits legally available therefor (determined in
accordance with generally accepted accounting principles in effect from time to
time), provided
that Ordinary Cash Dividends shall not include any cash dividends paid
subsequent to the Issue Date to the extent the aggregate per share dividends
paid on the outstanding Common Stock in any quarter exceed the amount set forth
in Item 4 of Schedule A hereto, as adjusted for any stock split, stock
dividend, reverse stock split, reclassification or similar
transaction.

       

      “Original
Warrantholder” means the United States Department of the
Treasury.  Any actions specified to be taken by the Original
Warrantholder hereunder may only be taken by such Person and not by any other
Warrantholder.

       

      “Permitted
Transactions” has the meaning set forth in
Section 13(B).

       

      “Person” has
the meaning given to it in Section 3(a)(9) of the Exchange Act and as used
in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

       


      
        
           


        

        
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      “Per Share Fair
Market Value” has the meaning set forth in
Section 13(C).

       

      “Preferred
Shares” means the perpetual preferred stock issued to the Original
Warrantholder on the Issue Date pursuant to the Purchase Agreement.

       

      “Pro Rata
Repurchases” means any purchase of shares of Common Stock by the Company
or any Affiliate thereof pursuant to (A) any tender offer or exchange offer
subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E
promulgated thereunder or (B) any other offer available to substantially
all holders of Common Stock, in the case of both (A) or (B), whether for cash,
shares of Capital Stock of the Company, other securities of the Company,
evidences of indebtedness of the Company or any other Person or any other
property (including, without limitation, shares of Capital Stock, other
securities or evidences of indebtedness of a subsidiary), or any combination
thereof, effected while this Warrant is outstanding.  The “Effective
Date” of a Pro Rata Repurchase shall mean the date of acceptance of
shares for purchase or exchange by the Company under any tender or exchange
offer which is a Pro Rata Repurchase or the date of purchase with respect to any
Pro Rata Repurchase that is not a tender or exchange offer.

       

      “Purchase
Agreement” means the Securities Purchase Agreement – Standard Terms
incorporated into the Letter Agreement, dated as of the date set forth in
Item 5 of Schedule A hereto, as amended from time to time, between the
Company and the United States Department of the Treasury (the “Letter
Agreement”), including all annexes and schedules thereto.

       

      “Qualified Equity
Offering” has the meaning ascribed to it in the Purchase
Agreement.

       

      “Regulatory
Approvals” with respect to the Warrantholder, means, to the extent
applicable and required to permit the Warrantholder to exercise this Warrant for
shares of Common Stock and to own such Common Stock without the Warrantholder
being in violation of applicable law, rule or regulation, the receipt of any
necessary approvals and authorizations of, filings and registrations with,
notifications to, or expiration or termination of any applicable waiting period
under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder.

       

      “SEC” means
the U.S. Securities and Exchange Commission.

       

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

       

      “Shares” has
the meaning set forth in Section 2.

       

      “trading day”
means (A) if the shares of Common Stock are not traded on any national or
regional securities exchange or association or over-the-counter market, a
business day or (B) if the shares of Common Stock are traded on any
national or regional securities exchange or association or over-the-counter
market, a business day on which such relevant exchange or quotation system is
scheduled to be open for business and on which the shares of Common Stock
(i) are not suspended from trading on any national or regional securities
exchange or association or over-the-counter market for any period or periods
aggregating one half hour or longer; and (ii) have traded at least once on
the national or regional securities exchange or association or

       


      
        
           


        

        
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      over-the-counter
market that is the primary market for the trading of the shares of Common
Stock.

       

      “U.S. GAAP”
means United States generally accepted accounting principles.

       

      “Warrantholder”
has the meaning set forth in Section 2.

       

      “Warrant”
means this Warrant, issued pursuant to the Purchase Agreement.

       

      2.           Number of Shares; Exercise
Price.  This certifies that, for value received, the United
States Department of the Treasury or its permitted assigns (the “Warrantholder”) is entitled,
upon the terms and subject to the conditions hereinafter set forth, to acquire
from the Company, in whole or in part, after the receipt of all applicable
Regulatory Approvals, if any, up to an aggregate of the number of fully paid and
nonassessable shares of Common Stock set forth in Item 6 of Schedule A
hereto, at a purchase price per share of Common Stock equal to the Exercise
Price.  The number of shares of Common Stock (the “Shares”) and the Exercise
Price are subject to adjustment as provided herein, and all references to
“Common Stock,” “Shares” and “Exercise Price” herein shall be deemed to include
any such adjustment or series of adjustments.

       

      3.           Exercise of Warrant;
Term.  Subject to Section 2, to the extent permitted by
applicable laws and regulations, the right to purchase the Shares represented by
this Warrant is exercisable, in whole or in part by the Warrantholder, at any
time or from time to time after the execution and delivery of this Warrant by
the Company on the date hereof, but in no event later than 5:00 p.m., New
York City time on the tenth anniversary of the Issue Date (the “Expiration Time”), by
(A) the surrender of this Warrant and Notice of Exercise annexed hereto,
duly completed and executed on behalf of the Warrantholder, at the principal
executive office of the Company located at the address set forth in Item 7
of Schedule A hereto (or such other office or agency of the Company in the
United States as it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the Company), and
(B) payment of the Exercise Price for the Shares thereby
purchased:

       

      (i)           by
having the Company withhold, from the shares of Common Stock that would
otherwise be delivered to the Warrantholder upon such exercise, shares of Common
stock issuable upon exercise of the Warrant equal in value to the aggregate
Exercise Price as to which this Warrant is so exercised based on the Market
Price of the Common Stock on the trading day on which this Warrant is exercised
and the Notice of Exercise is delivered to the Company pursuant to this
Section 3, or

       

      (ii)           with
the consent of both the Company and the Warrantholder, by tendering in cash, by
certified or cashier’s check payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the
Company.

       

      If the
Warrantholder does not exercise this Warrant in its entirety, the Warrantholder
will be entitled to receive from the Company within a reasonable time, and in
any event not exceeding three business days, a new warrant in substantially
identical form for the purchase of that number of Shares equal to the difference
between the number of Shares subject to this

       


      
        
           


        

        
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      Warrant
and the number of Shares as to which this Warrant is so
exercised.  Notwithstanding anything in this Warrant to the contrary,
the Warrantholder hereby acknowledges and agrees that its exercise of this
Warrant for Shares is subject to the condition that the Warrantholder will have
first received any applicable Regulatory Approvals.

       

      4.           Issuance of Shares; Authorization;
Listing.  Certificates for Shares issued upon exercise of this
Warrant will be issued in such name or names as the Warrantholder may designate
and will be delivered to such named Person or Persons within a reasonable time,
not to exceed three business days after the date on which this Warrant has been
duly exercised in accordance with the terms of this Warrant.  The
Company hereby represents and warrants that any Shares issued upon the exercise
of this Warrant in accordance with the provisions of Section 3 will be duly
and validly authorized and issued, fully paid and nonassessable and free from
all taxes, liens and charges (other than liens or charges created by the
Warrantholder, income and franchise taxes incurred in connection with the
exercise of the Warrant or taxes in respect of any transfer occurring
contemporaneously therewith).  The Company agrees that the Shares so
issued will be deemed to have been issued to the Warrantholder as of the close
of business on the date on which this Warrant and payment of the Exercise Price
are delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then be closed
or certificates representing such Shares may not be actually delivered on such
date.  The Company will at all times reserve and keep available, out
of its authorized but unissued Common Stock, solely for the purpose of providing
for the exercise of this Warrant, the aggregate number of shares of Common Stock
then issuable upon exercise of this Warrant at any time.  The Company
will (A) procure, at its sole expense, the listing of the Shares issuable
upon exercise of this Warrant at any time, subject to issuance or notice of
issuance, on all principal stock exchanges on which the Common Stock is then
listed or traded and (B) maintain such listings of such Shares at all times
after issuance.  The Company will use reasonable best efforts to
ensure that the Shares may be issued without violation of any applicable law or
regulation or of any requirement of any securities exchange on which the Shares
are listed or traded.

       

      5.           No Fractional Shares or
Scrip.  No fractional Shares or scrip representing fractional
Shares shall be issued upon any exercise of this Warrant.  In lieu of
any fractional Share to which the Warrantholder would otherwise be entitled, the
Warrantholder shall be entitled to receive a cash payment equal to the Market
Price of the Common Stock on the last trading day preceding the date of exercise
less the pro-rated Exercise Price for such fractional share.

       

      6.           No Rights as Stockholders; Transfer
Books.  This Warrant does not entitle the Warrantholder to any
voting rights or other rights as a stockholder of the Company prior to the date
of exercise hereof.  The Company will at no time close its transfer
books against transfer of this Warrant in any manner which interferes with the
timely exercise of this Warrant.

       

      7.           Charges, Taxes and
Expenses.  Issuance of certificates for Shares to the
Warrantholder upon the exercise of this Warrant shall be made without charge to
the Warrantholder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.

       


      
        
           


        

        
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      8.           Transfer/Assignment.

       

      (A)           Subject
to compliance with clause (B) of this Section 8, this Warrant and all
rights hereunder are transferable, in whole or in part, upon the books of the
Company by the registered holder hereof in person or by duly authorized
attorney, and a new warrant shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of one or more
transferees, upon surrender of this Warrant, duly endorsed, to the office or
agency of the Company described in Section 3.  All expenses
(other than stock transfer taxes) and other charges payable in connection with
the preparation, execution and delivery of the new warrants pursuant to this
Section 8 shall be paid by the Company.

       

      (B)           The
transfer of the Warrant and the Shares issued upon exercise of the Warrant are
subject to the restrictions set forth in Section 4.4 of the Purchase
Agreement.  If and for so long as required by the Purchase Agreement,
this Warrant shall contain the legends as set forth in Sections 4.2(a) and
4.2(b) of the Purchase Agreement.

       

      9.           Exchange and Registry of
Warrant.  This Warrant is exchangeable, upon the surrender
hereof by the Warrantholder to the Company, for a new warrant or warrants of
like tenor and representing the right to purchase the same aggregate number of
Shares.  The Company shall maintain a registry showing the name and
address of the Warrantholder as the registered holder of this
Warrant.  This Warrant may be surrendered for exchange or exercise in
accordance with its terms, at the office of the Company, and the Company shall
be entitled to rely in all respects, prior to written notice to the contrary,
upon such registry.

       

      10.           Loss, Theft, Destruction or
Mutilation of Warrant.  Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and in the case of any such loss, theft or destruction, upon
receipt of a bond, indemnity or security reasonably satisfactory to the Company,
or, in the case of any such mutilation, upon surrender and cancellation of this
Warrant, the Company shall make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same aggregate number of Shares as provided for in such
lost, stolen, destroyed or mutilated Warrant.

       

      11.           Saturdays, Sundays, Holidays,
etc.  If the last or appointed day for the taking of any action
or the expiration of any right required or granted herein shall not be a
business day, then such action may be taken or such right may be exercised on
the next succeeding day that is a business day.

       

      12.           Rule 144
Information.  The Company covenants that it will use its
reasonable best efforts to timely file all reports and other documents required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations promulgated by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Warrantholder,
make publicly available such information as necessary to permit sales pursuant
to Rule 144 under the Securities Act), and it will use reasonable best efforts
to take such further action as any Warrantholder may reasonably request, in each
case to the extent required from time to time to enable such holder to, if
permitted by the terms of this Warrant and the Purchase Agreement, sell this
Warrant without registration under the Securities Act within the
limitation

       


      
        
           


        

        
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      of the
exemptions provided by (A) Rule 144 under the Securities Act, as such rule
may be amended from time to time, or (B) any successor rule or regulation
hereafter adopted by the SEC.  Upon the written request of any
Warrantholder, the Company will deliver to such Warrantholder a written
statement that it has complied with such requirements.

       

      13.           Adjustments and Other
Rights.  The Exercise Price and the number of Shares issuable
upon exercise of this Warrant shall be subject to adjustment from time to time
as follows; provided,
that if more than one subsection of this Section 13 is applicable to a
single event, the subsection shall be applied that produces the largest
adjustment and no single event shall cause an adjustment under more than one
subsection of this Section 13 so as to result in duplication:

       

      (A)           Stock Splits, Subdivisions,
Reclassifications or Combinations.  If the Company shall
(i) declare and pay a dividend or make a distribution on its Common Stock
in shares of Common Stock, (ii) subdivide or reclassify the outstanding
shares of Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding shares of Common Stock into a smaller number of
shares, the number of Shares issuable upon exercise of this Warrant at the time
of the record date for such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be proportionately
adjusted so that the Warrantholder after such date shall be entitled to purchase
the number of shares of Common Stock which such holder would have owned or been
entitled to receive in respect of the shares of Common Stock subject to this
Warrant after such date had this Warrant been exercised immediately prior to
such date.  In such event, the Exercise Price in effect at the time of
the record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted to the number
obtained by dividing (x) the product of (1) the number of Shares
issuable upon the exercise of this Warrant before such adjustment and
(2) the Exercise Price in effect immediately prior to the record or
effective date, as the case may be, for the dividend, distribution, subdivision,
combination or reclassification giving rise to this adjustment by (y) the
new number of Shares issuable upon exercise of the Warrant determined pursuant
to the immediately preceding sentence.

       

      (B)           Certain Issuances of Common Shares or
Convertible Securities.  Until the earlier of (i) the date
on which the Original Warrantholder no longer holds this Warrant or any portion
thereof and (ii) the third anniversary of the Issue Date, if the Company
shall issue shares of Common Stock (or rights or warrants or other securities
exercisable or convertible into or exchangeable (collectively, a “conversion”) for shares of
Common Stock) (collectively, “convertible securities”)
(other than in Permitted Transactions (as defined below) or a transaction to
which subsection (A) of this Section 13 is applicable) without
consideration or at a consideration per share (or having a conversion price per
share) that is less than 90% of the Market Price on the last trading day
preceding the date of the agreement on pricing such shares (or such convertible
securities) then, in such event:

       

      (A)           the
number of Shares issuable upon the exercise of this Warrant immediately prior to
the date of the agreement on pricing of such shares (or of such convertible
securities) (the “Initial
Number”) shall be increased to the

       


      
        
           


        

        
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      number
obtained by multiplying the Initial Number by a fraction (A) the numerator
of which shall be the sum of (x) the number of shares of Common Stock of
the Company outstanding on such date and (y) the number of additional
shares of Common Stock issued (or into which convertible securities may be
exercised or convert) and (B) the denominator of which shall be the sum of
(I) the number of shares of Common Stock outstanding on such date and
(II) the number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock so
issued (or into which convertible securities may be exercised or convert) would
purchase at the Market Price on the last trading day preceding the date of the
agreement on pricing such shares (or such convertible securities);
and

       

      (B)           the
Exercise Price payable upon exercise of the Warrant shall be adjusted by
multiplying such Exercise Price in effect immediately prior to the date of the
agreement on pricing of such shares (or of such convertible securities) by a
fraction, the numerator of which shall be the number of shares of Common Stock
issuable upon exercise of this Warrant prior to such date and the denominator of
which shall be the number of shares of Common Stock issuable upon exercise of
this Warrant immediately after the adjustment described in clause (A)
above.

       

      For
purposes of the foregoing, the aggregate consideration receivable by the Company
in connection with the issuance of such shares of Common Stock or convertible
securities shall be deemed to be equal to the sum of the net offering price
(including the Fair Market Value of any non-cash consideration and after
deduction of any related expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any, payable upon exercise or
conversion of any such convertible securities into shares of Common Stock; and
“Permitted
Transactions” shall mean issuances (i) as consideration for or to
fund the acquisition of businesses and/or related assets, (ii) in
connection with employee benefit plans and compensation related arrangements in
the ordinary course and consistent with past practice approved by the Board of
Directors, (iii) in connection with a public or broadly marketed offering
and sale of Common Stock or convertible securities for cash conducted by the
Company or its affiliates pursuant to registration under the Securities Act or
Rule 144A thereunder on a basis consistent with capital raising transactions by
comparable financial institutions and (iv) in connection with the exercise
of preemptive rights on terms existing as of the Issue Date.  Any
adjustment made pursuant to this Section 13(B) shall become effective
immediately upon the date of such issuance.

       

      (C)           Other
Distributions.  In case the Company shall fix a record date for
the making of a distribution to all holders of shares of its Common Stock of
securities, evidences of indebtedness, assets, cash, rights or warrants
(excluding Ordinary Cash Dividends, dividends of its Common Stock and other
dividends or distributions referred to in Section 13(A)), in each such
case, the Exercise Price in effect prior to such record date shall be reduced
immediately thereafter to the price determined by multiplying the Exercise Price
in effect immediately prior to the reduction by the quotient of (x) the
Market Price of the Common Stock on the last trading day preceding the first
date on which the Common Stock trades regular way on the principal national
securities

       


      
        
           


        

        
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      exchange
on which the Common Stock is listed or admitted to trading without the right to
receive such distribution, minus the amount of cash and/or the Fair Market Value
of the securities, evidences of indebtedness, assets, rights or warrants to be
so distributed in respect of one share of Common Stock (such amount and/or Fair
Market Value, the “Per Share
Fair Market Value”) divided by (y) such Market Price on such date
specified in clause (x); such adjustment shall be made successively whenever
such a record date is fixed.  In such event, the number of Shares
issuable upon the exercise of this Warrant shall be increased to the number
obtained by dividing (x) the product of (1) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and
(2) the Exercise Price in effect immediately prior to the distribution
giving rise to this adjustment by (y) the new Exercise Price determined in
accordance with the immediately preceding sentence.  In the case of
adjustment for a cash dividend that is, or is coincident with, a regular
quarterly cash dividend, the Per Share Fair Market Value would be reduced by the
per share amount of the portion of the cash dividend that would constitute an
Ordinary Cash Dividend.  In the event that such distribution is not so
made, the Exercise Price and the number of Shares issuable upon exercise of this
Warrant then in effect shall be readjusted, effective as of the date when the
Board of Directors determines not to distribute such shares, evidences of
indebtedness, assets, rights, cash or warrants, as the case may be, to the
Exercise Price that would then be in effect and the number of Shares that would
then be issuable upon exercise of this Warrant if such record date had not been
fixed.

       

      (D)           Certain Repurchases of Common
Stock.  In case the Company effects a Pro Rata Repurchase of
Common Stock, then the Exercise Price shall be reduced to the price determined
by multiplying the Exercise Price in effect immediately prior to the Effective
Date of such Pro Rata Repurchase by a fraction of which the numerator shall be
(i) the product of (x) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the Market
Price of a share of Common Stock on the trading day immediately preceding the
first public announcement by the Company or any of its Affiliates of the intent
to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price
of the Pro Rata Repurchase, and of which the denominator shall be the product of
(i) the number of shares of Common Stock outstanding immediately prior to
such Pro Rata Repurchase minus the number of shares of Common Stock so
repurchased and (ii) the Market Price per share of Common Stock on the
trading day immediately preceding the first public announcement by the Company
or any of its Affiliates of the intent to effect such Pro Rata
Repurchase.  In such event, the number of shares of Common Stock
issuable upon the exercise of this Warrant shall be increased to the number
obtained by dividing (x) the product of (1) the number of Shares
issuable upon the exercise of this Warrant before such adjustment, and
(2) the Exercise Price in effect immediately prior to the Pro Rata
Repurchase giving rise to this adjustment by (y) the new Exercise Price
determined in accordance with the immediately preceding sentence.  For
the avoidance of doubt, no increase to the Exercise Price or decrease in the
number of Shares issuable upon exercise of this Warrant shall be made pursuant
to this Section 13(D).

       

      (E)           Business
Combinations.  In case of any Business Combination or
reclassification of Common Stock (other than a reclassification of Common
Stock

       


      
        
           


        

        
          10

          
            
 

        

        
           


        

      


      referred
to in Section 13(A)), the Warrantholder’s right to receive Shares upon
exercise of this Warrant shall be converted into the right to exercise this
Warrant to acquire the number of shares of stock or other securities or property
(including cash) which the Common Stock issuable (at the time of such Business
Combination or reclassification) upon exercise of this Warrant immediately prior
to such Business Combination or reclassification would have been entitled to
receive upon consummation of such Business Combination or reclassification; and
in any such case, if necessary, the provisions set forth herein with respect to
the rights and interests thereafter of the Warrantholder shall be appropriately
adjusted so as to be applicable, as nearly as may reasonably be, to the
Warrantholder’s right to exercise this Warrant in exchange for any shares of
stock or other securities or property pursuant to this paragraph.  In
determining the kind and amount of stock, securities or the property receivable
upon exercise of this Warrant following the consummation of such Business
Combination, if the holders of Common Stock have the right to elect the kind or
amount of consideration receivable upon consummation of such Business
Combination, then the consideration that the Warrantholder shall be entitled to
receive upon exercise shall be deemed to be the types and amounts of
consideration received by the majority of all holders of the shares of common
stock that affirmatively make an election (or of all such holders if none make
an election).

       

      (F)           Rounding of Calculations; Minimum
Adjustments.  All calculations under this Section 13 shall
be made to the nearest one-tenth (1/10th) of a cent or to the nearest one
hundredth (1/100th) of a share, as the case may be.  Any provision of
this Section 13 to the contrary notwithstanding, no adjustment in the
Exercise Price or the number of Shares into which this Warrant is exercisable
shall be made if the amount of such adjustment would be less than $0.01 or
one-tenth (1/10th) of a share of Common Stock, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the time
of and together with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall aggregate $0.01 or
1/10th of a share of Common Stock, or more.

       

      (G)           Timing of Issuance of Additional
Common Stock Upon Certain Adjustments.  In any case in which
the provisions of this Section 13 shall require that an adjustment shall
become effective immediately after a record date for an event, the Company may
defer until the occurrence of such event (i) issuing to the Warrantholder
of this Warrant exercised after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon such exercise by
reason of the adjustment required by such event over and above the shares of
Common Stock issuable upon such exercise before giving effect to such adjustment
and (ii) paying to such Warrantholder any amount of cash in lieu of a
fractional share of Common Stock; provided, however, that the Company
upon request shall deliver to such Warrantholder a due bill or other appropriate
instrument evidencing such Warrantholder’s right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.

       

      (H)           Completion of Qualified Equity
Offering.  In the event the Company (or any successor by
Business Combination) completes one or more Qualified Equity

       


      
        
           


        

        
          11

          
            
 

        

        
           


        

      


      Offerings
on or prior to December 31, 2009 that result in the Company (or any such
successor) receiving aggregate gross proceeds of not less than 100% of the
aggregate liquidation preference of the Preferred Shares (and any preferred
stock issued by any such successor to the Original Warrantholder under the CPP),
the number of shares of Common Stock underlying the portion of this Warrant then
held by the Original Warrantholder shall be thereafter reduced by a number of
shares of Common Stock equal to the product of (i) 0.5 and (ii) the
number of shares underlying the Warrant on the Issue Date (adjusted to take into
account all other theretofore made adjustments pursuant to this
Section 13).

       

      (I)           Other Events.  For
so long as the Original Warrantholder holds this Warrant or any portion thereof,
if any event occurs as to which the provisions of this Section 13 are not
strictly applicable or, if strictly applicable, would not, in the good faith
judgment of the Board of Directors of the Company, fairly and adequately protect
the purchase rights of the Warrants in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make such
adjustments in the application of such provisions, in accordance with such
essential intent and principles, as shall be reasonably necessary, in the good
faith opinion of the Board of Directors, to protect such purchase rights as
aforesaid.  The Exercise Price or the number of Shares into which this
Warrant is exercisable shall not be adjusted in the event of a change in the par
value of the Common Stock or a change in the jurisdiction of incorporation of
the Company.

       

      (J)           Statement Regarding
Adjustments.  Whenever the Exercise Price or the number of
Shares into which this Warrant is exercisable shall be adjusted as provided in
Section 13, the Company shall forthwith file at the principal office of the
Company a statement showing in reasonable detail the facts requiring such
adjustment and the Exercise Price that shall be in effect and the number of
Shares into which this Warrant shall be exercisable after such adjustment, and
the Company shall also cause a copy of such statement to be sent by mail, first
class postage prepaid, to each Warrantholder at the address appearing in the
Company’s records.

       

      (K)           Notice of Adjustment
Event.  In the event that the Company shall propose to take any
action of the type described in this Section 13 (but only if the action of
the type described in this Section 13 would result in an adjustment in the
Exercise Price or the number of Shares into which this Warrant is exercisable or
a change in the type of securities or property to be delivered upon exercise of
this Warrant), the Company shall give notice to the Warrantholder, in the manner
set forth in Section 13(J), which notice shall specify the record date, if
any, with respect to any such action and the approximate date on which such
action is to take place.  Such notice shall also set forth the facts
with respect thereto as shall be reasonably necessary to indicate the effect on
the Exercise Price and the number, kind or class of shares or other securities
or property which shall be deliverable upon exercise of this
Warrant.  In the case of any action which would require the fixing of
a record date, such notice shall be given at least 10 days prior to the date so
fixed, and in case of all other action, such notice shall be given at least 15
days prior to the taking of such proposed action.  Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.

       


      
        
           


        

        
          12

          
            
 

        

        
           


        

      


      (L)           Proceedings Prior to Any Action
Requiring Adjustment.  As a condition precedent to the taking
of any action which would require an adjustment pursuant to this Section 13, the
Company shall take any action which may be necessary, including obtaining
regulatory, New York Stock Exchange, NASDAQ Stock Market or other applicable
national securities exchange or stockholder approvals or exemptions, in order
that the Company may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Warrantholder is entitled to
receive upon exercise of this Warrant pursuant to this Section 13.

       

      (M)           Adjustment
Rules.  Any adjustments pursuant to this Section 13 shall
be made successively whenever an event referred to herein shall
occur.  If an adjustment in Exercise Price made hereunder would reduce
the Exercise Price to an amount below par value of the Common Stock, then such
adjustment in Exercise Price made hereunder shall reduce the Exercise Price to
the par value of the Common Stock.

       

      14.           Exchange.  At any
time following the date on which the shares of Common Stock of the Company are
no longer listed or admitted to trading on a national securities exchange (other
than in connection with any Business Combination), the Original Warrantholder
may cause the Company to exchange all or a portion of this Warrant for an
economic interest (to be determined by the Original Warrantholder after
consultation with the Company) of the Company classified as permanent equity
under U.S. GAAP having a value equal to the Fair Market Value of the portion of
the Warrant so exchanged.  The Original Warrantholder shall calculate
any Fair Market Value required to be calculated pursuant to this
Section 14, which shall not be subject to the Appraisal
Procedure.

       

      15.           No Impairment.  The
Company will not, by amendment of its Charter 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 to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Warrantholder.

       

      16.           Governing Law.  This
Warrant will be governed by and construed in accordance with the federal law of
the United States if and to the extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. Each of the Company and the
Warrantholder agrees (a) to submit to the exclusive jurisdiction and venue of
the United States District Court for the District of Columbia for any civil
action, suit or proceeding arising out of or relating to this Warrant or the
transactions contemplated hereby, and (b) that notice may be served upon the
Company at the address in Section 20 below and upon the Warrantholder at the
address for the Warrantholder set forth in the registry maintained by the
Company pursuant to Section 9 hereof. To the extent permitted by applicable law,
each of the Company and the Warrantholder hereby unconditionally waives trial by
jury in any civil legal action or proceeding relating to the Warrant or the
transactions contemplated hereby or
thereby.

       


      
        
           


        

        
          13

          
            
 

        

        
           


        

      


      
        17.           Binding
Effect.  This Warrant shall be binding upon any successors or
assigns of the Company.

         
18.           Amendments.  This
Warrant may be amended and the observance of any term of this Warrant may be
waived only with the written consent of the Company and the
Warrantholder.

       

      19.           Prohibited
Actions.  The Company agrees that it will not take any action
which would entitle the Warrantholder to an adjustment of the Exercise Price if
the total number of shares of Common Stock issuable after such action upon
exercise of this Warrant, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon the exercise of
all outstanding options, warrants, conversion and other rights, would exceed the
total number of shares of Common Stock then authorized by its
Charter.

       

      20.           Notices.  Any
notice, request, instruction or other document to be given hereunder by any
party to the other will be in writing and will be deemed to have been duly given
(a) on the date of delivery if delivered personally, or by facsimile, upon
confirmation of receipt, or (b) on the second business day following the
date of dispatch if delivered by a recognized next day courier
service.  All notices hereunder shall be delivered as set forth in
Item 8 of Schedule A hereto, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice.

       

      21.           Entire
Agreement.  This Warrant, the forms attached hereto and
Schedule A hereto (the terms of which are incorporated by reference
herein), and the Letter Agreement (including all documents incorporated
therein), contain the entire agreement between the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous arrangements
or undertakings with respect thereto.

       

      [Remainder
of page intentionally left blank]

       


      
        
           


        

        
          14

          
            
 

        

        
           


        

      


      [Form
of Notice of Exercise]

      Date:  ______________

       

      
        	
                TO:

              	
                Northern
      States Financial Corporation

              


      

       

      
        	
                RE:

              	
                Election
      to Purchase Common Stock

              


      

       

      The
undersigned, pursuant to the provisions set forth in the attached Warrant,
hereby agrees to subscribe for and purchase the number of shares of the Common
Stock set forth below covered by such Warrant.  The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the
aggregate Exercise Price for such shares of Common Stock in the manner set forth
below.  A new warrant evidencing the remaining shares of Common Stock
covered by such Warrant, but not yet subscribed for and purchased, if any,
should be issued in the name set forth below.

       

      Number of
Shares of Common Stock     
________________                                                                                     

       

      Method of
Payment of Exercise Price (note if cashless exercise pursuant to
Section 3(i) of the Warrant or cash exercise pursuant to Section 3(ii)
of the Warrant, with consent of the Company and the
Warrantholder)         
________________

       

      Aggregate Exercise
Price:                       
________________                                                         

       

      
        	 
      	
                Holder:__________________________                                                              

                By:_____________________________                                                                

                Name:___________________________                                                              

                Title:____________________________                                                              

              


      

       


      
        
           


        

        
          15

          
            
 

        

        
           


        

      


      IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed by a
duly authorized officer.

      Dated:  February
20, 2009

       

      
        
          	 	
                  COMPANY:

                   

                  NORTHERN STATES FINANCIAL
      CORPORATION

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Fred
      Abdula 	 
	 	 	Name: 
      Fred Abdula 	 
	 	 	Title: 
      Chairman of the Board and President 	 
	 	 	 	 


        

      

       

      
        
          	 	Attest:	 
	 	 	 	 
	
                   

                	
                  By:
      

                	/s/ Helen
      Rumsa	 
	 	 	Name: 
      Helen Rumsa 	 
	 	 	Title: 
      Secretary 	 
	 	 	 	 


        

      

       


      
        
           


        

        
          16

          
            
 

        

        
           


        

      


      SCHEDULE A

       

      Item
1

      Name:  Northern
States Financial Corporation

      Corporate
or other organizational form:  Corporation

      Jurisdiction
of organization:  Delaware

       

      Item
2

      Exercise
Price:1
$4.42

       

      Item
3

      Issue
Date:  February 20, 2009

       

      Item
4

      Amount of
last dividend declared prior to the Issue Date:  A semi-annual
dividend of $0.40 per share.

       

      Item
5

      Date of
Letter Agreement between the Company and the United States Department of the
Treasury:  February 20, 2009

       

      Item
6

      Number of
shares of Common Stock:  584,084

       

      Item
7

      Company’s
address:  1601 N. Lewis Avenue, Waukegan, Illinois 60085

       

      Item
8

      Notice
information:  Mr. Fred Abdula, Chairman of the Board and President,
Northern States Financial Corporation, 1601 N. Lewis Avenue, Waukegan, Illinois
60085

       

      

        
 

      
        1 Initial
exercise price to be calculated based on the average of closing prices of the
Common Stock on the 20 trading days ending on the last trading day prior to the
date the Company’s application for participation in the Capital Purchase Program
was approved by the United States Department of the
Treasury.

         

      


      
        
           


        

        
          Schedule
A –
Page 1