Exhibit 4.2


 


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


321,847


Shares of Common Stock


 


of First Federal Bancshares of Arkansas, Inc.


 


Issue
Date:  March 6, 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.


 


2

















 


“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.


 


3

















 


“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) 


 


4

















 


have traded at least once on the
national or regional securities exchange or association or 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 Warrant and the number
of Shares as to which this Warrant is so exercised.  


 


5

















 


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.


 


6

















 


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 


 


7

















 


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
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 


 


8

















 


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 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 


 


9

















 


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 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


 


10
















 


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 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 


 


11

















 


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.


 


(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
or NASDAQ Stock Market or other 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.


 


12

















 


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.


 


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 


 


13

















 


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:                            [Company]


 


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:  March 6, 2009


 


	
   

  	
  COMPANY: FIRST
  FEDERAL BANCSHARES OF ARKANSAS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Larry J. Brandt

  
	
   

  	
   

  	
  Name:

  	
  Larry J. Brandt

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attest:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Sherri R. Billings

  
	
   

  	
   

  	
  Name: 

  	
  Sherri R. Billings

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President and
  Chief Financial Officer

  



 


[Signature Page to Warrant]


 


16

















 


SCHEDULE A


 


Item 1


Name:  First Federal Bancshares of Arkansas, Inc.


Corporate or other organizational
form:  Corporation


Jurisdiction of organization:  State of Texas


 


Item 2


Exercise Price:  $7.69 per share


 


Item 3


Issue Date:  March 6, 2009


 


Item 4


Amount of last dividend declared
prior to the Issue Date:  $0.16 per share


 


Item 5


Date of Letter Agreement between
the Company and the United States Department of the Treasury:  March 6, 2009


 


Item 6


Number of shares of Common
Stock:  321,847


 


Item 7


Company’s address:


First Federal Bancshares of
Arkansas, Inc.


1401 Highway 62-65 North


Harrison, Arkansas  72601


 


Item 8


Notice information:


 


First Federal Bancshares of
Arkansas, Inc.


1401 Highway 62-65 North


Harrison, Arkansas  72601


Attention: Sherri R. Billings,
Chief Financial Officer


Telephone: (870)365-8310


Facsimile: (870) 365-8355


 


With a copy to:


 


Patton Boggs LLP


2550 M Street,
N.W.


Washington, D.C.
20037


Attention:  Kevin M. Houlihan, Esq.


Facsimile: (202) 457-6437


 

















 


If to the Warrantholder:


 


The Bank of New York Mellon


101 Barclay Street, 4 West


Capital Purchase Program


New York, NY 10286


Attn: Courtney Bartholomew