Document:

exv4w2

 

EXHIBIT 4.2

REDACTED AND CONFORMED COPY

THE SECURITIES PURCHASABLE UNDER THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO SUCH SECURITIES UNLESS SOLD, OFFERED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. THIS WARRANT AND THE SECURITIES REPRESENTED BY THIS
WARRANT ARE TRANSFERABLE ONLY AS PROVIDED HEREIN AND ARE SUBJECT TO THAT
CERTAIN ASSET PURCHASE AGREEMENT DATED AS OF MARCH 4, 2004 BY AND AMOUNG THE
COMPANY, THE HOLDER, BRUNO DELEAN AND NICOLAS VANDENBERGHE.

IDENTIX INCORPORATED

Warrant for Shares of Common Stock

(Void after March 9, 2014)

CSW No. 1 800,000 Shares

          FOR VALUE RECEIVED, IDENTIX INCORPORATED, a Delaware corporation (the
“Company”), hereby certifies that DELEAN VISION WORLDWIDE, INC., a British
Virgin Island corporation, (the “Holder”) is entitled to purchase from the
Company, subject to the provisions of this Warrant and in accordance with the
Contingent Vesting Schedule indicated on Annex A hereto, at any time commencing
from March 9, 2005 until 5:00 p.m. (Minneapolis time) on March 9, 2014 (the
“Termination Date”), Eight Hundred Thousand (800,000) fully paid and
non-assessable shares of Common Stock, at an initial per share exercise price
equal to $4.70. The shares of Common Stock or other securities or property
deliverable upon such exercise are hereinafter sometimes referred to as the
“Warrant Shares.” The exercise price of a share of Common Stock in effect at
any time is hereinafter sometimes referred to as the “Per Share Exercise Price”
and the aggregate purchase price payable for the Warrant Shares hereunder is
hereinafter sometimes referred to as the “Aggregate Exercise Price.” This
Warrant (this “Warrant”) is duly authorized by the Company and issued by the
Company on March 9, 2004 in connection with that certain Asset Purchase
Agreement dated as of March 4, 2004 (the “Asset Purchase Agreement”) by and
among the Company, Holder, Bruno Delean and Nicholas Vandenberghe (Bruno
Delean, together with Nicholas Vandenberghe, the “Representing Shareholders”).
Capitalized terms not otherwise defined in this Warrant shall have the meanings
ascribed thereto in the Asset Purchase Agreement.

Article I. Definitions.

          a. “Change of Control” means the (i) acquisition by an individual or legal
entity or group (as defined in Rule 13d-5 of the Securities Exchange Act of
1934, as amended) of more than one-half of the voting rights or equity
interests in the Company; (ii) sale, conveyance, or other disposition of all or
substantially all of the assets, property or business of the Company, (iii) any
reclassification of the Company’s capital, or (iv) the merger into or
consolidation with any other corporation or other entity (other than a wholly
owned subsidiary corporation) or effectuation of any transaction or series of
related transactions where holders of the Company’s voting securities prior to
such transaction or series of transactions fail to continue to hold at least
50% of the voting power of the Company.

          b. “Common Stock” means (except where the context otherwise indicates) the
Common Stock, $0.01 par value per share, of the Company as constituted on the
date hereof, and any capital stock into which such Common Stock may thereafter
be changed or converted, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets on liquidation over any other
class of stock of the Company and which is not subject to redemption and (ii)
shares of common stock of any successor or

 

 

acquiring corporation received by or distributed to the holders of Common
Stock of the Company in the circumstances contemplated by Section 5.3.

Article II. Exercise of Warrant.

          a. This Warrant may be exercised in whole or in part, at any time by the
Holder commencing upon March 9, 2005, subject and pursuant to the terms of the
Contingent Vesting Schedule attached hereto as Annex A and prior to the
Termination Date by presentation and surrender of this Warrant (with the
subscription form at the end hereof duly executed) at the address set forth in
Section 11 hereof, together with payment, by certified or official bank check
payable to the order of the Company, of the Aggregate Exercise Price or the
proportionate part thereof if exercised in part.

          b. If this Warrant is exercised in part only, the Company shall, upon
presentation of this Warrant upon such exercise, execute and deliver (with the
certificate for the Warrant Shares purchased) a new Warrant evidencing the
rights of the Holder hereof to purchase the balance of the Warrant Shares
purchasable hereunder upon the same terms and conditions as herein set forth
including those of the Contingent Vesting Schedule attached hereto as Annex A.
Upon proper exercise of this Warrant, the Company promptly shall deliver
certificates for the Warrant Shares to the Holder duly legended as indicated by
the Asset Purchase Agreement together with cash in lieu of any fraction of a
share, as hereinafter provided, but, in any event, within three (3) business
days after such exercise. No fractional shares shall be issued upon exercise
of this Warrant. With respect to any fraction of a share called for upon
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the Current Market Price of one (1) share of Common
Stock. The stock certificate or certificates so delivered shall be, to the
extent possible, in such denomination or denominations as the Holder shall
request in the notice and shall be registered in the name of the Holder or such
other name as shall be designated by the Holder. This Warrant shall be deemed
to have been exercised and such certificate or certificates shall be deemed to
have been issued, and the Holder or any other person so designated to be named
therein shall be deemed to have become a Holder of record of such shares for
all purposes, as of the date when the notice, together with the payment of the
applicable exercise price and this Warrant, is received by the Company as
described above.

Article III. Reservation of Warrant Shares; Fully Paid Shares; Taxes. The Company hereby
undertakes until expiration of this Warrant to reserve for issuance or delivery
upon exercise of this Warrant, such number of shares of the Common Stock as
shall be required for issuance and/or delivery upon exercise of this Warrant in
full in accordance with the terms hereof, and agrees that all Warrant Shares so
issued and/or delivered shall be validly issued, fully paid and non-assessable
and not subject to any preemptive rights, and further agrees to pay all taxes
and charges that may be imposed upon such issuance and/or delivery.

Article IV. Registration Rights Under Securities Act of 1933, as Amended. The Holder of
this Warrant shall be entitled to registration rights with respect to the
Warrant Shares as provided in Articles 3 and 10 of the Asset Purchase
Agreement.

Article V. Adjustments. The number of shares of Common Stock for which this Warrant is
exercisable, and the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 5. The Company shall give the Holder notice of any event
described below which requires an adjustment pursuant to this Section 5 in
accordance with Sections 6.1 and 6.2.

Section 5.01 Stock Dividends, Subdivisions and Combinations. If at any time
while this Warrant is outstanding the Company shall:

	 	i.	 	take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend
payable in, or other distribution of, additional shares of
Common Stock,
	 
	 	ii.	 	subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, or
	 
	 	iii.	 	combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then:

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	 	(1)	 	the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately after the occurrence
of any such event shall be adjusted to equal the number of
shares of Common Stock which a record holder of the same
number of shares of Common Stock that would have been
acquirable under this Warrant immediately prior to the
occurrence of such event would own or be entitled to receive
after the happening of such event, and

	 	(2)	 	the Per Share Exercise Price shall be adjusted to equal:

	 	(A)	 	the Per Share Exercise Price in
effect immediately prior to the occurrence of such
event multiplied by the number of shares of Common
Stock into which this Warrant is exercisable
immediately prior to the adjustment, divided by
	 
	 	(B)	 	the number of shares of Common
Stock into which this Warrant is exercisable
immediately after such adjustment.

Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.

Section 5.02 Fractional Interests. In computing adjustments under this Section
5, all calculations shall be made to the nearest 1/100th of a share.

Section 5.03 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets.

               c. If, prior to the Termination Date, there shall occur a Change of
Control and, pursuant to the terms of such Change of Control, shares of common
stock of the successor or acquiring corporation, or any cash, shares of stock
or other securities or property of any nature whatsoever (including warrants or
other subscription or purchase rights) in addition to or in lieu of common
stock of the successor or acquiring corporation (“Other Property”), are to be
received by or distributed to the holders of Common Stock of the Company, then
the Holder of this Warrant shall have the right thereafter to receive, upon the
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and the Other Property receivable upon or as a result of such Change of Control
by a holder of the number of shares of Common Stock into which this Warrant is
exercisable immediately prior to such event.

               d. In case of any such Change of Control, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition
contained in this Warrant to be performed and observed by the Company and all
of the Company’s obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined in good faith by
resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Common Stock into which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 5.

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Section 5.04 Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
then, unless such action will not have a materially adverse effect upon the
rights of the holder of this Warrant, the number of shares of Common Stock or
other stock into which this Warrant is exercisable and/or the purchase price
thereof shall be adjusted in such manner as may be equitable in the
circumstances.

Section 5.05 Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Per Share Exercise Price to be
less than the par value per share of Common Stock.

Article VI. Notices to Warrant Holders.

Section 6.01 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Per Share Exercise Price, or the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon exercise of the Warrants owned by such Holder, the
Company, at its expense, shall promptly compute such adjustment or readjustment
in accordance with the terms hereof and prepare and furnish to the Holder of
this Warrant a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request at any time of the Holder
of this Warrant, furnish or cause to be furnished to such Holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the Per
Share Exercise Price at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the exercise of Warrants owned by such Holder.

Section 6.02 Notice of Corporate Action. If at any time:

               e. the Company shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, or
any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or

               f. there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation or other person, or

               g. there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;

then, in any one or more of such cases, the Company shall give to the Holder
(i) at least 15 days’ prior written notice of the record date selected for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, and (ii) in the
case of any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 15
days’ prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to the
Holder at the last address of the Holder appearing on the books of the Company
and delivered in accordance with Section 11. The failure to give any notice
required by this Section 6.2 shall not invalidate any such corporate action.

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Section 6.03 Notice to Stockholders. The Holder shall be entitled to the same
rights to receive notice of corporation action as any holder of Common Stock.

Article VII. No Impairment. The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant. Upon the
request of the Holder, the Company will at any time during the period this
Warrant is outstanding acknowledge in writing, in form satisfactory to the
Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.

Article VIII. Limited Transferability.

          h. The Holder represents that by accepting this Warrant it understands
that this Warrant and the Warrant Shares have not been registered for sale
under Federal or state securities laws and are being offered and sold to the
Holder pursuant to one or more exemptions from the registration requirements of
such securities laws. In the absence of an effective registration of such
securities or an exemption therefrom, any certificates for such securities
shall bear the legend set forth on the first page hereof. The Holder
understands that it must bear the economic risk of its investment in this
Warrant and the Warrant Shares for an indefinite period of time, as this
Warrant and the Warrant Shares have not been registered under Federal or state
securities laws. This Warrant may not be transferred except as expressly set
forth in Section 8(c) below. The Warrant Shares cannot be sold or transferred
unless registered under applicable Federal and state securities laws; provided,
however, that the Holder may transfer all or any portion of the Warrant Shares
to the Representing Shareholders and the other shareholders of the Holder if
such transfer is made pursuant to an available exemption from registration
under applicable securities laws.

          i. The Holder, by its acceptance of this Warrant, represents to the
Company that it is acquiring this Warrant and will acquire any Warrant Shares
for its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof in violation of the Securities Act of
1933, as amended (the “Act”). The Holder agrees that this Warrant may not be
transferred except as expressly set forth in Section 8(c) below. The Holder
also agrees that the Warrant Shares may not be sold or otherwise transferred
unless (i) a registration statement with respect to such transfer is effective
under the Act and any applicable state securities laws or (ii) such sale or
transfer is made pursuant to one or more exemptions from the Act.
Notwithstanding the foregoing, the Holder may transfer all or any portion of
the Warrant Shares to the Representing Shareholders and the other shareholders
of the Holder if such transfer is made pursuant to an available exemption from
registration under the Act.

          j. This Warrant may not be sold, transferred, assigned or hypothecated
except to an escrow agent unanimously appointed by the Holder, the Representing
Shareholders and other shareholders of the Holder (the “Escrow Agent”) to be
held in escrow on behalf of the Holder and such shareholders for contingent
exercise as provided for herein, and is so transferable only upon the books of
the Company which the Company shall cause to be maintained for such purpose.
The Company may treat the registered Holder of this Warrant as it appears on
the Company’s books at any time as the Holder for all purposes. The Company
shall permit the duly authorized Holder of this Warrant, upon written request
during ordinary business hours, to inspect and copy or make extracts from its
books showing the registered Holder of the Warrant. All Warrants issued upon
the transfer or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the holder thereof shall be identical to those of
the Holder.

Article IX. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or

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destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.

Article X. Status of Holder. This Warrant does not confer upon the Holder any right to
vote or to consent to or receive notice as a stockholder of the Company, as
such, in respect of any matters whatsoever, or any other rights or liabilities
as a stockholder, prior to the exercise hereof.

Article XI. Notices. No notice or other communication under this Warrant shall be
effective unless, but any notice or other communication shall be effective and
shall be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:

	 	 	 	 	 
	

	 	If to the Holder:
	 	Delean Vision Worldwide, Inc.
	

	 	 	 	Bison Court, P.O. Box 3460
	

	 	 	 	Road Town, Tortola
	

	 	 	 	British Virgins Islands
	 
	 	 	 	 
	

	 	 	 	Attention: President & CEO
	 
	 	 	 	 
	

	 	If to the Company:
	 	Identix Incorporated
	

	 	 	 	5600 Rowland Road
	

	 	 	 	Minnetonka, MN 55343
	

	 	 	 	Attention: CFO

Article XII. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.

Article XIII. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to principles
of conflicts of law.

Article XIV. Successors and Assigns. Subject to compliance with the provisions of
Section 8, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of the Holder. The provisions of this Warrant are intended to be
for the benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder, but nothing in this Warrant shall be construed
to give any person or corporation or other entity, other than the Company and
the Holder and their respective successors and assigns, any legal or equitable
right, remedy or cause under this Warrant.

THE REST OF THIS PAGE IS LEFT BLANK INTENTIONALLY.

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          IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its President and Chief Executive Officer and its corporate seal to be hereunto
affixed and attested by its Secretary this 9th day of March, 2004.

	 	 	 	 	 	 	 
	 	 	 	 	IDENTIX INCORPORATED
	 
	 	 	 	 	 	 
	

	 	 	 	By	 	 
	

	 	 	 	 	 	Name: Joseph J. Atick
	

	 	 	 	 	 	Title: President & CEO
	 
	 	 	 	 	 	 
	ATTESTED	 	 	 	 
	 
	 	 	 	 	 	 
	Corporate Seal	 	 	 	 
	 
	 	 	 	 	 	 
	By
	 	 	 	 	 	 
	

	 	Name: Mark S. Molina	 	 	 	 
	

	 	Title: General Counsel & Secretary	 	 	 	 

7<PAGE>

                                                                    Exhibit 10.1

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF,
EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND THE TERMS
AND CONDITIONS HEREOF. THE HOLDER OF THIS WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.

VOID AFTER 5:00 P.M. NEW YORK CITY TIME, MARCH 22, 2014.

                    ****************************************

                                    Number 1

                                    WARRANT

                                      to

                              PURCHASE COMMON STOCK

                                       of

                        SUNSET FINANCIAL RESOURCES, INC.

                    ****************************************

         This certifies that, for good and valuable consideration, Sunset
Financial Resources, Inc., a Maryland corporation (the "Company"), grants to
Sapphire Advisors, LLC or permitted registered assigns (the "Warrantholder" or
"Warrantholders"), the right to subscribe for and purchase from the Company, at
$13.00 per share (the "Exercise Price"), two hundred thirty-three thousand
(233,000) shares (the "Warrant Shares") of the Company's common stock, par value
$0.01 per share (the "Common Stock"), subject to the provisions and upon the
terms and conditions herein set forth. The Exercise Price and the number of
Warrant Shares are subject to adjustment from time to time as provided in
subsection 1.10 herein.

         1.       Duration and Exercise of Warrant; Limitation on Exercise;
                  Payment of Taxes.

         1.1      Duration and Exercise of Warrant.

                  (a)      Subject to subsection 1.1(c) herein, this Warrant may
         be exercised to purchase (i) 100% of the underlying shares from and
         after 9:00 A.M. New York City time on March 22, 2005 (the "Exercise
         Date"); to and including 5:00 P.M. New York

                                       1

<PAGE>

         City time on March 22, 2014 (the "Expiration Date").

                  (b)      Subject to subsection 1.1(c) herein, the rights
         represented by this Warrant may be exercised by the Warrantholder of
         record, in whole, or from time to time in part, by:

                           (i)      Surrender of this Warrant, accompanied by
                  either the Exercise Form annexed hereto, or if the
                  Warrantholder decides to exercise the Warrant pursuant to the
                  broker-assisted cashless exercise program instituted by the
                  Company, an applicable exercise form provided by the Company
                  (the "Exercise Form") duly executed by the Warrantholder of
                  record and specifying the number of Warrant Shares to be
                  purchased, to the Company at the office of the Company located
                  at 10245 Centurion Parkway North, Jacksonville, Florida 32257
                  (or such other office or agency of the Company as it may
                  designate by notice to the Warrantholder at the address of
                  such Warrantholder appearing on the books of the Company)
                  during normal business hours on any day (a "Business Day")
                  other than a Saturday, Sunday or a day on which the New York
                  Stock Exchange is authorized to close or on which the Company
                  is otherwise closed for business (a "Nonbusiness Day") on or
                  after 9:00 A.M. New York City time on the Exercise Date but
                  not later than 5:00 P.M. on the Expiration Date (or 5:00 P.M.
                  on the next succeeding Business Day, if the Expiration Date is
                  a Nonbusiness Day);

                           (ii)     Delivery of payment to the Company in cash
                  or by certified or official bank check in New York Clearing
                  House Funds, of the Exercise Price for the number of Warrant
                  Shares specified in the Exercise Form (such payment may be
                  made by the Warrantholder directly or by a designated broker
                  pursuant to the broker-assisted cashless exercise program
                  instituted by the Company, subject to subsection 1.5 herein)
                  and

                           (iii)    Such documentation as to the identity and
                  authority of the Warrantholder as the Company may reasonably
                  request.

                  Such Warrant Shares shall be deemed by the Company to be
         issued to the Warrantholder as the record holder of such Warrant Shares
         as of the close of business on the date on which this Warrant shall
         have been surrendered and payment made for the Warrant Shares as
         aforesaid. Certificates for the Warrant Shares specified in the
         Exercise Form shall be delivered to the Warrantholder (or designated
         broker, as the case may be) as promptly as practicable, and in any
         event within 10 business days, thereafter. The stock certificates so
         delivered shall be in denominations of at least one thousand (1,000)
         shares each or such other denomination as may be specified by the
         Warrantholder and agreed upon by the Company, and shall be issued in
         the name of the Warrantholder or, if permitted by subsection 1.5 herein
         and in accordance with the provisions thereof, such other name as shall
         be designated in the Exercise Form. If this Warrant shall have been
         exercised only in part, the Company shall, at the time of delivery of
         the certificates for the Warrant Shares, deliver to the Warrantholder
         (or designated broker, as the case may

                                       2
<PAGE>

         be) a new Warrant evidencing the rights to purchase the remaining
         Warrant Shares, which new Warrant shall in all other respects be
         identical with this Warrant. No adjustments or payments shall be made
         on or in respect of Warrant Shares issuable on the exercise of this
         Warrant for any cash dividends paid or payable to holders of record of
         Common Stock prior to the date as of which the Warrantholder shall be
         deemed to be the record holder of such Warrant Shares.

                  (c)      Notwithstanding anything to the contrary in this
         Warrant, the Warrantholder hereby irrevocably agrees not to, directly
         or indirectly (i) sell, offer, contract to sell, sell any option or
         contract to purchase, purchase any option or contract to sell, grant
         any option right or warrant to purchase, transfer the economic risk of
         ownership in, make any short sale, pledge or otherwise dispose of this
         Warrant or the Warrant Shares, or (ii) enter into any swap or other
         arrangement that transfers to another, in whole or in part, any of the
         economic consequences of ownership of this Warrant or the Warrant
         Shares, whether any such transaction described in clause (i) or (ii)
         above is to be settled by delivery of this Warrant or the Warrant
         Shares, for a period commencing on the date hereof and, (A) with
         respect to 33 1/3% of the Warrant Shares, ending March 22, 2005, (B)
         with respect to an additional 33 1/3% of the Warrant Shares, ending
         March 22, 2006 and (C) with respect to the remaining 33 1/3% of the
         Warrant Shares, ending March 22, 2007.

                  Notwithstanding the foregoing: (a) if the Warrantholder is an
         individual, he or she may transfer this Warrant or the Warrant Shares
         either during his or her lifetime or on death (i) by gift, will or
         intestacy or (ii) to a member or members of his or her immediate family
         or to a partnership or trust, the partners or beneficiaries of which
         are exclusively the Warrantholder and/or a member or members of his or
         her immediate family and (b) if the Warrantholder is a partnership,
         trust, corporation or similar entity, it may distribute any such shares
         or securities to its partners or shareholders; provided, however, that
         in each such case, prior to any such transfer or distribution, each
         transferee or distributee shall execute an agreement, reasonably
         satisfactory to the Company, pursuant to which such transferee or
         distributee shall agree to receive and hold such Warrant or Warrant
         Shares, subject to the provisions hereof, and there shall be no further
         transfer except in accordance with the provisions hereof. For the
         purposes of this paragraph, "immediate family" shall mean spouse,
         domestic partner, lineal descendant, father, mother, brother or sister
         of the Warrantholder.

                  The Warrantholder understands that the Company is relying on
         this agreement in issuing this Warrant. The Warrantholder hereby waives
         any rights of the Warrantholder under any agreement, instrument or
         understanding to sell this Warrant or the Warrant Shares except in
         accordance with the terms of this Warrant.

                  The Warrantholder understands that this agreement is
         irrevocable and shall be binding upon the Warrantholder's heirs, legal
         representatives, successors and assigns.

                                       3
<PAGE>

         1.2      Limitation on Exercise. If this Warrant is not exercised prior
to 5:00 P.M. on the Expiration Date (or the next succeeding Business Day, if the
Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant issued
pursuant to subsection 1.1 herein, shall cease to be exercisable and shall
become void and all rights of the Warrantholder hereunder shall cease. This
Warrant shall not be exercisable, and no Warrant Shares shall be issued
hereunder, prior to 9:00 A.M. New York City time on the Exercise Date.

         1.3      Exercise Upon a Change of Control. At any time during the term
of this Warrant following a Change in Control (as defined below), this Warrant
shall immediately vest in its entirety with respect to the Warrantholder's right
to purchase all of the shares underlying the Warrant and may be exercised in
whole or in part for 90 days after a Change in Control. A "Change in Control"
shall be deemed to have occurred if:

                           (i)      Any person, other than the Company or an
                  employee benefit plan of the Company, acquires directly or
                  indirectly the Beneficial Ownership (as defined in Section
                  13(d) of the Securities and Exchange Act of 1934, as amended
                  (the" Exchange Act")) of any voting security of the Company
                  and immediately after such acquisition such Person is,
                  directly or indirectly, the Beneficial Owner of voting
                  securities representing 50% or more of the total voting power
                  of all of the then-outstanding voting securities of the
                  Company;

                           (ii)     At any time during any 12-month period, the
                  Board of Directors of the Company in office at the beginning
                  of such period shall have ceased to constitute a majority of
                  the Board of Directors without the approval of the nomination
                  of such directors by a majority of the Board of Directors
                  consisting of directors who were serving at the beginning of
                  such period;

                           (iii)    The stockholders of the Company shall
                  approve a merger, consolidation, recapitalization, or
                  reorganization of the Company, a reverse stock split of
                  outstanding voting securities, or consummation of any such
                  transaction if stockholder approval is not sought or obtained,
                  other than any such transaction which would result in at least
                  50% of the total voting power represented by the voting
                  securities of the surviving entity outstanding immediately
                  after such transaction being Beneficially Owned by at least
                  50% of the holders of outstanding voting securities of the
                  Company immediately prior to the transaction, with the voting
                  power of each such continuing holder relative to other such
                  continuing holders not substantially altered in the
                  transaction; or

                           (iv)     The stockholders of the Company shall
                  approve a plan of complete liquidation of the Company or an
                  agreement for the sale or disposition by the Company of more
                  than 50% of the total assets of the Company and its
                  subsidiaries.

         1.4      Payment of Taxes. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect

                                       4
<PAGE>

thereto; provided, however, that the Warrantholder shall be required to pay any
and all taxes which may be payable in respect to any transfer involved in the
issuance and delivery of any certificates for Warrant Shares in a name other
than that of the then Warrantholder as reflected upon the books of the Company.

         1.5      Transfer Restriction and Legend.

                  (a)      Without limiting the generality of the foregoing,
         neither this Warrant nor any of the Warrant Shares, nor any interest or
         participation in either, may be in any manner transferred or disposed
         of, in whole or in part, except in compliance with applicable United
         States federal and state securities laws.

                  (b)      Each certificate for Warrant Shares and any Warrant
         issued at any time in exchange or substitution for any Warrant bearing
         such a legend shall bear a legend similar in effect to the foregoing
         paragraph unless, in the opinion of counsel for the Company, the
         Warrant and the Warrant Shares need no longer be subject to the
         restriction contained herein. The provisions of this subsection 1.5
         shall be binding upon all subsequent holders of this Warrant and the
         Warrant Shares, if any. Warrant Shares transferred to the public as
         expressly permitted by, and in accordance with, the provisions of this
         Warrant shall thereafter cease to be deemed to be "Warrant Shares" for
         purposes hereof.

         1.6      Divisibility of Warrant. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon surrender at
the principal office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. The Warrantholder will be charged for
reasonable out-of-pocket costs incurred by the Company in connection with the
division of this Warrant into Warrants representing fewer than one thousand
(1,000) Warrant Shares. Upon any such division, and, if permitted by subsection
1.5(b) herein and in accordance with the provisions thereof, the Warrants may be
transferred of record to a name other than that of the Warrantholder of record;
provided, however, that the Warrantholder shall be required to pay any and all
transfer taxes with respect thereto.

         1.7      Reservation and Listing of Shares, Etc. All Warrant Shares
which are issued upon the exercise of the rights represented by this Warrant
shall, upon issuance and payment of the Exercise Price, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof other than
taxes in respect of any transfer occurring contemporaneously with such issue.
During the period within which this Warrant may be exercised, the Company shall
at all times have authorized and reserved, and keep available free from
preemptive rights, a sufficient number of shares of Common Stock to provide for
the exercise of this Warrant, and shall at its expense use its best efforts to
procure such listing thereof (subject to official notice of issuance) as then
may be required on all stock exchanges on which the Common Stock is then listed
or on the New York Stock Exchange. The Company shall, from time to time, take
all such action as may be required to assure that the par value per share of the
Warrant Shares is at all times equal to or less than the then effective Exercise
Price.

                                       5
<PAGE>

         1.8      Exchange, Loss or Destruction of Warrant. If permitted by
subsections 1.5 or 1.6 herein and in accordance with the provisions thereof,
upon surrender of this Warrant to the Company with a duly executed instrument of
assignment and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant of like tenor in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in the case
of loss, theft or destruction, of such bond or indemnification as the Company
may reasonably require, and, in the case of such mutilation, upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor. The term "Warrant" as used herein includes any Warrants issued in
substitution or exchange of this Warrant.

         1.9      Ownership of Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in subsections 1.1 and 1.5 or in Section 3 herein.

         1.10     Certain Adjustments. The Exercise Price at which Warrant
Shares may be purchased hereunder, and the number of Warrant Shares to be
purchased upon exercise hereof, are subject to change or adjustment as follows:

         The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:

                  In case the Company shall (i) pay a dividend in shares of
         Common Stock or make a distribution in shares of Common Stock (ii)
         subdivide its outstanding shares of Common Stock into a greater number
         of shares of Common Stock, (iii) combine its outstanding shares of
         Common Stock into a smaller number of shares of Common Stock or (iv)
         issue by reclassification of its shares of Common Stock other
         securities of the Company (including any such reclassification in
         connection with a consolidation or merger in which the Company is the
         surviving corporation), the number of Warrant Shares purchasable upon
         exercise of this Warrant shall be adjusted so that the Warrantholder
         shall be entitled to receive the kind and number of Warrant Shares or
         other securities of the Company which he would have owned or have been
         entitled to receive after the happening of any of the events described
         above, had this Warrant been exercised immediately prior to the
         happening of such event or any record date with respect thereto. An
         adjustment made pursuant to this paragraph (a) shall become effective
         immediately after the effective date of such event retroactive to the
         record date, if any, for such event.

         2.       Voluntary Adjustment by the Company. The Company may, at its
option, at any time during the term of the Warrants, reduce the then current
Exercise Price to any amount, consistent with applicable law, deemed appropriate
by the Board of Directors of the Company in its sole discretion.

                                       6
<PAGE>

         3.       Notice of Adjustment. Whenever the number of Warrant Shares or
the Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail first class, postage prepaid, to all Warrantholders,
notice of such adjustment.

         4.       No Adjustment for Cash Dividends. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.

         5.       Preservation of Purchase Rights Upon Merger, Consolidation,
etc. In case of any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all of the property of the Company, the
Company or such successor or purchasing corporation, as the case may be, shall
execute with the Warrantholders an agreement that the Warrantholders shall have
the right thereafter upon payment of the Exercise Price in effect immediately
prior to such action to purchase upon exercise of this Warrant the kind and
amount of shares and other securities and property which such holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had this Warrant been exercised
immediately prior to such action; provided, however, that no adjustment in
respect of cash dividends, interest or other income on or from such shares or
other securities and property shall be made during the term of this Warrant or
upon the exercise of this Warrant. Such agreement shall provide for adjustments,
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 5. The provisions of this Section 5 shall apply similarly to
successive consolidations, mergers, sales, transfers or leases.

         6.       Registration Rights. The Company shall use commercially
reasonable efforts to file a registration statement covering the Warrant Shares
on a Form S-3 or other applicable registration statement on or prior to June 21,
2005. The Company shall use commercially reasonable efforts to keep such Form
S-3 or other applicable registration statement current and effective until the
earlier of the Expiration Date or the date this Warrant has been exercised in
full.

         The Company shall have sole control in connection with the preparation,
filing, amending and supplementing of any registration statement, including the
right to withdraw the same or delay the effectiveness thereof when, in the sole
judgment of the Board of Directors of the Company, the pendency of such
registration statement or the effectiveness thereof would impose an undue burden
upon the ability of the Company to proceed with any other material financing for
its own account or any material corporate transaction, including, but not
limited to, a reorganization, recapitalization, merger, consolidation or
material acquisition of the securities or assets of another firm or corporation;
and the Company shall be required to file a new registration statement or to
proceed with such actions as reasonably may be required to cause the
registration statement to become effective within a reasonable time after the
consummation of the event or transaction which required such withdrawal or
delay.

         7.       Miscellaneous.

         7.1      Entire Agreement. This Warrant constitutes the entire
agreement between the

                                       7
<PAGE>

Company and the Warrantholder with respect to this Warrant and the Warrant
Shares.

         7.2      Binding Effects; Benefits. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholder and holders
of Warrant Shares and their respective heirs, legal representatives, successors
and assigns. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company, the Warrantholders and
holders of Warrant Shares, or their respective heirs, legal representatives,
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant or the Warrant Shares.

         7.3      Amendments and Waivers. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and
Warrantholders that hold Warrants entitling them to purchase at least 50% of the
Warrant Shares. The Company, any Warrantholder or holders of Warrant Shares may,
by an instrument in writing, waive compliance by the other party with any term
or provision of this Warrant on the part of such other party hereto to be
performed or complied with. The waiver by any such party of a breach of any term
or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.

         7.4      Section and Other Headings. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.

         7.5      Further Assurances. Each of the Company, the Warrantholders
and holders of Warrant Shares shall do and perform all such further acts and
things and execute and deliver all such other certificates, instruments and/or
documents (including without limitation, such proxies and/or powers of attorney
as may be necessary or appropriate) as any party hereto may, at any time and
from time to time, reasonably request in connection with the performance of any
of the provisions of this Warrant.

         7.6      Notices. All demands, requests, notices and other
communications required or permitted to be given under this Warrant shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by United States certified or registered first class mail, postage prepaid,
to the parties hereto at the following addresses or at such other address as any
party hereto shall hereafter specify by notice to the other party hereto:

                  (a)      If to the Company, addressed to:

                                    Sunset Financial Resources, Inc.
                                    10245 Centurion Parkway North
                                    Jacksonville, Florida  32257
                                    Attention:

                  (b)      If to any Warrantholder or holder of Warrant Shares,
         addressed to the address of such person then appearing on the books of
         the Company.

                                       8
<PAGE>

         Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received on the
date of personal delivery thereof or on the third Business Day after the mailing
thereof.

         7.7      Separability. Any term or provision of this Warrant that is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any other term or provision of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.

         7.8      Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the current market price (as determined as of the date of
exercise, and with reference to the applicable trading market, in accordance
with paragraph (d) of subsection 5.1 herein) of a share of such stock as of the
date of such exercise.

         7.9      Rights of the Holder. The Warrantholder shall not, solely by
virtue of this Warrant, be entitled to any rights of a stockholder of the
Company, either at law or in equity.

         7.10     Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of Maryland and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and performed in Maryland.

         7.11     Effect of Stock Splits, etc. Whenever any rights under this
Agreement are available only when at least a specified minimum number of Warrant
Shares is involved, such number shall be appropriately adjusted to reflect any
stock split, stock dividend, combination of securities into a smaller number of
securities or reclassification of stock.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       9
<PAGE>

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

                                               SUNSET FINANCIAL RESOURCES, INC.

                                               By: /s/ JOHN BERT WATSON
                                                   -----------------------
                                                   John Bert Watson
                                                   Chairman, President and
                                                   Chief Executive Officer

Dated: March 22, 2004

ACCEPTED AND AGREED:

SAPPHIRE ADVISORS LLC

By: /s/ SCOTT J. SILVER
   ------------------------
     Scott J. Silver
     Managing Partner

                                       10
<PAGE>

                                  EXERCISE FORM

                 (To be executed upon exercise of this Warrant)

                  The undersigned, the record holder of this Warrant, hereby
irrevocably elects to exercise the right, represented by this Warrant, to
purchase __________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order of SUNSET FINANCIAL RESOURCES, INC., in the amount
of $_______ in accordance with the terms of this Warrant. The undersigned
requests that a certificate for such Warrant Shares be registered in the name of
_________________________________ and that such certificate be delivered to
_________________________ whose address is ____________________________________.

Date _________________                     Signature _________________________

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