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Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF
ANY
STATE OF THE UNITED STATES (COLLECTIVELY, THE "ACTS"). THE
SECURITIES MAY NOT BE SOLD, DISTRIBUTED, OFFERED, PLEDGED,
ENCUMBERED,
ASSIGNED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF THE FOLLOWING:
(1)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
ACTS
COVERING THE TRANSACTION, (2) THE COMPANY RECEIVES AN OPINION
OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION
IS NOT REQUIRED UNDER THE ACTS, OR (3) THE COMPANY OTHERWISE
SATISFIES
ITSELF THAT REGISTRATION IS NOT REQUIRED UNDER THE ACTS.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
THIS CONVERTIBLE NOTE IS SUBJECT TO THE TERMS OF THAT CERTAIN
SUBORDINATION AGREEMENT, DATED AS OF FEBRUARY 4, 2004, BY AND
BETWEEN
LASALLE BUSINESS CREDIT, LLC AND TATE CAPITAL PARTNERS FUND, LLC.
ANY
TRANSFEREE OR ASSIGNEE OF THE HOLDER OF THIS NOTE WILL BE BOUND BY
ALL
OF THE TERMS AND CONDITIONS OF SUCH SUBORDINATION AGREEMENT UPON
ANY
SUCH TRANSFER OR ASSIGNMENT.
DELPHAX TECHNOLOGIES INC.
7% CONVERTIBLE SUBORDINATED NOTE
DUE: FEBRUARY 4, 2008
$3,000,000
February 4, 2004
For value received, the undersigned, Delphax Technologies Inc.,
a
Minnesota corporation (the "Company"),
hereby promises to pay to the order of
Tate Capital Partners Fund, LLC ("Tate")
(or his, her or its assignee so long as
such assignee is (i) an Investor named on
the signature pages to the Purchase
Agreement (as hereinafter defined) or (ii)
a partner or affiliate of Tate), at
its principal office in the City of
Minnetonka, Minnesota, the principal sum of
Three Million Dollars and no cents
($3,000,000) (the "Face Amount") in lawful
money of the United States on February 4,
2008 (the "Maturity Date"), together
with interest thereon, as more fully
provided below.
This Convertible Subordinated Note (the "Convertible Note") shall
bear
annual interest (the "PIK Interest") at a
fixed rate of 7% of the unpaid Face
Amount, payable quarterly as of the
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first business day of each calendar quarter
in arrears only in shares of common
stock, par value $.10 per share (the
"Common Stock"), of the Company (the "PIK
Interest Shares"), which number of shares
shall be determined by dividing the
monetary value of the accrued interest due
on the unpaid Face Amount for the
relevant quarterly period by the Initial
Conversion Price (as hereinafter
defined). The Company agrees to provide
notice to the Investors at least three
business days prior to the issuance of any
PIK Interest Shares.
This Convertible Note has been issued under the terms and
provisions of
a Securities Purchase Agreement (the
"Purchase Agreement"), dated as of the date
hereof, among the Company and the Investors
named on the signature pages
thereto.
Upon the occurrence of any one or more of the Events of Default
specified in Article VIII of the Purchase
Agreement, all amounts then remaining
unpaid on this Convertible Note, including
any accrued but unpaid PIK Interest,
may be declared to be or shall become
immediately due and payable as provided in
the Purchase Agreement.
No pre-payment of any of the Face Amount of this Convertible Note
may
be made except as provided in paragraph 8
hereof.
This Convertible Note is subject to the following additional
provisions, terms and conditions:
1.
RIGHT TO CONVERT.
Subject to paragraph 3 hereof, the Face Amount of this Convertible
Note
shall be convertible at the option of the
Investor, in whole or in part, at any
time prior to the Maturity Date into such
number of fully paid and
non-assessable shares of Common Stock of
the Company as is determined by
dividing the Face Amount of this
Convertible Note or the portion that is being
converted by the "Initial Conversion Price"
of $3.20 per share. Until such time
as this Convertible Note is converted or
paid off, the Initial Conversion Price
is subject to adjustment as hereinafter
provided, except that if the Company
exercises its option to redeem the
Convertible Note as provided for in paragraph
8 below (and payment is made or provided
for on the proposed redemption date),
then only the portion of the Convertible
Note that was not redeemed may be
converted.
2.
CONVERSION PROCEDURE.
(a) Before any
holder of this Convertible Note shall be entitled
to convert the same into shares of Common
Stock, such holder shall surrender the
instrument or instruments therefor, duly
endorsed, at the office of the Company
or its transfer agent, and shall give
written notice to the Company at its
principal corporate office, of the election
to convert the same and shall state
therein the name or names in which the
certificate or certificates for shares of
Common Stock are to be issued. A
Convertible Note so delivered shall be deemed
to have been converted on the day of
surrender of this Convertible Note for
conversion in accordance with the foregoing
provisions, and at such time the
rights of the holder of this Convertible
Note to be converted, as such holder,
shall cease and such holder shall be
treated for all purposes as the record
holder of
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the Common Stock of the Company issuable
upon conversion. Within five business
days of the conversion date, the Company or
its transfer agent shall issue a
certificate or certificates for the number
of full shares of Common Stock
issuable upon conversion, together with, in
the event this Convertible Note is
being converted in part only, a new
Convertible Note representing the Face
Amount hereof which shall not have been
converted.
(b) Upon
receipt of a certificate or certificates for the number
of full shares of Common Stock issuable
upon conversion as herein provided, this
Convertible Note shall no longer be deemed
to be outstanding and all rights with
respect to this Convertible Note shall
immediately cease and terminate other
than the right of the Investor to receive
Common Stock (and, in the event of a
partial conversion, a new Convertible Note
representing the Face Amount hereof
which shall not have been converted) in
exchange therefor. This Convertible Note
shall then be cancelled.
3.
INITIAL CONVERSION PRICE ADJUSTMENTS OF CONVERTIBLE NOTE FOR
CERTAIN DILUTIVE ISSUANCES, SPLITS AND
COMBINATIONS.
The Initial Conversion Price of the Convertible Note shall be
subject
to adjustment from time to time as
follows:
(i) Upon each
adjustment of the conversion price, the
holder of this Convertible Note shall thereafter be entitled to
receive
the number of shares obtained by multiplying the conversion price
in
effect immediately prior to such adjustment by the number of
shares
issuable pursuant to conversion immediately prior to such
adjustment,
and dividing the product thereof by the conversion price resulting
from
such adjustment.
(ii)
Except for (a) options to purchase shares of Common
Stock and the issuance of awards of Common Stock pursuant to
key
employee, director and consultant benefit plans adopted by the
Company
and except for shares of Common Stock issued upon the exercise of
such
options granted pursuant to such plans (provided that the
aggregate
number of shares thus awarded and covered by unexercised options
and
thus issued pursuant to such options shall not be in excess of
500,000
shares (appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar changes));
and
(b) issuances of securities as set forth in Section 4.13(b)(ii) of
the
Purchase Agreement, if at any time during the first 12 months
following
the date of closing of the transactions contemplated by the
Purchase
Agreement, the Company shall issue or sell any shares of its
Common
Stock or Convertible Securities (as hereinafter defined) for a
consideration per share less than the conversion price in
effect
immediately prior to the time of such issue or sale, then,
forthwith
upon such issue or sale, the conversion price shall be reduced to
the
price (calculated to the nearest cent) determined by dividing (A)
an
amount equal to the sum of (1) the number of shares of Common
Stock
outstanding immediately prior to such issue or sale multiplied by
the
conversion price
then in effect, and (2) the consideration, if any,
received by the Company upon such issue or sale, by (B) an
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amount equal to the sum of (1) the number of shares of Common
Stock
outstanding immediately prior to such issue or sale and (2) the
number
of shares of Common Stock thus issued or sold.
(iii) For
the purposes of paragraph (ii), the following
provisions (A) to (E), inclusive, shall also be applicable:
(A) In case at
any time during the first 12
months following the date of closing of the transactions
contemplated by the Purchase Agreement, the Company shall
grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, (aa) Common Stock or (bb) any
obligations or
any shares of stock of the Company which are
convertible into or exchangeable for Common Stock (any of such
obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or
options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the
exercise of such rights or options or upon conversion or
exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable
by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of such
rights or options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the
conversion price in effect immediately prior to the time of
the granting of such rights or options, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such rights or options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable
upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to have
been issued for such price per share. Except as provided in
paragraph (vi) below, no further adjustments of the conversion
price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
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(B) In case
the Company shall issue or sell
(whether directly or by assumption in a merger or otherwise),
during the first 12 months following the date of closing of
the transactions contemplated by the Purchase Agreement, any
Convertible Securities, whether or not the rights to exchange
or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (aa) the total
amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange
thereof, by (bb) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the conversion
price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to
have
been issued for such price per share, provided that (x)
except as provided in paragraph (vi) below, no further
adjustments of the conversion price shall be made upon the
actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and (y) if any such issue or
sale of such Convertible Securities is made upon exercise of
any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments
of the conversion price have been or are to be made pursuant
to other provisions of this paragraph (iii), no further
adjustment of the conversion price shall be made by reason of
such issue or sale.
(C) In case
any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for cash during the first 12 months following
the date of closing of the transactions contemplated by the
Purchase Agreement, the consideration received therefor shall
be deemed to be the amount received by the Company therefor,
without deduction therefrom of any expenses incurred or any
underwriting commissions, discounts or concessions paid or
allowed by the Company in connection therewith. In case any
shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the
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fair value of such consideration as determined in good faith
by the Board of Directors of the Company, without deducting
therefrom of any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or options to
purchase such Common Stock or Convertible Securities shall be
issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the
Company of such portion of the assets and business of the
non-surviving corporation or corporations as such Board shall
determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the
event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in the event
of any sale of all or substantially all of the assets of the
Company for stock or other securities of any other
corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for
a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment
of the conversion price, the determination of the number of
shares of Common Stock issuable upon conversion immediately
prior to such merger, conversion or sale, for purposes of
paragraph (vii) below, shall be made after giving effect to
such adjustment of the conversion price.
(D) In case
the Company shall, during the first
12 months following the date of closing of the transactions
contemplated by the Purchase Agreement, take a record of the
holders of its Common Stock for the purpose of entitling them
(aa) to receive a dividend or other distribution payable in
Common Stock or in Convertible Securities, or in any rights or
options to purchase any Common Stock or Convertible
Securities, or (bb) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such rights of
subscription or purchase, as the case may be.
(E) The number
of shares of Common Stock
outstanding at any given time shall not include shares owned
or
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held by or for the account of the Company, and the disposition
of any
such shares shall be considered an issue or sale of
Common Stock for the purposes of this paragraph (iii).
(iv)
In case the Company shall (A) declare a dividend upon
the Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common
Stock, as described in paragraph (v) below) or Convertible
Securities,
or in any rights or options to purchase Common Stock or
Convertible
Securities, or (B) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out
of
earnings or earned surplus, then thereafter the holder of this
Convertible Note upon the conversion hereof will be entitled to
receive
the number of shares of Common Stock to which such holder shall
be
entitled upon such conversion, and, in addition and without
further
payment therefor, (1) each dividend described in clause (A) above
and
(2) each dividend or distribution described in clause (B) above
which
such holder would have received by way of dividends or
distributions if
continuously since such holder became the record holder of this
Convertible Note such holder (A) had been the record holder of
the
number of shares of Common Stock then received, and (B) had
retained
all dividends or distributions in stock or securities (including
Common
Stock or Convertible Securities, and any rights or options to
purchase
any Common Stock or Convertible Securities) payable in respect of
such
Common Stock or in respect of any stock or securities paid as
dividends
or distributions and originating directly or indirectly from
such
Common Stock. For the purposes of the foregoing, a dividend or
distribution other than in cash shall be considered payable out
of
earnings or earned surplus only to the extent that such earnings
or
earned surplus are charged an amount equal to the fair value of
such
dividend or distribution as determined by the Board of Directors of
the
Company.
(v) In case
the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares,
the
conversion price in effect immediately prior to such subdivision
shall
be proportionately reduced, and conversely, in case the
outstanding
shares of Common Stock of the Company shall be combined into a
smaller
number of shares, the conversion price in effect immediately prior
to
such combination shall be proportionately increased.
(vi)
If (A) the purchase price provided for in any right
or option referred to in clause (A) of paragraph (iii), or (B)
the
additional consideration, if any, payable upon the conversion
or
exchange of Convertible Securities referred to in clause (A) or
clause
(B) of paragraph (iii), or (C) the rate at which any
Convertible
Securities referred to in clause (A) or clause (B) of paragraph
(iii)
are convertible into or exchangeable for Common Stock shall change
at
any time
(other than under or by reason of provisions designed to
protect against dilution), the conversion price then in effect
shall
forthwith be increased or decreased to such conversion price
which
would have obtained had the adjustments made upon the issuance of
such
rights, options or Convertible Securities been made upon the
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basis of (A) the issuance of the number of shares of Common
Stock
theretofore actually delivered upon the exercise of such options
or
rights or upon the conversion or exchange of such Convertible
Securities, and the total consideration received therefor, and (B)
the
issuance at the time of such change of any such options, rights
or
Convertible Securities then still outstanding for the
consideration, if
any, received by the Company therefor and to be received on the
basis
of such changed price; and on the expiration of any such option
or
right or the termination of any such right to convert or exchange
such
Convertible Securities, the conversion price then in effect
hereunder
shall forthwith be increased to such conversion price which would
have
obtained had the adjustments made upon the issuance of such rights
or
options or Convertible Securities been made upon the basis of
the
issuance of the shares of Common Stock theretofore actually
delivered
(and the total consideration received therefor) upon the exercise
of
such rights or options or upon the conversion or exchange of
such
Convertible Securities. If the purchase price provided for in any
such
right or option referred to in clause (A) of paragraph (iii) or
the
rate at which any Convertible Securities referred to in clause (A)
or
clause (B) of paragraph (iii) are convertible into or exchangeable
for
Common Stock shall decrease at any time under or by reason of
provisions with respect thereto designed to protect against
dilution,
then in case of the delivery of Common Stock upon the exercise of
any
such right or option or upon conversion or exchange of any such
Convertible Security, the conversion price then in effect
hereunder
shall forthwith be decreased to such conversion price as would
have
obtained had the adjustments made upon the issuance of such
right,
option or Convertible Securities been made upon the basis of
the
issuance of (and the total consideration received for) the shares
of
Common Stock delivered as aforesaid.
(vii) If
any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of
the
Company with another corporation, or the sale of all or
substantially
all of its assets to another corporation shall be effected in such
a
way that holders of Common Stock shall be entitled to receiv
