Document:

Exhibit 10.5

THE INDEBTEDNESS EVIDENCED HEREBY HAS BEEN SUBORDINATED IN FAVOR OF HARLAND CLARKE CORP., SUCCESSOR TO WELLS FARGO BANK, NATIONAL ASSOCIATION (ACTING THROUGH ITS WELLS FARGO BUSINESS CREDIT OPERATING DIVISION), AND SCANTRON CANADA LTD., SUCCESSOR TO WELLS FARGO FINANCIAL CORPORATION CANADA, PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 10, 2007, AS AMENDED.  THE RIGHTS AND INTERESTS OF ANY HOLDER, TRANSFEREE OR PARTY CLAIMING ANY INTEREST UNDER OR AS A RESULT OF THIS INSTRUMENT, ARE SUBJECT TO ALL TERMS OF THE REFERENCED AGREEMENT

DELPHAX TECHNOLOGIES CANADA LIMITED

12% AMENDED AND RESTATED SECURED SUBORDINATED NOTE

Due: September 10, 2012

	
$7,000,000
	 	
November 26, 2008

For value received, the undersigned, Delphax Technologies Canada Limited, a corporation duly incorporated under the laws of the Province of Ontario (the "Company"), hereby promises to pay to the order of Harland Clarke Corp. ("Harland Clarke"), at its principal office in the City of San Antonio, Texas, the principal sum of Seven Million dollars and no cents ($7,000,000) (the "Face Amount") in lawful money of the United States on September 10, 2012 (the "Maturity Date"), together with interest thereon, as more fully provided below.

This 12% Secured Subordinated Note (the "Note") shall bear annual interest at a fixed rate of 12% per annum of the unpaid Face Amount, payable quarterly in arrears in lawful money of the United States on the first business day of each calendar quarter; provided, however, that the Company may elect to pay interest at the rate of 9% in cash (in lawful money of the United States) and interest at the rate of 3% (the "PIK Interest Portion") by delivery of shares of Common Stock, par value $.l0 per share, of Delphax Technologies, Inc., a Minnesota corporation ("Parent"), which number of shares shall be determined by dividing the monetary value of the PIK Interest Portion of the accrued interest due on the unpaid Face Amount for the relevant quarterly period by the Market Price of the Common Stock as of the interest payment date unless at the time of such interest payment (a) during any period that Parent is not a publicly traded company, Harland Clarke is already the owner of 19.9% of the then outstanding Common Stock (or delivery of shares in accordance with the terms of this provision would cause Harland Clarke to own more than 19.9% of Parent's then outstanding Common Stock), or (b) during any period that Parent is a publicly traded company, Harland Clarke is already the owner of 4.99% of the then outstanding Common Stock (or delivery of shares in accordance with the terms of this provision would cause Harland Clarke to own more than 4.99% of Parent's then outstanding Common Stock), .

"Market Price" shall mean, if the Common Stock is traded on a securities exchange or on the NASDAQ National Market, the average of the closing prices of the Common Stock on such exchange or the NASDAQ National Market on the 20 trading days ending on the trading day prior to the date of determination, or, if the Common Stock is otherwise traded in the over-the-counter market, the average of the closing bid prices on the 20 trading days ending on the trading day prior to the date of determination.  If at any time the Common Stock is not traded on an exchange or the NASDAQ National Market, or otherwise traded in the over-the-counter market, the Market Price shall be deemed to be the higher of the book value thereof as determined by any firm of independent public accountants of recognized standing selected by the Board of Directors of Delphax as of the last day of any month ending within 60 days preceding the date as of which the determination is to be made, or the fair value thereof determined in good faith by the Board of Directors of Delphax as of a date which is within 15 days of the date as of which the determination is to be made.  

This Note has been issued under the terms and provisions of a Securities Purchase Agreement (the "Purchase Agreement"), dated as of March 26, 2007, among the Company, Parent, and Harland Clarke, as successor in interest to the Investors named on the signature pages thereto.  Capitalized terms used herein and not otherwise defined have the meanings set forth in the Purchase Agreement.

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 Note, including any accrued but unpaid interest, may be declared to be or shall become immediately due and payable as provided in the Purchase Agreement.

No pre-payment by the Company of any of the Face Amount of this Note may be made except as provided in paragraph 1 hereof.  

All payments hereunder shall be made free and clear of and without reduction for any taxes as set forth in Section 1.7 of the Purchase Agreement.  This Note is subject to the following additional provisions, terms and conditions:

	Prepayment Upon Change in Control.

	The Company shall give the holder of this Note written notice of an impending transaction that would constitute a Change of Control (as hereinafter defined) not later than 20 days prior to the shareholders' meeting called to approve such transaction, or 20 days prior to the closing of such transaction, whichever is earlier, and shall also notify such holder in writing of the final approval of such transaction.  The first of such notices shall give the proposed effective date of the transaction (the "Effective Date"), shall describe the material terms and conditions of the transaction and of this paragraph 1(a), and shall contain an offer by the Company to prepay this Note at 120% of the outstanding unpaid Face Amount, plus all unpaid interest accrued thereon to the prepayment date (the "Change of Control Prepayment Offer").  The Company shall thereafter give such holder prompt notice of any material changes to such terms and conditions.  Notwithstanding anything to the contrary herein, the outstanding Face Amount of this Note may not be prepaid by the Company following the delivery of the first notice delivered pursuant to this paragraph 1(a) except in an amount equal to 120% of the outstanding unpaid Face Amount, plus all unpaid interest accrued thereon to the prepayment date.  The Change of Control transaction shall in no event take place sooner than 20 days after the mailing by the Company of the first notice provided for herein or sooner than 10 days after the mailing by the Company of any notice of material changes provided for herein.

Any election by the holder of this Note to accept the Change in Control Prepayment Offer shall be made by the holder hereof giving written notice thereof to the Company at least 5 days before the Effective Date.  Upon receipt of such notice, the Company shall, on the Effective Date, prepay this Note in whole (but not in part) at 120% of the outstanding unpaid Face Amount, plus all unpaid interest accrued thereon to the Effective Date.

For purposes of this Note, a "Change in Control" shall be deemed to occur if any of the following occur:

	Approval by the shareholders of Parent of a reorganization, merger or consolidation of Parent or a statutory exchange of outstanding securities entitled to vote generally in the election of directors ("Voting Securities") of Parent, unless, immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and shares of Parent immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 50% of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation that is the issuer of such securities held by the shareholders of Parent after such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of the Voting Securities and shares of Parent, as the case may be;

	Approval by the shareholders of Parent of (x) a complete liquidation or dissolution of Parent or (y) the sale or other disposition of all or substantially all of the assets of Parent (in one or a series of transactions), where such sale or other disposition includes at least a majority of the shares of the Company held by Parent; or

	Approval by the shareholders of the Company of (x) a complete liquidation or dissolution of the Company, or (y) the sale or other disposition of all or substantially all the assets of the Company (in one or a series of transactions).

	In the event that the holder hereof fails to accept the Change in Control Prepayment Offer as provided for herein at least 5 days before the Effective Date, then the Change in Control Prepayment Offer shall be deemed to be null and void, and the holder hereof shall be deemed to have irrevocably waived its right to accept the Change in Control Prepayment Offer and the Change in Control Prepayment Offer shall be of no further force or effect.  

	Ranking; Subordination.

	The Company agrees, and the holder hereof by such holder's acceptance hereof likewise agrees, that anything herein to the contrary notwithstanding, the indebtedness evidenced by this Note and the Guaranty shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to the Company's and the Parent's current Senior Debt in an aggregate principal amount not to exceed $14,500,000, a list of the existing Senior Debt outstanding as of the date hereof is attached hereto as Schedule 2(a)(l); on par in right of payment with the other Notes and all of the Company's and Parent's other Indebtedness for Borrowed Money (as defined in the Purchase Agreement) outstanding as of the date hereof, other than Senior Debt (the "Parity Debt"), a list of the Parity Debt is attached hereto as Schedule 2(a)(2); and senior in right of payment to all of the Company's future Indebtedness for Borrowed Money, except Senior Debt, any additional Notes, and indebtedness permitted by Section 4.19(iii) of the Purchase Agreement.

	In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, readjustment, reorganization or other similar proceedings in connection therewith, relative to the Company or to its creditors, as such, or to its property, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt shall be entitled to receive payment in full of all principal and interest on all Senior Debt before the holder of this Note is entitled to receive any payment on account of principal or interest on this Note, and to that end (but subject to the power of a court of competent jurisdiction to make other equitable provisions reflecting the rights conferred in this Note upon the Senior Debt and the holders thereof with respect to the indebtedness evidenced by this Note and the holder thereof by a lawful plan of reorganization under applicable bankruptcy law) the holders of Senior Debt shall be entitled to receive by application in payment thereof any payment or distribution of cash, property or securities (excepting only interest payments in the form of equity securities of Parent) that may be payable or deliverable in any such proceedings in respect of this Note, including any such payment or distribution which may be payable or deliverable by virtue of the provisions of any indebtedness which is subordinate and junior in right of payment to this Note, except securities which are subordinate in right of payment to the payment of the Senior Debt.

	If there occurs a default in the payment of or in the performance of any other terms or obligations of any or all such Senior Debt, or in the instrument under which any Senior Debt is outstanding, permitting the holder of such Senior Debt to accelerate the maturity thereof, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Debt shall have been satisfied, no payment shall be made in respect of the principal of or interest on the indebtedness evidenced by this Note (excepting only interest payments in the form of equity securities of Parent), unless within three months after the happening of such event of default, the maturity of such Senior Debt shall not have been accelerated.

	In the event the holder hereof receives any payment or property on this Note in violation of the terms hereof, the holder hereof will hold the same in trust for, and forthwith pay over or deliver the same to, the holders of the Senior Debt to be applied pro rata on such Senior Debt whether or not the same then be due.  If holders of Senior Debt shall receive any payment or distribution of cash, property or securities after the payment in full in cash of all Senior Debt, the Company shall cause the holders of Senior Debt to hold the same in trust for, and forthwith pay over or deliver the same to, the party or parties legally entitled thereto.

	Upon the payment in full of all Senior Debt, the holder of this Note shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until the principal and interest on this Note shall be paid in full; and for the purposes of such subrogation, no payments or distributions to the holders of Senior Debt of any cash, property or securities to which the holders of this Note would be entitled except for the subordination provisions of this Note shall, as between the Company, its creditors other than the holders of Senior Debt, and the holder of this Note, be deemed to be a payment by the Company to or on account of Senior Debt.

	No present or future holder of Senior Debt shall be prejudiced in such holder's right to enforce the subordination of this Note by any act or failure to act on the part of the Company or the holder of this Note.  The foregoing provisions as to subordination are solely for the purpose of defining the relative rights of the holders of the Senior Debt on the one hand, and the holder of this Note on the other hand, and none of such provisions shall impair, as between the Company and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal and interest thereon, in accordance with the terms hereof, nor shall any such provisions prevent any holder of this Note from exercising all remedies otherwise permitted by applicable law or under the terms of this Note or the Purchase Agreement upon default thereunder, subject to the rights, if any, under the foregoing provisions, of holders of Senior Debt to receive cash, property or securities otherwise payable or deliverable to the holder of this Note.

	The Company covenants and agrees that so long as this Note remains outstanding, or any liabilities (whether direct or contingent, liquidated or unliquidated) of the Company to the holder hereof remain outstanding, and until payment in full of all obligations of the Company to such holder, the Company will not, create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several ("Future Debt"), unless the Company causes each holder of the Future Debt to execute a subordination agreement in the form acceptable to the holder hereof.  This paragraph 2(g) shall not apply to any indebtedness, liabilities or obligations of the Company to the holder; (b) any indebtedness, liabilities or obligations of the Company specified in Schedule 2(a)(l) or Schedule 2(a)(2); (c) any refinancing of any of the indebtedness, liabilities or obligations of the Company specified in Schedule 2(a)(l) (provided, however that such refinancing is completed with a commercial bank or other commercial lender and does not prejudice the rights of the holder hereof to exercise and the Company to timely pay in cash the Call Option, the Change in Control Put Option or to be paid at the term of this Note); (d) any Senior Debt incurred by the Company in the future to a commercial bank or other commercial lender subject to the limitations in Section 4.19 of the Purchase Agreement, which indebtedness, liabilities or obligations do not prejudice the rights of the holder hereof to exercise and the Company to timely pay in cash the Call Option, the Change in Control Put Option or to be paid at the term of this Note; and (e) indebtedness, liabilities or obligations incurred by the Company in the ordinary course of business subject to the limitations in Section 4.19 of the Purchase Agreement.

	This Note is subject to the terms of the Subordination Agreements described in the caption on the first page hereof.  To the extent there is any conflict between the provisions of this paragraph 2 and the Subordination Agreements, the Subordination Agreements shall control.  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.

	Notwithstanding anything to the contrary in this paragraph 2, the Company may pay interest in the form of Delphax Common Stock as permitted hereunder.

	Other Agreements.  The Company covenants and agrees that the holder of this Note shall have the rights of an Investor under the Purchase Agreement.  This Note is secured by the Security Documents referred to in the Purchase Agreement and guaranteed by Delphax pursuant to the Guaranty.

	Amendment and Restatement. 

This Note is given in substitution and exchange for the 12% Secured Subordinated Note dated September 10, 2007 in the original principal amount of $7,000,000.00 given by the Company in favor of Whitebox Delphax, Ltd. and any prior restatements thereof (collectively, the "Old Note"), and shall not be deemed a novation or to have paid, terminated, extinguished or discharged the undersigned's indebtedness evidenced by the Old Note, all of which indebtedness shall continue under and be evidenced and governed by this Note, nor shall it be deemed a waiver of or to have waived any defaults under the Old Note.  The Old Note is amended and restated in its entirety by this Note.  Any reference in any other document or instrument (including but not limited to the Purchase Agreement) to the Old Note shall constitute a reference to this Note.

	Governing Law.

This Note shall be governed and construed according to the laws of the State of Minnesota without giving effect to the choice of law provisions thereof.

	 	
DELPHAX TECHNOLOGIES CANADA LIMITED

	 	 
	 	
/s/ Gregory S. Furness

	 	
By:  Gregory S. Furness

	 	
Its:  Vice President and CFO

 

Schedule 2(a)(1) to 12% Secured Subordinated Note - Senior Debt

Indebtedness to Harland Clarke Corp. (as successor in interest to Wells Fargo Bank, National Association, acting through its Wells Fargo Business Finance operating division) and Indebtedness to Scantron Canada Ltd. (as successor in interest to Wells Fargo Financial Corporation Canada) in an aggregate principal amount not to exceed $14,500,000

Schedule 2(a)(2) to 12% Secured Subordinated Note - Parity Debt

NoneExhibit 10.1

 
*     Material has been omitted pursuant to a request for confidential treatment and the material has been filed separately.

SUPPLY AND SELF MAINTENANCE AGREEMENT

This Supply and Self Maintenance Agreement (this "Agreement") is entered into this 26th day of November, 2008 (the "Effective Date"), by and between Delphax Technologies Inc., a corporation organized under the laws of the State of Minnesota ("Delphax"), and Harland Clarke Corp., formerly known as John H. Harland Company, a corporation organized under the laws of the State of Delaware, ("Harland Clarke").  Delphax and Harland Clarke are from time to time referred to herein individually as a "Party" and collectively as the "Parties." 

RECITALS

Whereas, on or about January 1, 2005, Delphax and Harland Clarke entered into that certain Maintenance Agreement, as amended by that certain First Amendment to Maintenance Agreement dated as of January 1, 2008 (the "Maintenance Agreement"), pursuant to which Harland Clarke engaged Delphax Technologies, Inc. to perform certain maintenance functions (the "Maintenance Services") for Harland Clarke's Imaggia printers (the "Equipment");

WHEREAS, the Parties have determined to terminate the Maintenance Agreement and for Harland Clarke to assume performance of the Maintenance Services on the Equipment; and

WHEREAS, the Parties desire to enter into this Agreement which shall set forth the terms pursuant to which (i) Delphax shall provide to Harland Clarke and Harland Clarke shall acquire from Delphax the Products (defined below), including tools and equipment; (ii) Delphax shall transfer performance of the Maintenance Services to Harland Clarke and perform the Transition Services (defined below) in furtherance of such transfer; (iii) Harland Clarke shall be permitted to hire the Transferred Employees (defined below); and (iv) Delphax shall provide to Harland Clarke the Post-Transition Support Services (defined below) and Training Services (defined below) to Harland Clarke.

NOW THEREFORE, in consideration of the covenants, mutual promises, and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

	Effect of Execution.  The Parties agree that as of the Effective Date, the Maintenance Agreement shall be deemed terminated in accordance with the provisions thereof (other than as expressly set forth herein) and that this Agreement shall set forth all of Delphax's obligations with respect to the Products and Equipment.

	Supply of Products.  

	Sale and Purchase of Products.  Delphax agrees to manufacture, acquire on behalf of, sell and deliver to Harland Clarke, and Harland Clarke agrees to purchase and receive from Delphax, its requirements of the parts, supplies, tools, equipment and other consumables required to fully support the operation of the Equipment, as specifically described in Schedule A attached hereto (the "Products").

	Rolling Forecast; Purchase Orders.  Each month during the Term (defined below), Harland Clarke will provide to Delphax and Delphax shall accept from Harland Clarke a purchase order (each, a "Purchase Order") for delivery not later than six (6) months thereafter of Harland Clarke's requirements for the Products specified in the Purchase Order.  Each Purchase Order shall be deemed accepted by Delphax unless Delphax provides written notice to the contrary to Harland Clarke within three (3) business days following receipt of such Purchase Order; provided, however, that Delphax shall not reject any Purchase Order unless Harland Clarke's requirements for Products therein are unreasonably disproportionate to Harland Clarke's historical usage of such Products.  During the initial six (6) months of the Term, Delphax shall deliver to Harland Clarke, and Harland Clarke shall purchase from Delphax, the Products in such amounts and at such frequencies consistent with Harland Clarke's historic usage under the Maintenance Agreement and as necessary to maintain operation of the Equipment for that initial six-month period.  Thereafter, delivery dates shall be as specified in Harland Clarke's Purchase Orders, provided that such dates do not involve lead times that are shorter than the historical pattern.  Those certain general terms and conditions of sale and purchase previously agreed to among the Parties and attached hereto as Exhibit A shall apply to all Purchase Orders issued by Harland Clarke under this Agreement.  In the event, however, of any conflict or inconsistency between such general terms and conditions as set forth in Exhibit A and the terms and conditions of this Agreement, the terms and conditions of this Agreement shall prevail. 

	Pricing.  Prices for the Products sold hereunder during the remainder of 2008 and during 2009 shall be as set forth under the appropriate column for 2008 and 2009 on Schedule A attached hereto and shall not be subject to any increase prior to January 1, 2010.  On January 1, 2010 and annually thereafter, prices for the Products may be increased by Delphax not more than once per year; provided, however, that except for the volume based price changes referred to on Schedule A, *.  Delphax shall provide not less than sixty (60) days' prior written notice to Harland Clarke of any proposed price increase under this Section 2(c).  Beginning in calendar year 2010 and during any subsequent calendar year thereafter during the Term, if the total volume of Products purchased hereunder (as measured in US$) by Harland Clarke decreases by more than *, excluding (i) Harland Clarke's purchase of the Onsite Products (defined below) pursuant to Section 3(d) of this Agreement and (ii) any Products received pursuant to all purchase orders issued to Delphax by Harland Clarke prior to the Effective Date, the Parties agree to work in good faith to renegotiate pricing for the immediately subsequent year's purchases on the basis of said reduction in volume.

	Delivery; Shipping and Risk of Loss.  Upon receipt of each Purchase Order issued hereunder, Delphax shall coordinate delivery of the Products with the designated Harland Clarke representative to optimize freight costs.  The Products shall be (i) packaged by Delphax in accordance with mutually agreed upon specifications and in a manner so as to prevent destruction and/or damage of the Products while in transit and (ii) placed for shipment by Delphax F.O.B. the Delphax facility with a carrier designated by Harland Clarke.  The cost of shipping shall be borne by Harland Clarke.  The risk of loss, damage, theft or destruction of the Products during shipment from any cause whatsoever, whether or not insured, shall be borne by Harland Clarke. 

	Invoicing.  Contemporaneously with the shipment of the Products, Delphax shall issue to Harland Clarke an invoice for such shipment.  Each such invoice shall, at a minimum, set forth the following: (i) an invoice number for tracking purposes, (ii) the applicable Purchase Order number, (iii) the quantity of each Product shipped, (iv) the Harland Clarke facility to which the Products were shipped, and (v) the applicable pricing as set forth in Schedule A or as provided in paragraph c above.

	Inspection; Defective Products.  Upon receipt of the Products, Harland Clarke shall perform an inspection of all Products.  Following the performance of such inspection, Harland Clarke shall inform Delphax of any Products it deems to be defective and shall return to Delphax such defective products at Delphax's expense.  Notwithstanding the foregoing, nothing contained in this section shall relieve Delphax for responsibility for latent defects in the Products.

	Payment.  The invoice amount on each Purchase Order shall be due and payable by Harland Clarke to Delphax within thirty (30) days after the invoice date.  

	Disputed Payments; Credit Memos.  In the event that Harland Clarke disputes an amount previously paid pursuant to Section 2(g) above, Harland Clarke shall notify Delphax of such dispute as soon as practicable after the discrepancy has been discovered.  The Parties will investigate the dispute using the dispute resolution process set forth in Section 19 below.  Upon resolution of such dispute and if necessary, Delphax shall issue a credit memo to reflect the resolution of disputed amount, which shall be applicable to the next monthly invoice issued hereunder.

	Transition Services and Products Inventory.

	Continued Performance of Maintenance Services.  Commencing on the Effective Date and continuing until the Cutover Date (defined below), Delphax shall: (i) continue performing the Maintenance Services as specifically described in Section 2.3 of the Maintenance Agreement; (ii) continue providing parts and consumables from the Onsite Inventory (defined below) in support of the continued operation of the Equipment; (iii) provide, on an as needed basis and as requested by Harland Clarke, knowledge transfer to Harland Clarke representatives with respect to the required usage of the Products and order management, including reviewing lead times and inventory planning for the Products; and (iv) such other and further services as the Parties agree are necessary for the transfer of the Maintenance Services from Delphax to Harland Clarke (collectively, the "Transition Services").

	Charges.  As consideration for Delphax's performance of the Transition Services, Harland Clarke shall pay Delphax (i) a per foot consumable charge, and/or (ii) a per foot maintenance charge based upon pricing set forth in Schedule A-1.

	Termination of Transition Services.  With respect to each Harland Clarke facility in which Equipment is located, Delphax's obligation to perform the Transition Services shall terminate as of the conclusion of the final production shift at each such Harland Clarke facility as on the dates designated in Schedule D attached hereto (each, a "Cutover Date").

	Physical Inventory of Products at Harland Clarke Facilities.  For each Harland Clarke facility in which Equipment is located, beginning not earlier than its respective Cutover Date and concluding not later than the commencement of the first production shift on the next business day following the Cutover Date for that particular Harland Clarke facility (each, the "Transition Date" for the particular facility), Delphax, together with Harland Clarke, shall perform a physical inventory (the "Physical Inventory") of all parts, tools, equipment, products and consumables used in the operation of the Equipment owned by Delphax then on site at that Harland Clarke facility (the "Onsite Products"); provided, however such parts, tools, equipments, products and consumables shall only be included in the Onsite Products if they are found, upon the reasonable determination of Harland Clarke, to be merchantable, usable and not found to be excessive in quantity with respect to Harland Clarke's reasonable requirements.  Upon completion of the Physical Inventory for a particular Harland Clarke facility, the Parties shall mutually agree as to the number of Onsite Products at that Harland Clarke facility and the purchase price for such Onsite Products shall be calculated based upon the prices set forth in Schedule A or as otherwise agreed by the Parties with respect to the tools and equipment.  Not more than fifteen (15) days following the Transition Date for a particular facility, Harland Clarke shall issue payment to Delphax for the Onsite Products at that facility.

	Post-Transition Support Services.  Commencing on the Transition Date (or such other date as agreed to among the Parties), and continuing until either the expiration or termination of this Agreement, Delphax shall perform the following services in connection with the transfer of the Maintenance Services from Delphax to Harland Clarke (collectively, the "Post-Transition Support Services").  

	Technical Support.  Delphax will provide Harland Clarke with telephonic technical support to resolve problems or issues arising with the Equipment ("Telephonic Technical Support").   Delphax will provide to Harland Clarke such Telephonic Technical Support in accordance with Harland Clarke's production operations for which the Equipment is used and consistent with the service level agreements ("SLAs") set forth in Schedule C attached hereto.  In the event an issue or problem requires on site presence by Delphax technical support or engineering staff, Delphax agrees to make its personnel available to provide such assistance (the "Onsite Technical Support," together with the Telephonic Technical Support, the "Technical Support") consistent with the SLAs set forth in Schedule C.  Harland Clarke agrees to pay Delphax for the Technical Support at the rates stated in the attached Schedule C and to reimburse Delphax for reasonable out-of-pocket expenses incurred by Delphax personnel in connection with the performance of On-Site Technical Support; provided, however, such expenses shall not be subject to any mark-up. 

	OPSYS Maintenance.  Commencing on the Effective Date, Delphax will provide the OPSYS maintenance program for all systems installed at a Harland Clarke location for an annual charge of * of each calendar year for the term of this Agreement, provided that at the beginning of each year, or when Delphax has knowledge of a required change, Delphax will submit a statement of work with the anticipated schedule for expected changes to the software OEM license renewal for all embedded software * major and minor releases for improvements and bug fixes for the coming calendar year or as scheduled to occur.  At the beginning of each year a synopsis and review of the previous year's changes will be done to determine the cost benefit or substantiation of the annual charges with value added by the update. 

	Training Services.  

	Maintenance Training Services.  Upon Harland Clarke's request, Delphax will provide Imaggia maintenance training (the "Training Services) to Harland Clarke personnel (with a * attendee minimum) at the rate specified in Schedule C.  Delphax agrees to provide the Training Services not more than twenty-one (21) days following such request from Harland Clarke.  Each training class will be * in length and be limited to a maximum of * individuals.  

	Training Services Expenses.  Harland Clarke shall be responsible for all expenses incurred by Harland Clarke personnel attending the maintenance training classes described in Section 5(a) above, including, without limitation, travel and lodging expenses.

	Train the Trainer Programs.  Upon request for such program by Harland Clarke, Delphax and Harland Clarke shall mutually agree to a plan and pricing for a "train the trainer" program in accordance with Schedule C to assure on-going support for the Equipment. 

	Employment of Delphax Employees.  In connection with the transfer of the Maintenance Services from Delphax to Harland Clarke, as of the Effective Date and at anytime thereafter, Harland Clarke is permitted to interview and make conditional offers of employment to all Delphax personnel currently on-site providing the Maintenance Services in any Harland Clarke facility, subject to successful background checks and drug screening.  Each such Delphax personnel who accepts Harland Clarke's offer of employment (each a "Transferred Employee") shall be terminated from their employment with Delphax as of the effective date of their commencement of employment with Harland Clarke.  Delphax shall remain solely liable for all liabilities relating to each Transferred Employee's employment with and termination of employment from Delphax, including, but not limited to, any liabilities for wages or any other type of compensation, employee retirement, welfare and fringe benefits of any type, accrued sick or vacation or other leave, or any other existing or contingent claim any Transferred Employee may now have or in the future may assert against Delphax arising directly or indirectly out of the Transferred Employee's employment with and termination of employment from Delphax ("Delphax Transferred Employee Liabilities").  Harland Clarke shall not succeed to, assume or otherwise become liable for any of the Delphax Transferred Employee Liabilities.  Delphax shall fully indemnify and hold harmless Harland Clarke for any Delphax Transferred Employee Liabilities claim made against Harland Clarke.  For any Delphax personnel providing Maintenance Services as of the Effective Date in any Harland Clarke facility that is not hired by Harland Clarke (except for those who have either not passed the background check and drug screening or declined Harland Clarke's offer of employment), Harland Clarke shall reimburse Delphax for (i) the severance benefits to which such employee would otherwise be entitled under and in accordance with Delphax's standard severance policy, and (ii) up to two (2) weeks retention benefits to the Cut Over Date for the facility where the employee is employed. 

	 Additional Obligations of Delphax.  At * to Harland Clarke, Delphax agrees:

	Delphax Software Updates.   From time to time and as necessary, Delphax shall provide to Harland Clarke all software updates as provided under OPSYS and shall work with Harland Clarke to implement such updates.  Any other updates, upgrades, enhancements or requests from Harland Clarke shall be quoted by Delphax and paid for based on a Statement of Work (SOW) that is agreed upon by the Parties.

	Third Party Software.  The Parties acknowledge that the Equipment contains third party software.  Delphax shall provide to Harland Clarke all updates to such third party software that are integrated by Delphax into the operating system for the Equipment and shall work with Harland Clarke to implement such updates.

	Supplier Contingency Plan.  Within sixty (60) days following the Effective Date, Delphax shall provide to Harland Clarke a copy of Delphax's contingency plan, which plan shall be reasonably acceptable to and approved by Harland Clarke, for maintaining supply of Harland Clarke's day-to-day requirements of * (the "Critical Products").  Upon request by Harland Clarke, Delphax shall, within a reasonable period following such request, provide to Harland Clarke a contingency plan for the continued supply of those certain Products identified by Harland Clarke in addition to the Critical Products, which plan shall be reasonably acceptable to and approved by Harland Clarke.

	Field Change Orders.  Delphax shall complete all Harland Clarke-approved field change orders ("FCOs") that were issued by Delphax prior to the Cutover Date.  With respect to all FCOs issued prior to the Cutover Date, but not yet approved by Harland Clarke, Delphax shall provide to Harland Clarke, at *, the kits and related materials for implementation of such FCOs by Harland Clarke.

	Term; Termination.

	Term.  The term of this Agreement shall begin as of the Effective Date and shall continue for a period of three (3) years (the "Initial Term") thereafter, unless earlier terminated by Harland Clarke in accordance with Section 8(c) below.  

	Renewal Term.  Upon the expiration of the Initial Term, the Agreement shall automatically renew for successive twelve (12) month periods (each, a "Renewal Term," together with the Initial Term, the "Term"), unless terminated by Harland Clarke upon giving Delphax at least twelve (12) months' prior written notice of its intent not to renew the Agreement.

	Termination for Convenience.  Harland Clarke, upon not less than twelve (12) months' prior written notice, may terminate this Agreement for any reason.   

	Bankruptcy/Insolvency.  Harland Clarke may immediately terminate this Agreement upon notice of the filing of a voluntary proceeding by Delphax (or the filing of an involuntary proceeding against Delphax that is not dismissed within thirty (30) days) under Chapters 7 or 11 of the U.S. Bankruptcy Code or the Bankruptcy and Insolvency Act (BIA) and the Companies' Creditors Arrangement Act (CCAA) of Canada.

	Change of Control.  Upon notice of the acquisition of control of Delphax by a third party, Harland Clarke may terminate this Agreement upon five (5) business days notice to Delphax. 

	Non-Exclusivity.  In the event that Harland Clarke terminates this Agreement in accordance with its terms due to a material failure by Delphax to supply Products in accordance with this Agreement, then Harland Clarke shall be permitted to directly negotiate and acquire any Products then being acquired by Delphax from any third party supplier in the performance of this Agreement, and such acquisition, contract and/or negotiations will not violate the terms of this Agreement or any other agreement between Harland Clarke and Delphax.  

	License Grant.  

	Delphax, as licensor, hereby grants to Harland Clarke, as licensee, * conditional license (the "License") of the intellectual property of Delphax that is used to make, have made, and use, manufacture, or have manufactured systems, sub-assemblies, or parts, including the Products, necessary for Harland Clarke to continue to operate the Equipment.  The License shall not be assignable or transferable and any purported assignment or transfer shall be void ab initio; provided, however, upon the occurrence of a Triggering Event (as defined in Section 16(a) below) and Harland Clarke's sale or transfer of all or substantially all of the Equipment to a third party, Harland Clarke shall be permitted to transfer the License to such third party.  Notwithstanding the foregoing, Harland Clarke may assign the License to an affiliate or successor-in-interest.

	Notwithstanding the foregoing, Harland Clarke, its affiliates and successors-in-interest shall not be permitted to exercise its rights under the License unless and until the occurrence of one or more of the "Triggering Events" as set forth in Section 16(a) below.

	Representations and Warranties of Delphax.  

	Delphax represents and warrants as follows:

	Authority.  Delphax has full corporate power to own, lease, license and operate its properties and assets and to conduct its business as currently conducted and to enter in this Agreement and to consummate the transactions contemplated hereby. 

	Free from Defects.  The Products and On Site Products shall be free from defects in material and workmanship for not less than ninety (90) days following receipt or possession by Harland Clarke.

	Free from Liens and Encumbrances. The Products will be free from all liens, encumbrances and security interests.

	No Violations.  The sale of the Products does not conflict with or violate any agreement or law or any other instrument binding upon Delphax, its assets, or properties; that it has the legal right to sell the Products; that the consent of no other person or entity is necessary for it to enter into and fully perform this Agreement.

	Condition of Equipment. As of the Cutover Date, the Equipment shall be in good working order, meeting all current service level agreements (attached hereto as Schedule B). 

	No Infringement.  Any updates to software and any other intellectual property provided or licensed hereunder does not infringe, or constitute an infringement or misappropriation and intellectual property or proprietary rights of any third party.

	Intellectual Property.  All intellectual property that is the subject of the License is owned by Delphax.  Delphax has the full corporate power and authority to grant Harland Clarke such License and the License does not contravene any other agreement to which Delphax is a party that relates to the intellectual property which is the subject of the License.

	The foregoing warranties shall survive delivery, inspection and acceptance of the Products and payment by Harland Clarke for the Products as provided herein.

	Insurance.  

	During the Term of this Agreement, Delphax shall continuously maintain and keep in force, at its own expense, with insurance companies rated at a minimum of A X or better by A.M. Best, the following minimum insurance coverages and minimum limits:

	Commercial General Liability or Umbrella/Excess Liability occurrence form coverage with limits of at least $5,000,000 for personal injury, bodily injury, and property damage (including loss of use) for any one occurrence and an aggregate limit of $10,000,000; 

	Software and Technology Errors and Omissions Insurance with limits of at least $2,000,000 per occurrence and an aggregate limit of $5,000,000.

	Crime Insurance with limits of at least $1,000,000 including Employee Dishonesty and Computer Crime, that provides coverage for losses incurred by Harland Clarke and its subsidiaries arising from the activity of Delphax employees.  

	Delphax shall name Harland Clarke and its subsidiaries as (i) additional insureds on the liability policies described in Sections 12(a)(i) above and (ii) third party Loss Payee up to their insurable interest in the policy described in Section 12(a)(iii) above.

	Delphax shall provide Harland Clarke with certificates of insurance demonstrating coverage and additional insured status as required herein with Harland Clarke named as the certificate holder.  Certificate(s) shall be produced on an Accord form or on a substantially similar form.  Any applicable cancellation clause must provide at least thirty (30) days' written notice prior to expiration or cancellation of insurance and omit the phrases "endeavor to" and "but failure to do so shall impose no obligation of any kind upon the insurer, its agents or representatives."  Such certificate(s) must be received by Harland Clarke within thirty (30) days of the Effective Date.  Renewal certificates must be delivered prior to the annual anniversary date of the Effective Date and/or upon demand by Harland Clarke.  All certificates of insurance shall be mailed to Harland Clarke Corp., Attn: David Berry, Risk Manager, 2939 Miller Road, Decatur, GA 30335, with a copy to Corporate Procurement, 10931 Laureate Drive, San Antonio, TX  78249.

	Most Favored Customer. *

	Setoff.    In addition to any right of setoff or recoupment provided by law, all amounts due to Delphax shall be considered net of indebtedness of Delphax and its affiliates/subsidiaries to Harland Clarke and its affiliates/subsidiaries, and Harland Clarke shall have the right to set off against or to recoup any amounts due to Delphax and its affiliates/subsidiaries from Harland Clarke and its affiliates/subsidiaries under this Agreement; provided, however, that Harland Clarke agrees that it will not set off amounts owing to (i) Harland Clarke from Delphax under the U.S. Loan Agreement, (ii) Harland Clarke's subsidiary, Scantron Canada Ltd. from Delphax's subsidiary, Delphax Technologies Canada Limited ("Delphax Canada") under the Canadian Loan Agreement, or (iii) Harland Clarke from Delphax Canada under the Subordinated Note, prior to the occurrence of an Event of Default as defined in either the U.S. or Canadian Loan Agreements or an Event of Default under and as defined in the Subordinated Note.

	Importation of Goods.  Where applicable, Delphax agrees that Harland Clarke will not be a party to the importation of the materials used in the manufacture of the Products, and that Delphax will neither cause not permit Harland Clarke's name to be shown as "importer of record" on any customs declaration.  Where Delphax is importer of record, the purchase price for the Products as set forth in Schedule A is inclusive of all duties and other costs of customs clearance.

	Escrow Provisions. *  

	Indemnification.  Delphax shall indemnify and hold Harland Clarke and its subsidiaries harmless from and against all claims, damages and liabilities, including attorneys' fees, arising from Delphax's wrongful, negligent conduct or material breach of this Agreement. Harland Clarke shall indemnify and hold Delphax and its subsidiaries harmless from and against all claims, damages and liabilities, including attorneys' fees, arising from Harland Clarke's wrongful, negligent conduct or material breach of this Agreement. 

	Dispute Resolution.  Each Party expressly agrees to use commercially reasonable efforts to resolve any dispute in good faith as soon as possible and to have reasonably exhausted those alternative means available to it for resolving such dispute prior to initiating any litigation in connection with this Agreement.  In the event any dispute cannot be resolved to the reasonable satisfaction of each Party within fifteen (15) business days after notice of the dispute, the dispute shall be escalated and referred immediately in writing to a representative officer of each Party.  The Parties' representative officers shall meet, negotiate in good faith, and attempt to resolve amicably and to each Party's mutual satisfaction any such dispute within thirty (30) additional business days from the date of escalation.  In the event such dispute is not resolved during the thirty (30) additional business days, neither Party is required to pursue other alternative dispute resolution methods.

	General Provisions.

	Time of the Essence.  Time is of the essence in the performance of this Agreement. 

	Relationship of the Parties.  

	No Joint Venture.  This Agreement shall not be construed as constituting either Party as partner, joint venture or fiduciary of the Party or to create any other form of legal association that would impose liability upon one Party for the act or failure to act of the other Party, or as providing either Party with the right, power, or authority (express or implied) to create any duty or obligation of the other Party.

	Publicity.  The Parties agree to work cooperatively together on press release, marketing activities, and other publicity that may be mutually beneficial.  The Parties further agree that neither Party may use the name of the other Party in any press release or other public disclosures other than as required by law without the prior written consent of the other Party.  

	Entire Agreement.  This Agreement and its attachments as well as the related Escrow Agreement, as amended, with respect to the subject matter of this Agreement set forth the entire agreement between the Parties and superseded all prior and contemporaneous agreements, discussions, and understandings, express or implied.

	Modifications. This Agreement shall not be modified except in writing signed by an authorized officer of each Party.

	Governing Law.  This Agreement shall be construed under and governed by the laws of the State of Minnesota excluding the application of its conflicts of law rules.  This Agreement will not be governed by the United Nations Convention on Contracts for the International Sale of Goods.  

	Assignment; Change of Control; Binding Nature.  Except with respect to affiliates of either Party (in which case the assigning Party will remain responsible for its obligations hereunder), each Party may, in whole or in part, either directly or indirectly, delegate its duty of performance or assign its rights or obligations under this Agreement; provided, however, Delphax may only do so with the prior written consent of the Harland Clarke. This Agreement will survive any merger or acquisition by or of either party or its assets, and the parties specifically agree that each of the terms hereof will inure to the benefit of and be binding on the Parties and their respective successors and permitted assigns.  To the extent that Delphax subcontracts any obligations hereunder, Delphax shall require each subcontractor to adhere and agree to this Agreement.

	Non-Waiver; Severability. The failure of either Party to insist upon performance of any provision or to exercise any right or privilege granted in this Agreement shall not be construed as waiving the provision, right or privilege with shall remain in effect.  If any provision of this Agreement is held to be invalid or unenforceable for any reason, the remaining provisions will continue in full force and effect without being impaired or invalidated in any way.  The Parties agree to replace any invalid provision with a valid provision that most closely approximates the intent and economic effect of the invalid provision.

	Headings; Construction.  Headings used in this Agreement are for reference purposes only.  This Agreement is the result of negotiations between the Parties who each had the opportunity to obtain legal advice regarding the terms and conditions of this Agreement.  This Agreement will not be construed for or against any Party on the basis of which Party drafted this Agreement.

	Attorney's Fees.  If either Party commences litigation to enforce any provision of this Agreement, the prevailing Party shall be entitled to recover reasonable attorney's fees and costs at trial and on appeal.

	Notices.  All notices required by this Agreement will be given in writing and will be transmitted by U.S. Mail via certified mail (return receipt requested), a nationally recognized express courier service (such as Federal Express), or facsimile transmission (with receipt acknowledgment) to the Parties at their addresses shown below.  

	
Harland Clarke Corp.

Attention: General Counsel
	
Delphax Technologies Inc.

Attention:  Greg Furness

	
10931 Laureate Drive
	
6100 West 110 Street

	
San Antonio, Texas 78249
	
Bloomington, MN 55438

	
Facsimile:  (210) 699-4002
	
Facsimile: (952) 939-1151

	Counterparts and Facsimile.    This Agreement may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and all of which, when taken together, shall constitute one and the same instrument.  This Agreement may be executed and delivered by facsimile.

*     Material has been omitted pursuant to a request for confidential treatment and the material has been filed separately.

 

 

 

[SIGNATURES ON NEXT PAGE]

 

In witness whereof, this Agreement has been duly executed by authorized representatives of the Parties.

	
DELPHAX TECHNOLOGIES, INC.
	
HARLAND CLARKE CORP.

	 	 
	
Name:Dieter P. Schilling
	
Name:George G. Bordon

	
Title:President and Chief Executive Officer
	
Title:V.P. Procurement and Supply Management

	 	 
	
Signature:/s/ Dieter P. Schilling
	
Signature:/s/ George G. Bordon

	 	 
	
Date:11/26/2008
	
Date:11/26/2008

 

 

 

 

Schedule A - Products and Pricing*

Schedule A-1 - Variable Pricing *

Schedule B - Current Service Level Agreement *

Schedule C - Technical Support and Maintenance Training Services and Related Service Level Agreements *

Schedule D - Harland Clarke Facility Cutover Dates *

Exhibit A - General Terms and Conditions *

*     Material has been omitted pursuant to a request for confidential treatment and the material has been filed separately.

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