Document:

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                                                                     EXHIBIT 4.1

                          SECURITIES PURCHASE AGREEMENT

         This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
February 4, 2004 is made by and among Delphax Technologies Inc., a Minnesota
corporation, with headquarters located at 12500 Whitewater Drive, Minnetonka,
Minnesota 55343 (the "Company"), and the investors named on the signature pages
hereto, together with their permitted transferees (the "Investors").

         RECITALS:

         A.       The Company and the Investors are executing and delivering
this Agreement in reliance upon the exemptions from securities registration
afforded by Section 4(2) of the Securities Act and Rule 506 under Regulation D.

         B.       The Investors desire, upon the terms and conditions stated in
this Agreement, to purchase the Company's 7.0% Convertible Subordinated Notes,
which are convertible into shares of the Company's Common Stock, for an
aggregate purchase price of $3.0 million and to receive, in consideration for
such purchase, Warrants to acquire additional shares of Common Stock.

         C.       Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement under which the Company has agreed to provide certain registration
rights under the Securities Act, the rules and regulations promulgated
thereunder and applicable state securities laws.

         D.       The capitalized terms used herein and not otherwise defined
have the meanings given them in Article X hereof.

         In consideration of the premises and the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Investors hereby agree as
follows:

                                    ARTICLE I
               PURCHASE AND SALE OF CONVERTIBLE SUBORDINATED NOTES

         1.1      Purchase and Sale of Convertible Subordinated Notes. At the
Closing, subject to the terms of this Agreement and the satisfaction or waiver
of the conditions set forth in Articles VI and VII hereof, the Company will
issue and sell to each Investor, and each Investor will (on a several and not a
joint basis) purchase from the Company, convertible subordinated notes
substantially in the form of Exhibit A hereto (the "Convertible Note(s)") in the
principal amount set forth beneath such Investor's name on the signature pages
hereof. The Convertible Notes will bear annual interest (the "PIK Interest"),
payable only in shares of Common Stock (the "PIK Interest Shares"), at a fixed
rate of 7% per annum of the aggregate number of shares of Common Stock into
which a Convertible Note is convertible as of the Closing Date. The PIK Interest
will be payable quarterly in arrears.

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         1.2      Payment. Each Investor will pay the principal amount for the
Convertible Notes as is set forth beneath its name on the signature pages
hereof, by wire transfer of immediately available funds in accordance with the
Company's written wire instructions, simultaneously with delivery by the Company
to each Investor of (i) the Convertible Note(s) in the principal amount(s) so
purchased by such Investor and (ii) Warrants in an amount determined in
accordance with Section 1.4 hereof, and the Company will deliver such
Convertible Notes and Warrants against delivery of the purchase price as
described above.

         1.3      Closing Date. Subject to the satisfaction or waiver of the
conditions set forth in Articles VI and VII hereof, the Closing will take place
at 1:30 p.m., Central Time, on February 4, 2004, or at another date or time
agreed upon by the parties to this Agreement (the "Closing Date"). The Closing
will be held at the offices of Dorsey & Whitney LLP, or at such other place as
the parties agree.

         1.4      Warrants. In consideration of the purchase of the Convertible
Notes by the Investors, at the Closing the Company will issue warrants to each
Investor, substantially in the form of Exhibit B hereto (the "Warrants"), giving
each Investor the right, for a period of four years after the date of Closing,
to acquire 500 shares of Common Stock for each 1,000 shares of Common Stock into
which such Investor's Convertible Note(s) purchased by such Investor at the
Closing is convertible as of the Closing Date.

                                   ARTICLE II
                   REPRESENTATIONS AND WARRANTIES OF INVESTORS

         Each Investor represents and warrants to the Company, severally and
solely with respect to itself and its purchase hereunder and not with respect to
any other Investor, that:

         2.1      Investment Purpose. The Investor is purchasing the Securities
for its own account and not with a present view toward the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the Securities Act; provided, however, that by making the
representations herein, such Investor does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from the registration requirements of the
Securities Act.

         2.2      Accredited Investor Status. The Investor is an "accredited
investor" as defined in Rule 501(a) of Regulation D.

         2.3      Reliance on Exemptions. The Investor understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities.

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         2.4      Information. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company, and materials relating to the offer and sale of the Securities,
that have been requested by the Investor or its advisors, if any. The Investor
and its advisors, if any, have been afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigation,
nor the receipt of any information in connection with such inquiries or
investigation, conducted by Investor or any of its advisors or representatives
modify, amend or affect the Investor's right to (i) rely on the Company's
representations and warranties contained in Article III below and (ii) be
indemnified as to the matters set forth in Article IX below. The Investor
acknowledges and understands that its investment in the Securities involves a
significant degree of risk, including the risks reflected in the SEC Documents.

         2.5      Governmental Review. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities or
an investment therein.

         2.6      Transfer or Resale. The Investor understands that:

                  (a)      except as provided in the Registration Rights
Agreement, the Securities have not been and are not being registered under the
Securities Act or any applicable state securities laws and, consequently, the
Investor may have to bear the risk of owning the Securities for an indefinite
period of time because the Securities may not be transferred unless (i) the
resale of the Securities is registered pursuant to an effective registration
statement under the Securities Act; (ii) the Investor has delivered to the
Company an opinion of counsel (in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (iii) the Securities are sold or transferred
pursuant to Rule 144; or (iv) the Securities are sold or transferred to an
affiliate (as defined in Rule 144) of the Investor;

                  (b)      any sale of the Securities made in reliance on Rule
144 may be made only in accordance with the terms of Rule 144 and, if Rule 144
is not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with another exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and

                  (c)      except as set forth in the Registration Rights
Agreement, neither the Company nor any other person is under any obligation to
register the Securities under the Securities Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.

                  (d)      Notwithstanding anything in this Agreement, the
Convertible Notes, or the Warrants to the contrary, the Company agrees to
reregister any Convertible Note or Warrant issued to an Investor hereunder in
the name of any partner of such Investor, and any such partner shall be deemed
to be an Investor for all purposes of this Agreement and the Registration Rights
Agreement.

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         2.7      Legends. The Investor understands that until (a) the
Convertible Notes and the Warrants may be sold by the Investor under Rule 144(k)
or (b) such time as the resale of the Securities has been registered under the
Securities Act as contemplated by the Registration Rights Agreement, the
certificates representing the Securities will bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):

                  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.

         The legend set forth above will be removed and the Company will issue a
certificate without the legend to the holder of any certificate upon which it is
stamped, in accordance with the terms of Article V hereof.

         2.8      Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Investor and are valid and binding agreements of
the Investor, enforceable in accordance with their terms, subject to the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally and the application of general
principles of equity.

         2.9      Residency. The Investor is a resident of the jurisdiction set
forth immediately below such Investor's name on the signature pages hereto.

         2.10     No Intent to Effect a Change of Control. The Investor has no
present intent to change or influence the control of the Company within the
meaning of Rule 13d-1 of the Exchange Act.

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                                   ARTICLE III
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company, and each of its Subsidiaries, as applicable, represents
and warrants to the Investors that:

         3.1      Organization and Qualification. The Company and its
Subsidiaries are duly incorporated, validly existing and in good standing under
the laws of the jurisdictions in which they are incorporated, with full power
and authority (corporate and other) to own, lease, use and operate their
properties, if any, and to carry on their businesses as and where now owned,
leased, used, operated and conducted. The Company is duly qualified to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a Material
Adverse Effect.

         3.2      Authorization; Enforcement. (a) The Company has all requisite
corporate power and authority to enter into and to perform its obligations under
this Agreement, the Registration Rights Agreement, the Convertible Notes and the
Warrants, to consummate the transactions contemplated hereby and thereby and to
issue the Securities in accordance with the terms hereof and thereof; (b) the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement, the Convertible Notes and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Convertible Notes, and the
issuance and reservation for issuance of the Conversion Shares and the PIK
Interest Shares in accordance with the Company's Articles of Incorporation, this
Agreement and the Convertible Notes, and the Warrant Shares issuable in
accordance with the terms of the Warrants) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board or Directors, or its shareholders is required; (c) this
Agreement, the Registration Rights Agreement, the Convertible Notes and the
Warrants have been duly executed by the Company; and (d) each of this Agreement,
the Registration Rights Agreement, the Convertible Notes and the Warrants
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms, except as may be
limited by any applicable bankruptcy, insolvency, reorganization, or moratorium
or similar laws affecting the rights of creditors generally and the application
of general principles of equity.

         3.3      Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Common Stock, par
value $.10 per share, of which 6,214,873 shares are issued and outstanding;
1,083,986 shares are reserved for issuance under the Option Plans; and no shares
are reserved for issuance pursuant to any other securities (other than
securities issued under the foregoing Option Plans); and (ii) 3,000,000 shares
of preferred stock, no par stated, of which 250,000 shares are designated as
Series C Junior Participation Preferred Shares, par value $.10 per share. All of
such outstanding shares of capital stock have been, or upon issuance will be,
duly authorized, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company, including the Conversion Shares, PIK Interest
Shares and the Warrant Shares, are subject to preemptive rights or any other
similar rights of the other shareholders of the Company or any liens or

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encumbrances imposed through the actions or failure to act of the Company.
Except for stock options granted under the Option Plans, rights issued under
the Company's Shareholder Rights Plan and the transactions contemplated hereby,
(i) there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into, exercisable for, or exchangeable for
any shares of capital stock of the Company, or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company; (ii) there are no agreements or arrangements (other than the
Registration Rights Agreement) under which the Company is obligated to register
the sale of any of its securities under the Securities Act; and (iii) there
are no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Securities. The Company
has furnished to each Investor true and correct copies of the terms of all
securities convertible into or exercisable for Common Stock of the Company
and the material rights of the holders thereof in respect thereto. The
Company's Articles of Incorporation, as amended, and the Company's By-laws,
each as in effect on the date hereof, filed as exhibits to the Company's SEC
Documents, are true and correct copies of each such document.

         3.4      Issuance of Securities. Each of the Convertible Notes and the
Warrants have been duly authorized and, upon issuance in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-assessable,
free from all taxes, liens, claims, encumbrances and charges with respect to the
issuance thereof, will not be subject to preemptive rights or other similar
rights of shareholders of the Company, and will not impose personal liability on
the holders thereof. The Conversion Shares, PIK Interest Shares and Warrant
Shares have been duly authorized and reserved for issuance, and, upon issuance
in connection with or upon conversion of the Convertible Notes and exercise of
the Warrants in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and charges with respect to the issuance thereof and will not be subject to
preemptive rights or other similar rights of shareholders of the Company.

         3.5      Outstanding Debt. The Company has no Indebtedness for Borrowed
Money (as hereinafter defined) except as otherwise set forth in Schedule 3.5.
The Company is not in default in the payment of the principal of or interest or
premium on any such Indebtedness for Borrowed Money, and no event has occurred
or is continuing under the provisions of any instrument, document or agreement
evidencing or relating to any such Indebtedness for Borrowed Money which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.

         3.6      No Conflicts; No Violation.

                  (a)      The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Convertible Notes and the
Warrants by the Company, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Convertible Notes, Conversion Shares, PIK
Interest Shares, Warrants, and Warrant Shares) do not and will not (i) conflict
with or result in a violation of any provision of the Articles of Incorporation

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or By-laws, (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse
of time or both could become a default) under, or give to others any rights of
termination, amendment (including without limitation, the triggering of any
anti-dilution provision), acceleration or cancellation of, any agreement,
indenture, patent, patent license, or instrument to which the Company is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including U.S. federal and state securities laws and
regulations and regulations of any self-regulatory organizations to which the
Company or its securities are subject) applicable to the Company or by which
any property or asset of the Company is bound or affected (except for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect).

                  (b)      The Company is not in violation of its Articles of
Incorporation, By-laws or other organizational documents and the Company is not
in default (and no event has occurred which with notice or lapse of time or both
could put the Company in default) under, and the Company has not taken any
action or failed to take any action that (and no event has occurred which,
without notice or lapse of time or both) would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party or by which any property
or assets of the Company is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect.

                  (c)      The Company is not conducting, and, so long as any
Investor owns any of the Securities, will not conduct, its business in violation
of any law, ordinance or regulation of any governmental entity, the failure to
comply with which would, individually or in the aggregate, have a Material
Adverse Effect.

                  (d)      Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable state securities
laws or any listing agreement with any securities exchange or automated
quotation system, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement, the
Convertible Notes, the Warrants or the Registration Rights Agreement, in each
case in accordance with the terms hereof or thereof, or to issue and sell the
Convertible Notes and Warrants in accordance with the terms hereof and to issue
the Conversion Shares and PIK Interest Shares in connection with or upon
conversion of the Convertible Notes and the Warrant Shares upon exercise of the
Warrants. Except as set forth in Schedule 3.6, all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company is not in violation of the continued listing
requirements of Nasdaq and does not reasonably anticipate that the Common Stock
will be delisted by Nasdaq in the foreseeable future. The Company is unaware of
any facts or circumstances which might give rise to the foregoing.

         3.7      SEC Documents, Financial Statements; Sarbanes-Oxley. Since
January 1, 2001, the Company has timely filed all reports, schedules, forms,
statements and other documents

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required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits) incorporated by reference therein, being
hereinafter referred to herein as the "SEC Documents"). The Company has
delivered to each Investor, or each Investor has had access to, true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than liabilities incurred in the ordinary course of business subsequent to
September 30, 2003, and liabilities of the type not required under generally
accepted accounting principles to be reflected in such financial statements.
Such liabilities incurred subsequent to September 30, 2003 are not, in the
aggregate, material to the financial condition or operating results of the
Company. The Company is in substantial compliance with the applicable provisions
of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and the rules and
regulations promulgated thereunder, that are effective, and intends to comply
substantially with other applicable provisions of the Sarbanes-Oxley Act, and
the rules and regulations promulgated thereunder, upon the effectiveness of such
provisions and has no reason to believe that it will not be so compliant upon
such effectiveness. Without limiting the generality of the foregoing, the Chief
Executive Officer and the Chief Financial Officer of the Company have signed,
and the Company has furnished to the SEC, all certifications required by Section
302 and Section 906 of the Sarbanes-Oxley Act; such certifications contain no
qualifications or exceptions to the matters certified therein and have not been
modified or withdrawn; and neither the Company nor any of its officers has
received notice from any governmental entity questioning or challenging the
accuracy, completeness, form or manner of filing or submission of such
certifications. The Company is in compliance with all applicable provisions of
the listing requirements of the Nasdaq.

         3.8      Absence of Certain Changes. Except as disclosed in the SEC
Documents, since September 30, 2003, there has been no material adverse change
in the assets, liabilities, business, properties, operations, financial
condition, prospects or results of operations of the Company or,

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to the knowledge of the Company, any development that could reasonably be
expected to have such a material adverse change.

         3.9      Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its officers or directors acting as such that could, individually or in the
aggregate, have a Material Adverse Effect. The Company is not aware of any facts
or circumstances which would reasonably be expected to give rise to any such
action or proceeding.

         3.10     Intellectual Property Rights. The Company owns or possesses
the licenses or rights to use all patents, patent applications, patent rights,
inventions, know-how, trade secrets, trademarks, trademark applications, service
marks, service names, trade names and copyrights necessary to enable it to
conduct its business as now operated (and, to the best of the Company's
knowledge, as presently contemplated to be operated in the future) (the
"Intellectual Property"). There is no claim or action or proceeding pending or,
to the Company's knowledge, threatened that challenges the right of the Company
with respect to any Intellectual Property. The Company's current and intended
products, services and processes do not infringe on any Intellectual Property or
other rights held by any person. The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of its Intellectual Property.

         3.11     No Materially Adverse Contracts, Etc. The Company is not
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the reasonable judgment of the
Company's officers has or is expected in the future, individually or in the
aggregate, to have a Material Adverse Effect. The Company is not a party to any
contract or agreement which in the reasonable judgment of the Company's officers
has or is expected to have a Material Adverse Effect.

         3.12     Tax Status. Except as set forth on Schedule 3.12, the Company
has made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company has set aside on its
books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith,
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the Company knows of
no basis for any such claim. The Company has not executed a waiver with respect
to the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. None of the Company's tax returns is
presently being audited by any taxing authority.

         3.13     Certain Transactions. Except as disclosed in the SEC Documents
and except for arm's-length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third

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parties, and other than the grant of stock options, employment agreements or the
ownership of other securities and rights disclosed in filings under the Exchange
Act, none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or employee has a substantial interest or is an officer, director, trustee or
partner.

         3.14     Environmental Laws. The Company (i) is in compliance with all
applicable foreign federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval where, in
each of the three foregoing clauses, the failure to so comply would have,
individually or in the aggregate, a Material Adverse Effect.

         3.15     Disclosure. No information relating to or concerning the
Company set forth in this Agreement or provided to the Investors pursuant to
Section 2.4 hereof or otherwise provided in connection with the transactions
contemplated hereby, including without limitation any oral or written statements
made or given by the officers of the Company, or any of the Company's agents, to
any Investor, or any Investor's agent, contained any untrue statement of a
material fact nor omitted to state any material fact necessary in order to make
the statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or its business, properties,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed (assuming for this purpose that
the Company's reports filed under the Exchange Act are being incorporated into
an effective registration statement filed by the Company under the Securities
Act).

         3.16     Acknowledgment Regarding Investors' Purchase of Securities.
The Company acknowledges and agrees that each Investor is acting solely in the
capacity of an arm's-length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Investor is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by any Investor or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to such Investor's purchase of the Securities and has not been relied
on by the Company in any way. The Company further represents to each Investor
that the Company's decision to enter into this Agreement has been based solely
on an independent evaluation by the Company and its representatives.

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         3.17     No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
Securities Act of the issuance of the Securities to the Investors. The issuance
of the Securities to the Investors will not be integrated with any other
issuance of the Company's securities (past, current or future) for purposes of
the Securities Act or any applicable rules of Nasdaq.

         3.18     No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.

         3.19     Permits; Compliance. The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted, except those the failure of which to possess would not, individually
or in the aggregate, have a Material Adverse Effect (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
The Company is not in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Since September 30, 2003, the Company has not received
any notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.

         3.20     Title to Property. The Company has good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by it which is material to the business of the Company, in each
case subject to the security interest of the Company's secured lenders. Any real
property and facilities held under lease by the Company are held by it under
valid and enforceable leases with such exceptions as would not have a Material
Adverse Effect.

         3.21     Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as is
prudent and customary in the businesses in which the Company is engaged. The
Company has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.

         3.22     Internal Accounting Controls. The Company maintains a system
of internal accounting controls sufficient, in the judgment of the Company's
board of directors, to provide reasonable assurance that (a) transactions are
executed in accordance with management's general or specific authorizations, (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (c) access to assets is permitted only in
accordance with management's

                                       11

<PAGE>

general or specific authorization, (d) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences, and (e) financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles are reliable. The Chief Executive
Officer and Chief Financial Officer of the Company have made all certifications
required by the Sarbanes-Oxley Act and the rules and regulations promulgated
thereunder, and the statements contained in any such certification are complete
and correct; the Company maintains "disclosure controls and procedures" (as
currently defined in Rule 13a-15(e) under the Exchange Act) in compliance with
the Exchange Act.

         3.23     Employment Matters. The Company is in compliance with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours
except where failure to be in compliance would not have a Material Adverse
Effect. There are no pending investigations involving the Company by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company pending
before the National Labor Relations Board or any strike, picketing, boycott,
dispute, slowdown or stoppage pending or, threatened against or involving the
Company. No representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is currently pending under any expired or existing collective
bargaining agreements of the Company. No material labor dispute with the
employees of the Company exists or, to the knowledge of the Company, is
imminent.

         3.24     Investment Company Status. The Company is not and upon
consummation of the sale of the Securities will not be an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.

         3.25     Offering Valid. Assuming the accuracy of the representations
and warranties of Investors contained in Article II hereof, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the
Securities to any person or persons so as to bring the sale of such Securities
by the Company within the registration provisions of the Securities Act or any
state securities laws.

         3.26     Application of Takeover Protections. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its incorporation
which is or could become applicable to the Investors as a result of the

                                       12

<PAGE>

transactions contemplated by this Agreement, including, without limitation, the
Company's issuance of the Securities and the Investors' ownership of the
Securities.

                                   ARTICLE IV
                                    COVENANTS

         4.1      Best Efforts. Each party will use its best efforts to satisfy
in a timely fashion each of the conditions to be satisfied by it under Articles
VI and VII of this Agreement.

         4.2      Form D; Blue Sky Laws. The Company will file a Notice of Sale
of Securities on Form D with respect to the Securities, as required under
Regulation D, and will provide a copy thereof to each Investor promptly after
such filing. The Company will, on or before the Closing Date, take such action
as it reasonably determines to be necessary to qualify the Securities for sale
to the Investors under this Agreement under applicable securities (or "blue
sky") laws of the states of the United States (or to obtain an exemption from
such qualification), and will provide evidence of any such action so taken to
the Investors on or prior to the date of the Closing. The Company will file with
the SEC a Current Report on Form 8-K disclosing this Agreement and the
transactions contemplated hereby within five business days after the Closing
Date and will make any required notice filings with state securities law
authorities on a timely basis.

         4.3      Reporting Status; Eligibility to Use Form S-3. The Company's
Common Stock is registered under Section 12 of the Exchange Act. Throughout the
Registration Period (as defined in the Registration Rights Agreement), the
Company will timely file all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under the reporting
requirements of the Exchange Act, and the Company will not terminate its status
as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination. The Company currently meets, and will take all reasonably necessary
action to continue to meet, the "registrant eligibility" requirements set forth
in the general instructions to Form S-3.

         4.4      Use of Proceeds. The Company will use the proceeds from the
sale of the Securities for repayment of debt to institutional lenders and will
not otherwise, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other entity.

         4.5      Expenses. Upon the consummation of the sale of the Convertible
Notes and Warrants anticipated by this Agreement, or upon failure by the parties
to consummate such sales, the Company will pay the reasonable out-of-pocket
expenses incurred by the Investors in connection with the transactions herein
contemplated, including without limitation consulting fees incurred, research
reports purchased, travel and lodging expenses incurred during the due diligence
process, and the fees and out-of-pocket expenses of Faegre & Benson LLP for
their services as special counsel to the Investors in connection with the
transactions herein contemplated, up to an aggregate amount of $30,000. The
Company will also pay (a) all fees and expenses incurred by the Investors with
respect to any amendments or waivers requested by the Company (whether or not
the same become effective) under or in respect of this Agreement or the
agreements contemplated hereby; (b) all fees and expenses incurred by the
Investors with

                                       13

<PAGE>

respect to the enforcement of the rights granted under this Agreement or the
agreements contemplated hereby; and (c) all fees and expenses incurred by the
Investors in connection with the registration of the Registrable Securities (as
defined in the Registration Rights Agreement) pursuant to Article V of the
Registration Rights Agreement.

         4.6      Financial Information; Notice of Conversion Price and Events
of Default. The financial statements of the Company will be prepared in
accordance with United States generally accepted accounting principles,
consistently applied, and will fairly present in all material respects the
consolidated financial position of the Company and results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). The Company will send the
following reports to each Investor until such Investor transfers, assigns, or
sells all of the Securities owned by it: (a) contemporaneously with the making
available or giving to the stockholders of the Company, copies of any notices or
other information the Company makes available or gives to its stockholders that
is not electronically provided via the World Wide Web by the SEC, (b) within 90
days after the end of each fiscal year, written notice of the current conversion
price for the Convertible Notes and the exercise price for the Warrants,
including a brief statement indicating any adjustments reasonably anticipated;
and (c) concurrently with the delivery in each year of the Company's Annual
Report on Form 10-K, a statement signed by the Chief Executive Officer and Chief
Financial Officer of the Company to the effect that there is no condition or
event which constitutes an Event of Default or which, after notice or lapse of
time or both, would constitute an Event of Default.

         4.7      Listing. On or before the 10th business day after the date of
this Agreement, the Company will secure the listing of the Conversion Shares,
PIK Interest Shares and Warrant Shares upon each national securities exchange or
automated quotation system, including without limitation the Nasdaq, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and, so long as any Investor owns any of the Securities, will maintain
such listing of all such Conversion Shares, PIK Interest Shares and Warrant
Shares. The Company will use its best efforts to obtain and, so long as any
Investor owns any of the Securities, maintain the listing and trading of its
Common Stock on Nasdaq, the American Stock Exchange or the New York Stock
Exchange and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the National Association of
Securities Dealers, Inc. and such exchanges or automated quotation system, as
applicable. The Company will promptly provide to each Investor copies of any
notices it receives regarding the continued eligibility of the Common Stock for
listing on Nasdaq or other principal exchange or quotation system on which the
Common Stock is listed or traded.

         4.8      Solvency; Corporate Existence; Compliance with Law. The
Company (both before and after giving effect to the transactions contemplated by
this Agreement) is solvent (i.e., its assets have a fair market value in excess
of the amount required to pay its probable liabilities on its existing debts as
they become absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not have, nor
does it intend to take any action that would impair its ability to pay its debts
from time to time incurred in connection therewith as such debts mature. The
Company will maintain its corporate existence in good standing. The Company will
conduct its business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,

                                       14

<PAGE>

including, without limitation, all applicable local, state and federal
environmental laws and regulations, where the failure to comply with such would
have a Material Adverse Effect.

         4.9      Insurance. The Company will maintain liability, casualty and
other insurance (subject to customary deductions and retentions) with
responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size and in lines of
business of the Company.

         4.10     No Integration. The Company will not make any offers or sales
of any security (other than the Securities) under circumstances that would cause
the offering of Securities to be integrated with any other offering of
securities by the Company (i) for the purpose of any shareholders approval
provision applicable to the Company or its securities or (ii) for purposes of
any registration requirement under the Securities Act.

         4.11     Reservation of Shares. The Company will at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for (i) issuance of the PIK Interest Shares,
(ii) the full conversion of the outstanding Convertible Notes and issuance of
the Conversion Shares in connection therewith (based on the conversion price of
the Convertible Notes in effect from time to time), and (iii) the full exercise
of the Warrants and the issuance of the Warrant Shares in connection therewith
(based upon the exercise price of the Warrants in effect from time to time). The
Company will not reduce the number of shares of Common Stock reserved for
issuance (i) of the PIK Interest Shares, (ii) upon conversion of the Convertible
Notes, or (iii) upon exercise of the Warrants, without the consent of all the
Investors. The Company will use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for issuance at no less than
2,575,000 shares. If at any time the number of shares of Common Stock authorized
and reserved for issuance is below the number of PIK Interest Shares, Conversion
Shares and Warrant Shares issued and issuable in connection with or upon
conversion of the Convertible Notes and exercise of the Warrants (based on the
conversion price of the Convertible Notes and exercise price of the Warrants
then in effect), the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company's obligations under this Section 4.11, in the case of
an insufficient number of authorized shares, and using its best efforts to
obtain shareholder approval of an increase in such authorized number of shares.

         4.12     Sales by Investors. Each Investor will sell any Securities
sold by it in compliance with applicable prospectus delivery requirements, if
any, or otherwise in compliance with the requirements for an exemption from
registration under the Securities Act and the rules and regulations promulgated
thereunder. No Investor will make any sale, transfer or other disposition of the
Securities in violation of federal or state securities laws.

                                       15

<PAGE>

         4.13     Additional Equity Capital; Right of First Refusal.

                  (a)      Subject to the exceptions described below, during the
period beginning on the Closing Date and ending 12 months following the Closing
Date, the Company will not effect any equity offering, including any debt
financing with an equity component and any offering involving warrants or other
securities convertible into or exchangeable for Common Stock ("Future Offering")
at an effective price per share of Common Stock, on the date of issuance
thereof, or, in the case of a security convertible into or exercisable for
Common Stock, the date of the issuance of such convertible security (taking into
account the value of any warrants or options to acquire Common Stock issued in
connection therewith), less than the conversion price of the Convertible Notes
in effect immediately prior to the time of such issue or sale, unless it first
delivers to each Investor, at least 30 days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering, including the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith, and providing each Investor an option during the
10-day period following delivery of such notice to purchase its pro rata share
of the securities being offered in the Future Offering ("Additional Securities")
on the same terms as contemplated by such Future Offering (the limitations
referred to in this Section 4.13(a) is referred to as the "Capital Raising
Limitation"). In the event that the terms and conditions of a proposed Future
Offering are amended in any material respect after delivery of the notice to the
Investors concerning the proposed Future Offering, the Company will deliver a
new notice to the Investors describing the amended terms and conditions of the
proposed Future Offering and each Investor thereafter will have an option,
during the 10-day period following delivery of such new notice, to purchase the
Additional Securities on such amended terms. The foregoing sentence applies to
successive amendments to the terms and conditions of any proposed Future
Offering.

                  (b)      The Capital Raising Limitation does not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the Securities Act), or (ii) issuances of securities as consideration
for a merger, acquisition, consolidation or purchase of assets, or in connection
with any strategic investments, joint venture or similar commercial relationship
(the primary purpose of which is not to raise equity capital). The Capital
Raising Limitation also does not apply to (x) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof or upon exercise or conversion of
or in connection with the Convertible Notes or the Warrants, or (y) the grant of
additional options or warrants, or the issuance of additional securities
pursuant to such additional options or warrants, under the Option Plans.

                  (c)      An Investor's "pro rata share" is the number of
shares of Additional Securities (rounded to the nearest whole share or dollar
amount) as is equal to the product of (a)(i) the number of shares of Common
Stock issuable upon the conversion of the Convertible Notes and Warrants held by
such Investor immediately prior to the issuance of the Additional Securities
being offered plus any shares of Common Stock held by such Investor, divided by
(ii) the total number of shares of Common Stock issuable upon conversion of all
outstanding options, warrants and other convertible securities by the Company
immediately prior to the

                                       16

<PAGE>

issuance of the Additional Securities, multiplied by (b) the entire offering of
Additional Securities.

         4.14     Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by an Investor in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement; provided
that an Investor and its pledgee shall be required to comply with the provisions
of Section 2.6 hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.

         4.15     Disclosure of Transactions and Other Material Information.
Upon the request of any Investor following the date of this Agreement, the
Company shall not, and shall cause each Subsidiary and each of its respective
officers, directors, employees and agents, not to, provide any such Investor
with any material nonpublic information regarding the Company or any Subsidiary
from and after the date of such request without the express written consent of
such Investor. In the event of a breach of the foregoing covenant by the
Company, any Subsidiary, or its each of respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, such Investor shall have the right to demand that the
Company make a public disclosure, and if the Company fails to do so within five
business days, the Investor may make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material nonpublic
information without the prior approval by the Company, each Subsidiary, or each
of its respective officers, directors, employees or agents. In such event, such
Investor shall provide a copy of such public disclosure to the Company at or
prior to the dissemination of such disclosure to the public. No Investor shall
have any liability to the Company, any Subsidiary, or any of its or their
respective officers, directors, employees, shareholders or agents for any such
disclosure unless such Investor acts with negligence or willful misconduct.
Subject to the foregoing, neither the Company nor any Investor shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby without the prior approval of the other party; which
approval shall not be unreasonably withheld or delayed; provided, however, that
the Company shall be entitled, without the prior approval of any Investor, to
make any press release or other public disclosure with respect to such
transactions (i) in a Current Report on Form 8-K in compliance with the
requirements of the Exchange Act, and (ii) as may otherwise be required by
applicable law and regulations, including the applicable rules and regulations
of the Nasdaq (provided that in the case of clause (i) each Investor shall be
provided a copy of any proposed press release to be issued by the Company at
least one day prior to its release).

         4.16     Company Business Review. For so long as an Investor holds any
Convertible Notes, the Investor shall be entitled to a monthly business review
meeting with the Company's executive management.

                                       17

<PAGE>

                                    ARTICLE V
                 TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS

         5.1      Issuance of Certificates. The Company will instruct its
transfer agent to issue certificates, registered in the name of each Investor or
its nominee, for Conversion Shares, PIK Interest Shares and Warrant Shares in
such amounts as specified from time to time by each Investor to the Company
issuable in connection with or upon conversion of the Convertible Notes or
exercise of the Warrants in accordance with their terms. All such certificates
will bear the restrictive legend described in Section 2.7, except as otherwise
specified in this Article V. In addition, the Company will issue irrevocable
Transfer Agent Instructions to the transfer agent in the form of Exhibit D
hereto. The Company will not give to its transfer agent any instruction other
than as described in this Article V and stop transfer instructions to give
effect to Section 2.7 hereof (prior to registration of the Conversion Shares,
PIK Interest Shares and Warrant Shares under the Securities Act). Nothing in
this Section 5.1 will affect in any way the Investors' obligations and agreement
set forth in Section 2.7 hereof to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Conversion Shares, PIK
Interest Shares and Warrant Shares.

         5.2      Unrestricted Securities. If, unless otherwise required by
applicable state securities laws, (a) the resale of the Securities represented
by a certificate has been registered under an effective registration statement
filed under the Securities Act, (b) a holder of Securities provides the Company
and the Transfer Agent with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Securities may be made without registration
under the Securities Act and such sale either has occurred or may occur without
restriction on the manner of such sale or transfer, (c) such holder provides the
Company and the Transfer Agent with reasonable assurances that such Securities
can be sold under Rule 144, or (d) the Securities represented by a certificate
can be sold without restriction as to the number of securities sold under Rule
144(k), the Company will permit the transfer of the Conversion Shares, PIK
Interest Shares or Warrant Shares, and the Transfer Agent will issue one or more
certificates, free from any restrictive legend, in such name and in such
denominations as specified by such holder. Notwithstanding anything herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement; provided that such pledge
will not alter the provisions of this Article V with respect to the removal of
restrictive legends.

         5.3      Enforcement of Provision. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to each
Investor by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Article V will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section, that each Investor will be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.

                                       18

<PAGE>

                                   ARTICLE VI
                 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL

         The obligation of the Company to issue and sell the Convertible Notes
to each Investor at the Closing is subject to the satisfaction by such Investor,
on or before the Closing Date, of each of the following conditions. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:

         6.1      The Investor will have executed this Agreement and the
Registration Rights Agreement and will have delivered those agreements to the
Company.

         6.2      The Investor will have delivered the purchase price for the
Convertible Notes to the Company in accordance with this Agreement.

         6.3      The representations and warranties of the Investor must be
true and correct in all material respects as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties must be correct as of such
date), and the Investor will have performed and complied in all material
respects with the covenants and conditions required by this Agreement to be
performed or complied with by the Investor at or prior to the Closing.

         6.4      No statute, rule, regulation, executive order, decree, ruling
or injunction will have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

                                   ARTICLE VII
               CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE

         The obligation of each Investor hereunder to purchase the Convertible
Notes from the Company at the Closing is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions. These conditions
are for each Investor's respective benefit and may be waived by any Investor at
any time in its sole discretion:

         7.1      The Company will have executed this Agreement and the
Registration Rights Agreement and each such Agreement will have been delivered
the Investor.

         7.2      The Company will have delivered to the Investors duly executed
Convertible Notes and duly executed Warrants in the amounts specified in
Sections 1.1 and 1.4 hereof.

         7.3      The representations and warranties of the Company must be true
and correct in all material respects as of the Closing as though made at that
time (except for representations and warranties that speak as of a specific
date, which representations and warranties must be true and correct as of such
date) and the Company must have performed and complied in all material respects
with the covenants and conditions required by this Agreement to be performed or
complied with by the Company at or prior to the Closing. The Investor must have
received a

                                       19

<PAGE>

certificate or certificates dated as of the Closing Date and executed by the
Chief Executive Officer or the Chief Financial Officer of the Company certifying
as to the matters in contained in this Section 7.3 and Section 7.8 and as to
such other matters as may be reasonably requested by such Investor, including,
but not limited to, the Company's Articles of Incorporation, By-laws, Board of
Directors' resolutions relating to the transactions contemplated hereby and the
incumbency and signatures of each of the officers of the Company who may execute
on behalf of the Company any document delivered at the Closing.

         7.4      No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction will have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.

         7.5      Trading and listing of the Common Stock on the Nasdaq must not
have been suspended by the SEC or the Nasdaq, nor shall Nasdaq have notified the
Company of any failure of the Company to meet any of the continued listing
standards.

         7.6      The Investors will have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Investors and in substantially the form attached hereto as
Exhibit E.

         7.7      The Irrevocable Transfer Agent Instructions, in form and
substance substantially like the form attached hereto as Exhibit D will have
been delivered to the Company's transfer agent and acknowledged in writing by
such transfer agent.

         7.8      There shall exist at the time of Closing no condition or event
which would constitute an Event of Default (as hereinafter defined) or which,
after notice or lapse of time or both, would constitute an Event of Default.

                                  ARTICLE VIII
                                     DEFAULT

         8.1      Events of Default. Each of the following events shall be an
event of default (an "Event of Default") for purposes of this Agreement:

                  (a)      if default shall be made in the punctual payment of
         PIK Interest on the Convertible Notes, and such default shall have
         continued for a period of 15 days after written notice thereof to the
         Company by the holder of any of the Convertible Notes; or

                  (b)      if default shall be made in the punctual payment of
         any installment of the principal of the Convertible Notes and such
         default shall have continued for a period of 15 days after written
         notice thereof to the Company by the holder of any of the Convertible
         Notes; or

                                       20

<PAGE>

                  (c)      if the Company shall default in any other manner with
         respect to any of its obligations under the Convertible Notes,
         including without limitation obligations to repurchase the Convertible
         Notes under certain circumstances or issue Common Stock upon conversion
         of any Convertible Note, and such default shall not have been cured by
         the Company or waived by the holder or holders of a majority of the
         Convertible Notes within 15 days after notice thereof is given to the
         Company by any Investor; or

                  (d)      if the Company shall default in any of its
         obligations under the Registration Rights Agreement, including without
         limitation a default in filing promptly any registration statement
         required by the Registration Rights Agreement; or

                  (e)      if the Company shall default in any of its
         obligations under the Warrants, including without limitation failing to
         issue Common Stock upon exercise of any Warrant; or

                  (f)      if the Company or any Subsidiary becomes insolvent or
         bankrupt, or admits in writing its inability to pay its debts as they
         mature, or makes an assignment for the benefit of creditors, or ceases
         doing business as a going concern, or the Company or any Subsidiary
         applies for or consents to the appointment of a trustee or receiver for
         the Company or any Subsidiary, or for the major part of the property of
         either; or

                  (g)      if a trustee or receiver is appointed for the Company
         or any Subsidiary or for the major part of the property of either and
         the order of such appointment is not discharged, vacated or stayed
         within 30 days after such appointment; or

                  (h)      if any judgment, writ or warrant of attachment or of
         any similar process in an amount in excess of $150,000 shall be entered
         or filed against the Company or any Subsidiary or against any of the
         property or assets of either and remains unpaid, unvacated, unbonded or
         unstayed for a period of 30 days; or

                  (i)      if an order for relief shall be entered in any
         Federal bankruptcy proceeding in which the Company or any Subsidiary is
         the debtor; or if bankruptcy, reorganization, arrangement, insolvency,
         or liquidation proceedings, or other proceedings for relief under any
         bankruptcy or similar law or laws for the relief of debtors, are
         instituted by or against the Company or any Subsidiary and, if
         instituted against the Company or any Subsidiary, are consented to or,
         if contested by the Company or the Subsidiary, are not dismissed by the
         adverse parties or by an order, decree or judgment within 45 days after
         such institution; or

                  (j)      if the Company or any Subsidiary shall default in any
         material respect in the due and punctual performance of any covenant or
         agreement in any

                                       21

<PAGE>

         note (including without limitation any of the Convertible Notes), bond,
         indenture, loan agreement, note agreement, mortgage, security agreement
         or other instrument evidencing or related to Indebtedness for Borrowed
         Money, and such default shall continue for more than the period of
         notice and/or grace, if any, therein specified and shall not have been
         waived; or

                  (k)      (A) if any representation or warranty made by or on
         behalf of the Company in this Agreement or in any certificate, report
         or other instrument delivered under or pursuant to any term hereof or
         thereof shall prove to have been untrue or incorrect in any material
         respect as of the date of this Agreement or as of the Closing Date, or
         (B) if any report, certificate, financial statement or financial
         schedule or other instrument prepared by the Company or any officer of
         the Company furnished or delivered under or pursuant to this Agreement
         after the Closing Date shall prove to be untrue or incorrect in any
         material respect as of the date it was made, furnished or delivered; or

                  (l)      if default shall be made in the due and punctual
         performance or observance of any other term contained in this
         Agreement, the Warrants or the Convertible Notes, and such default
         shall have continued for a period of 15 days after written notice
         thereof to the Company by the holder of any Convertible Note.

         8.2      Remedies Upon Events of Default. For so long as any
Convertible Note remains outstanding, upon the occurrence of an Event of Default
as herein defined, and so long as such Event of Default continues unremedied,
then, each holder of any Securities shall be entitled by notice to declare the
principal of and any accrued PIK Interest on the Convertible Notes, to be
immediately due and payable, and thereupon the Convertible Notes, including both
principal and PIK Interest shall become immediately due and payable; provided,
however, that when any Event of Default described in Section 8.1(i) hereof has
occurred, the Convertible Notes shall immediately become due and payable without
presentment, demand or notice of any kind.

         8.3      Notice of Defaults. When, to its knowledge, any Event of
Default has occurred or exists, the Company agrees to give written notice within
three business days of such Event of Default to the holders of all outstanding
Securities. If the holder of any Securities shall give any notice or take any
other actions in respect of a claimed Event of Default, the Company will
forthwith give written notice thereof to all other holders of Securities at the
time outstanding, describing such notice or action and the nature of the claimed
Event of Default.

         8.4      Suits for Enforcement. In case any one or more Events of
Default shall have occurred and be continuing, any holder of the Securities may
proceed to protect and enforce its rights under this Article VIII by suit in
equity or action at law. It is agreed that in the event of such action such
holders of Securities shall be entitled to receive all reasonable fees, costs
and expenses incurred, including without limitation such reasonable fees and
expenses of attorneys (whether or not litigation is commenced) and reasonable
fees, costs and expenses of appeals.

                                       22

<PAGE>

         8.5      Remedies Cumulative. No right, power or remedy conferred upon
any holder of Securities shall be exclusive, and each such right, power or
remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred hereby or by any such security or now or hereafter
available at law or in equity or by statute or otherwise.

         8.6      Remedies not Waived. No course of dealing between the Company
and any Investor or the holder of any Securities, and no delay in exercising any
right, power or remedy conferred hereby or by any such security or now or
hereafter existing at law or in equity or by statute or otherwise, shall operate
as a waiver of or otherwise prejudice any such right, power or remedy; provided,
however, that this Section 8.6 shall not be construed or applied so as to negate
the provisions and intent of any statute which is otherwise applicable.

                                   ARTICLE IX
                                 INDEMNIFICATION

         9.1      Indemnification by Company. In consideration of each
Investor's execution and delivery of this Agreement and its acquisition of the
Securities hereunder, and in addition to all of the Company's other obligations
under this Agreement, the Registration Rights Agreement, the Warrants and the
Convertible Notes, the Company will defend, protect, indemnify and hold harmless
each Investor and each other holder of the Securities and all of their
shareholders, officers, directors, employees, advisors and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (regardless of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred or
suffered by an Indemnitee as a result of, or arising out of, or relating to (a)
any breach of any representation or warranty made by the Company herein or in
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
herein or in any other certificate, instrument or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance, breach or enforcement of this Agreement, the Registration Rights
Agreement, the Warrants or the Convertible Notes by the Company, (d) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (e) the
status of such Investor or holder of the Securities as an investor in the
Company to the extent such status arises from actions or inaction by the Company
in violation of law. To the extent that the foregoing undertaking by the Company
is unenforceable for any reason, the Company will make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.

                                       23

<PAGE>

         9.2      Indemnification by Investors. Each Investor, severally and not
jointly, will defend, protect, indemnify and hold harmless the Company all of
its shareholders, officers, directors, employees and direct or indirect
investors and any of the foregoing person's agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement)(collectively, the "Company
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (regardless of whether any such Company Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified Company
Liabilities") incurred by a Company Indemnitee solely as a result of, or arising
solely out of, or relating solely to (a) any breach of any representation or
warranty made by such Investor herein or in any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Investor contained herein or in any other
certificate, instrument or document contemplated hereby or thereby, or (c) the
failure of an Investor to comply with the requirements of the Securities Act or
any state securities laws, which failure is not caused by the negligence or
willful misconduct of the Company.

                                    ARTICLE X
                                   DEFINITIONS

         10.1     "Additional Shares" has the meaning set forth in Section 4.13.

         10.2     "Capital Raising Limitation" has the meaning set forth in
Section 4.13.

         10.3     "Closing" means the closing of the purchase and sale of the
Convertible Notes under this Agreement.

         10.4     "Closing Date" has the meaning set forth in Section 1.3.

         10.5     "Conversion Shares" means the shares of Common Stock issuable
upon conversion of the Convertible Notes or otherwise under Section 1.3 of the
Registration Rights Agreement.

         10.6     "Common Stock" means the common stock, par value $.10 per
share, of the Company.

         10.7     "Company" means Delphax Technologies Inc.

         10.8     "Company Permit" has the meaning set forth in Section 3.19.

         10.9     "Convertible Notes" means the 7% Convertible Subordinated
Notes issuable pursuant to this Agreement, in the form attached hereto as
Exhibit A, and all notes of the Company issued in exchange or substitution
therefor.

         10.10    "Environmental Laws" has the meaning set forth in Section
3.14.

         10.11    "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                                       24

<PAGE>

         10.12    "Future Offering" has the meaning set forth in Section 4.13.

         10.13    "Indebtedness for Borrowed Money" shall include only (i)
indebtedness of the Company and its Subsidiaries incurred as the result of a
direct borrowing of money, and (ii) guarantees by the Company and its
Subsidiaries of indebtedness of third parties, and shall not include any other
indebtedness including, but not limited to, indebtedness incurred with respect
to trade accounts, equipment leases, and intercompany loans.

         10.14    "Indemnified Liabilities" has the meaning set forth in Article
IX.

         10.15    "Indemnitees" has the meaning set forth in Article IX.

         10.16    "Intellectual Property" has the meaning set forth in Section
3.10.

         10.17    "Investors" means the investors whose names are set forth on
the signature pages of this Agreement, and their permitted transferees.

         10.18    "Material Adverse Effect" means a material adverse effect on
(a) the assets, liabilities, business, properties, operations, financial
condition, prospects or results of operations of the Company, (b) the ability of
the Company to perform its obligations pursuant to the transactions contemplated
by this Agreement or under the agreements or instruments to be entered into or
filed in connection herewith or (c) the Securities.

         10.19    "Nasdaq" means the Nasdaq National Market.

         10.20    Option Plans" means the Company's (i) 1986 Stock Option Plan;
(ii) 1991 Stock Option Plan; (iii) 1997 Stock Option Plan; and (iv) 2000 Stock
Option Plan.

         10.21    [This section has been left blank intentionally.]

         10.22    "PIK Interest" has the meaning set forth in Section 1.1.

         10.23    "PIK Interest Shares" has the meaning set forth in Section
1.1.

         10.24    "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement and among the parties to this
Agreement, in the form attached hereto as Exhibit C.

         10.25    "Regulation D" means Regulation D as promulgated by the SEC
under the Securities Act.

         10.26    "Rule 144" and "Rule 144(k)" mean Rule 144 and Rule 144(k),
respectively, promulgated under the Securities Act, or any successor rule.

         10.27    "Sarbanes-Oxley Act" has the meaning set forth in Section 3.7.

         10.28    "SEC" means the United States Securities and Exchange
Commission.

                                       25

<PAGE>

         10.29    "SEC Documents" has the meaning set forth in Section 3.7.

         10.30    "Securities" means the Convertible Notes, Conversion Shares,
PIK Interest Shares, Warrants and Warrant Shares.

         10.31    "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder, or any similar successor statute.

         10.32    "Shareholder Rights Plan" means the Company's Shareholder
Rights Plan adopted by the Company's Board of Directors effective March 22,
2002.

         10.33    "Subsidiaries" means any entity in which the Company, directly
or indirectly, owns capital stock or holds an equity or similar interest, as set
forth on Schedule 10.24.

         10.34    "Transaction Documents" shall have the meaning set forth in
Section 11.16.

         10.35    "Warrant Shares" means the shares of Common Stock issuable
upon the exercise (or otherwise) of the Warrants.

         10.36    "Warrants" means the stock purchase warrants of the Company,
in the form attached hereto as Exhibit B, to acquire shares of Common Stock.

                                   ARTICLE XI
                          GOVERNING LAW; MISCELLANEOUS

         11.1     Governing Law; Jurisdiction. This Agreement will be governed
by and interpreted in accordance with the laws of the State of Minnesota without
regard to the principles of conflict of laws. The parties hereto hereby submit
to the exclusive jurisdiction of the United States federal and state courts
located in the State of Minnesota with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.

         11.2     Counterparts; Signatures by Facsimile. This Agreement may be
executed in two or more counterparts, all of which are considered one and the
same agreement and will become effective when counterparts have been signed by
each party and delivered to the other parties. This Agreement, once executed by
a party, may be delivered to the other parties hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.

         11.3     Headings. The headings of this Agreement are for convenience
of reference only, are not part of this Agreement and do not affect its
interpretation.

         11.4     Severability. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to conform with such statute or rule of law.
Any provision hereof that may prove invalid or unenforceable under any law will
not affect the validity or enforceability of any other provision hereof.

                                       26

<PAGE>

         11.5     Entire Agreement. This Agreement, the Registration Rights
Agreement, the Convertible Notes and the Warrants (including all schedules and
exhibits thereto) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.

         11.6     Consents; Waivers and Amendments. Except as otherwise
specifically provided herein, in each case in which approval of the Investors is
required by the terms of this Agreement, such requirement shall be satisfied
only upon receipt of the written consent of each Investor.

         11.7     Changes, Waivers, etc. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought.

         11.8     Notices. Any notices required or permitted to be given under
the terms of this Agreement must be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and will be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally, by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications are:

         If to the Company:               Delphax Technologies Inc.
                                          12500 Whitewater Drive
                                          Minnetonka, Minnesota 55343
                                          Attn: Robert M. Barniskis
                                          Facsimile: (952) 939-1151

         With a copy to:                  Lindquist & Vennum, PLLP
                                          4200 IDS Center
                                          80 South Eighth Street
                                          Attn: Richard D. McNeil
                                          Facsimile: (612) 371-3207

         If to an Investor: To the address set forth immediately below such
Investor's name on the signature pages hereto.

         With a copy to:                  Faegre & Benson LLP
                                          2200 Wells Fargo Center
                                          90 South Seventh Street
                                          Minneapolis, Minnesota 55402
                                          Attn: Mark A. Sides
                                          Facsimile: (612) 766-1600

         Each party will provide written notice to the other parties of any
change in its address.

                                       27

<PAGE>

         11.9     Successors and Assigns. This Agreement is binding upon and
inures to the benefit of the parties and their successors and assigns. The
Company will not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors, and no Investor may assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Company. Notwithstanding the foregoing, an Investor may assign
all or part of its rights and obligations hereunder to any of its "affiliates,"
as that term is defined under the Securities Act, without the consent of the
Company so long as the affiliate is an accredited investor (within the meaning
of Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement. This provision does not limit the Investor's right to transfer
the Securities pursuant to the terms of this Agreement or to assign the
Investor's rights hereunder to any such transferee pursuant to the terms of this
Agreement.

         11.10    Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

         11.11    Survival. All representations and warranties contained herein
shall survive the execution and delivery of this Agreement, any investigation at
any time made by the Investors or on their behalf, and the sale and purchase of
the Convertible Notes and the Warrants and payment therefor. All statements
contained in any certificate, instrument or other writing delivered by or on
behalf of the Company pursuant hereto or in connection with or contemplation of
the transactions herein contemplated (other than legal opinions) shall
constitute representations and warranties by the Company hereunder.

         11.12    Publicity. The Company and each Investor have the right to
review, a reasonable period of time before issuance thereof, any press releases,
or relevant portions of any SEC or Nasdaq filings or any other public
statements, with respect to the transactions contemplated hereby. However, the
Company may make any press release or SEC or Nasdaq filings with respect to such
transactions as are required by applicable law and regulations (including NASD
requirements) without the prior approval of the Investors (although the Company
will make reasonable efforts to consult with the Investors in connection with
any such press release prior to its release and filing).

         11.13    Further Assurances. Each party will do and perform, or cause
to be done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

         11.14    No Strict Construction. The language used in this Agreement is
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

         11.15    Equitable Relief. The Company recognizes that, if it fails to
perform or discharge any of its obligations under this Agreement, any remedy at
law may prove to be inadequate relief

                                       28

<PAGE>

to the Investors. The Company therefore agrees that the Investors are entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages.

         11.16    Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any of the Convertible Note, Warrant,
Registration Rights Agreement or this Agreement (collectively, the "Transaction
Documents") are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of
the obligations of any other Investor under any Transaction Document. Nothing
contained herein or in any Transaction Document, and no action taken by any
Investor pursuant thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Document. Each Investor shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. Each Investor has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. The Company has elected to provide all Investors with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Investors.

         11.17    Restrictions Upon Issuances of Securities. Unless Shareholder
Approval has been obtained, the Company shall not make any issuance whatsoever
of any security (whether Common Stock, Preferred Stock or other convertible
instruments) that would result in an adjustment of the Initial Conversion Price
under the Convertible Note(s) (other than pursuant to Section 3(ii) of the
Convertible Note(s)) or the Initial Exercise Price under the Warrant(s). For
purposes of this Section 11.17, "Shareholder Approval" shall have the meaning
set forth in the Convertible Note(s) or Warrant(s), as the case may be.

                                       29

<PAGE>

         IN WITNESS WHEREOF, the undersigned Investors and the Company have
caused this Agreement to be duly executed as of the date first above written.

                                      COMPANY:

                                      DELPHAX TECHNOLOGIES INC.

                                      By: /s/ Robert M. Barniskis
                                          --------------------------------------
                                          Name:  Robert M. Barniskis
                                          Title: Vice President, Chief Financial
                                                 Office and Secretary

                       [Signatures continued on next page]

<PAGE>

                                      INVESTOR:

                                      Tate Capital Partners Fund, LLC
                                      By Tate Capital Partners, LLC
                                      Its Managing Member
                                      By Tate Capital Management, LLC
                                      Its Managing Member

                                          By: /s/ Kurtis J. Winters
                                              ----------------------------------
                                                  Kurtis J. Winters
                                                  Managing Member

Aggregate Principal Amount: $3,000,000

ADDRESS:

         Tate Capital Partners Fund, LLC
         3600 Minnesota Drive, Suite 525
         Minneapolis, MN 55435

(any notice hereunder to this Investor shall include a copy to):

         Faegre & Benson LLP
         2200 Wells Fargo Center
         90 South Seventh Street
         Minneapolis, Minnesota 55402
         Attn: Mark A. Sides<PAGE>

                                                                     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

                                       -1-
<PAGE>

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

                                      -2-
<PAGE>

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

                                      -3-
<PAGE>

         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.

                                      -4-
<PAGE>

                           (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

                                      -5-
<PAGE>

                  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

                                      -6-
<PAGE>

                  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

                                      -7-
<PAGE>

         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 receive stock,
         securities or assets with respect to or in exchange for Common Stock,
         then, as a condition of such reorganization, reclassification,
         consolidation, merger or sale, lawful and adequate provision shall be
         made whereby the holder hereof shall thereafter have the right to
         purchase and receive, upon the basis and upon the terms and conditions
         specified in this Convertible Note and in lieu of the shares of the
         Common Stock of the Company immediately theretofore receivable upon
         conversion hereof, such shares of stock, securities or assets as may be
         issued or payable with respect to or in exchange for a number of
         outstanding shares of such Common Stock equal to the number of shares
         of such stock immediately theretofore receivable upon conversion hereof
         had such reorganization, reclassification, consolidation, merger or
         sale not taken place, and in any such case appropriate provision shall
         be made with respect to the rights and interests of the holder of this
         Convertible Note to the end that the provisions hereof (including
         without limitation provisions for adjustments of the conversion price
         and of the number of shares issuable upon the conversion of this
         Convertible

                                      -8-
<PAGE>

         Note) shall thereafter be applicable, as nearly as may be, in relation
         to any shares of stock, securities or assets thereafter deliverable
         upon the conversion hereof. The Company shall not effect any such
         consolidation, merger or sale, unless prior to the consummation thereof
         the successor corporation (if other than the Company) resulting from
         such consolidation or merger or the corporation purchasing such assets
         shall assume, by written instrument executed and mailed to the
         registered holder hereof at the last address of such holder appearing
         on the books of the Company, the obligation to deliver to such holder
         such shares of stock, securities or assets as, in accordance with the
         foregoing provisions, such holder may be entitled to receive.

                  (viii)   Upon any adjustment of the conversion price, then and
         in each such case the Company shall give written notice thereof, by
         first-class mail, postage prepaid, addressed to the registered holder
         of this Convertible Note at the address of such holder as shown on the
         books of the Company, which notice shall state the conversion price
         resulting from such adjustment and the increase or decrease, if any, in
         the number of shares receivable at such price upon the conversion of
         this Convertible Note, setting forth in reasonable detail the method of
         calculation and the facts upon which such calculation is based.

                  (ix)     In case any time:

                           (1)      the Company shall declare any cash dividend
                  on its Common Stock at a rate in excess of the rate of the
                  last cash dividend theretofore paid;

                           (2)      the Company shall pay any dividend payable
                  in stock upon its Common Stock or make any distribution (other
                  than regular cash dividends) to the holders of its Common
                  Stock;

                           (3)      the Company shall offer for subscription pro
                  rata to the holders of its Common Stock any additional shares
                  of stock of any class or other rights;

                           (4)      there shall be any capital reorganization,
                  or reclassification of the capital stock of the Company, or
                  consolidation or merger of the Company with, or sale of all or
                  substantially all of its assets to, another corporation; or

                           (5)      there shall be a voluntary or involuntary
                  dissolution, liquidation or winding up of the Company;

         then, in any one or more of said cases, the Company shall give written
         notice, by first-class mail, postage prepaid, addressed to the
         registered holder of this Convertible Note at the address of such
         holder as shown on the books of the Company, of the date on which (aa)
         the books of the Company shall close or a

                                      -9-
<PAGE>

         record shall be taken for such dividend, distribution or subscription
         rights, or (bb) such reorganization, reclassification, consolidation,
         merger, sale, dissolution, liquidation or winding up shall take place,
         as the case may be. Such notice shall also specify the date as of which
         the holders of Common Stock of record shall participate in such
         dividend, distribution or subscription rights, or shall be entitled to
         exchange their Common Stock for securities or other property
         deliverable upon such reorganization, reclassification, consolidation,
         merger, sale, dissolution, liquidation or winding up, as the case may
         be. Such written notice shall be given at least 20 days prior to the
         action in question and not less than 20 days prior to the record date
         or the date on which the Company's transfer books are closed in respect
         thereto.

                  (x)      No fractional shares of Common Stock shall be issued
         upon the conversion of this Convertible Note, but, instead of any
         fraction of a share which would otherwise be issuable, the Company
         shall pay a cash adjustment in respect of such fraction in an amount
         equal to the same fraction of the market price per share of Common
         Stock as of the close of business on the date of the notice required by
         paragraph (b) above. "Market price" for purposes of this paragraph (x)
         shall mean, if the Common Stock is traded on a securities exchange or
         on the NASDAQ National Market System, the closing price of the Common
         Stock on such exchange or the NASDAQ National Market System, or, if the
         Common Stock is otherwise traded in the over-the-counter market, the
         closing bid price, in each case averaged over a period of 20
         consecutive business days prior to the date as of which "market price"
         is being determined. If at any time the Common Stock is not traded on
         an exchange or the NASDAQ National Market System, or otherwise traded
         in the over-the-counter market, the "market price" shall be deemed to
         be the higher of (i) the book value thereof as determined by any firm
         of independent public accountants of recognized standing selected by
         the Board of Directors of the Company 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 (ii) the fair value thereof determined in good faith
         by the Board of Directors of the Company as of a date which is within
         15 days of the date as of which the determination is to be made.

                  (xi)     As used herein, the term "Common Stock" shall mean
         and include the Company's presently authorized Common Stock and shall
         also include any capital stock of any class of the Company hereafter
         authorized which shall not be limited to a fixed sum or percentage in
         respect of the rights of the holders thereof to participate in
         dividends or in the distribution of assets upon the voluntary or
         involuntary liquidation, dissolution or winding up of the Company;
         provided that the shares issuable upon conversion of this Convertible
         Note shall include shares designated as Common Stock of the Company on
         the date of original issue of this Convertible Note or, in the case of
         any reclassification of the outstanding shares thereof, the stock,
         securities or assets provided for in paragraph (vii) above.

                                      -10-
<PAGE>

                  (xii)    Notwithstanding anything to the contrary contained in
         this Convertible Note, the payment of the PIK Interest Shares by the
         Company to holders of the Company's 7% convertible subordinated notes
         issued pursuant to the Purchase Agreement shall not trigger any of the
         anti-dilution provisions specified under this paragraph 3.

                  (xiii)   If any event occurs as to which in the opinion of the
         Board of Directors of the Company the other provisions of this
         paragraph 3 are not strictly applicable or if strictly applicable would
         not fairly protect the rights of the holder of this Convertible Note or
         of Common Stock in accordance with the essential intent and principles
         of such provisions, then the Board of Directors shall make an
         adjustment in the application of such provisions, in accordance with
         such essential intent and principles, so as to protect such rights as
         aforesaid.

         4.       CHANGE IN CONTROL PUT OPTION.

         (a)      In the event of a Change in Control (as hereinafter defined)
of the Company, the holder hereof shall have the option (the "Change in Control
Put Option") to require that this Convertible Note be redeemed by the Company in
whole (but not in part), at 120% of the outstanding unpaid Face Amount, plus all
unpaid PIK Interest accrued thereon to the redemption date.

         The Company shall give the holder of this Convertible Note written
notice of such impending transaction not later than 20 days prior to the
shareholders' meeting of the Company 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") and shall describe the material terms and
conditions of the transaction and of this paragraph 4(a) (including, without
limiting the generality of the foregoing, a description of the value of the
consideration, if any, being offered to the holders of the outstanding
securities of the Company), and 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 Convertible Note may not be pre-paid following the delivery of the first
notice delivered pursuant to this Section 4(a) except in an amount equal to 120%
of the then unpaid Face Amount. The 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.

                                      -11-
<PAGE>

         Any election to exercise the Change in Control Put Option shall be made
by the holder hereof giving written notice thereof to the Company at least two
days before the Effective Date (if no such notice is given, the provisions of
paragraph 3(vii) shall apply). Upon receipt of such notice, the Company shall,
on the Effective Date, redeem this Convertible Note in whole (but not in part)
at 120% of the outstanding unpaid Face Amount, plus all unpaid PIK Interest
accrued thereon to the Effective Date.

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

                  (i)      Approval by the shareholders of the Company of a
         reorganization, merger or consolidation of the Company or a statutory
         exchange of outstanding securities entitled to vote generally in the
         election of directors ("Voting Securities") of the Company, 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 the
         Company 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 the Company 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 the
         Company, as the case may be; or

                  (ii)     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 of the assets of the
         Company (in one or a series of transactions), other than to an entity
         with respect to which, immediately following such sale or other
         disposition, more than 50% of, respectively, the combined voting power
         of the then outstanding voting securities of such entity entitled to
         vote generally in the election of directors and the then outstanding
         shares of common stock of such entity is then beneficially owned,
         directly or indirectly, by all or substantially all of the persons who
         were the beneficial owners, respectively, of the Voting Securities and
         shares of the Company immediately prior to such sale or other
         disposition in substantially the same proportions as their ownership,
         immediately prior to such sale or other disposition, of the Voting
         Securities and shares of the Company, as the case may be.

         (b)      Nothing hereinabove set forth in this paragraph 5 shall affect
in any way the right of the holder of this Convertible Note to convert this
Convertible Note at any time and from time to time in accordance with paragraph
1 hereof.

                                      -12-
<PAGE>

         (c)      In the event that the holder hereof fails to exercise its
Change in Control Put Option as provided for herein within 20 days after the
Effective Date, then the Change in Control Put Option shall be deemed to be null
and void, and the holder hereof shall be deemed to have irrevocably waived its
right to exercise the Change in Control Put Option and the Change in Control Put
Option shall be of no further force or effect.

         5.       RANKING; SUBORDINATION.

         (a)      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 Convertible Note shall be
(1) subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to the Company's current and future obligations to banks
and institutional lenders ("Senior Debt"), a list of the existing Senior Debt
outstanding as of the date hereof is attached hereto as SCHEDULE 5(A)(1); (2) on
par in right of payment with all of the Company's 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 5(A)(2); and (3) senior in right of payment to all
of the Company's future Indebtedness for Borrowed Money except Senior Debt.

         (b)      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 Convertible Note is entitled to receive
any payment on account of principal or interest on this Convertible 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 Convertible
Note upon the Senior Debt and the holders thereof with respect to the
indebtedness evidenced by this Convertible 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 the Company and shares of Common
Stock of the Company issuable upon conversion of the Convertible Note) that may
be payable or deliverable in any such proceedings in respect of this Convertible
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 Convertible Note, except securities which
are subordinate in right of payment to the payment of the Senior Debt.

         (c)      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
Convertible Note (excepting only interest payments in the form of equity
securities of the Company and shares of Common Stock

                                      -13-
<PAGE>

of the Company issuable upon conversion of the Convertible Note), unless within
three months after the happening of such event of default, the maturity of such
Senior Debt shall not have been accelerated.

         (d)      In the event the holder hereof receives any payment or
property on this Convertible 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.

         (e)      Upon the payment in full of all Senior Debt, the holder of
this Convertible 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 Convertible 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 Convertible Note would be entitled except for the
subordination provisions of this Convertible Note shall, as between the Company,
its creditors other than the holders of Senior Debt, and the holder of this
Convertible Note, be deemed to be a payment by the Company to or on account of
Senior Debt.

         (f)      No present or future holder of Senior Debt shall be prejudiced
in such holder's right to enforce the subordination of this Convertible Note by
any act or failure to act on the part of the Company or the holder of this
Convertible 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 Convertible Note on the other hand, and
none of such provisions shall impair, as between the Company and the holder of
this Convertible Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder of this Convertible Note the principal and
interest thereon, in accordance with the terms hereof, nor shall any such
provisions prevent any holder of this Convertible Note from exercising all
remedies otherwise permitted by applicable law or under the terms of this
Convertible 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 Convertible Note.

         (g)      The Company covenants and agrees that so long as this
Convertible 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 Section 5(g) shall not apply to (a) any indebtedness,
liabilities or obligations of the Company to the holder; (b) any indebtedness,

                                      -14-
<PAGE>

liabilities or obligations of the Company specified in Schedule 5(a)(1) and
Schedule 5(a)(2); (c) any refinancing of any of the indebtedness, liabilities or
obligations of the Company specified in Schedule 5(a)(1) (provided, however that
such refinancing is completed with a commercial bank or other investment grade
lending institution 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 Convertible Note); (d) any
indebtedness, liabilities or obligations incurred by the Company in the future
to a commercial bank or other investment grade lending institution, 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 Convertible
Note; and (e) indebtedness, liabilities or obligations incurred by the Company
in the ordinary course of business.

         (h)      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 the Investor (the "Subordination Agreement"). To the
extent there is any conflict between the provisions of this paragraph 5 and the
Subordination Agreement, the Subordination Agreement 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.

         6.       REGISTRATION RIGHTS. The Company covenants and agrees that the
holder of this Convertible Note shall have the rights of an Investor under the
Purchase Agreement and Registration Rights Agreement, each dated as of the date
hereof among the Company and the Investors named on the signature pages thereto.

         7.       RESTRICTIONS UPON CONVERSION.

         (a)      No Investor shall have the right to exercise this Convertible
Note, to the extent that after giving effect to such exercise, such Investor
(together with its affiliates) would beneficially own in excess of 4.99% of the
shares of the Common Stock outstanding immediately after giving effect to such
exercise. For purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by such Investor and its affiliates shall
include the number of shares of Common Stock issuable upon conversion of this
Convertible Note with respect to which the determination of such sentence is
being made, but shall exclude shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unconverted portion of this Convertible Note
beneficially owned by such Investor and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Investor and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Convertible Note, in determining the number of
outstanding shares of Common Stock an Investor may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Quarterly Report on Form 10-Q, Annual Report on

                                      -15-
<PAGE>

Form 10-K or other public filing with the SEC, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by the Company
or its transfer agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of the
Investor, the Company shall, within three business days, confirm orally or in
writing to the Investor the number of shares of Common Stock then outstanding.
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company by the Investor and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The restriction
described in this paragraph 7 may be revoked upon 60 days prior written notice
by the Investor to the Company.

         (b)      If the Company has not obtained Shareholder Approval (as
defined below), if required by the applicable rules and regulations of the
Nasdaq National Market (or any successor entity), then the Company may not issue
upon conversion of the Convertible Notes and payment of PIK Interest issued and
outstanding under the Purchase Agreement, in the aggregate, in excess of 19.999%
of the number of shares of Common Stock outstanding on the trading day
immediately preceding the date hereof (the "Original Issue Date") (such number
of shares, the "Issuable Maximum"). Each Investor shall be entitled to a portion
of the Issuable Maximum equal to the quotient obtained by dividing (x) the
aggregate principal amount of the Convertible Note(s) issued and sold to such
Investor on the Original Issue Date by (y) the aggregate principal amount of all
Convertible Notes issued and sold by the Company on the Original Issue Date. If
any Investor shall no longer hold the Convertible Note(s), then such Investor's
remaining portion of the Issuable Maximum shall be allocated pro-rata among the
remaining Investors. If on any conversion date: (A) the applicable conversion
price then in effect is such that the shares issuable under this Convertible
Note on any conversion date together with the aggregate number of shares of
Common Stock that would then be issuable upon conversion in full of all then
outstanding Convertible Notes would exceed the Issuable Maximum, and (B) the
Company's shareholders shall have previously disapproved the transactions
contemplated by the Purchase Agreement, as may be required by the applicable
rules and regulations of the Nasdaq National Market (or any successor entity),
if any (the "Shareholder Approval"), then the Company shall issue to the
Investor requesting a conversion a number of shares of Common Stock equal to
such Investor's pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum and, with respect to the remainder of the
aggregate principal amount of the Convertible Notes (including any accrued
interest) then held by such Investor for which a conversion in accordance with
the applicable conversion price would result in an issuance of shares of Common
Stock in excess of such Investor's pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum (the "Excess Principal"),
the Company shall be prohibited from converting such Excess Principal, and shall
notify the Investor of the reason therefor. This Convertible Note shall
thereafter be unconvertible until and unless Shareholder Approval is
subsequently obtained or is otherwise not required, but this Convertible Note
shall otherwise remain in full force and effect. The Company and the Investor
understand and agree that shares of Common Stock issued to and then held by the
Investor as a result of conversions of Convertible Notes shall not be entitled
to cast votes on any resolution to obtain Shareholder Approval pursuant hereto.
For clarity, the failure of the Company to actually obtain Shareholder Approval
shall not be a breach of covenant or an event of default under this

                                      -16-
<PAGE>

Convertible Note or an Event of Default under the Purchase Agreement, provided,
that any issuance of securities which results in an adjustment to the Initial
Conversion Price (other than pursuant to Section 3(ii)) without the Company
having previously sought Shareholder Approval as set forth in the Purchase
Agreement shall be a breach of covenant in the Purchase Agreement and an event
of default under this Section 7.

         8.       COMPANY CALL OPTION.

         (a)      At any time after the second anniversary of the date hereof,
the Company shall have the option (the "Call Option") to redeem, in its sole and
absolute discretion (in whole or in part), this Convertible Note at 120% of the
outstanding unpaid Face Amount of the Convertible Note (the "Redemption Amount")
if the following conditions are met:

                  (i)      the Company has filed and caused to become effective
         and stay continuously effective a registration statement covering the
         aggregate number of shares of Common Stock issued or issuable with
         respect to the Convertible Note and the Warrant issued pursuant to the
         Purchase Agreement; provided, however, that, this condition shall not
         apply if all of the shares of Common Stock issued or issuable with
         respect to the Convertible Note and Warrant can be resold pursuant to
         Rule 144(k) of the Securities Act of 1933, as amended;

                  (ii)     the Company gives written irrevocable notice to the
         holder hereof of its intent to redeem the Convertible Note (the date of
         such notice shall hereinafter be referred to as the "Notice Date") not
         later than 20 days prior to the date fixed by the Company to redeem the
         Convertible Note (the "Call Option Redemption Date");

                  (iii)    the closing price of a share of Common Stock, as
         reported on the Nasdaq National Market, has been, on average, for the
         15 consecutive trading days prior to the Notice Date, at least $7 per
         share;

                  (iv)     there has not been a continuing Event of Default (as
         defined in the Purchase Agreement) for a period of 30 days prior to the
         Notice Date and continuing through the Call Option Redemption Date; and

                  (v)      the Issuable Maximum has not been reached.

         The Redemption Amount and any unpaid PIK Interest accrued thereon as of
the Call Option Redemption Date shall become due and payable on the Call Option
Redemption Date.

         (b)      Nothing hereinabove set forth shall affect in any way the
right of the holder of this Convertible Note to convert this Convertible Note at
any time and from time to time in accordance with paragraph 1 hereof.

                                      -17-
<PAGE>

         9.       MISCELLANEOUS.

         (a)      The Company will not, by amendment of its Articles 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
Convertible Note, but will at all times in good faith assist in the carrying out
of all such items and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder hereof against dilution
or other impairment. Without limiting the generality of the foregoing, the
Company will not increase the par value of any shares of stock receivable on the
conversion of this Convertible Note above the amount payable therefor on such
conversion.

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

                            [signature page follows]

                                      -18-
<PAGE>

                                              DELPHAX TECHNOLOGIES INC.

                                              By /S/ ROBERT M. BARNISKIS
                                                 -------------------------------
                                                 Robert M. Barniskis
                                                 Vice President, Chief Financial
                                                 Officer and Secretary

                      [signature page to convertible note]

                                      -19-
<PAGE>

                           [FORM OF CONVERSION NOTICE]

         The undersigned owner of this 7% Convertible Subordinated Note due
February 4, 2008 (the "Convertible Note") issued by Delphax Technologies Inc.
(the "Company") hereby irrevocably exercises its option to convert $____________
principal amount of the Convertible Note into shares of the common stock, $.10
par value, of Delphax Technologies Inc. ("Common Stock"), in accordance with the
terms of the Convertible Note. The undersigned hereby instructs the Company to
convert the portion of the Convertible Note specified above into shares of
Common Stock issued at the conversion price in accordance with the provisions of
Paragraph 3 of the Convertible Note. The undersigned directs that the Common
Stock issuable and certificates therefor deliverable upon conversion, the
Convertible Note recertificated in the principal amount, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Convertible Note.

         By delivering this conversion notice, the undersigned owner represents
and warrants (place "X" next to applicable provision):

[__]     1.       that it does not now, nor after giving effect to this
                  conversion will it, beneficially own in excess of 4.99% of the
                  outstanding shares of Common Stock of the Company, calculated
                  pursuant to the provisions of Paragraph 7(a) of the
                  Convertible Note; or

[__]     2.       that it has provided, at least 60 days prior to the date of
                  this conversion notice, notice to the Company of its
                  revocation of the application of Paragraph 7(a) of the
                  Convertible Note.

Date _______________

Signature: _____________________________________________________________________
                           [Name]
Address:
________________________________________________________________________________

________________________________________________________________________________

                                      -20-

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