Exhibit 10.10

Execution Copy

FIRST AMENDMENT TO CONVERTIBLE SENIOR SUBORDINATED

NOTE PURCHASE AGREEMENT

This FIRST AMENDMENT TO CONVERTIBLE SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT
(this “Amendment”), made and entered into as of January 31, 2007, is by and
between Tecstar Automotive Group, Inc. (f/k/a Starcraft Corporation), an Indiana
corporation (the “Company”), and Whitebox Convertible Arbitrage Partners L.P.,
Whitebox Hedged High Yield Partners L.P., Pandora Select Partners L.P. and
Whitebox Intermarket Partners L.P. (collectively, the “Purchasers”).

RECITALS

1. The Purchasers and the Company entered into a Convertible Senior Subordinated
Note Purchase Agreement dated as of July 12, 2004 (the “Note Purchase
Agreement”); and

2. The Company desires to amend certain provisions of the Note Purchase
Agreement, and the Purchasers has agreed to make such amendments, subject to the
terms and conditions set forth in this Amendment.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby covenant and agree to
be bound as follows:

Section 1. Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to them in the Note Purchase
Agreement, unless the context shall otherwise require.

Section 2. Amendments. The Note Purchase Agreement is hereby amended as follows:

2.1 Authorization of Issuance of Notes. The first sentence of Article I of the
Note Purchase Agreement is deleted in its entirety and the following inserted in
lieu thereof:

The Company has authorized the issue and sale to the Purchasers of $15,000,000
in aggregate principal amount of its 11.5% Convertible Subordinated Promissory
Notes due July 1, 2009 (the notes being referred to herein as the “Notes”). At
the election of the Purchasers in their sole discretion and upon written notice
to the Company no later than May 15, 2009, such maturity date shall be extended
until July 1, 2012.

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2.2 Definitions. The definitions of “SEC Reports” and “Latest Statement Date” as
they appear in the Note Purchase Agreement shall be amended to read in their
entireties as follows:

“SEC Reports” shall mean the Company’s and/or Quantum Fuel Systems Technologies
Worldwide, Inc.’s (“Quantum”) current, quarterly, annual and other periodic
filings filed with the Commission.

“Latest Statement Date” shall mean October 31, 2006.

2.3 Capitalization. Section 5.2 of the Note Purchase Agreement is amended to
read in its entirety as follows:

Section 5.2 Capitalization. The Company is a wholly owned subsidiary of Quantum
with 1,000 authorized shares of Common Stock, all of which are issued and
outstanding. The Company has no outstanding options, warrants or other rights to
acquire any capital stock, or securities convertible or exchangeable for capital
stock or for securities themselves convertible or exchangeable for capital stock
(together, “Convertible Securities”). The Company has no other agreement or
commitment to sell or issue any shares of capital stock or Convertible
Securities. All issued and outstanding shares of the Company’s capital stock
(i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, (iii) are free from any preemptive and cumulative voting rights
and (iv) were issued pursuant to an effective registration statement filed with
the Commission and applicable state securities authorities or pursuant to valid
exemptions under federal and state securities laws. There are no outstanding
rights of first refusal or voting or shareholder agreements of any kind relating
to any of the Company’s securities to which the Company or any of its executive
officers and directors is a party or as to which the Company otherwise has
knowledge. When issued in compliance with the conversion provisions of the
Notes, the Common Shares will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances; provided, however, that the
Common Shares may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by such
laws at the time a transfer is proposed. Notwithstanding the foregoing, the
issuance of Common Shares in payment of interest or principal on the Notes
pursuant to the provisions of Article 9 thereof is subject to further
authorization of such issuance at the time by the Board of Directors or a
committee thereof.

2.4 Disclosures. Section 5.6 of the Note Purchase Agreement is amended to read
in its entirety as follows:

Section 5.6 Disclosures. This Agreement contains no untrue statement of a
Material fact or omits to state any Material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made. Except as expressly described in Schedule 5.6, the SEC Reports, the
Credit Agreement Schedules or in other documents delivered to the Purchasers,
their attorneys or agents in connection

 

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herewith, since April 30, 2006, there has been no change in the financial
condition, operations, business or properties of the Company that is Material.
There are no facts that (individually or in the aggregate) Materially and
adversely affecting the Company that have not been set forth in the Transaction
Documents or in other documents delivered to the Purchaser or its attorneys or
agents in connection herewith.

2.5 Nasdaq Compliance and Reporting Status. Each of Sections 5.21 and 5.22 of
the Note Purchase Agreement are deleted in their entireties and “Reserved”
inserted in lieu thereof.

2.6 Financial Covenants. Section 7.6(a) of the Note Purchase Agreement is
amended by amending subsections (i), (iv), (vii) and (xxii) thereof to read in
their entireties as follows:

(i) “Agent” means the Person serving as the lead administrative Lender under the
Credit Agreement from time to time in effect (initially WB QT, LLC) and, in the
absence of such a Person, the holder of the largest principal amount of
outstanding Senior Indebtedness.

(iv) “Bank Indebtedness” means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Quantum or any subsidiary whether
or not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof. It is understood and agreed that
Refinancing Indebtedness in respect of the Credit Agreement may be Incurred from
time to time after termination of the Credit Agreement.

(vii) “Credit Agreement” means the Credit Agreement dated as of January 31, 2007
among Quantum, the lenders named therein and WB QT, LLC, as agent for the
lenders, including any collateral documents, instruments and agreements executed
in connection therewith (and any “Loan Documents” as defined therein), and any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings thereof (except to the extent that any such amendment, supplement,
modification, extension, renewal, restatement or refunding would be prohibited
by the terms of this Agreement, unless otherwise agreed to by the Purchasers or
any other Note holder) and any indentures or credit facilities or commercial
paper facilities with banks or other institutional lenders that replace, refund
or refinance any part of the loans, notes, other credit facilities or
commitments thereunder, including any such replacement, refunding or refinancing
facility or indenture that increases the amount borrowable thereunder or alters
the maturity thereof.

(xxii) “Senior Indebtedness” of Quantum and its subsidiaries means the principal
of, premium (if any) and accrued and unpaid interest on (including interest
accruing on or

 

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after the filing of any petition in bankruptcy or for reorganization of Quantum
or any subsidiary, regardless of whether or not a claim for post-filing interest
is allowed in such proceedings) and fees and other amounts owing in respect of,
Bank Indebtedness and all other Indebtedness of Quantum and its subsidiaries
whether outstanding on the Closing Date or thereafter Incurred, if in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are superior in right of
payment to the Senior Subordinated Indebtedness; provided, however, that in any
case, Senior Indebtedness shall not include (a) any obligation of Quantum or any
subsidiary to another subsidiary of Quantum, (b) any liability for federal,
state, local or other taxes owed or owing by Quantum or any subsidiary, (c) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (d) any Indebtedness or obligation of Quantum or a subsidiary (and
any accrued and unpaid interest in respect thereof) that by its terms is
subordinated or junior in right of payment to any other Indebtedness or
obligation of Quantum or a subsidiary, including any Senior Subordinated
Indebtedness, (e) any obligations with respect to any Capital Stock or (f) any
obligations not secured by assets of Quantum or any subsidiary.

Section 7.6(b) of the Note Purchase Agreement is amended to read in its entirety
as follows:

(b) Limitation on Senior Indebtedness and Senior Subordinated Indebtedness.
Without the prior written permission of holders of a majority in outstanding
principal amount of the Notes, the sum of the total Senior Indebtedness of
Quantum and its subsidiaries shall not exceed $35,000,000 and the sum of the
total Senior Indebtedness and Senior Subordinated Indebtedness (including the
obligations under the Notes) of Quantum and its subsidiaries shall not exceed
$60,000,000; provided, that this provision does not limit Indebtedness that may
be incurred that is a Subordinated Obligation; provided further, that in the
event the maturity of the Notes is extended pursuant to Article I hereof, this
Section 7.6(b) shall no longer be in force and effect.

Section 7.6(a), except clauses (i), (iv), (vii) and (xxii), of the Note Purchase
Agreement is further amended by deleting all references to “the Company” as they
appear therein and by substituting “Quantum or any subsidiary” in lieu thereof
and by deleting all remaining references to “the Company” as they appear therein
and by substituting “Quantum” in lieu thereof.

2.7 Schedules. Schedule A to the Note Purchase Agreement is amended to read as
Schedule A hereto with is made part of the Note Purchase Agreement as Schedule A
thereto. All other Schedules to the Note Purchase Agreement shall be deemed
updated as of the date hereof for all SEC Reports and the disclosures made in
the Schedules to the Credit Agreement (the “Credit Agreement Schedules”).

 

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2.8 Form of Notes. Exhibit 1 to the Note Purchase Agreement is amended to read
as Exhibit 1 hereto which is made part of the Note Purchase Agreement as Exhibit
1 thereto.

Section 3. Filings; Registration Rights Agreement. The Company acknowledges and
agrees that it has assumed all obligations of Starcraft Corporation under the
Registration Rights Agreement dated as of July 12, 2004 by and among Starcraft
Corporation, Whitebox Convertible Arbitrage Partners L.P., Whitebox Hedged High
Yield Partners L.P., Pandora Select Partners L.P., Whitebox Intermarket Partners
L.P., and Whitebox Diversified Convertible Arbitrage Partners L.P. (the
“Registration Rights Agreement”). The Company further acknowledges that all
holders of any of the Notes after giving effect to the transactions contemplated
by this Amendment and the Amended and Restated Notes shall be considered
“Purchasers” under the Registration Rights Agreement and that the Company shall,
to the extent required by the Registration Rights Agreement or applicable law
and regulations, amend the Registration Statement filed with the Commission on
August 31, 2004 (the “Registration Statement”) as needed by the transaction
contemplated by this Amendment and the Amended and Restated Notes.

Section 4. Effectiveness of Amendments. The amendments contained in this
Amendment shall become effective upon execution and delivery by the Company of
the Amended and Restated Notes Convertible Subordinated Promissory Notes to each
of the Purchasers in the form Exhibit 1 hereto.

Section 5. Representations, Warranties, Authority, No Adverse Claim.

5.1 Reassertion of Representations and Warranties, No Default. The Company
hereby represents that on and as of the date hereof and after giving effect to
this Amendment (a) except as set forth in any SEC Reports since the Closing
Date, all of the representations and warranties contained in the Note Purchase
Agreement are true, correct and complete in all material respects as of the date
hereof as though made on and as of such date, except for changes permitted by
the terms of the Note Purchase Agreement and except to the extent such
representations and warranties specifically refer to a prior date in which case
such representations and warranties shall have been true, correct and complete
as of such prior date, and (b) there will exist no Event of Default under the
Note Purchase Agreement as amended by this Amendment on such date which has not
been waived by the Purchasers.

5.2 Authority, No Conflict, No Consent Required. The Company represents and
warrants that the Company has the power and legal right and authority to enter
into the Amendment Documents and has duly authorized as appropriate the
execution and delivery of the Amendment Documents and other agreements and
documents executed and delivered by the Company in connection herewith or
therewith by proper corporate action, and none of the Amendment Documents nor
the agreements contained herein or therein contravenes or constitutes a default
under any agreement, instrument or indenture to which the Company is a party or
a signatory or a provision of the Company’s Articles

 

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of Incorporation, Bylaws or any other agreement or requirement of law, or result
in the imposition of any Lien on any of its property under any agreement binding
on or applicable to the Company or any of its property except, if any, in favor
of the Purchasers. The Company represents and warrants that no consent, approval
or authorization of or registration or declaration with any person, including
but not limited to any governmental authority, is required in connection with
the execution and delivery by the Company of the Amendment Documents or other
agreements and documents executed and delivered by the Company in connection
therewith or the performance of obligations of the Company therein described,
except for those which the Company has obtained or provided and as to which the
Company has delivered certified copies of documents evidencing each such action
to the Purchasers.

5.3 No Adverse Claim. The Company warrants, acknowledges and agrees that no
events have been taken place and no circumstances exist at the date hereof which
would give the Company a basis to assert a defense, offset or counterclaim to
any claim of the Purchasers with respect to the Company’s obligations under the
Note Purchase Agreement as amended by this Amendment.

Section 6. Affirmation of Note Purchase Agreement, Further References. The
Purchasers and the Company each acknowledge and affirm that the Note Purchase
Agreement, as hereby amended, is hereby ratified and confirmed in all respects
and all terms, conditions and provisions of the Note Purchase Agreement, except
as amended by this Amendment, shall remain unmodified and in full force and
effect. All references in any document or instrument to the Note Purchase
Agreement are hereby amended and shall refer to the Note Purchase Agreement as
amended by this Amendment.

Section 7. Merger and Integration, Superseding Effect. This Amendment, from and
after the date hereof, embodies the entire agreement and understanding between
the parties hereto and supersedes and has merged into this Amendment all prior
oral and written agreements on the same subjects by and between the parties
hereto with the effect that this Amendment, shall control with respect to the
specific subjects hereof and thereof.

Section 8. Severability. Whenever possible, each provision of this Amendment and
the other Amendment Documents and any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto shall be
interpreted in such manner as to be effective, valid and enforceable under the
applicable law of any jurisdiction, but, if any provision of this Amendment, the
other Amendment Documents or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto shall be held to be
prohibited, invalid or unenforceable under the applicable law, such provision
shall be ineffective in such jurisdiction only to the extent of such
prohibition, invalidity or unenforceability, without invalidating or rendering
unenforceable the remainder of such provision or the remaining provisions of
this Amendment, the other Amendment Documents or any other statement, instrument
or transaction contemplated hereby or thereby or relating hereto or thereto in
such jurisdiction, or affecting the effectiveness, validity or enforceability of
such provision in any other jurisdiction.

 

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Section 9. Successors. The Amendment Documents shall be binding upon the Company
and the Purchasers and their respective successors and assigns, and shall inure
to the benefit of the Company and the Purchasers and the successors and assigns
of the Purchasers.

Section 10. Headings. The headings of various sections of this Amendment have
been inserted for reference only and shall not be deemed to be a part of this
Amendment.

Section 11. Counterparts. The Amendment Documents may be executed in several
counterparts as deemed necessary or convenient, each of which, when so executed,
shall be deemed an original, provided that all such counterparts shall be
regarded as one and the same document, and either party to the Amendment
Documents may execute any such agreement by executing a counterpart of such
agreement.

Section 12. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PRINCIPLES THEREOF.

[Signatures Follow On Succeeding Pages]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the date and year first above written.

 

COMPANY:   TECSTAR AUTOMOTIVE GROUP, INC.   By:  

/s/ Kenneth R. Lombardo

  Name:   Kenneth R. Lombardo   Its:   General Counsel PURCHASERS:   WHITEBOX
CONVERTIBLE ARBITRAGE PARTNERS L.P.   By:  

/s/ Jonathan Wood

  Name:   Jonathan Wood   Its:   Director   WHITEBOX HEDGED HIGH YIELD PARTNERS
L.P.   By:  

/s/ Jonathan Wood

  Name:   Jonathan Wood   Its:   Director   PANDORA SELECT PARTNERS L.P.   By:  

/s/ Jonathan Wood

  Name:   Jonathan Wood   Its:   Director

[Signature pages to First Amendment to Convertible Senior Subordinated Note
Purchase Agreement]

S-1

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WHITEBOX INTERMARKET PARTNERS L.P. By:  

/s/ Jonathan Wood

Name:   Jonathan Wood Its:   Director

 

[Signature pages to First Amendment to Convertible Senior Subordinated Note
Purchase Agreement]

S-2

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SCHEDULE A TO

FIRST AMENDMENT TO CONVERTIBLE

SENIOR SUBORDINATED NOTE

PURCHASE AGREEMENT

SCHEDULE A

PURCHASERS

 

Name

   Amount

Whitebox Convertible Arbitrage Partners L.P.

   $ 8,861,250

Whitebox Hedged High Yield Partners L.P.

   $ 4,170,000

Pandora Select Partners L.P.

   $ 1,563,750

Whitebox Intermarket Partners L.P.

   $ 1,042,500           $ 15,637,500       

 

Schedule A-1

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EXHIBIT 1 TO

FIRST AMENDMENT TO CONVERTIBLE

SENIOR SUBORDINATED NOTE

PURCHASE AGREEMENT

THE SECURITY REPRESENTED BY THIS INSTRUMENT WAS ORIGINALLY ISSUED ON JULY 12,
2004, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF THIS SECURITY IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
CONVERTIBLE SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT, DATED AS OF JULY 12,
2004, AS AMENDED AND MODIFIED FROM TIME TO TIME, BETWEEN TECSTAR AUTOMOTIVE
GROUP, INC. (F/K/A STARCRAFT CORPORATION) (THE “COMPANY”) AND THE PURCHASERS
PARTY THERETO. THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITY UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. UPON WRITTEN REQUEST, A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF WITHOUT CHARGE.

THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED TO THE COMPANY’S SENIOR
INDEBTEDNESS AS MORE FULLY SET FORTH IN ARTICLE 4 HEREOF.

TECSTAR AUTOMOTIVE GROUP, INC.

AMENDED AND RESTATED CONVERTIBLE

SUBORDINATED PROMISSORY NOTE

 

January     , 2007    $[principal amount]

TECSTAR AUTOMOTIVE GROUP, INC. (f/ka/ Starcraft Corporation), an Indiana
corporation (the “Company”), hereby promises to pay to the order of
[name/organization of purchaser] (the “Purchaser”), the principal amount of
[principal amount] and 00/100 Dollars ($[principal amount]) plus the portion of
the Accreted Principal Amount (as defined below) in excess thereof together with
interest on the Accreted Principal Amount calculated from the date hereof in
accordance with the provisions of this Note.

This Note was issued pursuant to a Convertible Senior Subordinated Note Purchase
Agreement, dated as of July 12, 2004 (as amended by a First Amendment to
Convertible Senior Subordinated Note Purchase Agreement dated as of January 31,
2007 and as further amended and modified from time to time, the “Purchase
Agreement”), between the Company and the purchasers party thereto including the
Purchaser, and this Note one of is one of the “Notes” referred to in the
Purchase Agreement. This Note amends and restates an existing Convertible
Subordinated Promissory Note dated as of July 12, 2004, in the original
principal amount of $[                    ] issued by the Company to the
Purchaser (the “Prior Note”). It is expressly intended,

 

Ex 1-1

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understood and agreed that this Note shall replace the Prior Note as evidence of
such indebtedness of the Company to the Purchaser, and such indebtedness of the
Company to the Purchaser heretofore represented by the Prior Note, as of the
date hereof, shall be considered outstanding hereunder from and after the date
hereof and shall not be considered paid (nor shall the undersigned’s obligation
to pay the same be considered discharged or satisfied) as a result of the
issuance of this Note. The Purchase Agreement contains terms governing the
rights of the holder of this Note, and all provisions of the Purchase Agreement
are hereby incorporated herein in full by reference. Unless otherwise indicated
herein, capitalized terms used in this Note have the same meanings set forth in
the Purchase Agreement.

ARTICLE I

PAYMENT OF INTEREST; CONTINGENT INTEREST

Interest shall accrue on the Accreted Principal Amount at an annual rate equal
to 11.50% (or, from and after any extension of the maturity date of this Note
under Section 2.1 below, 9.50%) per annum, of which amount (a) 6.50% shall be
payable in cash on each Interest Payment Date and (b) 5.0% (or, from and after
any extension of the maturity date of this Note under Section 2.1 below, 3.0%)
shall be payable by adding such interest to the Accreted Principal Amount on
each Interest Payment Date (as defined below), and on the final maturity hereof
(the “PIK Amount”). At any time, the outstanding principal amount of this Note,
including all PIK Amounts and Default PIK Amounts (as defined below) added
thereto through such time, is referred to in this Note as the “Accreted
Principal Amount” (in each case computed on the basis of a 365/366-day year and
the actual number of days elapsed in any year) on the unpaid principal amount of
this Note outstanding from time to time, or (if less) at the highest rate then
permitted under applicable law. The Company shall pay to the holder of this Note
all accrued interest (including Contingent Additional Interest as described
below) on the first day of each July and January (each, an “Interest Payment
Date” ) and on the final maturity date of this Note. Any accrued cash interest
which for any reason has not theretofore been paid shall increase the principal
of the Note and be paid in full on the date on which the final principal payment
on this Note is made (the “Default PIK Amounts”); provided that any such reason
shall not affect or waive any Event of Default that arises due to the failure to
make such payment in cash. Interest shall accrue on any principal payment due
under this Note (including as to accrued interest added to the principal) until
such time as payment therefore is actually delivered to the holder of this Note.

In the event that the Company fails by September 10, 2004 (the “Filing
Deadline”) to file the Registration Statement with the Commission, or fails by
January 8, 2005 (the “Registration Deadline”) to obtain effectiveness under the
Securities Act and applicable state securities laws of the Registration
Statement (as required by the terms of a Registration Rights Agreement between
the Company and Purchaser of this date) registering all of the shares of Common
Shares issuable as payment under or upon conversion of this Note as provided
therein, then for each full month thereafter (prorated for partial months) that
this failure continues (the “Failure Term”), and to the extent permitted by law,
the Company shall pay in arrears in cash, with the next otherwise scheduled
payment of interest pursuant to the above paragraph (or if the last scheduled
interest payment has been made, then monthly on the same day of each succeeding
month), additional

 

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interest (the “Contingent Additional Interest”) equal to the greater of $5,000
or 0.5% of the outstanding principal balance on this Note as of the last day of
the prior month. However, if the Failure Term runs for more than three months,
the additional monthly cash interest payable thereafter shall increase, to the
extent permitted by law, to the greater of $10,000 or 1% of the outstanding
principal balance on this Note as of the last day of the prior month.

ARTICLE II

PAYMENT OF PRINCIPAL ON NOTE

Section 2.1 Scheduled Payment. The Company shall pay the Accreted Principal
Amount or, if less, the outstanding principal amount of this Note to the holder
of this Note on July 1, 2009, together with all accrued and unpaid interest on
the principal amount being repaid At the election of the Purchasers in their
sole discretion and upon written notice to the Company no later than May 15,
2009, such maturity date shall be extended until July 1, 2012.

Section 2.2 Conversion. Notwithstanding any provision contained in this
Article 2, the holder of this Note may convert all or any portion of the
outstanding principal amount of this Note into shares of common stock, without
par value, of the Company (the “Common Shares”) in accordance with Article 6
until such time as such principal amount has been paid.

ARTICLE III

PRO RATA PAYMENT

Except as otherwise expressly provided in this Note, all payments to the holders
of the Note (whether for principal, interest or otherwise) shall be made pro
rata among such holders based upon the aggregate unpaid principal amount of the
Note held by each such holder. If any holder of the Note obtains any payment
(whether voluntary, involuntary, or otherwise) of principal, interest or other
amount with respect to the Note in excess of the holder’s pro rata share of such
payments obtained by all holders of the Notes (other than as expressly provided
herein), then the holder, by acceptance of the Note, agrees to purchase from the
other holders of the Note a participation in the Note held by them as is
necessary to cause the other holders to share the excess payment ratably among
each of them as provided in this paragraph.

ARTICLE IV

SUBORDINATION

Section 4.1 Debt Subordination. The indebtedness evidenced by the Note is
subordinate and junior to any and all Indebtedness constituting Senior
Indebtedness within the meaning of the Purchase Agreement (“Senior
Indebtedness”). The Note is subordinate to Senior Indebtedness only to the
extent and in the manner hereinafter set forth.

(a) During the continuance of any Company Default and so long as any Company
Default remains which has not been cured or waived by the holder of the Senior
Indebtedness under which the Company Default arises, no payment of principal or
interest shall be made on the Note, unless (and, if applicable, to the extent
permitted by clause 4.1(b)(i), below) such payment is made in kind in the form
of Common Shares as

 

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provided in Article 6 or Article 9; provided, that the Company may pay and the
holder(s) of the Note may accept scheduled payments of interest upon the Note so
long as (i) no Insolvency Proceeding has occurred, (ii) no Company Default that
is a default in the payment of any principal, interest or any other amount on
the Senior Indebtedness has occurred (each, a “Payment Default”), and (iiii)(A)
the holder(s) of the Note have not received a written notice (a “Senior
Non-Payment Default Notice”) that a Company Default (other than a Payment
Default) has occurred and is continuing or will occur as a result of or
immediately following such payment, (B) each such Company Default has not been
waived or cured in accordance with the terms of the Senior Documents, and
(C) 180 days have not elapsed (each such 180 day period shall be referred to
herein as a “Blockage Period”) since the date the Senior Non-Payment Default
Notice was received. Notwithstanding any provision in this Section 4.1(a) to the
contrary (x) the Company shall not be prohibited from making, and the holder(s)
of the Note shall not be prohibited from receiving, payments of interest upon
the Note under clause (iii) of the preceding sentence for more than aggregate of
180 days within any period of 365 consecutive days; (y) no Company Default
existing on the date any Senior Non-Payment Default Notice is given pursuant to
this Section 4.1(a) shall, unless the same shall have ceased to exist for a
period of at least 30 consecutive days, be used as the basis for any subsequent
such notice; and (z) the failure of the Company to make any payment with respect
to the Note by reason of the operation of this Section 4.1(a) shall not be
construed as preventing the occurrence of a default under any loan agreement,
credit agreement, security agreement, letter of credit, reimbursement agreement
or other document or instrument evidencing or securing the Note.

(b) If any cash payment is made on the Note at a time when the holders are not
entitled to receive cash payments on the Note, the payment or distribution shall
be delivered directly to the Agent for application against the Senior
Indebtedness, unless and until all principal and interest on the Senior
Indebtedness has been paid in full and the commitments, if any, of the holders
of the Senior Indebtedness to extend credit accommodations to Quantum or the
Company have expired, except that

no such delivery shall be made of stock or obligations issued by the Company or
any corporation succeeding to the Company or acquiring its property and assets,
pursuant to reorganization proceedings or dissolution or liquidation proceedings
or upon any merger, consolidation, sale, lease, transfer or other disposal, if
such stock or obligations are subordinate and junior at least to the extent
provided hereunder to the payment of Senior Indebtedness to the extent then
outstanding and to the payment of any stock or obligations which are
concurrently therewith issued in exchange for Senior Indebtedness to the extent
then outstanding, and

if any holder of Senior Indebtedness receives any payment or distribution that,
except for the provisions of this Section 4.1, would have been payable or
deliverable with respect to the Note, the holders of the Note shall (after all
principal and interest owing on such Senior Indebtedness has been paid in full
and the commitments, if any, of the holders of the Senior Indebtedness to extend
credit accommodations to Quantum or the Company have expired) be subrogated to
the rights of such holders of such Senior Indebtedness against the Company.

 

Ex 1-4

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(c) Until all Senior Indebtedness has been paid in full and the commitments, if
any, of the holders of the Senior Indebtedness to extend credit accommodations
to Quantum or the Company have expired, the holders of the Note shall not,
without the prior written consent of the Agent, take any Enforcement Action with
respect to the Notes or any Collateral, until the earlier to occur of the
following and in any event no earlier than ten (10) days after the Agent’s
receipt of written notice from such holder of the Note of its intention to take
such Enforcement Action (which notice may be issued during the 180 day period
referred to in clause (iii) below with respect to an Enforcement Action that
such holder of the Note has the right to commence upon the expiration of said
180 day period):

(i) acceleration of the Senior Indebtedness;

(ii) the occurrence of an Insolvency Proceeding with respect to the Company; or

(iii) the passage of 180 days from the delivery by the holder of a Note to the
Agent of notice of an event of default under the Subordinated Documents if any
default described therein shall not have been cured or waived within such
period.

Notwithstanding the foregoing, but subject in all events to the provisions of
Section 4.4, any holder of the Note may file proofs of claim against the Company
in any Insolvency Proceeding involving the Company. Except for distributions of
the type specified in Section 4(b)(i), any distributions or other proceeds of
any Enforcement Action obtained by any holder of the Note shall in any event be
held in trust by it for the benefit of the holders of the Senior Indebtedness
and promptly paid or delivered to the Agent in the form received until all
Senior Indebtedness has been paid in full and the commitments, if any, of the
holders of the Senior Indebtedness to extend credit accommodations to Quantum or
the Company have expired. Notwithstanding anything contained herein to the
contrary, if following the acceleration of the Senior Indebtedness, such
acceleration is rescinded (whether or not any existing Company Default has been
cured or waived), then all Enforcement Actions taken by any holder of the Note
shall likewise be rescinded if such Enforcement Action is based solely on clause
(i) of this Section 4.1(c). Notwithstanding anything herein to the contrary, no
provision herein shall prevent any holder of the Note from initiating a legal
action or proceeding solely to the extent necessary to prevent the running of
any applicable statute of limitation or similar restriction on claims.

(d) Each holder of the Note waives notice of the creation of the Senior
Indebtedness and notice of acceptance by the holder(s) of Senior Indebtedness of
the subordination and other provisions set forth herein. The holder of the Note
agrees that, so long as the Credit Agreement remains in effect, the
subordination provisions of the Note and the Purchase Agreement may not be
modified or amended without the prior written consent of the Agent and that any
amendment or modification entered into without such consent shall be null and
void and that it will not agree to:

(i) any amendment of the Note or the Purchase Agreement that would shorten the
due dates of any principal or interest payments upon the Note;

 

Ex 1-5

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(ii) any amendment of the covenants, events of default or other material
provisions of the Note or the Purchase Agreement to make them more restrictive
for or burdensome on the Company (except for financial covenants which the
holder(s) of the Note may amend to the extent that holders of the Bank
Indebtedness have amended the corresponding financial covenants in the Credit
Agreement);

(iii) any amendment increasing the interest rate payable with respect to the
Note to an interest rate that is 200 basis points more than the interest rate
applicable to the Note on the date of issuance of the Note, except in connection
with the imposition of a default rate of interest in accordance with the terms
of the Note or the Purchase Agreement as they are in effect on the date hereof.

(e) Each holder of the Note agrees that each holder of Senior Indebtedness may,
at any time and from time to time hereafter without the consent of or notice to
any holder of the Note, change the manner or time of payment or renew or alter
any of the terms of such Senior Indebtedness, or amend in any manner any
agreement, note, guaranty or other instrument evidencing or securing or
otherwise relating to such Senior Indebtedness, provided that no holder of
Senior Indebtedness shall (or shall not have the benefit of this Article IV to
the extent it shall):

(i) increase the principal amount of such Senior Indebtedness to an amount that
would cause the sum of the total Senior Indebtedness to exceed $35,000,000,

(ii) increase the interest rate margins or any fixed interest rate with respect
to such Senior Indebtedness by more than 200 basis points above the margin
currently in effect under such Senior Indebtedness, except in connection with
the imposition of a default rate of interest in accordance with the terms of
such Senior Indebtedness as in effect on the date hereof,

(iii) add or modify any existing restrictions on the ability of Quantum, the
Company, any guarantor or any subsidiary to repay the Note in addition to those
set forth in such Senior Indebtedness as in effect on the date hereof (provided
that any modification of any existing covenants or defaults, which has the
effect of making them more restrictive, shall not be deemed, in and of itself,
to be an additional restriction on the payment of the Note), or

(iv) shorten the final scheduled maturity dates of any portion of such Senior
Indebtedness, except to the extent permissible under such Senior Indebtedness as
a consequence of a default thereunder, or

 

Ex 1-6

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(v) extend the final scheduled maturity dates of such Senior Indebtedness by
more than one year beyond those set forth in such Senior Indebtedness in effect
on the date hereof.

(f) Each holder of the Note consents and agrees that all Senior Indebtedness
shall be deemed to have been made, incurred and/or continued in reliance upon
the subordination provisions set forth herein and in the Purchase Agreement and
each holder of any Senior Indebtedness is an intended third party beneficiary of
the subordination and other provisions of this Article 4. This Article IV shall
bind and enure to the benefit of all holders of the Note and the Senior
Indebtedness existing on the date of the Note or arising after such date (and
all holders of Senior Indebtedness, by extending such Senior Indebtedness, shall
be deemed to be bound by this Article IV)

(g) Each holder of the Note agrees that it shall not accept any prepayment of
the Note until the Senior Indebtedness has been paid in full and the
commitments, if any, of the holders of the Senior Indebtedness to extend credit
accommodations to Quantum or the Company have expired, unless (and, if
applicable, to the extent permitted by clause 4.1(b)(i) above) such payment is
made in kind in the form of Common Shares as provided in Article 6 or
Article 9).

(h) Subject to Section 4.1(e) hereof, all rights and interest of the holders of
the Senior Indebtedness hereunder, and all agreements and obligations of the
holder of the Note hereunder, shall remain in full force and effect irrespective
of:

(i) any lack of validity or enforceability of any document evidencing Senior
Indebtedness;

(ii) any change in the time, manner or place of payment of, or any other term
of, all of any of the Senior Indebtedness, or any other amendment or waiver of
or any consent to departure from any of the documents evidencing or relating to
the Senior Indebtedness;

(iii) any exchange, release or non-perfection of any collateral, or any release
or amendment or waiver of or consent to departure from any guaranty or loan
document, for all or any of the Senior Indebtedness;

(iv) any failure of any holder of Senior Indebtedness to assert any claim or to
enforce any right or remedy against any other party hereto under the provisions
of the Notes or the Credit Agreement;

(v) any reduction, limitation, impairment or termination of the Senior
Indebtedness for any reason (other than the defense of payment in full of the
Senior Indebtedness), including any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense (other than
the defense of payment in full of the Senior Indebtedness) or setoff,
counterclaim, recoupment or termination whatsoever by reason of invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability, or any
other event or occurrence affecting, any Senior Indebtedness; and

 

Ex 1-7

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(vi) any other circumstance which might otherwise constitute a defense (other
than the defense of payment in full of the Senior Indebtedness) available to, or
a discharge of, the Company in respect of the Senior Indebtedness or the holder
of the Note in respect of the Note.

Section 4.2 Lien Subordination.

(a) Each holder of the Note hereby agrees that any Lien that it may now or
hereafter have in the Collateral is subject and subordinate, to the extent and
in the manner provided herein, to any Liens that the Agent or the holder(s) of
the Bank Indebtedness may now or hereafter have in the Collateral to secure the
Bank Indebtedness. Each holder of the Note agrees that that, except as otherwise
provided in Section 4.4 hereof, they shall have no right to undertake any
Enforcement Action with respect to any of the Collateral, unless and until all
of the holder(s) of Bank Indebtedness shall have been paid in full and the
commitments thereunder and the commitments, if any, of the holders of the Senior
Indebtedness to extend credit accommodations to Quantum or the Company have
expired (and in any event subject to the limitations set forth in Section 4.4
hereof with respect to any Enforcement Action taken in connection with any
Insolvency Proceeding).

(b) Notwithstanding any Lien in the Collateral now or hereafter acquired by any
holder of the Note, the holder(s) of the Bank Indebtedness may take possession
of, sell, dispose of, and otherwise deal with all or any part of the Collateral,
and may enforce any right or remedy available to it with respect to the
Collateral, all without notice to or consent of the holder(s) of the Note except
as specifically required by applicable law. Without limiting the generality of
the foregoing, if (i) the Company or any other Person that has granted a Lien in
any Collateral intends to sell or otherwise dispose of any Collateral to an
unrelated third party outside the ordinary course of business, (ii) the
holder(s) of Bank Indebtedness has consented to such sale or disposition and has
given written notice thereof to the holder(s) of the Note, (iii) the holder(s)
of the Note have failed, within fifteen (15) days after receipt of such notice,
to purchase for cash the Bank Indebtedness in accordance with Article XII
hereof, and (iv) the holder(s) of the Bank Indebtedness has applied the net cash
proceeds of such sale or disposition to the holder(s) of the Bank Indebtedness
in accordance with clause (c) below, each holder of the Note shall be deemed to
have consented to such sale or disposition, to have released any Lien it may
have in such Collateral and to have authorized the Agent or its agents to file
partial releases with respect to such Collateral.

(c) The holder(s) of the Senior Indebtedness shall have no duty to preserve,
protect, care for, insure, take possession of, collect, dispose of, or otherwise
realize upon any of the Collateral, and in no event shall the holder(s) of the
Senior Indebtedness be deemed to be any holder of the Note’s agent with respect
to the Collateral. All proceeds

 

Ex 1-8

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received by the holder(s) of the Senior Indebtedness with respect to any
Collateral shall be applied by the holder(s) of the Senior Indebtedness to the
Senior Indebtedness secured by such Collateral in such order of application as
the holder(s) of the Senior Indebtedness may choose.

(d) Notwithstanding anything to the contrary in the Note or the Purchase
Agreement, unless and until all of the holder(s) of the Senior Indebtedness
shall have been paid in full and the commitments, if any, of the holders of the
Bank Indebtedness to extend credit accommodations to Quantum or the Company have
expired, no holder of the Note shall request or require that the Company or any
other Person that has granted a Lien in any Collateral (i) obtain from any
bailee holding any item of Collateral any acknowledgement or other document
confirming that such bailee holds such collateral for the benefit of any holder
of the Note, (ii) obtain from any securities intermediary, letter of credit
issuer, depository bank or other party holding or issuing any item of
Collateral, any control agreements, (iii) deliver to any holder of the Note any
instruments or documents comprising Collateral or endorsements or assignments of
same, (iv) obtain possession of or arrange to have the holder of the Note’s Lien
noted on any motor vehicle titles, (v) obtain waivers from any landlords or
mortgagees of any property where any inventory or equipment constituting
Collateral is located, (vi) record with the United States Patent and Trademark
Office or the United States Copyright Office any collateral assignments of, or
security agreements granting or reflecting a security interest in, any
registered intellectual property owned by the Company or any other Person that
has granted a Lien in any Collateral, or (vii) establish or deposit any amounts
into any deposit account, collateral account or lockbox owned by or relating to
the Company or any other Person that has granted a Lien in any Collateral.

Section 4.3 Rights not Subordinated. The provisions of Article IV are for the
purpose of defining the relative rights of the holders of Senior Indebtedness on
the one hand and the holder of the Note on the other hand. As between the
Company and the holder of the Note, nothing herein shall impair the Company’s
obligation to the holder of the Note to pay to the holder both principal and
interest in accordance with the terms of the Note. Except as provided in Article
IV, as between the Company and the holder of the Note nothing herein shall be
construed to prevent the holder of the Note from exercising all rights and
remedies otherwise available under the Note or the Purchase Agreement or under
applicable law upon the occurrence of an Event of Default. No provision of
Article IV shall be deemed to subordinate, to any extent, any claim or right of
any holder of the Note to any claim against the Company by any creditor or any
other Person except to the extent expressly provided in Article IV.

Section 4.4 Enforcement and Bankruptcy. No objection, directly or indirectly,
will be raised by any holder of the Note to any motion by the Agent for relief
from automatic stay in any Insolvency Proceeding (including the automatic stay
under 11 U.S.C. §362 or any successor statute) to foreclose on, sell or
otherwise realize upon, or enforce rights and remedies with respect to, any
Collateral or to prohibit use of cash that is part of the Collateral.
Notwithstanding any other provision of this Agreement, if the Agent shall desire
to permit the use by the Company of any of the Collateral that constitutes “cash
collateral” under 11 U.S.C. §363 or any

 

Ex 1-9

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successor statute or similar statute, no objection, directly or indirectly, will
be raised by any holder of the Note to any such use of cash collateral on the
grounds of a failure to provide adequate protection for any Collateral, whether
or not the Company shall have granted a lien or security interest of any kind on
any Collateral in connection with the Agent’s permission to the Company to use
cash collateral. No objection, directly or indirectly, will be raised by any
holder of the Note to any sale, transfer or other disposition of any Collateral
under 11 U.S.C. §363, or any successor statute, to which the Agent shall have
consented, provided that such sale or other disposition shall be subject to a
procedure to elicit higher and better bids, subject to full preservation without
modification of the Agent’s rights that are provided under 11 U.S.C. §363(k). No
holder of the Note shall, without express prior written consent of the Agent,
file, join in, support directly or indirectly, vote to accept, or fail to object
to, any plan of reorganization that provides for the Senior Indebtedness to be
impaired (as defined under 11 U.S.C. §1124), whether or not any such holder of
the Note shall have made the Election (defined in the next sentence). If the
Agent files a plan or similar proposal in an Insolvency Proceeding, no holder of
the Note shall elect application of 11 U.S.C. §1111(b)(2) (the “Election”)
without the Agent’s prior written consent. Without derogating from any of the
foregoing, no holder of the Note generally shall take any action in connection
with any Insolvency Proceeding that any such holder of the Note party would not
otherwise be permitted to take under the Note or the Purchase Agreement.

Section 4.5 Defined Terms. For purposes of this Article IV, the following terms
shall have the meanings set forth below:

(a) “Collateral” shall mean all of the assets and properties of any kind
whatsoever, real or personal, tangible or intangible and wherever located of the
Company or any other Person that has granted a Lien to secure the Senior
Indebtedness or the Note.

(b) “Company Default” shall mean a “Default” or “Event of Default” as defined in
any Senior Document.

(c) “Enforcement Action” shall mean (i) to take from or for the account of the
Company or any other Person, by set-off or in any other manner, the whole or any
part of any moneys which may now or hereafter be owing by Quantum Fuel Systems
Technologies Worldwide, Inc. (“Quantum”) or any subsidiary with respect to any
debt owing under the Senior Documents and the Subordinated Documents, (ii) to
sue for payment of, or to initiate or participate with others in any suit,
action or legal proceeding against Quantum or any subsidiary, any guarantor or
any other Person to (x) enforce payment of or to collect the whole or any part
of any debt owing under the Senior Documents or the Subordinated Documents or
(y) commence judicial enforcement of any of the rights and remedies under the
Senior Documents or the Subordinated Documents or applicable law with respect to
any debt owing under the Senior Documents or the Subordinated Documents,
(iii) to accelerate any debt arising under any of the Senior Documents or the
Subordinated Documents, (iv) to make any payment demand upon any guarantor or
otherwise exercise remedies against any guarantor, in each case pursuant to the
instrument of guaranty issued in favor of the Agent subsequent to a default by

 

Ex 1-10

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Quantum or any subsidiary under any of the Senior Documents, (v) to exercise any
put option or to cause Quantum or any subsidiary to honor any redemption or
mandatory prepayment obligation arising under any Senior Document or Junior
Document that is not permitted by this Note or the Purchase Agreement (other
than the exercise of any put option to the extent that such exercise does not
result in any cash consideration payable by Quantum or any subsidiary or the
creation of any other monetary obligation of such parties that is not otherwise
subordinate to the Senior Indebtedness on terms substantively the same as set
forth in this Agreement), (vi) to notify account debtors or directly collect
accounts receivable or other payment rights of Quantum or any subsidiary or
(vii) to take any action under the provisions of any state or federal law,
including, without limitation, the Uniform Commercial Code, or under any
contract or agreement, to enforce, foreclose upon, take possession of or sell
any property or assets of Quantum, any subsidiary or any guarantor, including
the Collateral.

(d) “Insolvency Proceeding” shall mean, as to any Person, any of the following:
(i) any case or proceeding with respect to such Person under the U.S. Bankruptcy
Code or any other federal or state bankruptcy, insolvency, reorganization or
other law affecting creditors’ rights or any other or similar proceedings
seeking any stay, reorganization, arrangement, composition or readjustment of
the obligations and indebtedness of such Person or (ii) any proceeding seeking
the appointment of any trustee, receiver, liquidator, custodian or other
insolvency official with similar powers with respect to such Person or any of
its assets or (iii) any proceeding for liquidation, dissolution or other winding
up of the business of such Person or (iv) any assignment for the benefit of
creditors or any marshalling of assets of such Person.

(e) “Senior Documents” shall mean the Credit Agreement and all agreements,
documents and instruments at any time executed and/or delivered by Quantum, any
guarantor, any subsidiary or any other person with, to or in favor of the
holder(s) of any Senior Indebtedness in connection therewith or related thereto,
as all of the foregoing now exist or may hereafter be amended, modified,
supplemented, extended, replaced, renewed, refinanced or restated in accordance
with the terms of the Note and the Purchase Agreement.

(f) “Subordinated Documents” shall mean the Note and the Purchase Agreement, and
all agreements, documents and instruments at any time executed and/or delivered
by the Quantum, any guarantor, any subsidiary or any other person with, to or in
favor of the holder(s) of the Note in connection therewith or related thereto,
as all of the foregoing now exist or may hereafter be amended, modified,
supplemented, extended, replaced, renewed, refinanced or restated in accordance
with the terms of the Note and the Purchase Agreement.

 

Ex 1-11

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ARTICLE V

EVENTS OF DEFAULT; REMEDIES ON DEFAULT

Section 5.1 Event of Default. An “Event of Default” shall exist if any of the
following conditions or events shall occur and be continuing:

(a) the Company defaults in the payment of principal on the Note when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise and such failure to pay is not cured within ten
(10) business days after the occurrence thereof; or

(b) the Company defaults in the payment of any interest on the Note for more
than five (5) business days after the same becomes due and payable; or

(c) the Company defaults with respect to Section 7.6(b) of the Purchase
Agreement; or

(d) the Company defaults in the performance of, or compliance with, any other
term contained in the Purchase Agreement, the Registration Rights Agreement or
the Note (other than those referred to in Section 5.1(a), (b) or (c) above) and
the default is not remedied within thirty (30) days after the earlier of (i) a
Co-Chief Executive Officer or the Chief Financial Officer obtaining actual
knowledge of the default and (ii) the Company receiving written notice of the
default from the holder of the Note (any such written notice to be identified as
a “notice of default” and to refer specifically to this Section 5.1(d)); or

(e) any representation or warranty made by the Company in Article 5 of the
Purchase Agreement proves to have been false in any Material respect on the
Closing Date; or

(f) the Company (i) is generally not paying, or admits in writing its inability
to pay its debts as they become due (ii) files, or consents by answer or
otherwise to the filing against it of, a petition for relief or reorganization
or arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (iii) makes an assignment for the benefit of
its creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or (v) is adjudicated as insolvent or
to be liquidated; or

(g) a court or Governmental Authority of competent jurisdiction enters an order
appointing, without consent by the Company, a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of the Company, or any such petition shall be filed against the
Company and such petition shall not be dismissed within thirty (30) days; or

 

Ex 1-12

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(h) an Event of Default (as defined in the Credit Agreement) shall have occurred
and be continuing and shall not have been waived by the requisite holders of
Indebtedness under the Credit Agreement or cured.

Section 5.2 Acceleration.

(a) If an Event of Default with respect to the Company described in
subsection (f) of Section 5.1 has occurred, the Note shall automatically become
immediately due and payable.

(b) If any other Event of Default has occurred and is continuing, the holder of
the Note may at any time at his, her or its option, by notice to the Company,
declare the Note to be immediately due and payable. Notwithstanding the
foregoing, any acceleration of the Note based solely on an Event of Default
under Section 5.1(h) (Event of Default under the Credit Agreement) shall be
deemed rescinded upon the discontinuance of such Credit Agreement Event of
Default, (including, without limitation, upon waiver by the requisite holders of
Indebtedness under the Credit Agreement or other cure of such default).

(c) Upon the Note becoming due and payable under this Section 5.2, whether
automatically or by declaration, the Note will forthwith mature and the entire
unpaid principal amount of the Note, plus all accrued and unpaid interest
thereon, shall all be immediately due and payable, in each and every case
without presentment, demand, protest or further notice, all of which are hereby
waived.

Section 5.3 Other Remedies. If any Event of Default has occurred and is
continuing, and irrespective of whether the Note has become or has been declared
immediately due and payable under Section 5.1, the holder of the Note may
proceed to protect and enforce the rights of such holder by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise.

Section 5.4 No Waivers or Election of Remedies; Expenses. No course of dealing
and no delay on the part of the holder of the Note in exercising any right,
power or remedy shall operate as a waiver thereof or otherwise prejudice such
holder’s rights, powers or remedies. The Company shall pay the principal and
interest of the Note without any deduction for any setoff or counterclaim. No
right, power or remedy conferred by the Purchase Agreement or by the Note upon
the holder thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise. The Company will pay to the holder of the Note on
demand such further amount as shall be sufficient to cover all reasonable costs
and expenses of such holder incurred in any enforcement or collection under this
Article 5, including, without limitation, reasonable attorneys’ fees, expenses
and disbursements.

 

Ex 1-13

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Section 5.5 Waiver of Demand. The Company hereby waives diligence, presentment,
protest and demand and notice of protest and demand, dishonor and nonpayment of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of the Company hereunder.

ARTICLE VI

CONVERSION

Section 6.1 Conversion Procedure.

(a) At any time and from time to time after November 24, 2007, and prior to the
payment of this Note in full, the holder of this Note may convert all or any
portion of the outstanding principal and/or accrued interest amount of this Note
into a number of Common Shares (excluding any fractional share) determined by
dividing the principal and/or accrued interest amount designated by such holder
to be converted, by the Conversion Price then in effect; provided, that in no
event shall any amount of accrued interest due on the Note be converted to
Common Shares without the Company’s prior written consent, which it may withhold
in its absolute discretion.

(b) Except as otherwise expressly provided herein, each conversion of this Note
shall be deemed to have been effected as of the close of business on the date on
which this Note has been surrendered for conversion at the principal office of
the Company. At such time as such conversion has been effected, the rights of
the holder of this Note as such holder to the extent of the conversion shall
cease, and the Person or Persons in whose name or names any certificate or
certificates for Common Shares are to be issued upon such conversion shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby.

(c) Notwithstanding any other provision hereof, if a conversion of any portion
of this Note is to be made in connection with a registered public offering or a
sale of the Company, the conversion of any portion of this Note may, at the
election of the holder hereof, be conditioned upon the consummation of the
public offering or the sale of the Company, in which case such conversion shall
not be deemed to be effective until the consummation of such transaction.

(d) As soon as possible after a conversion has been effected (but in any event
within five (5) business days in the case of clause (i) below), the Company
shall deliver to the converting holder:

(i) a certificate or certificates representing the number of Common Shares
(excluding any fractional share) issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting holder
has specified;

 

Ex 1-14

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(ii) payment in an amount equal to the sum of all accrued interest with respect
to the principal amount converted, which is not also being converted and has not
been paid prior thereto, plus the amount payable under subsection (e) below; and

(iii) a new Note representing any portion of the principal amount which was
represented by the Note surrendered to the Company in connection with such
conversion but which was not converted or which could not be converted because
it would have required the issuance of a fractional share of Common Shares.

(e) If any fractional share of Common Shares would, except for the provisions
hereof, be deliverable upon conversion of this Note, the Company, in lieu of
delivering such fractional share, shall in the event the conversion is being
consummated in connection with repayment in full of the Note, pay in cash an
amount equal to the Market Price of such fractional share as of the date of such
conversion.

(f) The issuance of certificates for Common Shares upon conversion of this Note
shall be made without charge to the holder hereof for any issuance tax in
respect thereof or other cost incurred by the Company in connection with such
conversion and the related issuance of Common Shares. Upon conversion of this
Note, the Company shall take all such actions as are necessary in order to
insure that the Common Shares issuable with respect to such conversion shall be
validly issued, fully paid and nonassessable.

(g) The Company shall not close its books against the transfer of

Common Shares issued or issuable upon conversion of this Note in any manner
which interferes with the timely conversion of this Note.

(h) (i) Despite anything above to the contrary, the holder may not convert this
Note into Common Shares under this Article 6 during the time period and to the
extent that the shares of the Company’s Common Stock that the holder could
acquire upon the conversion would cause holder’s (or its controlling Person’s)
Beneficial Ownership of the Company’s Common Shares to exceed 4.99% of the
Company’s outstanding Common Shares (including Common Shares, if any, that
holder has acquired, or, by exercise by the Company of its rights to effect
payment in kind under Article 9, that holder has the right to acquire, under
Article 9). The holder will, at the request of the Company, from time to time,
notify the Company of holder’s computation of holder’s or its controlling
Person’s Beneficial Ownership.

The parties shall compute “Beneficial Ownership” of the Company’s Common Shares
in accordance with Commission Rule 13d-3. Notwithstanding the foregoing, the
limitation of 4.99% set forth in this paragraph shall not apply and a limitation
of 9.99% shall, instead, apply on the same terms and conditions (i) during the
period commencing with the Company’s provision of notice of an Organic Change
pursuant to Section 6.5(b)(iii) and ending on the earlier of (a) the date holder
gives notice to the Company that it waives irrevocably such temporary

 

Ex 1-15

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increase in its right to acquire Common Shares in respect of such Organic
Change, (b) notice from the Company that it has determined in good faith that
such Organic Change will not occur or (c) the date 30 days after such Organic
Change; and (ii) at and after April 1, 2009. To the extent the holder requests
conversion of principal or, with Company consent, accrued interest on the Note,
and the Common Shares issuable upon such conversion would exceed the applicable
limitation set forth in this Section 6.1(h)(i), then, first, the amount
representing accrued interest, and, second (at the election of the Company, if
prior to maturity), the amount representing principal, that, in either case, if
converted would cause Common Shares in excess of such limitation to be issued,
shall, instead, be paid in cash in the actual amounts outstanding (and not based
on the value of Common Shares otherwise issuable).

(ii) Unless the Company obtains the approval of its voting shareholders to such
issuance in accordance with the rules of Nasdaq (in effect on the date hereof)
with which the Company shall be required to comply (but only to the extent
required thereby), the Company shall not issue Common Shares upon conversion of
the Note, which when added to the number of shares of Common Shares previously
issued by the Company (i) upon conversion of the Note and (ii) in payment of the
Note pursuant to Article 9 below, would exceed the greater (i) 19.99% of the
number of shares of the Company’s Common Shares which were issued and
outstanding on the Closing Date or (ii) such number of Common Shares as shall
have been expressly authorized by action of the Company’s shareholders in
accordance with the Nasdaq marketplace rules (the “Maximum Issuance Amount”). In
the event that the holder requests conversion of the Note such that would
require the Company to issue shares of Common Shares in excess of the Maximum
Issuance Amount, the Company shall honor such conversion request by
(i) converting the Note into the number of shares of Common Shares stated in the
conversion notice up to, but not in excess of, the Maximum Issuance Amount, and
(ii) redeeming the number of shares of Common Shares stated in the conversion
notice in excess of the Maximum Issuance Amount in cash at a price equal to the
then-current fair market value (i.e., the closing bid price of the Company’s
Common Stock on the Nasdaq System, or if not then traded on the Nasdaq System,
then on the OTC Bulletin Board as reported by bigcharts.com, or if this service
is discontinued, such other reporting service acceptable to the holder) on the
date of redemption.

Section 6.2 Conversion Price. The initial Conversion Price shall be $2.36. To
address dilution of the conversion rights granted under the Notes, the
Conversion Price shall be subject to adjustment from time to time pursuant to
Sections 6.3, 6.4 and 6.5.

Section 6.3 Adjustment of Conversion Price upon Issuance of Common Stock.

(a) If and whenever on or after the date hereof, the Company issues or sells, or
in accordance with this Section 6.3 is deemed to have issued or sold, any shares
of Common Stock (including the issuance or sale of shares of Common Stock owned
or held by or for the account of the Company) for a consideration per share (the
“New Issuance Price”)

 

Ex 1-16

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less than a price (the “Applicable Price”) equal to $1.50 (the foregoing a
“Dilutive Issuance”), then immediately after such Dilutive Issuance the
Conversion Price then in effect shall be reduced to a price (calculated to the
nearest one-hundredth of a cent) determined in accordance with the following
formula:

CP2 = CP1 * (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

“CP2” shall mean the Conversion Price in effect immediately after such Dilutive
Issuance;

“CP1” shall mean the Conversion Price in effect immediately prior to such
Dilutive Issuance;

“A” shall mean the number of shares of Common Stock outstanding immediately
prior to such Dilutive Issuance;

“B” shall mean the number of shares of Common Stock that would have been issued
in such Dilutive Issuance if shares of Common Stock had been issued at a price
per share equal to CP1 (determined by dividing the aggregate consideration
received by the Company in respect of such issue by CP1); and

“C” shall mean the number of shares of Common Stock issued or deemed to be
issued in such Dilutive Issuance.

(b) For purposes of determining the adjusted Conversion Price under this
Section 6.3, the following shall be applicable:

(i) Issuance of Rights or Options. In case at any time the Company shall in any
manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called
“Options” and such convertible or exchangeable stock or securities being called
“Convertible Securities”) whether or not such 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
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon the
conversion or

 

Ex 1-17

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exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Conversion Price in effect immediately prior to the time
of the granting of such Options, then the total number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total amount of such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such Convertible Securities
and thereafter shall be deemed to be outstanding for purposes of adjusting the
Conversion Price. Except as otherwise provided in Section 6.3(b)(iii), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.

(ii) Issuance of Convertible Securities. In case the Company shall in any manner
issue (directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus (y) the
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (ii) the total 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 be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Conversion
Price, provided that (a) except as otherwise provided in Section 6.3(b)(iii), no
adjustment of the Conversion Price shall be made upon the actual issuance of
such Common Stock upon conversion or exchange of such Convertible Securities and
(b) no further adjustment of the Conversion Price shall be made by reason of the
issue or sale of Convertible Securities upon exercise of any Options to purchase
any such Convertible Securities for which adjustments of the Conversion Price
have been made pursuant to the other provisions of Section 6.3.

Change in Option Price or Conversion Rate. Upon the happening of any of the
following events, namely, if the purchase price provided for in any Option
referred to in Section 6.3(b)(i) hereof, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in Section 6.3(b)(i) or

 

Ex 1-18

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Section 6.3(b)(ii), or the rate at which Convertible Securities referred to in
Section 6.3(b)(i) or Section 6.3(b)(ii) are convertible into or exchangeable for
Common Stock shall change at any time (including, but not limited to, changes
under or by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall forthwith be
readjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. On the termination of any
Option for which any adjustment was made pursuant to this Section 6.3 or any
right to convert or exchange Convertible Securities for which any adjustment was
made pursuant to this Section 6.3 (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by the
Company), the Conversion Price then in effect hereunder shall forthwith be
changed to the Conversion Price which would have been in effect at the time of
such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.

Stock Dividends. Subject to the provisions of this Section 6.3, in case the
Company shall declare a dividend or make any other distribution upon any stock
of the Company (other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.

Consideration for Stock. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the net amount received by the Company
therefor, after deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock, Options 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
fair value of such consideration as determined in good faith by the Board of
Directors of the Company, after deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any Options shall be issued in connection with the
issue and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Company. If Common Stock, Options or Convertible Securities shall be issued
or sold by the Company and, in connection therewith, other Options or
Convertible Securities (the “Additional Rights”) are issued, then the
consideration received or deemed to be received by the Company shall be reduced
by the fair market value

 

Ex 1-19

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of the Additional Rights (as determined using the Black-Scholes option pricing
model or another method mutually agreed to by the Company and the Holder). The
Board of Directors of the Company shall respond promptly, in writing, to an
inquiry by the Holder as to the fair market value of the Additional Rights. In
the event that the Board of Directors of the Company and the Holder are unable
to agree upon the fair market value of the Additional Rights, the Company and
the Holder shall jointly select an appraiser, who is experienced in such
matters. The decision of such appraiser shall be final and conclusive, and the
cost of such appraiser shall be borne evenly by the Company and the Holder.

Record Date. In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options 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 right of subscription or purchase, as the case may
be.

(c) Notwithstanding the foregoing, no adjustment will be made under this
Section 6.3 as a result of: (i) the issuance of securities upon the exercise or
conversion of any Common Stock Equivalents issued by the Company prior to the
date of this Note (but will apply to any amendments, modifications and
reissuances thereof), (ii) the grant of options or warrants, or the issuance of
additional securities, under any duly authorized company stock option, stock
incentive plan, restricted stock plan or stock purchase plan in existence as of
the date of this Note or (iii) the issuance of securities in connection with an
acquisition or strategic transaction, the primary purposes of which, in the
reasonable judgment of the Board of Directors, is not to raise additional
capital.

Section 6.4 Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any share split, share dividend or otherwise) one or more
classes of its outstanding Common Shares into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and if the Company at any time combines (by reverse
share split or otherwise) one or more classes of its outstanding Common Shares
into a smaller number of shares, the Conversion Price in effect immediately
prior to such combination shall be proportionately increased.

Section 6.5 Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company’s assets or other transaction, which
in each case is effected in such a manner that holders of Common Shares are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Shares is
referred to herein as an “Organic Change.” Prior to the consummation of any
Organic Change, the Company shall make lawful and adequate provision (in form
and substance satisfactory to the holder of the Note) to insure that the holder
of the Note shall thereafter have the right to acquire

 

Ex 1-20

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and receive, in lieu of or addition to (as the case may be) Common Shares
immediately theretofore acquirable and receivable upon the conversion of the
holder’s Note, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of Common Shares
immediately theretofore acquirable and receivable upon conversion of the
holder’s Note had such Organic Change not taken place. In any such case,
appropriate provision (in form and substance satisfactory to the holder of the
Note) shall be made with respect to the holder’s rights and interests to insure
that the provisions of this Article 6 shall thereafter be applicable in relation
to any shares of stock, securities or assets thereafter deliverable upon the
conversion of the Note (including, in the case of any such consolidation, merger
or sale in which the successor entity or purchasing entity is other than the
Company, an immediate adjustment of the Conversion Price to the value for the
Common Shares reflected by the terms of such consolidation, merger or sale, and
a corresponding immediate adjustment in the number of Common Shares acquirable
and receivable upon conversion of the Note, if the value so reflected is less
than the Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form reasonably
satisfactory to the holder of the Note), the obligation to deliver to each the
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.

Section 6.6 Notices.

(a) Immediately upon any adjustment of the Conversion Price, the Company shall
send written notice thereof to the holder of this Note, setting forth in
reasonable detail and certifying the calculation of such adjustment.

(b) The Company shall send written notice to the holder of this Note at least
twenty (20) days prior to the date on which the Company closes its books or
takes a record (i) with respect to any dividend or distribution upon the Common
Shares, (ii) with respect to any pro rata subscription offer to holders of
Common Shares or (iii) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.

(c) The Company shall also give at least twenty (20) days prior written notice
to the holder of this Note of the date on which any Organic Change, dissolution
or liquidation shall take place.

ARTICLE VII

AMENDMENT AND WAIVER

The provisions of the Note may be amended with the holder’s consent and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, in the manner provided in the Purchase
Agreement.

 

Ex 1-21

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ARTICLE VIII

CANCELLATION

After all principal and accrued interest at any time owed on this Note has been
paid in full or this Note has been converted in full to Common Shares or other
property, this Note shall be surrendered to the Company for cancellation and
shall not be reissued.

ARTICLE IX

PAYMENTS

This Note is payable without relief from valuation or appraisement laws. All
payments to be made to the holder of the Note shall be made in the lawful money
of the United States of America in immediately available funds; provided, that
payment of interest pursuant to clause (a) of Article I or principal hereon may
be made, at the election of the Company, in kind, in the form of Common Shares,
only as follows:

(a) The Common Shares must be registered for resale with the Commission and
applicable state securities authorities on the Shelf Registration Statement
provided for in the Registration Rights Agreement (defined in the Purchase
Agreement) and the Registration Statement must be effective.

(b) The per share value of the Common Shares for purposes of determining the
number of shares of Common Shares issuable as payment in kind is 95% (rounded to
the nearest $.01) of the average (rounded to the nearest $.01) of the high
closing bid prices of the Company’s Common Shares on the Nasdaq System (or if
not then traded on the Nasdaq System, then on the OTC Bulletin Board as reported
by bigcharts.com, or if this service is discontinued, such other reporting
service reasonably acceptable to the holder of the Note) for the five trading
days immediately preceding the particular due date of the payment to be made in
kind.

(c) Payment in kind will be considered timely under this Note only if the
Company complies similarly with Sections 6.1(d)(i), (f) and (g) above with
respect to the in kind payment payable under this Article 9.

(d) The limitations of Section 6.1(h)(ii) respecting the Maximum Issuance Amount
shall likewise apply to Common Shares that may be issued by the Company under
this Article 9.

(e) The Company does not have the right to pre-pay outstanding principal of the
Note without consent of the holder.

ARTICLE X

PLACE OF PAYMENT

Payments of principal and interest shall be delivered to the Purchaser in care
of Whitebox Advisors, LLC (attention: Jonathan Wood, Chief Financial Officer) at
the following address: 3033 Excelsior Boulevard, Suite 300, Minneapolis,
Minnesota 55416 or to such other address or to the attention of such other
person as specified by prior written notice to the Company.

 

Ex 1-22

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ARTICLE XI

GOVERNING LAW

(a) THIS NOTE AND ALL ISSUES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MINNESOTA
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE
AUTHORIZATION AND ISSUANCE OF THE COMPANY’S SHARES ARE GOVERNED BY INDIANA LAW.

(b) The parties agree that the federal and state courts in Minneapolis,
Minnesota shall have exclusive personal jurisdiction (and are deemed to be a
convenient forum for each party) as to resolution of any dispute; except that
either party may enforce an order issued by any such court in other
jurisdictions.

(c) EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY MATTER ARISING HEREUNDER INCLUDING ANY DISPUTE BETWEEN THE
HOLDER HEREOF AND THE HOLDER OF ANY SENIOR INDEBTEDNESS.

ARTICLE XII

SUBORDINATE LENDER PURCHASE OPTION

Upon the delivery of written notice by the Agent of (a) its intent to commence,
or its commencement of, any Enforcement Action or (b) any sale of the Collateral
outside of the ordinary course of business, the holders of the Notes shall have
the option at any time upon fifteen (15) Business Days’ prior written notice to
the Agent to purchase all of the Bank Indebtedness, and the Agent’s right, title
and interest in the Senior Documents and the Collateral, from the Agent in
accordance with this Article XII.

On the date specified by the holders of the Notes in such notice (which shall
not be less than fifteen (15) Business Days, nor more than twenty (20) Business
Days, after the receipt by the Agent of the written notice from the holders of
the Notes of their election to exercise such option), the Agent shall sell to
the holders of the Notes, and the holders of the Notes shall purchase from the
Agent, the Bank Indebtedness and the Agent’s right, title and interest in the
Senior Documents and the Collateral.

(a) Upon the date of the purchase and sale of the Bank Indebtedness, the holders
of the Notes shall (i) pay to the Agent as the purchase price therefor the full
amount of all the Bank Indebtedness then outstanding and unpaid (including
principal, interest, fees and expenses, including reasonable attorneys’ fees and
legal expenses), (ii) furnish cash collateral to the Agent in such amounts as
the Agent determines are reasonably necessary to secure the Agent in connection
with any issued and outstanding letters of credit provided by the Agent to
Quantum or any subsidiary (but not in any event in an amount greater than 105%
of the aggregate undrawn face amount of such letters of credit), and (iii) agree
to reimburse the Agent

 

Ex 1-23

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for any out-of-pocket loss, cost, damage or expense (including reasonable
attorneys’ fees and legal expenses) incurred within 90 days after the purchase
and sale of the Bank Indebtedness and in connection any checks or other payments
provisionally credited to the Bank Indebtedness, and/or as to which the Agent
has not yet received final payment.

Such purchase price and cash collateral (if any) payable under this Article XII
shall be remitted by wire transfer in federal funds to such bank account of the
Agent as the Agent may designate in writing to the holders of the Notes for such
purpose. Interest shall be calculated to but excluding the Business Day on which
such purchase and sale shall occur if the amounts so paid by the holders of the
Notes to the bank account designated by the Agent are received in such bank
account prior to 4:00 p.m., New York City time, and interest shall be calculated
to and including such Business Day if the amounts so paid by the holders of the
Notes to the bank account designated by the Agent are received in such bank
account later than 4:00 p.m., New York City time. Upon any such purchase and
sale of the Bank Indebtedness, the Agent shall assign to holders of the Notes,
and without recourse (except as set forth in the following paragraph), all of
its right, title and interest in and to the Bank Indebtedness, the Senior
Documents and the Collateral, and shall execute any documents or instruments,
and take any actions reasonably necessary to evidence and effect such
assignment.

Such purchase and sale shall be expressly made without representation or
warranty of any kind by the Agent as to the Bank Indebtedness or otherwise and
without recourse to the Agent, except that the Agent shall represent and
warrant: (i) the amount of the Bank Indebtedness being purchased, (ii) that the
Agent owns the Bank Indebtedness free and clear of any Liens or encumbrances,
and (iii) the Agent has the right to assign the Bank Indebtedness and the
assignment is duly authorized.

The Agent agrees that it will give the holders of the Notes notice of its
intention to commence any Enforcement Action not less than fifteen (15) Business
Days before the commencement by it of such Enforcement Action; provided that, if
the Agent determines in good faith that such fifteen (15) Business Day notice
period could materially and adversely affect the viability of such Enforcement
Action, the value of the Collateral or the amount of proceeds that may be
potentially derived therefrom, then the Agent shall give the holders of the
Notes notice of the commencement of such Enforcement Action promptly upon the
commencement of such Enforcement Action. If any such written notice is given to
the holders of the Notes shall send to the Agent notice of the holders of the
Notes’ intention to exercise the purchase option given by the Agent to the
holders of the Notes under this Section, then the Agent shall, at the request of
the holders of the Notes, suspend its Enforcement Action, provided, that such
suspension does not adversely impact in any material respect any remedy the
Agent may otherwise have against Quantum or any subsidiary or the Collateral,
and such suspension shall continue so long as, such exigent circumstances do not
exist and the purchase and sale with respect to the Bank Indebtedness provided
for herein shall be consummated in accordance with this Article XII.

 

Ex 1-24

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IN WITNESS WHEREOF, the Company has executed and delivered this Note on January
    , 2007.

 

TECSTAR AUTOMOTIVE GROUP, INC. By:  

/s/ Kenneth R. Lombardo

Name:   Kenneth R. Lombardo Title:   General Counsel

 

Ex 1-25