-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LM+fhx1qFsATkQAnt5cjTu5WRwlbtKCPS51EFwLFMXHL3Wpc1fSVMxNPmlVtoGz1 opkImgFI3vvcAbiTPvefeQ== 0000908662-04-000156.txt : 20040615 0000908662-04-000156.hdr.sgml : 20040615 20040614213657 ACCESSION NUMBER: 0000908662-04-000156 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20040610 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROFINANCIAL INC CENTRAL INDEX KEY: 0000827230 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 042962824 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14771 FILM NUMBER: 04862846 BUSINESS ADDRESS: STREET 1: 10 M COMMERCE WAY CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 7819944800 MAIL ADDRESS: STREET 1: 10 M COMMERCE WAY CITY: WOBURN STATE: MA ZIP: 01801 FORMER COMPANY: FORMER CONFORMED NAME: BOYLE LEASING TECHNOLOGIES INC DATE OF NAME CHANGE: 19980605 8-K 1 form_8k.txt FORM 8-K DATED 6/10/04 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): June 10, 2004 --------------------------------------------------------------- MICROFINANCIAL INCORPORATED --------------------------- (Exact name of registrant as specified in its charter) MASSACHUSETTS ------------- (State or other jurisdiction of incorporation) 1-14771 04-2962824 ------- ---------- (Commission file number) (IRS Employer Identification Number) 10-M Commerce Way, Woburn, MA 01801 ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 994-4800 ------------------------------------------------------------------ Item 5. Other Events. ------------ On June 10, 2004, TimePayment Corp. LLC, a wholly-owned subsidiary of the Registrant, signed a credit agreement with Acorn Capital Group, LLC. The credit agreement provides for a secured line of credit of up to $8 million. On the same date, TimePayment signed a note purchase agreement with Ampac Capital Solutions, LLC. The note purchase agreement provides for a loan to TimePayment of up to $2 million. Each facility was guaranteed on a conditional, subordinated basis by the Registrant. In connection with these agreements, the Registrant issued warrants to the lenders to purchase up to an aggregate of 402,342 shares of common stock of the Registrant, and agreed to register the shares underlying the warrants with the Securities and Exchange Commission. The Registrant issued a press release announcing these transactions on June 14, 2004, a copy of which is attached as exhibit 99.1. The details of the transaction are set forth in the Credit Agreement, the Note Purchase Agreement, and the other documents which are attached as exhibits to this Current Report. The description of the transaction in this Current Report is qualified in its entirety by reference to such agreements and the other exhibits hereto. Item 7. Financial Statements and Exhibits. ---------------------------------
Exhibit Exhibit Title ------- ------------- Exhibit 10.1 Credit Agreement dated as of June 10, 2004, by and between TimePayment Corp. LLC and Acorn Capital Group, LLC Exhibit 10.2 Note dated June 10, 2004 to Acorn Capital Group, LLC by TimePayment Corp. LLC Exhibit 10.3 Conditional Guaranty dated June 10, 2004, by MicroFinancial Incorporated and Leasecomm Corporation in favor of Acorn Capital Group, LLC Exhibit 10.4 Pledge and Security Agreement dated June 10, 2004 by TimePayment Corp. LLC in favor of Acorn Capital Group, LLC Exhibit 10.5 Conditional Pledge and Security Agreement dated June 10, 2004 by MicroFinancial Incorporated and Leasecomm Corporation in favor of Acorn Capital Group, LLC Exhibit 10.6 Note Purchase Agreement dated as of June 10, 2004, by and between TimePayment Corp. LLC and Ampac Capital Solutions, LLC Exhibit 10.7 Subordinated Promissory Note dated June 10, 2004, to Ampac Capital Solutions, LLC by TimePayment Corp. LLC Exhibit 10.8 Subordinated Conditional Guaranty dated June 10, 2004, by MicroFinancial Incorporated in favor of Ampac Capital Solutions, LLC Exhibit 10.9 Warrant Certificate to purchase 100,000 shares of Common Stock, dated June 10, 2004 issued to Acorn Capital Group, LLC by MicroFinancial Incorporated Exhibit 10.10 Warrant Certificate to purchase up to 191,685 shares of Common Stock, dated June 10, 2004 issued to Ampac Capital Solutions, LLC by MicroFinancial Incorporated Exhibit 10.11 Warrant Certificate to purchase up to 110,657 shares of Common Stock, dated June 10, 2004 issued to Ampac Capital Solutions, LLC by MicroFinancial Incorporated Exhibit 10.12 Registration Rights Agreement dated June 10, 2004 by and among MicroFinancial Incorporated, Acorn Capital Group, LLC and Ampac Capital Solutions, LLC Exhibit 99.1 Press Release dated June 14, 2004
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MICROFINANCIAL INCORPORATED Registrant By: /s/ James Jackson ------------------------------------------- James Jackson Vice President and Chief Financial Officer Dated: June 14, 2004 EXHIBIT INDEX
Exhibit Exhibit Title ------- ------------- Exhibit 10.1 Credit Agreement dated as of June 10, 2004, by and between TimePayment Corp. LLC and Acorn Capital Group, LLC Exhibit 10.2 Note dated June 10, 2004 to Acorn Capital Group, LLC by TimePayment Corp. LLC Exhibit 10.3 Conditional Guaranty dated June 10, 2004, by MicroFinancial Incorporated and Leasecomm Corporation in favor of Acorn Capital Group, LLC Exhibit 10.4 Pledge and Security Agreement dated June 10, 2004 by TimePayment Corp. LLC in favor of Acorn Capital Group, LLC Exhibit 10.5 Conditional Pledge and Security Agreement dated June 10, 2004 by MicroFinancial Incorporated and Leasecomm Corporation in favor of Acorn Capital Group, LLC Exhibit 10.6 Note Purchase Agreement dated as of June 10, 2004, by and between TimePayment Corp. LLC and Ampac Capital Solutions, LLC Exhibit 10.7 Subordinated Promissory Note dated June 10, 2004, to Ampac Capital Solutions, LLC by TimePayment Corp. LLC Exhibit 10.8 Subordinated Conditional Guaranty dated June 10, 2004, by MicroFinancial Incorporated in favor of Ampac Capital Solutions, LLC Exhibit 10.9 Warrant Certificate to purchase 100,000 shares of Common Stock, dated June 10, 2004 issued to Acorn Capital Group, LLC by MicroFinancial Incorporated Exhibit 10.10 Warrant Certificate to purchase up to 191,685 shares of Common Stock, dated June 10, 2004 issued to Ampac Capital Solutions, LLC by MicroFinancial Incorporated Exhibit 10.11 Warrant Certificate to purchase up to 110,657 shares of Common Stock, dated June 10, 2004 issued to Ampac Capital Solutions, LLC by MicroFinancial Incorporated Exhibit 10.12 Registration Rights Agreement dated June 10, 2004 by and among MicroFinancial Incorporated, Acorn Capital Group, LLC and Ampac Capital Solutions, LLC Exhibit 99.1 Press Release dated June 14, 2004
EX-10 2 exh_10-1.txt EXHIBIT 10.1 Exhibit 10.1 CREDIT AGREEMENT CREDIT AGREEMENT dated as of June 10, 2004 by and between TIMEPAYMENT CORP. LLC, a Delaware limited liability company, and ACORN CAPITAL GROUP, LLC, a Delaware limited liability company. The parties hereto hereby agree as follows: ARTICLE I: DEFINITIONS Section 1.1. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "Additional Collateral" means any additional collateral pledged by any Obligor hereunder in which Lender has a first priority perfected security interest and such additional collateral may include cash, securities, Leases, letters of credit or any other assets acceptable to Lender in its sole discretion. "Account Control Agreement" means the Blocked Account Agreement, dated as of the date hereof, among Borrower, Lender and the depository bank party thereto, a copy of which is attached hereto as Exhibit B. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Blocked Account" means the depository bank account of Borrower at National City Bank, account number 981612062, which is subject to the Account Control Agreement. "Board" means the Board of Directors of Parent. "Borrower" means TimePayment Corp. LLC, a Delaware limited liability company. "Borrower Security Agreement" means the Pledge and Security Agreement, dated as of the date hereof, by Borrower in favor of Lender. "Borrowing Base" means an amount equal to the sum of: (a)(i) as of the Effective Date, 67% of the aggregate amount of all Eligible Lease Receivables, and (ii) as of June 30, 2004, 70% of the aggregate amount of all Eligible Lease Receivables, in each case, subject to Lender's satisfaction, in its sole discretion, with information relating to the Borrowing Base contained in reports delivered by Borrower pursuant to Section 5.1, in each case, less (b) the Borrowing Base Reserves, if any, at the date of determination of the Borrowing Base. "Borrowing Base Reserves" means, at the time of any determination of the Borrowing Base, such reserves as Lender may from time to time determine, after consultation with Borrower, to establish, in the exercise of its reasonable credit judgment. "Business Day" means a day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required by law to close. "Cash Deposit" means, from time to time, the amount of cash on deposit in the Blocked Account. "Change of Control" means at any time (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 35% of the outstanding common stock of Parent; (b) the Board shall cease to consist of a majority of Continuing Directors, (c) Mr. Latour shall cease to be a member of the Board, unless a replacement reasonably acceptable to Lender is appointed within 90 days following such cessation, or (d) a "change of control," "change of control event" or similar circumstance or event shall occur under or pursuant to agreements relating to Indebtedness which any Obligor is a party to, including, without limitation, the Fleet Loan Agreement, or (e) Parent shall cease to own, beneficially and of record, the full economic interest in, with full voting and dispositive power, 100% of the total outstanding capital stock of Borrower or shall cease to Control Borrower. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" has the meaning set forth in Section 2.7. "Collateral Extension Date" has the meaning set forth in Section 2.7. "Collateral Value" means, from time to time, (a) the value of the Borrowing Base, plus (b) the Cash Deposit (if any), plus (c) the Value of Additional Collateral. "Commitment" means up to $8,000,000, as may be reduced from time to time pursuant to the terms of this Agreement. "Conditional Guaranty" means the Conditional Guaranty, dated as of the date hereof, made by Parent and Leasecomm in favor of Lender, but effective only upon satisfaction of certain conditions specified therein and in Section 2.7. "Conditional Security Agreement" means the Pledge and Security Agreement, dated as of the date hereof, by Leasecomm and Parent in favor of Lender, but effective only upon satisfaction of certain conditions specified therein and in Section 2.7. "Continuing Directors" means the directors of Parent on the date hereof and each other director, if, in each case, such other director's nomination for election to the Board is recommended by a majority of the then Continuing Directors. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, other than administrative functions, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Credit Documents" means this Agreement, the Notes, the Conditional Guaranty, the Conditional Security Agreement, the Account Control Agreement, the Warrant Certificate, the Registration Rights Agreement, the Borrower Security Agreement and any other documents hereafter delivered to Lender by any Obligor evidencing, guarantying or securing the Obligations or the Collateral. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Dollars" or "$" refers to lawful money of the United States of America. "EBITDA" means for the applicable period, for the Borrower and its Subsidiaries: the sum of (a) net income (or net loss), (b) interest expense, (c) income tax expense, (d) depreciation expense, (e) amortization expense, (f) all extraordinary non-cash losses otherwise deducted from the determination of net income (or net loss) for such period (other than any such non-cash losses that require an accrual or reserve for cash charges for any future period and any write-downs or write-offs of accounts receivable) less all extraordinary non-cash gains otherwise added in the determination of net income (or net loss) for such period, and (g) all non-recurring losses or expenses deducted from the determination of net income (or net loss) for such period to the extent such losses or expenses were funded from capital contributions from any stockholder of the Borrower, in each case determined on a consolidated basis in accordance with GAAP for such period. "Effective Date" means the date on which the conditions specified in Section 4.1 are satisfied. "Eligible Equipment" means Equipment: (a) to which Borrower has good and marketable title; (b) which is not subject to any Lien other than that in favor of Lender and in which Lender has a duly perfected first priority security interest under the UCC; (c) which is subject to an Eligible Lease; and (d) which is insured by either Borrower in accordance with current practice or the lessee thereof in accordance with industry standards. "Eligible Leases" means a Lease: (a) which is in full force and effect; (b) the lessor under which is Borrower; (c) which is assignable by the lessor thereunder; (d) which is non-cancelable and provides that the lessee's obligations thereunder are absolute and unconditional, and not subject to defense, deduction, set-off or claim and as to which no defenses, set-offs, claims or counterclaims exist or have been asserted; (e) which is not subject to any Liens other than that in favor of Lender and in which Lender has a duly perfected first priority security interest under the UCC; (f) which is a Lease characterized as a "finance lease" in accordance with GAAP; (g) the lessee under which (i) is domiciled in the United States, (ii) is not the subject of and has not taken any action described in subsections (h) or (i) of Section 6.1 and (iii) has not otherwise been determined by Lender to be unacceptable; (h) which is in the form of Annex B (a true and complete copy of which has been provided to, and approved by, Lender) or a form otherwise approved by Lender; (i) under which no payment is more than 60 days late or lessee has two or more currently unpaid and outstanding payments; (j) under which no default has occurred other than to the extent permissible under clause (i) immediately above; (k) which covers Eligible Equipment; (l) which has not been modified, amended, restated or otherwise rewritten with respect to terms of payment or in any other material respect more than two times; and (m) the original of which has been delivered to and/or is otherwise in the possession of Lender or its authorized designee. "Eligible Lease Receivables" means as at the date of determination thereof, the unpaid balance of rentals through the end of the applicable term under an Eligible Lease. "Equipment" means tangible equipment reasonably acceptable to Lender, whether now or hereafter owned and leased to third party users by Borrower; provided, however, that in no event shall Equipment include (i) stand-alone software, (ii) fixtures, or (iii) any equipment custom designed for any Person (except, in the case of clauses (ii) and (iii), electronic signage and security monitoring systems). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event," as defined in Section 4043 of ERISA of the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by Borrower or any ERISA Affiliate from the Pension Benefit Guaranty Corporation or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from Borrower or any ERISA Affiliate of any notice, concerning the imposition of liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Event of Default" has the meaning set forth in Article VII. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Final Maturity Date" means the first anniversary of the date hereof or, subject to the conditions set forth in Section 2.2, any subsequent anniversary of the date hereof. "Fleet" means Fleet National Bank. "Fleet Loan Agreement" means the Fourth Amended and Restated Revolving Credit Agreement, dated August 22, 2000 by and between the lenders party from time to time thereto, Fleet, as agent for such lenders, and Leasecomm, as borrower. "Fleet Waiver" means the Waiver Agreement dated as of June 3, 2004 by and between the Investors named therein and Parent. "GAAP" means generally accepted accounting principles in the United States of America as used to prepare the financial statements required to be delivered hereunder. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantors" means, collectively, Parent and Leasecomm (in each case only pursuant to the Conditional Guaranty on and after the effective date thereof) and each other Person acceptable to Lender who may from time to time guaranty the Obligations. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to loans or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all guarantees by such Person of Indebtedness of others, (h) all the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. The Indebtedness of any Person shall not include current accounts payable incurred in the ordinary course of business. "Iron Mountain" means Iron Mountain Records Management, Inc. "Iron Mountain Agreement" means the Customer Agreement dated as of March 26, 2003 between Iron Mountain and Parent (as amended, supplemented or otherwise modified from time to time). "Iron Mountain Addenda" means the Second Addendum to the Iron Mountain Agreement, dated June 10, 2004, by and among Iron Mountain, Parent, Borrower and Lender (as amended, supplemented or otherwise modified from time to time) and the Third Addendum to the Iron Mountain Agreement, dated June 10, 2004, by and among Iron Mountain, Parent, Borrower and Lender (as amended, supplemented or otherwise modified from time to time). "Lease" means a written lease agreement entered into by Borrower as lessor with respect to Equipment. "Leasecomm" means Leasecomm Corporation, a Massachusetts corporation and subsidiary of Parent, and borrower under the Fleet Loan Agreement. "Lender" means Acorn Capital Group, LLC, a Delaware limited liability company. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" means, collectively, all loans made pursuant to Section 2.1. "Material Adverse Effect" means, with respect to any event, occurrence, circumstance or other matter of whatever nature, a material adverse effect on (a) the business, assets, operations or financial condition of any Obligor (exclusive of events, occurrences, circumstances and other matters resulting from changes in general economic, civil or political conditions, legal standards or regulatory conditions); or (b) the ability of any Obligor to perform any material obligations under any Credit Document. "Material Indebtedness" means Indebtedness (other than the Loan or Indebtedness owing to another Obligor), of any one or more of the Obligors in an aggregate principal amount exceeding (a) in the case of Borrower, $100,000 and (b) in the case of all other Obligors, collectively, $500,000. "Mr. Latour" means Mr. Richard F. Latour, an individual. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Noteholders" means Lender and its successors and assigns under Section 8.5 as holders of the Obligations. "Notes" means the promissory note(s) of Borrower, executed and delivered as provided in Section 2.5, together with all replacements thereof and the substitutions therefor. "Obligations" means any and all now existing or hereafter arising obligations of any Obligor to Lender, whether primary or secondary, direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise under any Credit Document whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys' fees incurred in any collection efforts or in any action or proceeding. "Obligor" means each of Borrower and each Guarantor. "Parent" means MicroFinancial Incorporated (f/k/a Boyle Leasing Technologies, Inc.), a Massachusetts corporation, and the sole member of each of Borrower and Leasecomm. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue or are being contested in compliance with Section 5.4; (c) deposits or pledges made in the ordinary course of business in compliance with worker's compensation, unemployment insurance and other social security laws or regulations; (d) deposits or pledges to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) deposits or pledges made in connection with casualty insurance maintained as permitted hereunder; (f) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which has not yet expired, or in respect of which Borrower is in good faith prosecuting an appeal or proceeding for a review or which is not an Event of Default under Section 7.1(k); (g) easements, zoning restrictions, right-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of Borrower or any Subsidiary; and (h) restrictions under federal and state securities laws on the transfer of securities, provided, that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, limited partnership, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date hereof, among Parent, Subordinated Lender and Lender. "Subordinated Conditional Guaranty" means the Conditional Guaranty, dated as of the date hereof, made by Parent in favor of Subordinated Lender. "Subordinated Debt" means the Indebtedness evidenced by the Subordinated Note and any and all other Indebtedness and obligations of Borrower to Subordinated Lender under the Subordinated Note Purchase Agreement. "Subordinated Lender" means American Pacific Financial Corporation, together with its successors and assigns. "Subordinated Loan Documents" means the Subordinated Note, the Subordinated Note Purchase Agreement, the Subordinated Conditional Guaranty and the Subordinated Warrant. "Subordinated Note" means Borrower's Subordinated Promissory Note dated as of the date hereof payable to the Subordinated Lender in the original principal amount of $2,000,000. "Subordinated Note Purchase Agreement" means the Note Purchase Agreement, dated as of the date hereof, between Borrower and Subordinated Lender. "Subordinated Warrant" means the Warrant Certificate dated as of the date hereof, by and between Parent and Subordinated Lender. "Subsidiary" means, with respect to any Person (the "parent") at any date, any entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Transactions" means the execution, delivery, and performance by the Obligors of the Credit Documents, the borrowing and repayment of the Loan, the pledge, assignments or grant of the security interests pursuant to the Credit Documents, the payment of interest and fees thereunder, the issuance to Lender of warrants for the purchase of shares of Parent's common stock pursuant to the Warrant Certificate (including the granting to Lender of certain registration rights pursuant to the Registration Rights Agreement), and the use of the proceeds of the Loan. "Value" means, with respect to any Additional Collateral, the value assigned by Lender in its reasonable discretion as the value against which it may advance funds for such Additional Collateral. "Warrant Certificate" means the Warrant Certificate, dated as of the date hereof, by and between Parent and Lender. Section 1.2. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented, replaced or otherwise modified (subject to any restrictions on such amendments, supplements, replacements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Exhibits, Articles, Sections, and Schedules shall be construed to refer to Articles and Sections of, and Exhibits, and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.3. Specified Times and Dates; Determinations. All times specified in this Agreement shall be determined, unless specifically herein to the contrary, on the basis of the prevailing time in New York City. Unless specifically herein to the contrary, if any day or date specified in this Agreement for any notice, action or event is not a Business Day, then the due date for such notice, action or event shall be extended to the immediately succeeding Business Day; provided that interest shall accrue on any payments due by Borrower which are extended by the operation of this Section 1.3. Any determination by Lender hereunder shall be presumptive evidence of the validity and accuracy thereof. ARTICLE II: THE LOAN Section 2.1. Loan. (a) Loan. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, Lender hereby agrees to make loans to Borrower at any time and from time to time, on any Business Day on or after the Effective Date and prior to the Final Maturity Date in an aggregate principal amount at any time outstanding not to exceed the lesser of an amount equal to the (i) Commitment, and (ii) Borrowing Base. (b) Borrowing Procedure. All requests for loans shall be made by Borrower by delivering a borrowing request certificate in the form of that attached hereto as Annex A to Lender in writing at least two Business Days (or such shorter period as shall be agreed to by Lender) before the requested borrowing date for each loan. Such borrowing request shall be irrevocable and shall specify certain information, including, without limitation: (i) the requested borrowing date (which shall be a Business Day), (ii) the amount of such loan, and (iii) that each of the conditions set forth under Section 4.3 has been or will be satisfied as of the requested borrowing date. Subject to the satisfaction of the conditions set forth under Section 4.3, to the extent Borrower does not have sufficient cash to make an interest payment as a result of the operation of Section 2.4(b), it shall be deemed to have delivered a borrowing request to Lender on a timely basis for the amount of such interest payment. (c) Additional Terms. The Loan shall be made by Lender against the delivery of the Note, payable to the order of Lender, as referred to herein. Additional terms and conditions relating to the Loan are set forth in the Note. The Note is hereby referenced and incorporated herein as if set forth in their entirety. Section 2.2. Repayment of Loan; Extension of Final Maturity. Any principal of the Loan not previously paid shall be payable on the Final Maturity Date. No later than 90 days prior to the then current Final Maturity Date, Borrower may request that Lender extend the Final Maturity Date to a Business Day which is up to one year after the then current Final Maturity Date. Borrower acknowledges that Lender's decision shall be made in the sole and absolute discretion of Lender and that Lender shall have no obligation to extend the Final Maturity Date. No later than 30 days prior to the then current Final Maturity Date, Lender shall notify Borrower of Lender's decision. If Lender fails to so notify Borrower, Lender shall be deemed to have notified Borrower that it shall not extend the Final Maturity Date. If Lender notifies Borrower that it shall extend the Final Maturity Date, the Final Maturity Date shall be extended if, and only if, on the then current Final Maturity Date, each of the conditions specified in Section 4.2 shall be satisfied. Section 2.3. Interest. (a) General. The Loan shall bear interest on the unpaid principal amount thereof from the Effective Date until payment of the Loan in full. Interest shall be payable in arrears on the last day of each month beginning on June 30, 2004. Any accrued interest that remains unpaid on the Final Maturity Date shall be due and payable on the Final Maturity Date and any accrued and unpaid interest on the Loan shall be payable in arrears on any date that any principal of the Loan is paid or payable (on the principal amount so paid or payable). (b) Interest Rate. The interest rate for the Loan shall be 15.6% per annum. (c) Default Interest. After the occurrence and during the continuance of an Event of Default, to the extent permitted by applicable law, Borrower shall pay on demand, on the outstanding principal amount of the Loan, interest at a per annum rate equal to the interest rate applicable to the Loan pursuant to Section 2.3(b) plus 1.00% per month. (d) Maximum Interest Rate. Notwithstanding anything herein to the contrary, in no event shall the interest charged hereunder exceed the maximum rate of interest permitted under applicable law. Any payment made which if treated as interest would cause the interest charged to exceed the maximum rate permitted shall instead be held by Lender to the extent of such excess as additional Collateral hereunder and applied to future interest payments as and when such amount becomes due and payable hereunder. (e) Calculations. Interest shall be calculated on the basis of the actual days elapsed in a year of 360 days. In computing interest on the Loan (or interest on such interest), the date of the making of the Loan shall be included and the date of payment of the Loan shall be excluded. Section 2.4. Prepayment of Loan; Termination or Reduction of Commitment. (a) Optional. Subject to Section 2.4(d) and except for payments required under Sections 2.2 or 2.4(b), Borrower shall not have the right to prepay the Loan until 180 days after the Effective Date at which time Borrower may prepay the Loan in whole or in part subject to the terms and conditions hereunder. (b) Mandatory. On each day on which the total outstanding principal amount of the Loan exceeds the lesser of (i) the Borrowing Base and (ii) the Commitment, Borrower shall prepay an amount of the outstanding principal of the Loan equal to the amount of such excess. Additionally, the amounts on deposit in the Blocked Account shall be transferred to Lender as a prepayment hereunder, (to be applied in the order specified in Section 2.6) in accordance with the instructions set forth in the Account Control Agreement, (A) on any Business Day on which the amount on deposit therein exceeds $10,000, and (B) on each Monday of each calendar week (unless, in the case of this clause (B), as of such day there has been a transfer pursuant to clause (A) within the past five Business Days). (c) Notices. Any prepayment other than those required under Section 2.4(b) may only be made on at least two Business Days' (or such shorter period as shall be agreed to by Lender) irrevocable prior written notice to Lender. (d) Prepayment Premium. In the event that Borrower makes any prepayment of principal under the Loan prior to the date 180 days after the Effective Date in excess of the amounts required under Section 2.4(b), Borrower shall pay to Lender an additional amount equal to the amount of interest Borrower would have paid Lender pursuant to the terms and conditions hereunder with respect to such prepayment amount from the date of such prepayment until the date 180 days after the Effective Date had Borrower not prepaid such amount. Section 2.5. Notes. The Loan made by Lender shall be evidenced by one or more Notes, duly executed by Borrower, delivered and payable to Lender in an aggregate principal amount equal to the Commitment. Lender shall maintain its records to reflect the amount and date of the Loan and of each payment of principal and interest thereon. All such records shall be presumptive evidence of the outstanding principal amount hereof; provided, however, that the failure to make any notation to Lender's records shall not limit or otherwise affect the obligations of Borrower to repay the Loan. Section 2.6. Payments. Subject to the sweep provisions described in Section 2.4(b), all payments by Borrower shall be payable on or prior to 12:00 Noon on the due date thereof, in immediately available funds in Dollars, without any set-off, counterclaim, withholding or deduction of any kind. All payments shall be applied by Lender as follows: first, to the payment of all accrued but unpaid fees, costs or expenses under the Credit Documents; second, to the payment of all accrued but unpaid interest under the Credit Documents; third, to the repayment of then outstanding principal amount of the Loan; and fourth, the balance, if any, to Borrower or to whomsoever may be entitled to such amounts as determined by Lender in its reasonable discretion. Section 2.7. Guaranty and Collateral. The Obligations of each Obligor under the Credit Documents shall be: (a) guarantied by the Guarantors pursuant to the terms and conditions of the Conditional Guaranty, and (b) secured by the following collateral ("Collateral"): (i) all assets of Borrower, including, without limitation, each of the Leases and the Blocked Account (and all Cash Deposits therein); (ii) all assets of Parent and Leasecomm which are currently, or hereafter become, Collateral or otherwise secure the obligations of Leasecomm and Parent under the Fleet Loan Agreement; provided, however, that such Conditional Guaranty and such security interest shall not become effective until the earlier of the day (the "Collateral Extension Date") that (A) all obligations under the Fleet Loan Agreement shall have been discharged in full, or (B) Fleet releases its Liens on such Collateral or otherwise consents to Lender having a Lien on such Collateral. On such date Borrower shall cause Parent and Leasecomm to become parties to this Agreement as Obligors by executing and delivering a Joinder to Credit Agreement in the form of Schedule 2.7 attached hereto. As used herein the term "Collateral" (x) shall mean, from and after the Effective Date, the collateral described in Section 2.7(b)(i) and (y) from and after the Collateral Extension Date, if any, shall also include the additional collateral described in Section 2.7(b)(ii). Section 2.8. Fees. (a) Closing Fee. On the Effective Date, Lender has fully earned a closing fee in the amount of 2.00% of the Commitment. The closing fee required to be paid under this section shall be payable as follows: (a) 1.00% of the Commitment ($80,000) paid by Borrower on the Effective Date, (b) 0.50% of the Commitment ($40,000) paid 30 days after the Effective Date, and (c) the balance of 0.50% of the Commitment ($40,000) paid 60 days after the Effective Date. Borrower hereby authorizes Lender to deduct any amounts to be paid under this Section in accordance with the provisions of Section 2.6 or from the proceeds of any loan made on or after the date such amounts are to be paid by Borrower in the event that a loan is made pursuant to Section 2.1 on or after any such date. (b) Extension Fee. In the event that Borrower requests, and Lender authorizes, an extension of the Maturity Date pursuant to Section 2.2, Borrower shall pay to Lender a renewal fee of 1.75% of the Commitment, payable no later than ten (10) days prior to the then current (pre-extension) Final Maturity Date. (c) Unused Credit Fee. To the extent that there is any portion of the Commitment unused during a monthly period beginning on the Effective Date and ending on the Final Maturity Date, Borrower shall pay to Lender a fee in the amount of 0.50% per annum against such unused amount, such fee to accrue commencing on the Effective Date and to be paid by Borrower to Lender monthly in arrears on each day that interest is payable under Section 2.3(a). (d) Servicing Fee. Borrower shall pay to Lender a servicing fee in the amount of $2,000 per month payable monthly in arrears on each day that interest is payable under Section 2.3(a) during a period beginning on the Effective Date and ending on the Final Maturity Date. Section 2.9. Warrants and Registration Rights Agreement. As partial consideration for Lender making the Loan to Borrower, Parent shall issue to Lender warrants for the purchase of 100,000 shares of Parent's capital stock pursuant to the terms and conditions of the Warrant Certificate (including without limitation certain vesting, exercise and transfer restrictions) and Lender shall be entitled to certain registration rights with respect to such shares of Parent's capital stock as set forth under the Registration Rights Agreement. Section 2.10. Taxes. Any and all payments made by Borrower hereunder shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto to the extent attributable to the Loan or the Collateral, excluding (i) taxes imposed on net income and (ii) all income and franchise taxes of the United States, any political subdivisions thereof, and any state of the United States, and any political subdivisions thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.10) Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Within 30 days after the date of any payment of Taxes, Borrower will furnish Lender with evidence of payment thereof. Borrower hereby indemnifies Lender for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 2.10) paid by Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. Payment pursuant to this indemnification shall be made upon written demand thereof. The obligations of Borrower under this paragraph shall survive the termination of this Agreement. Lender hereby represents and warrants to Borrower that, as of the date hereof, no payments to Lender hereunder are subject to any withholding taxes of the United States. In the event, the Lender assigns its interest in this Agreement without the approval of the Borrower, Borrower shall not be obligated to pay any assignee any amounts under this Section in excess of any amounts Borrower would be obligated. Any such assignee shall (x) provide Borrower with reasonably adequate evidence that payments to such assignee hereunder are not subject to any withholding taxes of the United States or (y) agree with Borrower that payments to such assignee hereunder shall not be increased by the amount of any applicable withholding taxes of the United States. ARTICLE III: REPRESENTATIONS AND WARRANTIES Each Obligor represents and warrants to Lender on the date hereof and on the date of the making of any Loan that: Section 3.1. Organization; Powers; Authorization; Enforceability, Etc. Each Obligor is duly organized or formed, validly existing and in good standing (if and to the extent applicable) under the laws of the jurisdiction of its organization or formation, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in every jurisdiction where such qualification is required. Borrower does not have any Subsidiaries. The Transactions are within the powers of each Obligor and have been duly authorized by all necessary action for each Obligor. Each Credit Document has been duly executed and delivered by each Obligor party hereto and constitutes a legal, valid and binding obligation of such Obligor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, other than any approvals, consents, registrations or filings necessary to perfect the liens and security interests created pursuant to the Borrower Security Agreement and registrations, qualifications or filings under applicable federal and state securities laws or regulations that may be made after the date hereof, (b) will not, to any Obligor's knowledge, violate any applicable law or regulation or the charter, by-laws, limited liability company operating agreement or other organizational documents of any Obligor or any order of any Governmental Authority binding on any Obligor, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Obligor or its assets, or give rise to a right thereunder to require any payment to be made by such Obligor to the extent that such violation (in each case, after giving effect to the Fleet Waiver), or such default or right to payment could be reasonably expected to result in a Material Adverse Effect, and (d) will not result in the creation or imposition of any Lien on any asset of any Obligor other than pursuant to the Credit Documents. Except as set forth on Schedule 3.1 attached hereto, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Obligor, threatened against or affecting any Obligor (i) that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, or (ii) that involve the Credit Documents, the Collateral or the Transactions. Each Obligor is in compliance with all laws, regulations and orders (including ERISA and environmental laws, regulations and orders) of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, to the extent that any noncompliance therewith could be reasonably expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.2. Financial Condition. Any financial statements, balance sheets, cash flow statement or other financial reports furnished by any Obligor to Lender present fairly the financial condition of such Obligor as of the dates thereof. Any projections or pro forma financial information contained in the materials referenced above are based on good faith estimates and assumptions believed by the management of each Obligor to be reasonable at the time made, it being recognized by Lender that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period(s) covered by such financial information may differ from the projected results set forth therein by a material amount. Section 3.3. Licenses. Each Obligor is licensed and authorized to carry on its business as now conducted under all applicable laws, regulations, and orders of any Governmental Authority, except where the failure to do so, individually or in the aggregate, could not be reasonably expected to result in a Material Adverse Effect. Section 3.4. Investment and Holding Company Status. No Obligor or any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.5. Taxes. (a) Each Obligor has timely filed or caused to be filed all tax returns and reports required to have been filed (giving effect to any extensions) and has paid or caused to be paid all taxes required to have been paid by it, except taxes that are being contested in compliance with Section 5.5. The federal and state tax returns of each Obligor delivered to Lender prior to the Effective Date are the true, correct and complete tax returns of such Obligor as of the date thereof. (b) Borrower does not intend to and shall not treat the Loan and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event Borrower determines to take any action inconsistent with such intention or treatment, (i) it will promptly notify Lender thereof, and (ii) Borrower acknowledges that Lender may treat the Loan as part of a transaction that is subject to Internal Revenue Code section 6112 and the Treasury Regulations thereunder, and that Lender will maintain lists and other records to the extent required by such statute and regulations. Section 3.6. Security Interests; Certain Information. Subject to Liens permitted by this Agreement which have priority by operation of law and to all liens granted by Parent and Leasecomm to Fleet for the benefit of the lenders named in the Fleet Loan Agreement with respect to the Collateral described in Section 2.7(b)(ii) hereof, Lender has a valid and perfected first priority Lien on all of the Collateral and all filings and other actions necessary for the perfection and first priority status of such Liens have been duly made or taken and remain in full force and effect. The state of residence or organization and any names used within the past five years of each Obligor is set forth on Schedule 3.6. Each Obligor which has not made an organizational filing in any jurisdiction has set forth on Schedule 3.6 its place of business, if it has only one place of business, or its chief executive office, if it has more than one place of business. No Obligor (as applicable) has any Subsidiaries other than those set forth on Schedule 3.6 hereto. Section 3.7. Environmental Matters. The operations of each Obligor are and have been in compliance in all material respects with all applicable federal, state or local environmental, health and safety statutes and regulations since their respective effective dates and, none of the operations of the Obligors is subject to any judicial or administrative proceeding alleging any material violation of any federal, state or local environmental, health or safety statute or regulation or are the subject of any federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent, or of any other substance into the environment. No Obligor has filed any notice under any federal, state or local law indicating past or present treatment, storage or disposal of a hazardous or toxic waste, substance or constituent, or other substance into the environment and has no material contingent liability in connection with any release of any hazardous or toxic waste, substance or constituent, or other substance into the environment. Section 3.8. Disclosure. All agreements, instruments and corporate or other restrictions, and all other matters known to any Obligor pertaining to such Obligor, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect have been disclosed to Lender. None of the written reports, financial statements, certificates or other written information (other than financial projections and pro forma information) furnished by or on behalf of any Obligor to Lender in connection with the negotiation of the Credit Documents or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 3.9. Leases. With respect to each of the Eligible Leases: (a) each is in full force and effect pursuant to the terms and conditions thereto; (b) Borrower is the sole "lessor" thereunder; (c) each is assignable by the lessor thereunder; (d) each is non-cancelable and provides that the lessee's obligations thereunder are absolute and unconditional, and not subject to defense, deduction, set-off or claim and as to which no defenses, set-offs, claims or counterclaims exist or have been asserted; (e) none are subject to any Liens other than Liens in favor of Lender and in which Lender has a duly perfected first priority security interest under the UCC; (f) each is a Lease characterized as a "finance lease" in accordance with GAAP; (g) the lessee under each (i) is domiciled in the United States, and (ii) is not the subject of and has not taken any action described in subsections (h) or (i) of Section 6.1; (h) each is in a form substantially similar to that attached hereto as Annex B; (i) no payment thereunder is more than 60 days late; (j) no lessee thereunder has two or more currently unpaid and outstanding payments; (k) no default thereunder has occurred other than to the extent permissible under clause (i) and (j) immediately above; (l) each covers the leasing of Eligible Equipment only; (m) none have been modified, amended, restated or otherwise rewritten with respect to terms of payment or in any other material respect more than two times; and (n) the original of each Eligible Lease which has already been entered into has been delivered to and/or is otherwise in the possession of Lender or its authorized designee. ARTICLE IV: CONDITIONS Section 4.1. Effective Date. The obligations of Lender to make any Loan to Borrower hereunder shall not become effective until each of the following conditions is satisfied: (a) On the date on which any Loan is to be made: (i) the representations and warranties set forth in Article III and in any documents delivered herewith, shall be true and correct with the same effect as though made on and as of such date, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (ii) each of the covenants set forth in Article V shall have been complied with or performed in full as of such date; and (iii) Borrower, Parent and Leasecomm shall be in compliance with all the terms and provisions contained herein and in the Credit Documents to be observed or performed, and no Default shall have occurred and be continuing. (b) Lender shall have also received the following documents: (i) a counterpart of this Agreement executed by Borrower; (ii) the initial Note executed by Borrower; (iii) the Conditional Guaranty executed by Parent and Leasecomm; (iv) the Conditional Security Agreement executed by Parent and Leasecomm and each "Exhibit A" thereto for each such party; (v) the Borrower Security Agreement executed by Borrower and "Exhibit A" thereto; (vi) the Warrant Certificate executed by Parent; (vii) the Registration Rights Agreement executed by Parent and the Subordinated Lender; (viii) the Account Control Agreement executed by the depository bank party thereto and Borrower with reference to the Blocked Account; (ix) copies of the executed version of each Eligible Lease; (x) an aging report of all existing leases owned by Leasecomm or Parent which secure, and are financed pursuant to, the Fleet Loan Agreement; (xi) consolidated balance sheet and statements of income, retained earnings and cash flows for Parent's most recently ended fiscal year and interim consolidated balance sheet and statements of income, retained earnings and cash flows for Parent covering the fiscal year ended December 31, 2004; and (xii) the Iron Mountain Addenda executed by Iron Mountain, Parent and Borrower. (c) Lender shall have received lien searches against each of the Obligors indicating that there are no Liens against any of the Collateral other than (i) Fleet's Lien against the assets of Parent and Leasecomm granted pursuant to the Fleet Loan Agreement and (ii) Permitted Encumbrances. (d) Lender shall have completed to its satisfaction a collateral audit no more than 10 days prior to the Effective Date and any other due diligence. (e) Borrower shall have received, and shall deliver to Lender, satisfactory evidence of the closing under the Subordinated Loan Documents. (f) Borrower shall deliver to Lender satisfactory evidence that the Conditional Guaranty and the Conditional Security Agreement do not violate the terms of the Fleet Loan Agreement. (g) Lender shall have received evidence satisfactory to it that all necessary governmental and other consents have been obtained by Borrower and its Subsidiaries. (h) Lender shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by Borrower hereunder. (i) Lender shall have received satisfactory legal opinions regarding Borrower, Parent and Leasecomm as to the organization or formation, existence and good standing (if and to the extent applicable) of Borrower, Parent and Leasecomm, the authorization of the Transactions, the execution, delivery and enforceability of the Credit Documents, the perfection of Lender's security interest in the Collateral, no violations of law including margin regulations, no violations of any contracts with Fleet and other legal matters relating to Borrower, Parent and Leasecomm, the Credit Documents or the Transactions, all in form and substance reasonably satisfactory to Lender and its counsel. (j) Lender shall have received such documents and certificates regarding Borrower, Parent and Leasecomm as to the organization or formation, existence and good standing (if and to the extent applicable) of Borrower, Parent and Leasecomm, the authorization of the Transactions, the execution, delivery and enforceability of the Credit Documents, the incumbency of signatories, and other legal matters relating to Borrower, Parent and Leasecomm, the Credit Documents or the Transactions, all in form and substance satisfactory to Lender and its counsel. (k) Lender shall be satisfied that no event has occurred which could reasonably be expected to have a Material Adverse Effect. Section 4.2. Conditions to Extension of Final Maturity Date. The extension of the Final Maturity Date under Section 2.2 shall not become effective unless each of the following conditions is satisfied on the then current Final Maturity Date: (a) the extension fee owed by Borrower pursuant to Section 2.8(b) shall be paid by Borrower to Lender in full; (b) the Collateral shall continue to be acceptable to Lender in its sole discretion; (c) since the Effective Date, Borrower has paid all amounts due and payable to Lender on or prior to the date such amounts were due; (d) no Obligor shall be in default with respect to any Material Indebtedness; (e) the representations and warranties set forth in any Credit Document shall be true and correct in all material respects with the same effect as though made on and as of such date, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (f) Lender shall be satisfied that no event has occurred which could reasonably be expected to have a Material Adverse Effect; (g) each Obligor shall be in compliance in all respects with all the terms, provisions, covenants and conditions contained herein and in each of the other Credit Documents to be observed or performed; (h) Borrower's actual fiscal performance for each fiscal quarter ending after the Effective Date shall not have varied materially from the fiscal projections for each such fiscal quarter set forth on Exhibit A attached hereto; (i) Lender, or its authorized designee, shall be in possession of each Eligible Lease entered into as of such date; (j) no Default shall have occurred and be continuing; and (k) any other commercially reasonable condition to be satisfied as determined in Lender's sole discretion. Section 4.3. Additional Conditions to Loans. On the date on which each loan under the Commitment is to be made: (a) Lender shall have received a request for such loan executed by Borrower pursuant to Section 2.1(b); (b) the representations and warranties set forth in Article III hereof and in any documents delivered herewith, shall be true and correct in all material respects with the same effect as though made on and as of such date, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (c) Lender shall be satisfied that no event has occurred which could reasonably be expected to have a Material Adverse Effect; (d) the Collateral Value shall equal or exceed the total outstanding principal amount of the loans after giving effect to the loan to be made; (e) the Borrowing Base shall equal or exceed the total outstanding principal amount of the Loan after giving effect to the loan to be made; (f) each Obligor shall be in compliance in all respects with all the terms and provisions contained herein and in the Credit Documents to be observed or performed; (g) Lender, or its authorized designee, shall be in possession of each Eligible Lease entered into as of such date; and (h) no Default shall have occurred and be continuing. ARTICLE V: AFFIRMATIVE COVENANTS Until the termination of the Commitment and the principal of and interest on the Loan and all fees and other Obligations payable under the Credit Documents shall have been paid in full, each Obligor covenants and agrees with Lender that: Section 5.1. Financial Statements, Reports and Other Information (a) Borrower will furnish to Lender on a monthly basis within 15 days after the end of each of Borrower's fiscal months: (i) each of a servicing report, Lease aging report, revenue report, residual accounts report and run-off model detailing cash flow for such month; (ii) compliance certification from an executive officer of each of Parent and Borrower stating that (A) no Default has occurred during such month or setting forth the details of the occurrence of any Default and any action taken or proposed to be taken by Parent or Borrower with respect thereto, (B) all covenants and conditions contained in each Credit Document have been complied with or performed in full as of such date, and (C) each of the reports delivered pursuant to this Section 5.1(a)(i) and 5.1(b) present fairly the financial condition of the Person described in such reports and any information provided in such reports is true and correct as of the date such information is furnished. (b) Borrower will furnish to Lender on a monthly basis within 30 days after the end of each of Borrower's fiscal months internally prepared financial statements and a report setting forth in detail the amount and nature of all outstanding obligations of Borrower under the Fleet Loan Agreement as of such date. (c) Borrower will furnish to Lender with each borrowing request made pursuant to Section 2.1(b) and also on a weekly basis within 5 days after the end of each week a detailed report regarding the Borrowing Base and also setting forth sales information, credit memo information, and collection information for such week and any other information regarding the Collateral or Borrowing Base for such week that Lender reasonably requests. (d) Parent will furnish to Lender on an annual basis promptly after the same becomes available, but in any event within 90 days of Parent's fiscal year end, a consolidated balance sheet and statements of income, retained earnings and cash flows as of and for such fiscal year accompanied by an unqualified report by an independent public accounting firm reasonably acceptable to Lender that such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Borrower and its consolidated Subsidiaries as of such date and for such periods in accordance with GAAP. The financial statements delivered pursuant hereto shall be accompanied by a certification from an executive officer of Parent that such financial statements present fairly the financial condition of the Persons described in such financial statements and any information provided in such financial statements is true and correct as of the date such information is furnished. (e) Promptly after the same becomes publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Parent (and/or any Subsidiary of Parent) with the Securities and Exchange Commission, or with any securities exchange, or distributed by Parent to its shareholders generally, as the case may be. (f) All financial statements, reports and information regarding Parent, Leasecomm or Borrower provided in writing to Fleet (or the bank group under the Fleet Loan Agreement) within two Business Days after the time such financial statements, reports and information are provided to Fleet (or the bank group under the Fleet Loan Agreement). (g) Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Parent, Borrower or any Subsidiary of Borrower or Parent, or compliance with the terms of the Credit Documents, as Lender may reasonably request. (h) On the date of the delivery of any financial statements or projections under this Section 5.1, Borrower shall be deemed to have made a representation to Lender that such financial statements shall present fairly the financial condition of the Person described in such financial statements, and any information provided pursuant to this Section 5.1 shall be true and correct as of the date such information is furnished and, as to projections, that such projections are based upon reasonable assumptions in light of prior performance. Any projections or pro forma financial information contained in the materials referenced above are based on good faith estimates and assumptions believed by the management of each Obligor to be reasonable at the time made, it being recognized by Lender that such financial information as it relates to future events is not to be viewed as fact and that, subject to the requirements of Section 5.12(a), actual results during the period(s) covered by such financial information may differ from the projected results set forth therein by a material amount. Section 5.2. Notices of Material Events. Borrower will furnish to Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Obligor that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) written notice of Borrower's intent to pay in full all of Borrower's obligations under the Fleet Loan Agreement no less than ten (10) Business Days prior to such payment; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section 5.2 shall be accompanied by a statement of Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.3. Existence. Each Obligor will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business. Section 5.4. Payment of Obligations. Each Obligor will pay its liabilities including tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Obligor has set aside on its books adequate reserves with respect thereto and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.5. Maintenance of Properties; Insurance. Each Obligor will (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.6. Ownership and Control. Parent shall own, beneficially and of record, the full economic interest in, with full voting and dispositive power, 100% of the total outstanding capital stock of each of Borrower and Leasecomm and shall Control each of Borrower and Leasecomm. Section 5.7. Books and Records; Inspection Rights; Access. At Borrower's expense, Borrower will keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Borrower will permit any representatives designated by Lender, during normal business hours and upon reasonable advance notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to directly discuss its affairs, finances and condition with its partners or trustees (or its designee), officers and independent accountants, as applicable. Section 5.8. Compliance with Laws. Each Obligor will comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it (including ERISA and environmental laws), except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.9. Use of Proceeds. The proceeds of the Loan shall be used by Borrower solely to finance Leases and the related revenues thereto and the working capital needs of Borrower. No part of the proceeds of the Loan will be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock. "Margin Stock" means "margin stock" as used and defined in Regulation U of the Regulations of the Board of Governors of the Federal Reserve System. Section 5.10. Collateral Value; Leases. (a) Obligors agree that the Borrowing Base shall equal or exceed the total outstanding principal amount of the Loan at all times. Obligors agree that should the Borrowing Base fall below the total outstanding principal amount of the Loan, Obligors shall take one or more of the following actions necessary to increase the Collateral Value to equal or exceed the total outstanding principal amount of the Loan at such time: (i) make Cash Deposits, and/or (ii) pledge Additional Collateral. (b) Borrower agrees to deliver to Iron Mountain (as contemplated by the Iron Mountain Agreement and the Iron Mountain Addenda) all original executed copies of each Eligible Lease (with copies to Lender) within two (2) Business Days of execution thereof. Section 5.11. Subsidiary Guarantors. Borrower shall cause each and every Subsidiary and each Obligor shall cause each and every Affiliate of Borrower which receives any money from Borrower, except as permitted under Section 6.4, to be a party to this Agreement and to guaranty the Obligations. Section 5.12. Financial Performance. EBITDA Minimum. For the three months ended June 30, 2004, EBITDA loss shall not exceed $980,000; for the six months ended September 30, 2004, EBITDA loss shall not exceed $950,000; for the nine months ended December 31, 2004, EBITDA loss shall not exceed $750,000; and for the 12 months ended March 31, 2005, EBITDA loss shall not exceed $450,000. Section 5.13. Blocked Account. As of the Effective Date, Borrower shall have, in writing, instructed each lessee under the Leases to make all payments under such lessees' respective Lease(s) directly to the Blocked Account, and such instructions shall thereafter continue to be in full force and effect. Borrower shall deposit into the Blocked Account promptly upon receipt, but in any event within one (1) Business Day of receipt thereof, any amounts it shall receive as payment under any Lease. Section 5.14. Further Assurances. Each Obligor shall upon request by Lender (a) promptly correct any material defect or error that may be discovered in any Credit Document or in the execution, acknowledgement or recordation thereof and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, security agreements, pledge agreements, mortgages, deeds of trust, trust deeds, assignments, estoppel certificates, financing statements and continuation thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as Lender may require from time to time in order (i) to carry out more effectively the purposes of this Agreement or any other Credit Documents, (ii) to subject to the Liens and security interests created by any of the Credit Documents any of the Obligors' properties, rights or interests covered or now or hereafter intended to be covered by any of the Credit Documents, (iii) to perfect and maintain the validity, effectiveness and priority of any of the Credit Documents and the Liens and security interests intended to be created thereby and (iv) better to assure, convey, grant, assign, transfer, preserve, protect and confirm unto Lender the rights granted or now or hereafter intended to be granted to Lender under any Credit Document. Lender shall upon request by Borrower promptly correct any material defect or error that may be discovered in any Credit Document or in the execution, acknowledgement or recordation thereof. ARTICLE VI: NEGATIVE COVENANTS Until the termination of the Commitment and the principal of and interest on the Loan and all fees payable hereunder have been paid in full, each Obligor covenants and agrees with Lender that: Section 6.1. Indebtedness. Other than Indebtedness permitted under the Fleet Loan Agreement, no Obligor shall issue, incur or increase the principal amount of any of its Indebtedness, except (a) for any Indebtedness to Lender, (b) for the Subordinated Debt issued by Borrower on the Effective Date; (c) for current liabilities for ordinary trade accounts payable, accrued payroll and severance obligations payable on customary terms in the ordinary course of business; (d) that Parent or Leasecomm may incur purchase money Indebtedness and capital leases secured as provided in Section 6.7(c) in an aggregate principal amount not exceeding $500,000 at any time; (e) that Parent or Leasecomm may incur Indebtedness of any of their Subsidiaries (other than Borrower) secured by Leases, Equipment and receivables relating to such Leases and Equipment, none of which constitute part of the Collateral; (f) existing Indebtedness described on Schedule 6.1 attached hereto; (g) that Parent or Leasecomm may incur Indebtedness in respect of inter-company loans and advances among either Parent or Leasecomm and its Subsidiaries which are not prohibited by Section 6.6; (h) that Parent or Leasecomm may make Guarantees (including the Subordinated Conditional Guaranty) of Indebtedness and other obligations incurred by any of their Subsidiaries and permitted by the other provisions of this Section 6.1; and (i) for Indebtedness of the Parent and Leasecomm in addition to the foregoing, provided, however, that the aggregate amount of all such additional Indebtedness at any one time outstanding shall not exceed $500,000 and the terms of any such Indebtedness shall be satisfactory to Lender. Section 6.2. Disposition of Assets. Borrower shall not distribute, sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all, substantially all or any substantial part, of its assets. Section 6.3. Fundamental Changes (a) Borrower shall not merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any material portion of its assets (in each case, whether now owned or hereafter acquired) other than in the ordinary course of business, or liquidate or dissolve. (b) Borrower shall not engage to any material extent in any business other than the business of leasing Equipment pursuant to Leases and businesses reasonably related thereto. (c) Borrower shall not amend, modify or change its certificate of incorporation or by-laws or other organizational documents in any manner that would be adverse to Lender. (d) Borrower shall not create or acquire any Subsidiaries without the prior written consent of the Lender. Section 6.4. Transactions with Affiliates. Neither Borrower nor any of its Subsidiaries shall sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on terms and conditions not less favorable to Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties. Section 6.5. Dividends. Neither Borrower nor any of its Subsidiaries shall declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of Borrower's or such Subsidiary's capital stock or membership interests (as applicable) or any warrants, rights or options to acquire such capital stock or membership interests (as applicable), now or hereafter outstanding, return any capital to Borrower's or such Subsidiary's stockholders or members (as applicable) as such, or make any distribution or exchange of assets, capital stock, warrants, rights, options, obligations or securities to Borrower's or such Subsidiary's stockholders or members (as applicable), except that any Subsidiary of Borrower may make dividends and distributions to Borrower. Section 6.6. Investments. Borrower shall not make any loan or advance to any Person, or purchase or otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise acquire, any capital stock or other equity interest, warrants, rights, options, obligations or other securities of, make any capital contribution to, or otherwise invest in, any Person, except for (a) subject to Section 6.3(d), investments of Borrower and its Subsidiaries in Persons that become wholly owned Subsidiaries and Guarantors after the date hereof in accordance with the provisions of this Agreement; and (b) reimbursements to employees and directors for expenses incurred in the ordinary course of business. Section 6.7. Liens. Borrower shall not (and shall not permit any Subsidiary to), create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable or rights in respect of any thereof), except: (a) Permitted Encumbrances; (b) any Lien existing on any property or asset prior to the acquisition thereof by Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; and (c) Liens on fixed or capital assets acquired, constructed or improved by Borrower or any Subsidiary; provided that (i) such security interests secure purchase money Indebtedness or capital leases permitted under Section 6.1(e) or otherwise approved by Lender, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of Borrower or any Subsidiary. Section 6.8. Restrictions with Respect to Collateral. With respect to the grant of the security interest to Lender pursuant to the Conditional Security Agreement, no Obligor shall assert (verbally, in writing or otherwise) or take any other action nor shall it cooperate with or encourage any other person to assert (verbally, in writing or otherwise) or take any other action which would have the result of rendering the security interests granted pursuant to the Conditional Security Agreement ab initio limited, reduced or ineffective. ARTICLE VII: EVENTS OF DEFAULT Section 7.1. If any of the following events ("Events of Default") shall occur: (a) Borrower shall fail to pay any principal of the Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) Borrower shall fail to pay any interest on the Loan, any fee or any other amount (other than an amount referred to in clause (a) of this Section 7.1) payable under any Credit Document when and as the same shall become due and payable; (c) any representation or warranty made or deemed made by or on behalf of any Obligor in or in connection with any Credit Document or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Credit Document or any amendment or modification hereof shall prove to have been incorrect in any material respect when made or deemed made, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (d) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.1(d), 5.1(e), 5.2, 5.3, 5.6, 5.9, 5.10, 5.12, 5.13 or 5.14 or in Article VI; (e) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in any Credit Document (other than those specified in clause (a), (b), (c) or (d) of this Section 7.1) and such failure shall continue for 30 days, provided such Obligor is diligently pursuing efforts to make such cure; (f) any Obligor shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable, after the expiration of any grace or cure periods; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Obligor or its debts, or of a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Obligor or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) any Obligor shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Section 7.1, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Obligor or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) any Obligor shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against Borrower (or an aggregate amount in excess of $250,000 shall be rendered against Parent or Leasecomm) or any combination thereof and the same shall remain undischarged for a period of 10 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Obligor to enforce any such judgment; (l) any Change of Control shall occur; (m) an ERISA Event shall have occurred that, in the opinion of Lender, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; (n) any material provision of any Credit Document shall, for any reason, cease to be valid and binding on any Obligor, or any Obligor shall so state in writing; (o) any Credit Document shall, for any reason, cease to create a valid Lien on any of the Collateral purported to be covered thereby or any Lien granted to Lender shall cease to be a perfected first priority Lien, in each case on or after the effective date of such Credit Document, or any Obligor shall so state in writing; or (p) any "default" or "event of default" under the Fleet Loan Agreement, after giving effect to the Fleet Waiver; then, and in every such event (other than an event with respect to Borrower described in clause (h) or (i) of this Section 7.1), and at any time thereafter during the continuance of such event, Lender may by notice to Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitment, and thereupon the Commitment shall terminate immediately, and (ii) declare the Loan then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loan so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower; and in case of any event with respect to Borrower described in clause (h) or (i) of this Section 7.1, the Commitment shall automatically terminate and the principal of the Loan then outstanding, together with accrued interest thereon and all fees and other Obligations of Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower. ARTICLE VIII: MISCELLANEOUS Section 8.1. Notices. Unless otherwise specified herein, all notices hereunder to any party hereto shall be in writing and shall be given (a) by personal delivery, (b) by certified mail, return receipt requested, (c) by nationally recognized overnight courier (e.g., Federal Express) or (d) by electronic facsimile transmission (with confirmation of successful transmission) or by electronic mail (provided, however, that if a notice is given by facsimile or electronic mail, a copy of such notice shall also be delivered by one of the other delivery methods set forth in clauses (a), (b) and (c) above), in each case addressed to such party at its address indicated on Schedule 3.6 or on the signature pages hereof or to any other address specified by such party in writing. All such notices, requests, demands and other communication shall be deemed given upon the earlier of (i) receipt by the party to whom such notice is directed (or a person of suitable age and discretion accepting such notice at such address), (ii) refusal to accept delivery by the party to whom such notice is directed (or by such other suitable person) or (iii) if mailed, the third Business Day following the date of mailing. Section 8.2. Waivers. Without limiting the generality of the foregoing, the making of the Loan shall not be construed as a waiver of any Default, regardless of whether Lender may have had notice or knowledge of such Default at the time. Section 8.3. Expenses; Indemnity; Damage Waiver. (a) Expenses. Borrower shall pay all reasonable out-of-pocket expenses incurred by Lender, including reasonable fees and disbursements of counsel for Lender, in connection with (i) the preparation of the Credit Documents, any amendments, modifications or waivers of the provisions thereto requested or agreed to by any Obligor (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) the administration of the Credit Documents, including any wire transfer fees and expenses in connection with the addition or release of any Collateral, and (iii) the enforcement or protection of Lender's rights in connection with any Credit Document, including its rights under this Section 8.3, or in connection with the Loan made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof. (b) Collateral Audits. Borrower shall reimburse Lender for all of Lender's expenses incurred in connection with Lender obtaining two (2) audits of the Collateral per calendar year, including, without limitation, actual out-of-pocket expenses incurred per analyst (at a daily fee not exceeding $750 per analyst plus actual out of pocket expenses) from audit-related activities within the New York City metropolitan area; provided, however, that Borrower shall reimburse Lender for all of Lender's expenses incurred in connection with all audits of the Collateral performed after the occurrence of and during the continuation of any Event of Default. (c) Each Obligor shall indemnify, jointly and severally, Lender and each Affiliate, director, officer, employee, agent and advisor of Lender (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees and disbursements of counsel for any Indemnitee (the "Losses"), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of, any actual or prospective claim, litigation, investigation or proceeding relating to (i) the execution or delivery of any Credit Document, the performance of the parties hereto of their respective Obligations thereunder or the consummation of the Transactions or (ii) the Loan or the use of the proceeds therefrom, in each case, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that any Losses claimed by such Indemnitee are determined by a final judgement of a court of competent jurisdiction to have been incurred by reason of gross negligence, bad faith or willful misconduct of such Indemnitee. (d) To the extent permitted by applicable law, no Obligor shall assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Credit Document or any agreement or instrument contemplated thereby, the Transactions, the Loan or the use of the proceeds thereof. (e) All amounts due under this Section 8.3 shall be payable promptly after written demand therefor. The Obligations of the Obligors under this Section 8.3 shall survive payment in full of the Loan. Section 8.4. Amendments. Any term of this Agreement or any other Credit Document may be amended, waived, discharged or terminated only by an instrument in writing signed by each party to this Agreement or such Credit Document. No notice to or demand on any Obligor shall be deemed to be a waiver of the Obligations of any Obligor or of the right of Lender to take further action without notice or demand as provided in this Agreement. No course of dealing between any Obligor and Lender shall change, modify or discharge, in whole or in part, this Agreement or any Obligations. No waiver of any term, covenant or provision of this Agreement or any other Credit Document shall be effective unless given in writing by Lender and if so given shall only be effective in the specific instance in which given. In the event Lender shall assign a portion of its interests under this Agreement or any other Credit Document, then any such consents, waivers or amendments may be consented to by lenders or assignees holding a majority in principal amount of the Loans and Commitments except that each lender and assignee affected shall be required to consent to any consents, waivers or amendments which (a) increase the obligations of such lender or assignee, (b) reduce the principal amount, interest rate or fees due to such lender or assignee, (c) extend, delay or postpone the Final Maturity Date or due date of any payment of principal, interest or fees due to such lender or assignee, (d) release the Guarantors or (e) release all or substantially all of the Collateral. Section 8.5. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that (a) no Obligor may assign or otherwise transfer any of its rights or Obligations hereunder without the prior written consent of Lender and (b) any assignment by Lender (or any other Noteholder) of its rights or obligations hereunder (other than to an Affiliate or any Person that acquires Lender or all or substantially all of the assets of Lender) shall be subject to Borrower's consent, which consent shall not be unreasonably withheld or delayed and shall not be required during the existence of an Event of Default. Any attempted assignment or transfer by any Obligor without the required consent (if any) shall be null and void. Section 8.6. Replacement of Notes. Upon (a) request made by Lender (or any other Noteholder) made following an assignment permitted under Section 8.5 or (b) receipt of a Noteholders' affidavit or other evidence reasonably satisfactory to Borrower of the loss theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Borrower, and, in the case of any such mutilation, upon the surrender of such Note for cancellation, Borrower, at the expense of Lender (or such Noteholder), shall execute and deliver, respectively, (a) new Notes appropriately reflecting such assignment or (b) in lieu of such lost, stolen, destroyed, or mutilated Note, a new Note of like tenor. Section 8.7. Survival. All covenants, agreements, representations and warranties made by any Obligor in any Credit Document and in the certificates or other instruments delivered in connection with or pursuant to any Credit Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of each Credit Document and the making of the Loan, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Loan or any fee or any other amount payable under any Credit Document is outstanding and unpaid. The provisions of Section 8.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loan or the termination of this Agreement or any provision hereof. Section 8.8. Right of Set-off. If any amount payable hereunder or under any other Credit Document is not paid as and when due, each Obligor hereby authorizes Lender and each Affiliate of Lender to proceed, to the extent permitted by applicable law, without prior notice, by right of set-off, bankers' lien, counterclaim or otherwise, against any assets of such Obligor in any currency that may at any time be in the possession of Lender or such Affiliate, at any branch or office, to the full extent of all amounts payable to Lender hereunder or thereunder. Lender shall give prompt notice to such Obligor after any exercise of Lender's rights under the preceding sentence, but the failure to give such notice shall not affect the validity of any of Lender's actions. Section 8.9. Severability. Any provision of any Credit Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 8.10. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Each Obligor hereby designates Ms. Kristine LaCourse, c/o Microfinancial Incorporated, 10M Commerce Way, Woburn, MA 01801 as its agent to receive service of process in any action or proceeding arising out of or relating to any Credit Document, and also as its agent for the purposes of taking any action required to be taken under the terms of the Credit Documents such as delivery of notices. (b) EACH OBLIGOR HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY CREDIT DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, EACH OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY CREDIT DOCUMENT. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 8.11. Headings. Article and Section headings and the table of contents (if applicable) used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 8.12. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or of any other Credit Document by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement or of such other Credit Document. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK Signature Page to Credit Agreement - Borrower IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BORROWER: TIMEPAYMENT CORP. LLC By: -------------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Signature Page to Credit Agreement - Lender LENDER: ACORN CAPITAL GROUP, LLC By: -------------------------------------------- Name: --------------------------------------- Title: -------------------------------------- Notice Address: -------------- Two Greenwich Office Park Greenwich, CT 06831 Attn: Mary Ammon Telephone: 203.661.0049 Facsimile: 203.861.4250 State of_______________________) ) ss. County of______________________) On June _____, 2004, before me, a Notary Public, personally appeared __________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ---------------------------------- Commonwealth of Massachusetts ) ) ss. County of______________________) On June _____, 2004, before me, a Notary Public, personally appeared __________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ---------------------------------- SCHEDULE 2.7 FORM OF JOINDER TO CREDIT AGREEMENT [Date of Joinder to Credit Agreement] Acorn Capital Group, LLC Two Greenwich Office Park Greenwich, CT 06831 Attention: Mary Ammon Re: Credit Agreement dated as of June 10, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Credit Agreement") between TimePayment Corp, LLC ("Borrower") and Acorn Capital Group, LLC ("Lender") Ladies and Gentlemen: 1. Reference is made to the above-captioned Credit Agreement. Capitalized terms not otherwise defined herein are used herein with the meanings assigned thereto in the Credit Agreement. 2. As of the date hereof the conditions set forth in Section 2.7 of the Credit Agreement have been satisfied, with the result that (1) the Conditional Guaranty of the undersigned, Microfinancial Incorporated, a Massachusetts corporation and Borrower' sole member ("Parent"), and Leasecomm Corporation, a Massachusetts corporation ("Leasecomm"), in favor of Lender is effective as of the date hereof and (b) each of Parent and Leasecomm is required to execute this Joinder to Credit Agreement (this "Joinder") and thereby become a party to the Credit Agreement as an "Obligor". 3. Therefore, by executing this Joinder, each of Parent and Leasecomm hereby agrees to be bound by all provisions relating to an Obligor under, and as defined in, the Credit Agreement. Parent and Leasecomm further agree, as of the date first above written, that each reference in the Credit Agreement or any other Credit Document to an "Obligor" or a "Guarantor" shall also mean and be a reference to Parent and Leasecomm. 4. This Joinder shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, Parent and Leasecom have caused this Joinder to be executed by its duly authorized officer as of the day and year first above written. MICROFINANCIAL INCORPORATED By:____________________________ Name: Title: LEASECOMM CORPORATION By:_____________________________ Name: Title: EX-10 3 exh_10-2.txt EXHIBIT 10.2 Exhibit 10.2 NOTE $8,000,000 Date: June 10, 2004 FOR VALUE RECEIVED, TIMEPAYMENT CORP. LLC, a Delaware limited liability company (the "Borrower"), promises to pay to the order of ACORN CAPITAL GROUP, LLC (together with its successors and assigns, the "Lender"), on or before the Final Maturity Date described in the Credit Agreement (as defined below), the sum of EIGHT MILLION DOLLARS ($8,000,000), or, if less, the aggregate unpaid principal amount of the Loan (as defined in the Credit Agreement), together with interest thereon as set forth herein. The Borrower shall repay principal and interest on the Loan at the times and in the manner set forth in the Credit Agreement. The Borrower shall pay interest on the unpaid principal amount of the Loan at the rate, at the times and in the manner set forth in the Credit Agreement. Capitalized terms used but not defined herein shall have the meanings set forth in that certain Credit Agreement dated as of the date hereof (as amended, supplemented or modified from time to time, the "Credit Agreement") among the Borrower, the guarantors named therein and the Lender. Upon the occurrence and continuance of an Event of Default this Note may automatically become due and payable without notice or demand as set forth in the Credit Agreement. The Obligations of the Borrower under this Note are secured by the Collateral and guarantied by the Guarantors pursuant to the Credit Agreement and other Credit Documents. The Lender shall be entitled to setoff against and apply to the payment hereof the balance of any account or accounts maintained with the Lender by the Borrower and to exercise any other right or remedy granted hereunder, or under any agreement between the Borrower and the Lender or available at law or in equity, including, but not limited to, the rights and remedies of a secured party under the New York Uniform Commercial Code. The failure by the Lender at any time to exercise any such right shall not be deemed a waiver thereof, nor shall it bar the exercise of any such right at a later date. Each and every right and remedy granted to the Lender hereunder or under any agreement between the Borrower and the Lender or available at law or in equity shall be cumulative and not exclusive of any other rights, powers, privileges or remedies, and may be exercised by the Lender from time to time and as often as may be necessary in the sole and absolute discretion of the Lender. This Note shall be governed by and construed in accordance with the laws of the State of New York. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN THE COUNTY OF NEW YORK OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESSES SET FORTH IN THE CREDIT AGREEMENT OR SUCH OTHER ADDRESS THAT THE BORROWER SHALL HAVE NOTIFIED THE LENDER IN WRITING OR ANY METHOD AUTHORIZED BY THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE. The Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights and/or remedies hereunder. The Borrower acknowledges that this Note and the Borrower's obligations under this Note are, and shall at all times continue to be, absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Note and the obligations of the Borrower under this Note. The Borrower absolutely, unconditionally and irrevocably waives any and all right to assert any set-off, counterclaim or crossclaim of any nature whatsoever with respect to this Note or the Borrower's obligations hereunder. The Borrower hereby waives presentment, demand for payment, protest, notice of dishonor, and any and all other notices or demands in connection with the delivery, acceptance, performance, default, or enforcement of this Note. Any consents, agreements, instructions or requests pertaining to any matter in connection with this Note, signed by the Borrower, shall be binding upon the Borrower. This Note shall bind the respective successors, heirs or representatives of the Borrower. This Note and the Credit Agreement shall not be assigned by the Borrower without the Lender's prior written consent. [ Remainder of Page Intentionally Left Blank ] Signature Page to Note IN WITNESS WHEREOF, the Borrower has duly executed this Note the day and year first above written. TIMEPAYMENT CORP. LLC By_________________________________ Name: Title: State of ________________) ) ss. County of _______________) On June __, 2004, before me, a Notary Public, personally appeared _____________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL _______________________________________ Notary Public EX-10 4 exh_10-3.txt EXHIBIT 10.3 Exhibit 10.3 CONDITIONAL GUARANTY THIS CONDITIONAL GUARANTY, is entered into as of June 10, 2004, by MICROFINANCIAL INCORPORATED, a Massachusetts corporation ("MFI"), and LEASECOMM CORPORATION, a Massachusetts corporation and wholly-owned subsidiary of MFI ("Leasecomm" and together with MFI, collectively referred to herein as "Guarantor"), in favor of and for the benefit of ACORN CAPITAL GROUP, LLC ("Lender"). RECITALS A. Pursuant to the Credit Agreement dated as of the date hereof (as amended, supplemented or modified from time to time, the "Credit Agreement"; capitalized terms used but not defined herein shall have the meanings given such terms in the Credit Agreement) by and among TimePayment Corp. LLC, a Delaware limited liability company and wholly-owned subsidiary of MFI ("Borrower"), certain guarantors named therein, including MFI and Leasecomm, and Lender, Lender has agreed to make the Loan to Borrower; and B. Guarantor, being affiliated with Borrower, acknowledges and agrees that Guarantor has received and will receive direct and indirect benefits from the extension of the Loan made to Borrower. C. Guarantor wishes to grant Lender security and assurance in order to secure the payment and performance by Borrower of all of its present and future Obligations (as hereinafter defined), and, to that effect, to guaranty Borrower's Obligations as set forth herein. Accordingly, Guarantor hereby agrees as follows: 1. Conditional Guaranty. (a) Subject to Section 1(e), Guarantor hereby unconditionally and irrevocably guarantees to Lender the full and punctual payment by Borrower, when due, whether at the stated due date, by acceleration or otherwise of all Obligations (as defined below) of Borrower, howsoever created, arising or evidenced, voluntary or involuntary, whether direct or indirect, absolute or contingent now or hereafter existing or owing to Lender, (collectively, the "Guaranteed Obligations"). Except as provided in Section 1(e), this Guaranty is an absolute, unconditional, continuing guaranty of payment and not of collection of the Guaranteed Obligations and includes Guaranteed Obligations arising from successive transactions which shall either continue such Guaranteed Obligations or from time to time renew such Guaranteed Obligations after the same has been satisfied. This Guaranty is in no way conditioned upon any attempt to collect from Borrower or upon any other event or contingency, and shall be binding upon and enforceable against Guarantor without regard to the validity or enforceability of any document, instrument or agreement evidencing or governing the Obligations or any other agreement or instrument executed in connection therewith (including, without limitation, this Guaranty) or contemplated thereby (each, a "Credit Document" and, collectively, the "Credit Documents"). If for any reason Borrower shall fail or be unable duly and punctually to pay any of the Guaranteed Obligations (including, without limitation, amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), Guarantor will forthwith pay the same, in cash. As used herein "Obligations" shall mean all obligations, liabilities and indebtedness of Borrower to Lender under the Credit Agreement and the "Credit Documents" referred to therein and any documents relating thereto, whether now existing or hereafter created, absolute or contingent, direct or indirect, due or not, whether created directly or acquired by assignment or otherwise, including, without limitation, the Loans and the payment and performance of all other obligations, liabilities, and indebtedness of Borrower to Lender under the Credit Documents, including without limitation all fees, costs, expenses and indemnity obligations thereunder. (b) In the event any Credit Document shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of Borrower or any of its properties in any bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceeding, Guarantor's obligations hereunder shall continue to the same extent as if such Credit Document had not been so rejected. (c) Guarantor agrees to pay all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred in connection with the enforcement of the Guaranteed Obligations of Borrower to the extent that such costs and expenses are not paid by Borrower pursuant to the respective Credit Documents. (d) Guarantor further agrees that if any payment made by Borrower or Guarantor to Lender on any Guaranteed Obligation is rescinded, recovered from or repaid by Lender, in whole or in part, in any bankruptcy, insolvency or similar proceeding instituted by or against Borrower or Guarantor, this Guaranty shall continue to be fully applicable to such Guaranteed Obligation to the same extent as though the payment so recovered or repaid had never originally been made on such Guaranteed Obligation regardless of, and, without giving effect to, any discharge or release of Guarantor's obligations hereunder granted by Lender after the date hereof. (e) Notwithstanding the execution and delivery of this Agreement on the date hereof, the guaranty pursuant hereto shall not be deemed made, and this Guaranty shall not be effective, until the earlier of the day that (A) all obligations under the Fleet Loan Agreement shall have been discharged in full, or (B) Fleet otherwise consents to this Guaranty. 2. Guaranty Continuing, Absolute, Unlimited. Subject to Section 1(e), the obligations of Guarantor hereunder shall be continuing, absolute, unlimited and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim Guarantor may have against Lender or Borrower or any other person, and shall remain in full force and effect without regard to, and, to the fullest extent permitted by applicable law, shall not be released, discharged or in any way affected by, any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof) whatsoever which might constitute a legal or equitable discharge or defense. 3. Waiver. Guarantor unconditionally and irrevocably waives, to the fullest extent permitted by applicable law: (a) notice of any of the matters referred to in Section 2 hereof; (b) all notices which may be required by statute, rule of law or otherwise to preserve any rights against Guarantor hereunder, including, without limitation, notice of the acceptance of this Guaranty, or the creation, renewal, extension, modification or accrual of the Guaranteed Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest, nonpayment of any damages or other amounts payable under any Credit Document; (c) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of any Credit Document, including, without limitation, diligence in collection or protection of or realization upon the Guaranteed Obligations or any part thereof or any collateral therefor; (d) any requirement of diligence; (e) any requirement to mitigate the damages resulting from a default by Borrower under any Credit Document; (f) the occurrence of every other condition precedent to which Guarantor or Borrower may otherwise be entitled; (g) the right to require Lender to proceed against Borrower or any other person liable on the Guaranteed Obligations, to proceed against or exhaust any security held by Borrower or any other person, or to pursue any other remedy in Lender's power whatsoever; (h) the right to have the property of Borrower first applied to the discharge of the Guaranteed Obligations and (i) until such time that all Guaranteed Obligations have been indefeasibly paid in full, any and all rights it may now or hereafter have under any agreement or at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Lender) to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. Lender may, at its election, exercise any right or remedy it may have against Borrower without affecting or impairing in any way the liability of Guarantor hereunder and Guarantor waives, to the fullest extent permitted by applicable law, any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of Guarantor against Borrower, whether resulting from such election by Lender or otherwise. Guarantor waives any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation for any cause whatsoever of the liability, either in whole or in part, of Borrower to Lender for the Guaranteed Obligations. Guarantor assumes the responsibility for being and keeping informed of the financial condition of Borrower and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and agrees that Lender shall not have any duty to advise Guarantor of information regarding any condition or circumstance or any change in such condition or circumstance. Guarantor acknowledges that Lender has not made any representations to Guarantor concerning the financial condition of Borrower. 4. Security. Subject to Permitted Encumbrances (and the other Liens permitted by Section 6.7 of the Credit Agreement) and Section 1(e), the Guaranteed Obligations are secured by collateral more fully described in the Credit Documents and the Credit Agreement. 5. Miscellaneous. (a) Notices. Any notice delivered under this Guaranty shall be given in the manner, to the addresses and with the effect set forth in Section 8.1 of the Credit Agreement. (b) Amendments. Any term of this Guaranty may be amended, waived, discharged or terminated only by an instrument in writing signed by each party to this Guaranty. No notice to or demand on Guarantor shall be deemed to be a waiver of the Obligations or of the right of Lender to take further action without notice or demand as provided in this Guaranty. No course of dealing between Guarantor and Lender shall change, modify or discharge, in whole or in part, this Guaranty or any Obligations. No waiver of any term, covenant or provision of this Guaranty shall be effective unless given in writing by Lender and if so given shall only be effective in the specific instance in which given. (c) Successors and Assigns. The provisions of this Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Guarantor may not assign or otherwise transfer any of its rights or Obligations hereunder without the prior written consent of Lender (and any attempted assignment or transfer by Guarantor without such consent shall be null and void). (d) Severability. Any provision of this Guaranty held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. (e) Right to Deal with Borrower. At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of Guarantor hereunder, Lender may deal with Borrower in the same manner and as fully as if this Guaranty did not exist and shall be entitled, among other things, to grant Borrower, without notice or demand and without affecting Guarantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under any Credit Document or any other document evidencing Obligations of Borrower to Lender, or to waive any obligation of Borrower to perform any act or acts, as Lender may deem advisable. (f) Governing Law; Jurisdiction; Consent to Service of Process. This Guaranty shall be governed by and construed in accordance with the laws of the State of New York. Guarantor HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY CREDIT DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY CREDIT DOCUMENT. Each party to this GUARANTY irrevocably consents to service of process in the manner provided for notices in Section 8.1 of the Credit Agreement. Nothing in this Guaranty will affect the right of any party to this Guaranty to serve process in any other manner permitted by law. (g) Headings; Counterparts. Article and Section headings and the table of contents (if applicable) used herein are for convenience of reference only, are not part of this Guaranty and shall not affect the construction of, or be taken into consideration in interpreting, this Guaranty. This Guaranty may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Guaranty or of any other Credit Document by telecopy shall be effective as delivery of a manually executed counterpart of this Guaranty or of such other Credit Document. (h) No Waiver; Rights Cumulative. No course of dealing between Guarantor and Lender, or Lender's failure to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Any single or partial exercise of any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. All of Lender's rights and remedies hereunder, whether established hereby or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently. (i) No Partnership. The relationship between Lender and Guarantor shall be only of creditor-debtor and no relationship of agency, partner or joint- or co-venturer shall be created by or inferred from this Guaranty or the other Credit Documents. Guarantor shall indemnify, defend, and save Lender harmless from any and all claims asserted against Lender as being the agent, partner, or joint-venturer of Guarantor. (j) Entire Agreement. This Guaranty and the other Credit Documents embody the entire agreement and understanding between Guarantor and Secured Party with respect to the subject matter hereunder and supersede all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Guarantor acknowledges and agrees that there is no oral agreement between Guarantor and Lender which has not been incorporated in this Guaranty or another Credit Document. (k) Other Guaranties. The execution and delivery of this Guaranty shall not supersede, terminate, modify or supplement in any manner any other guaranty previously executed and delivered to Lender by Guarantor and no release or termination of any guaranty shall be construed to terminate or release any other guaranty unless such guaranty is specifically referred to in any such termination. 6. Joint and Several Obligations. All Obligations, agreements and liabilities of Guarantor under this Guaranty shall be joint and several. 7. Covenant of Guarantor. Guarantor hereby covenants and agrees that, from and after the date hereof, it will not originate any new lease financing business other than new leases financed by Borrower. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned have executed and delivered this Conditional Guaranty as of the day and year first above written. MICROFINANCIAL INCORPORATED By: _______________________ Name: Title: LEASECOMM CORPORATION By: _______________________ Name: Title: Commonwealth of Massachusetts) ) ss. County of ___________________) On June __, 2004, before me, a Notary Public, personally appeared , personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature:______________________________ Commonwealth of Massachusetts) ) ss. County of ___________________) On June __, 2004, before me, a Notary Public, personally appeared , personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature:______________________________ EX-10 5 exh_10-4.txt EXHIBIT 10.4 Exhibit 10.4 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of June 10, 2004 (as amended, supplemented or modified from time to time, this "Agreement"), made by TIMEPAYMENT CORP. LLC ("Borrower" or "Grantor") in favor of ACORN CAPITAL GROUP, LLC ("Secured Party"). RECITALS A. Pursuant to the Credit Agreement dated as of the date hereof (as amended, supplemented or modified from time to time, the "Credit Agreement"; capitalized terms used but not defined herein shall have the meanings given such terms in the Credit Agreement) by and among Borrower, certain guarantors named therein, including MicroFinancial Incorporated ("MFI") and Leasecomm Corporation ("Leasecomm"), and Secured Party, Secured Party has agreed to make the Loan to Borrower; and B. In order to induce Secured Party to make the Loan, Grantor has agreed to grant a continuing Lien on the Collateral pledged by it to secure the Obligations (as hereinafter defined). Accordingly, Grantor hereby agrees as follows: 1. Security Interest. (a) Grant of Security. Subject to Liens permitted by the Credit Agreement which have priority by operation of law, as security for the Obligations (as hereinafter defined), Grantor hereby delivers, assigns, pledges, sets over and grants to Secured Party a first priority security interest in, all of its right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all items of its personal property described on Exhibit A hereto which is executed by an authorized person of Grantor, together with all substitutions and replacements thereof and any products and proceeds thereof including any which are described on a supplement hereto in substantially the form of Exhibit B hereto (the "Collateral"). (b) Security for Obligations. This Agreement secures the payment of all now existing or hereafter arising obligations of Grantor to Secured Party, whether primary or secondary, direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise under the Credit Agreement or any other Credit Document (as defined in the Credit Agreement) including the Guaranty, whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys' fees incurred in any collection efforts or in any action or proceeding (all such obligations being the "Obligations"). (c) Grantor Remains Liable. This Agreement shall not affect Grantor's liability to perform all of its duties and obligations under the transactions giving rise to the Obligations. The exercise by Secured Party of any of the rights hereunder shall not release Grantor from any of its duties or obligations under the transactions giving rise to the Obligations, which shall remain unchanged as if this Agreement had not been executed. Secured Party shall not have any obligation or liability under the transactions giving rise to the Obligations by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. (d) Supplement. From time to time Grantor may deliver, assign, pledge, set over and grant to Secured Party a first priority security interest in any additional items of personal property by delivering on a supplement hereto in substantially the form of Exhibit B hereto listing such items; thereafter, all such items of personal property shall be "Collateral" hereinafter and subject to the terms of this Agreement. If Grantor shall, now or at any time hereafter, hold or acquire any promissory notes or tangible chattel paper, Grantor shall forthwith endorse, assign and deliver the same to Iron Mountain, pursuant to the terms of the Iron Mountain Agreement and Section 5.10 of the Credit Agreement, accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify. (e) Continuing Agreement. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until payment in full of the Obligations. 2. Title; Liens and Encumbrances. Grantor represents and warrants that it is (or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will be) the record and beneficial owner of, having (or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will have) good and marketable title to, the Collateral pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other person, except for Permitted Encumbrances (and the other Liens permitted by Section 6.9 of the Credit Agreement) and the Liens created by this Agreement. Grantor will promptly notify Secured Party of any such other Lien or claim made or asserted against the Collateral and will defend the Collateral against any such Lien or other claim. 3. State of Organization or Residence; Legal Name. Grantor represents and warrants to Secured Party as follows: (a) Grantor does not have a state of organization or principal residence, except as set forth on Schedule I to the Credit Agreement. Grantor's chief executive office or principal office, if it is not a registered organization, as such term is defined under the Uniform Commercial Code as in effect in the State of New York as it may be amended, supplemented or modified from time to time (the "UCC"), is set forth on Schedule I to the Credit Agreement. Grantor shall promptly notify Secured Party of any change in the foregoing representations. (b) Grantor's registered or legal name is as set forth on Schedule I to the Credit Agreement. Grantor currently uses, and during the last five years has used, no other names including business or trade names, except as set forth on Schedule I to the Credit Agreement. Grantor shall not change such name without providing Secured Party 30 days prior written notice. (c) Subject to Liens permitted by the Credit Agreement which have priority by operation of law, the grant of the security interest in the Collateral, combined with the filing of financing statements, the execution of control agreements, the execution of Assignments, and/or possession of the Collateral, each as appropriate, is effective to vest in Secured Party a valid and perfected first priority security interest, superior to the rights of any person in and to the Collateral as set forth herein. 4. Perfection of Security Interest. Grantor authorizes Secured Party to file all such financing statements and amendments thereto pursuant to the UCC or other notices appropriate under applicable law, as Secured Party may require, each in form satisfactory to Secured Party. Secured Party may transfer, withdraw or redeem any funds or other property in each deposit account or securities account constituting Collateral without further consent by Grantor; provided that Secured Party will not exercise any of such rights other than during an Event of Default. Grantor also shall pay all filing or recording costs with respect thereto, and all costs of filing or recording this Agreement or any other agreement or document executed and delivered pursuant hereto or to the Obligations (including the cost of all federal, state or local mortgage, documentary, stamp or other taxes), in each case, in all public offices where filing or recording is deemed by Secured Party to be necessary or desirable. Grantor authorizes Secured Party to take all other action which Secured Party may deem necessary or desirable to perfect or otherwise protect the Liens created hereunder and to obtain the benefits of this Agreement. 5. Covenants Relating to Collateral. Until the Obligations shall have been paid in full, and the Credit Agreement shall have terminated, Grantor covenants and agrees that if Grantor shall become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Collateral, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Collateral, or otherwise in respect thereof, Grantor shall accept the same as the agent of Secured Party, hold the same in trust for Secured Party and deliver the same forthwith to Secured Party in the exact form received, duly indorsed by Grantor to Secured Party, if required, together with an undated assignment covering such certificate duly executed in blank by Grantor and with, if Secured Party so requests, signature guaranteed, to be held by Secured Party, subject to the terms thereof, as additional collateral security for the Obligations. If any of the foregoing property so distributed in respect of the Collateral shall be received by Grantor, Grantor shall, until such property is paid or delivered to Secured Party, hold such property in trust for Secured Party, segregated from other funds or property of Grantor, as additional collateral security for the Obligations. 6. Collections; Other Rights. (a) Except as provided herein, Grantor may receive all cash interest, dividends and distributions paid in respect of the Collateral, and to exercise all voting rights with respect to the Collateral; provided, however, that no vote shall be cast or right exercised or other action taken which, in Secured Party's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of this Agreement or any other Credit Document. (b) All of the foregoing amounts set forth in paragraph (a) of this Section 6 so collected after the occurrence of and during the continuation of an Event of Default shall be held in trust by Grantor for and as the property of Secured Party, and shall not be commingled with other funds, money or property of Grantor. (c) After the occurrence and during the continuation of an Event of Default, Grantor will immediately upon receipt of all such checks, cash or other remittances constituting part of the Collateral or in payment for any Collateral sold, transferred, leased or otherwise disposed of, deliver any such items to Secured Party accompanied by a remittance report in form supplied or approved by Secured Party. Grantor shall deliver such items in the same form received, endorsed or otherwise assigned by Grantor where necessary to permit collection of such items. (d) Upon any sale, lease, transfer or other disposition of any item of Collateral in accordance with the terms of the Credit Agreement, Secured Party shall, at Grantor's expense, execute and deliver to Grantor the documents as Grantor shall reasonably request to evidence the release of the item of Collateral from the security interest granted hereby; provided, however, that at the time of such request and such release, no Event of Default shall have occurred and be continuing. 7. Events of Default. The occurrence of any one or more Events of Default by any Obligor under the Credit Agreement shall constitute an event of default ("Event of Default") by Grantor under this Agreement. 8. Rights and Remedies. (a) In the event of the occurrence and continuation of any Event of Default: (i) Secured Party may exercise exclusive control over the Collateral; (ii) Secured Party shall have the right, with or without (to the extent permitted by applicable law) notice to Grantor, as to any or all of the Collateral, by any available judicial procedure or without judicial process, to take possession of the Collateral and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral, and generally to exercise any and all rights afforded to a secured party under the UCC or other applicable law; (iii) Secured Party shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Secured Party in its sole discretion may deem advisable; (iv) at Secured Party's request, Grantor shall assemble the Collateral and make it available to Secured Party at places which Secured Party shall select, whether at Grantor's premises or elsewhere, and make available to Secured Party, without rent, all of Grantor's premises and facilities for the purpose of Secured Party's taking possession of, removing or putting the Collateral in saleable or disposable form; (v) Secured Party shall have the right to receive any and all cash interest, dividends, distributions, payments or other proceeds paid in respect of the Collateral and made application thereof to the Obligations in such order as Secured Party may determine; and (vi) any or all of the Collateral may be registered in the name of Secured Party or its nominee and they may thereafter exercise (x) all voting, corporate and other rights pertaining to such Collateral and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Collateral as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all securities or securities entitlements upon any merger, consolidation, reorganization, recapitalization or other fundamental change, or upon the exercise of Grantor or Secured Party of any right, privilege or option pertaining to such securities or securities entitlements, and in connection therewith, the right to deposit and deliver any and all of the securities or securities entitlements with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as Secured Party may determine), all without liability except to account for property actually received by it, but Secured Party shall have no duty to Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (b) Any such sale, lease or other disposition of Collateral may be made without demand for performance or any notice of advertisement whatsoever except that where an applicable statute requires reasonable notice of sale or other disposition, Grantor agrees that the sending of ten days notice by ordinary mail, postage prepaid, to Grantor of the place and time of any public sale or of the time at which any private sale or other intended disposition is to be made, shall be deemed reasonable notice thereof. Notwithstanding the foregoing, if any of the Collateral may be materially diminished in value during such ten-day period, Secured Party shall provide Grantor with such shorter notice as it deems reasonable under the circumstances. (c) The proceeds of any such sale, lease or other disposition of the Collateral shall be applied first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to the reasonable attorneys' fees and legal expenses incurred by Secured Party, and then to satisfaction of the Obligations (in any order as Secured Party may decide in its sole discretion), and to the payment of any other amounts required by applicable law. If, upon the sale, lease or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Secured Party is legally entitled, Borrower will be liable for the deficiency, together with interest thereon, at the rate prescribed in the agreements giving rise to the Obligations, and the reasonable fees of any attorneys employed by Secured Party to collect such deficiency. To the extent permitted by applicable law, Grantor waives all claims, damages and demands against Secured Party arising out of the repossession, removal, retention or sale of the Collateral. 9. Power of Attorney. Grantor authorizes Secured Party and does hereby make, constitute and appoint Secured Party, and any officer or agent of Secured Party, with full power of substitution, as Grantor's true and lawful attorney-in-fact, with power, in its own name or in the name of Grantor, effective immediately upon the occurrence and during the continuation of an Event of Default: (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of Secured Party; (ii) to pay or discharge any taxes, liens, security interest or other encumbrances at any time levied or placed on or threatened against the Collateral; (iii) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (iv) to receive, open and dispose of all mail addressed to Grantor and to notify the post office authorities to change the address for delivery of mail addressed to Grantor to such address as Secured Party may designate; (v) to exercise all membership rights, powers and privileges in connection with the Collateral to the same extent as Grantor is entitled to exercise such rights, powers and privileges; and (vi) generally to do all acts and things which Secured Party deems necessary to protect, preserve and realize upon the Collateral and Secured Party's security interest therein. Grantor hereby approves and ratifies all acts of said attorney or designee, who shall not be liable for any acts of commission or omission, nor for any error or judgment or mistake of fact or law except for its own gross negligence or willful misconduct. This power of attorney shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. Secured Party may exercise this power of attorney only after the occurrence and during the continuance of an Event of Default. 10. Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guaranty (including, without limitation, the Guaranties), endorsement or property of any other Person, then Secured Party shall have the right in its sole discretion to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of Secured Party's rights and remedies hereunder. 11. Limitation on Secured Party's Duty in Respect of Collateral. Secured Party shall not have any duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of it or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except that Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. 12. Miscellaneous. (a) Notices. Any notice delivered under this Agreement shall be given in the manner, to the addresses and with the effect set forth in Section 8.1 of the Credit Agreement. (b) Amendments. Any term of this Agreement may be amended, waived, discharged or terminated only by an instrument in writing signed by each party to this Agreement. No notice to or demand on Grantor shall be deemed to be a waiver of the Obligations or of the right of Secured Party to take further action without notice or demand as provided in this Agreement. No course of dealing between Grantor and Secured Party shall change, modify or discharge, in whole or in part, this Agreement or any Obligations. No waiver of any term, covenant or provision of this Agreement shall be effective unless given in writing by Secured Party and if so given shall only be effective in the specific instance in which given. (c) Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Grantor may not assign or otherwise transfer any of its rights or Obligations hereunder without the prior written consent of Secured Party (and any attempted assignment or transfer by Grantor without such consent shall be null and void). (d) Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. (e) Right to Deal with Borrower. At any time and from time to time, without terminating, affecting or impairing the validity of this Agreement or the obligations of Grantor hereunder, Secured Party may deal with Borrower in the same manner and as fully as if this Agreement did not exist and shall be entitled, among other things, to grant Borrower, without notice or demand and without affecting Grantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under any Credit Document or any other document evidencing Obligations of Borrower to Secured Party, or to waive any obligation of Borrower to perform any act or acts, as Secured Party may deem advisable. (f) Governing Law; Jurisdiction; Consent to Service of Process. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY CREDIT DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GRANTOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, GRANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY CREDIT DOCUMENT. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 8.1 OF THE CREDIT AGREEMENT. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. (g) Headings; Counterparts. Article and Section headings and the table of contents (if applicable) used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or of any other Credit Document by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement or of such other Credit Document. (h) No Waiver; Rights Cumulative. No course of dealing between Grantor and Secured Party, or Secured Party's failure to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Any single or partial exercise of any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. All of Secured Party's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently. (i) No Partnership. The relationship between Secured Party and Grantor shall be only of creditor-debtor and no relationship of agency, partner or joint- or co-venturer shall be created by or inferred from this Agreement or the other Credit Documents. Grantor shall indemnify, defend, and save Secured Party harmless from any and all claims asserted against Secured Party as being the agent, partner, or joint-venturer of Grantor. (j) Entire Agreement. This Agreement and the other Credit Documents embody the entire agreement and understanding between Grantor and Secured Party with respect to the subject matter hereunder and supersede all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Grantor acknowledges and agrees that there is no oral agreement between Grantor and Secured Party which has not been incorporated in this Agreement or another Credit Document. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned has executed this Agreement to be effective for all purposes as of the date above first written. TIMEPAYMENT CORP. LLC By_________________________________ Name: Title: State of ) ) ss. County of _____________________) On June __, 2004, before me, a Notary Public, personally appeared ____________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ------------------------------------------ EXHIBIT A --------- This Exhibit A to the Pledge and Security Agreement, dated as of June 10, 2004 (as amended, supplemented or modified from time to time, the "Pledge Agreement"), made by TIMEPAYMENT CORP. LLC ("Grantor") in favor of ACORN CAPITAL GROUP, LLC (the "Secured Party") describes the Collateral granted by Grantor to Secured Party pursuant to the Pledge Agreement. "UCC" means the Uniform Commercial Code as in effect in the State of New York as the UCC may be amended, supplemented or modified from time to time. Any reference to any agreement, instrument or document shall be construed as referring to such agreement, instrument or document, as amended, supplemented or modified from time to time. The Collateral shall be all of Grantor's right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all of the following items of personal property of Grantor: a. Accounts (as defined in the UCC), including Health-Care-Insurance Receivables (as defined in the UCC). b. Certificated Securities (as defined in the UCC). c. Chattel Paper (as defined in the UCC). d. All of Grantor's rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all Software (as defined in the UCC), and all software programs designed for use on the computers and electronic data processing hardware described in clause (A) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, Software and firmware described in clauses (A), (B), and (C) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes (the "Computer Hardware and Software") and all rights with respect to the Computer Hardware and Software, including any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing (collectively, "Intellectual Property"). e. Any right of Grantor to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance. f. Deposit Accounts (as defined in the UCC). g. Documents (as defined in the UCC). h. Equipment (as defined in the UCC). i. Financial Assets (as defined in the UCC). j. General Intangibles (as defined in the UCC), including Payment Intangibles (as defined in the UCC) and Software. k. Goods (as defined in the UCC) (including all of its Equipment, Fixtures and Inventory, all as defined in the UCC), and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor. l. Instruments (as defined in the UCC). m. All past, present and future: trade secrets, know-how and other proprietary information; trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights, unpatented inventions (whether or not patenable); patent applications and patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing. n. Inventory (as defined in the UCC). o. Investment Property (as defined in the UCC). p. Money (of every jurisdiction whatsoever) (as defined in the UCC). q. Letter-of-Credit Rights (as defined in the UCC). r. Payment Intangibles (as defined in the UCC). s. Security Entitlements (as defined in the UCC). t. Software (as defined in the UCC). u. Uncertificated Securities (as defined in the UCC). v. To the extent not included in the foregoing, all other personal property of any kind or description; together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds (as defined in the UCC), products, offspring, rents, issues, profits and returns of and from any of the foregoing; provided that to the extent that the provision of any lease or license of Computer Hardware or Software or Intellectual Property expressly prohibit (which prohibition is enforceable under applicable law) any assignment thereof, and the grant of a security interest therein, Secured Party will not enforce its security interest in Grantor's rights under such lease or license (other than in respect of the Proceeds thereof) for so long as such prohibition continues, it being understood that upon the request of Secured Party, Grantor will in good faith use reasonable efforts to obtain consent for the creation of a security interest in favor of Secured Party (and to Secured Party's enforcement of such security interest) in such Secured Party's rights under such lease or license. TIMEPAYMENT CORP. LLC By_________________________________ Name: Title: EXHIBIT B --------- SUPPLEMENT NO. _______ dated as of _____________, 200_ (this "Supplement") to Pledge and Security Agreement dated as of June ___, 2004 (as amended, supplemented or modified from time to time, the "Pledge Agreement") made by TIMEPAYMENT CORP. LLC (the "Grantor") in favor of ACORN CAPITAL GROUP, LLC (the "Secured Party"). As security for the Obligations (as defined in the Pledge Agreement), Grantor hereby delivers, assigns, pledges, sets over and grants to Secured Party a first priority security interest in, all of Grantor's right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all items of personal property of Grantor described below together with all substitutions and replacements thereof and any products and proceeds thereof: [Describe collateral.] Exhibit A to the Pledge Agreement executed by Grantor shall be deemed amended to include all of the foregoing items of personal property and such items shall be "Collateral" as defined in the Pledge Agreement and subject to the terms of the Pledge Agreement. This Supplement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the undersigned parties have executed this Supplement to be effective for all purposes as of the date above first written. TIMEPAYMENT CORP. LLC By_________________________________ Name: Title: EX-10 6 exh_10-5.txt EXHIBIT 10.5 Exhibit 10.5 CONDITIONAL PLEDGE AND SECURITY AGREEMENT CONDITIONAL PLEDGE AND SECURITY AGREEMENT, dated as of June 10, 2004 (as amended, supplemented or modified from time to time, this "Agreement"), made by MICROFINANCIAL INCORPORATED ("MFI") and LEASECOMM CORPORATION ("LEASECOMM") (MFI and Leasecomm, collectively referred to herein as "Grantor") in favor of ACORN CAPITAL GROUP, LLC ("Secured Party"). RECITALS A. Pursuant to the Credit Agreement dated as of the date hereof (as amended, supplemented or modified from time to time, the "Credit Agreement"; capitalized terms used but not defined herein shall have the meanings given such terms in the Credit Agreement) by and among TimePayment Corp. LLC, a Delaware limited liability company and wholly-owned subsidiary of MFI ("Borrower"), certain guarantors named therein, including MFI and Leasecomm, and Secured Party, Secured Party has agreed to make the Loan to Borrower; and B. In order to induce Secured Party to make the Loan, Grantor has agreed to grant a continuing Lien on the Collateral pledged by it to secure the Obligations (as hereinafter defined). Accordingly, Grantor hereby agrees as follows: 1. Security Interest. (a) Grant of Security. Subject to the provisions of subparagraph 1(d) below and to Liens permitted by the Credit Agreement which have priority by operation of law, as security for the Obligations (as hereinafter defined), Grantor hereby delivers, assigns, pledges, sets over and grants to Secured Party a first priority security interest in, all of its right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all items of its personal property described on Exhibit A hereto which is executed by an authorized person of Grantor, together with all substitutions and replacements thereof and any products and proceeds thereof including any which are described on a supplement hereto in substantially the form of Exhibit B hereto (the "Collateral"). (b) Security for Obligations. Subject to the provisions of subparagraph 1(d) below, this Agreement secures the payment of all now existing or hereafter arising obligations of Grantor to Secured Party, whether primary or secondary, direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise under the Credit Agreement or any other Credit Document (as defined in the Credit Agreement) including the Guaranty, whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys' fees incurred in any collection efforts or in any action or proceeding (all such obligations being the "Obligations"). (c) Grantor Remains Liable. This Agreement shall not affect Grantor's liability to perform all of its duties and obligations under the transactions giving rise to the Obligations. The exercise by Secured Party of any of the rights hereunder shall not release Grantor from any of its duties or obligations under the transactions giving rise to the Obligations, which shall remain unchanged as if this Agreement had not been executed. Secured Party shall not have any obligation or liability under the transactions giving rise to the Obligations by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. (d) No Grant of Security until Effective Date. Notwithstanding the execution and delivery of this Agreement on the date hereof, the grant of any security interest in any Collateral pursuant hereto shall not be deemed made, and this Agreement, including any and all provisions hereof providing for the enforcement of any rights and remedies with respect to such grant or otherwise relating to the Collateral, shall not be effective until the earlier of the day that (A) all obligations under the Fleet Loan Agreement shall have been discharged in full, or (B) Fleet releases its Liens on such Collateral or otherwise consents to the Secured Party having a Lien on such Collateral. (e) Supplement. From time to time Grantor may deliver, assign, pledge, set over and grant to Secured Party a first priority security interest in any additional items of personal property by delivering on a supplement hereto in substantially the form of Exhibit B hereto listing such items; thereafter, all such items of personal property shall be "Collateral" hereinafter and subject to the terms of this Agreement. If Grantor shall, now or at any time hereafter, hold or acquire any promissory notes or tangible chattel paper, Grantor shall forthwith endorse, assign and deliver the same to Iron Mountain Incorporated, pursuant to the terms of the Iron Mountain Agreement and Section 5.10 of the Credit Agreement, accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify. (f) Continuing Agreement. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until payment in full of the Obligations. 2. Title; Liens and Encumbrances. Grantor represents and warrants that it is (or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will be) the record and beneficial owner of, having (or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will have) good and marketable title to, the Collateral pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other person, except for Permitted Encumbrances (and the other Liens permitted by Section 6.9 of the Credit Agreement) and the Liens created by this Agreement. Grantor will promptly notify Secured Party of any such other Lien or claim made or asserted against the Collateral and will defend the Collateral against any such Lien or other claim. 3. State of Organization or Residence; Legal Name. Grantor represents and warrants to Secured Party as follows: (a) Grantor does not have a state of organization or principal residence, except as set forth on Schedule I to the Credit Agreement. Grantor's chief executive office or principal office, if it is not a registered organization, as such term is defined under the Uniform Commercial Code as in effect in the State of New York as it may be amended, supplemented or modified from time to time (the "UCC"), is set forth on Schedule I to the Credit Agreement. Grantor shall promptly notify Secured Party of any change in the foregoing representations. (b) Grantor's registered or legal name is as set forth on Schedule I to the Credit Agreement. Grantor currently uses, and during the last five years has used, no other names including business or trade names, except as set forth on Schedule I to the Credit Agreement. Grantor shall not change such name without providing Secured Party 30 days prior written notice. (c) Subject to the provisions of subparagraph 1(d) and to Liens permitted by the Credit Agreement which have priority by operation of law, the grant of the security interest in the Collateral, combined with the filing of financing statements, the execution of control agreements, the execution of Assignments, and/or possession of the Collateral, each as appropriate, is effective to vest in Secured Party a valid and perfected first priority security interest, superior to the rights of any person in and to the Collateral as set forth herein. 4. Perfection of Security Interest. Grantor authorizes Secured Party to file all such financing statements and amendments thereto pursuant to the UCC or other notices appropriate under applicable law, as Secured Party may require, each in form satisfactory to Secured Party. Secured Party may transfer, withdraw or redeem any funds or other property in each deposit account or securities account constituting Collateral without further consent by Grantor; provided that Secured Party will not exercise any of such rights other than during an Event of Default. Grantor also shall pay all filing or recording costs with respect thereto, and all costs of filing or recording this Agreement or any other agreement or document executed and delivered pursuant hereto or to the Obligations (including the cost of all federal, state or local mortgage, documentary, stamp or other taxes), in each case, in all public offices where filing or recording is deemed by Secured Party to be necessary or desirable. Grantor authorizes Secured Party to take all other action which Secured Party may deem necessary or desirable to perfect or otherwise protect the Liens created hereunder and to obtain the benefits of this Agreement. 5. Covenants Relating to Collateral. Until the Obligations shall have been paid in full, and the Credit Agreement shall have terminated, Grantor covenants and agrees that if Grantor shall become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Collateral, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Collateral, or otherwise in respect thereof, Grantor shall accept the same as the agent of Secured Party, hold the same in trust for Secured Party and deliver the same forthwith to Secured Party in the exact form received, duly indorsed by Grantor to Secured Party, if required, together with an undated assignment covering such certificate duly executed in blank by Grantor and with, if Secured Party so requests, signature guaranteed, to be held by Secured Party, subject to the terms thereof, as additional collateral security for the Obligations. If any of the foregoing property so distributed in respect of the Collateral shall be received by Grantor, Grantor shall, until such property is paid or delivered to Secured Party, hold such property in trust for Secured Party, segregated from other funds or property of Grantor, as additional collateral security for the Obligations. 6. Collections; Other Rights. (a) Except as provided herein, Grantor may receive all cash interest, dividends and distributions paid in respect of the Collateral, and to exercise all voting rights with respect to the Collateral; provided, however, that no vote shall be cast or right exercised or other action taken which, in Secured Party's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of this Agreement or any other Credit Document. (b) All of the foregoing amounts set forth in paragraph (a) of this Section 6 so collected after the occurrence of and during the continuation of an Event of Default shall be held in trust by Grantor for and as the property of Secured Party, and shall not be commingled with other funds, money or property of Grantor. (c) After the occurrence and during the continuation of an Event of Default, Grantor will immediately upon receipt of all such checks, cash or other remittances constituting part of the Collateral or in payment for any Collateral sold, transferred, leased or otherwise disposed of, deliver any such items to Secured Party accompanied by a remittance report in form supplied or approved by Secured Party. Grantor shall deliver such items in the same form received, endorsed or otherwise assigned by Grantor where necessary to permit collection of such items. (d) Upon any sale, lease, transfer or other disposition of any item of Collateral in accordance with the terms of the Credit Agreement, Secured Party shall, at Grantor's expense, execute and deliver to Grantor the documents as Grantor shall reasonably request to evidence the release of the item of Collateral from the security interest granted hereby; provided, however, that at the time of such request and such release, no Event of Default shall have occurred and be continuing. 7. Events of Default. The occurrence of any one or more Events of Default by any Obligor under the Credit Agreement shall constitute an event of default ("Event of Default") by Grantor under this Agreement. 8. Rights and Remedies. (a) In the event of the occurrence and continuation of any Event of Default: (i) Secured Party may exercise exclusive control over the Collateral; (ii) Secured Party shall have the right, with or without (to the extent permitted by applicable law) notice to Grantor, as to any or all of the Collateral, by any available judicial procedure or without judicial process, to take possession of the Collateral and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral, and generally to exercise any and all rights afforded to a secured party under the UCC or other applicable law; (iii) Secured Party shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Secured Party in its sole discretion may deem advisable; (iv) at Secured Party's request, Grantor shall assemble the Collateral and make it available to Secured Party at places which Secured Party shall select, whether at Grantor's premises or elsewhere, and make available to Secured Party, without rent, all of Grantor's premises and facilities for the purpose of Secured Party's taking possession of, removing or putting the Collateral in saleable or disposable form; (v) Secured Party shall have the right to receive any and all cash interest, dividends, distributions, payments or other proceeds paid in respect of the Collateral and made application thereof to the Obligations in such order as Secured Party may determine; and (vi) any or all of the Collateral may be registered in the name of Secured Party or its nominee and they may thereafter exercise (x) all voting, corporate and other rights pertaining to such Collateral and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Collateral as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all securities or securities entitlements upon any merger, consolidation, reorganization, recapitalization or other fundamental change, or upon the exercise of Grantor or Secured Party of any right, privilege or option pertaining to such securities or securities entitlements, and in connection therewith, the right to deposit and deliver any and all of the securities or securities entitlements with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as Secured Party may determine), all without liability except to account for property actually received by it, but Secured Party shall have no duty to Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (b) Any such sale, lease or other disposition of Collateral may be made without demand for performance or any notice of advertisement whatsoever except that where an applicable statute requires reasonable notice of sale or other disposition, Grantor agrees that the sending of ten days notice by ordinary mail, postage prepaid, to Grantor of the place and time of any public sale or of the time at which any private sale or other intended disposition is to be made, shall be deemed reasonable notice thereof. Notwithstanding the foregoing, if any of the Collateral may be materially diminished in value during such ten-day period, Secured Party shall provide Grantor with such shorter notice as it deems reasonable under the circumstances. (c) The proceeds of any such sale, lease or other disposition of the Collateral shall be applied first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to the reasonable attorneys' fees and legal expenses incurred by Secured Party, and then to satisfaction of the Obligations (in any order as Secured Party may decide in its sole discretion), and to the payment of any other amounts required by applicable law. If, upon the sale, lease or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Secured Party is legally entitled, Borrower will be liable for the deficiency, together with interest thereon, at the rate prescribed in the agreements giving rise to the Obligations, and the reasonable fees of any attorneys employed by Secured Party to collect such deficiency. To the extent permitted by applicable law, Grantor waives all claims, damages and demands against Secured Party arising out of the repossession, removal, retention or sale of the Collateral. 9. Power of Attorney. Grantor authorizes Secured Party and does hereby make, constitute and appoint Secured Party, and any officer or agent of Secured Party, with full power of substitution, as Grantor's true and lawful attorney-in-fact, with power, in its own name or in the name of Grantor, effective immediately upon the occurrence and during the continuation of an Event of Default: (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of Secured Party; (ii) to pay or discharge any taxes, liens, security interest or other encumbrances at any time levied or placed on or threatened against the Collateral; (iii) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (iv) to receive, open and dispose of all mail addressed to Grantor and to notify the post office authorities to change the address for delivery of mail addressed to Grantor to such address as Secured Party may designate; (v) to exercise all membership rights, powers and privileges in connection with the Collateral to the same extent as Grantor is entitled to exercise such rights, powers and privileges; and (vi) generally to do all acts and things which Secured Party deems necessary to protect, preserve and realize upon the Collateral and Secured Party's security interest therein. Grantor hereby approves and ratifies all acts of said attorney or designee, who shall not be liable for any acts of commission or omission, nor for any error or judgment or mistake of fact or law except for its own gross negligence or willful misconduct. This power of attorney shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. Secured Party may exercise this power of attorney only after the occurrence and during the continuance of an Event of Default. 10. Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guaranty (including, without limitation, the Guaranties), endorsement or property of any other Person, then Secured Party shall have the right in its sole discretion to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of Secured Party's rights and remedies hereunder. 11. Limitation on Secured Party's Duty in Respect of Collateral. Secured Party shall not have any duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of it or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except that Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. 12. Miscellaneous. (a) Notices. Any notice delivered under this Agreement shall be given in the manner, to the addresses and with the effect set forth in Section 8.1 of the Credit Agreement. (b) Amendments. Any term of this Agreement may be amended, waived, discharged or terminated only by an instrument in writing signed by each party to this Agreement. No notice to or demand on Grantor shall be deemed to be a waiver of the Obligations or of the right of Secured Party to take further action without notice or demand as provided in this Agreement. No course of dealing between Grantor and Secured Party shall change, modify or discharge, in whole or in part, this Agreement or any Obligations. No waiver of any term, covenant or provision of this Agreement shall be effective unless given in writing by Secured Party and if so given shall only be effective in the specific instance in which given. (c) Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Grantor may not assign or otherwise transfer any of its rights or Obligations hereunder without the prior written consent of Secured Party (and any attempted assignment or transfer by Grantor without such consent shall be null and void). (d) Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. (e) Right to Deal with Borrower. At any time and from time to time, without terminating, affecting or impairing the validity of this Agreement or the obligations of Grantor hereunder, Secured Party may deal with Borrower in the same manner and as fully as if this Agreement did not exist and shall be entitled, among other things, to grant Borrower, without notice or demand and without affecting Grantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under any Credit Document or any other document evidencing Obligations of Borrower to Secured Party, or to waive any obligation of Borrower to perform any act or acts, as Secured Party may deem advisable. (f) GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY CREDIT DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GRANTOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, GRANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY CREDIT DOCUMENT. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 8.1 OF THE CREDIT AGREEMENT. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. (g) Headings; Counterparts. Article and Section headings and the table of contents (if applicable) used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or of any other Credit Document by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement or of such other Credit Document. (h) No Waiver; Rights Cumulative. No course of dealing between Grantor and Secured Party, or Secured Party's failure to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Any single or partial exercise of any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. All of Secured Party's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently. (i) No Partnership. The relationship between Secured Party and Grantor shall be only of creditor-debtor and no relationship of agency, partner or joint- or co-venturer shall be created by or inferred from this Agreement or the other Credit Documents. Grantor shall indemnify, defend, and save Secured Party harmless from any and all claims asserted against Secured Party as being the agent, partner, or joint-venturer of Grantor. (j) Entire Agreement. This Agreement and the other Credit Documents embody the entire agreement and understanding between Grantor and Secured Party with respect to the subject matter hereunder and supersede all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Grantor acknowledges and agrees that there is no oral agreement between Grantor and Secured Party which has not been incorporated in this Agreement or another Credit Document. 13. Joint and Several Obligations. All Obligations, agreements and liabilities of the Grantor under this Agreement shall be joint and several. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned parties have executed this Agreement to be effective for all purposes as of the date above first written. MICROFINANCIAL INCORPORATED By_________________________________ Name: Title: LEASECOMM CORPORATION By_________________________________ Name: Title: State of ) ) ss. County of _____________________ ) On June __, 2004, before me, a Notary Public, personally appeared ____________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ---------------------------------- State of ) ) ss. County of _____________________) On June __, 2004, before me, a Notary Public, personally appeared ____________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ------------------------------------------- EXHIBIT A --------- MFI This Exhibit A to the Conditional Pledge and Security Agreement, dated as of June __, 2004 (as amended, supplemented or modified from time to time, the "Pledge Agreement"), made by MICROFINANCIAL INCORPORATED ("Grantor") in favor of ACORN CAPITAL GROUP, LLC (the "Secured Party") describes the Collateral granted by Grantor to Secured Party pursuant to the Pledge Agreement. "UCC" means the Uniform Commercial Code as in effect in the State of New York as the UCC may be amended, supplemented or modified from time to time. Any reference to any agreement, instrument or document shall be construed as referring to such agreement, instrument or document, as amended, supplemented or modified from time to time. The Collateral shall be all of Grantor's right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all of the following items of personal property of Grantor: a. [FLEET LEASES] b. To the extent not included in the foregoing, all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds (as defined in the UCC), products, offspring, rents, issues, profits and returns of and from any of the foregoing. MICROFINANCIAL INCORPORATED By_________________________________ Name: Title: EXHIBIT A --------- Leasecomm This Exhibit A to the Conditional Pledge and Security Agreement, dated as of June __, 2004 (as amended, supplemented or modified from time to time, the "Pledge Agreement"), made by LEASECOMM CORPORATION ("Grantor") in favor of ACORN CAPITAL GROUP, LLC (the "Secured Party") describes the Collateral granted by Grantor to Secured Party pursuant to the Pledge Agreement. "UCC" means the Uniform Commercial Code as in effect in the State of New York as the UCC may be amended, supplemented or modified from time to time. Any reference to any agreement, instrument or document shall be construed as referring to such agreement, instrument or document, as amended, supplemented or modified from time to time. The Collateral shall be all of Grantor's right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all of the following items of personal property of Grantor: a. [FLEET LEASES] b. To the extent not included in the foregoing, all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds (as defined in the UCC), products, offspring, rents, issues, profits and returns of and from any of the foregoing. LEASECOMM CORPORATION By_________________________________ Name: Title EXHIBIT B --------- SUPPLEMENT NO. _______ dated as of _____________, 200_ (this "Supplement") to Conditional Pledge and Security Agreement dated as of June ___, 2004 (as amended, supplemented or modified from time to time, the "Pledge Agreement") made by [GRANTOR ] (the "Grantor") in favor of ACORN CAPITAL GROUP, LLC (the "Secured Party"). As security for the Obligations (as defined in the Pledge Agreement), Grantor hereby delivers, assigns, pledges, sets over and grants to Secured Party a first priority security interest in, all of Grantor's right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all items of personal property of Grantor described below together with all substitutions and replacements thereof and any products and proceeds thereof: [Describe collateral.] Exhibit A to the Pledge Agreement executed by Grantor shall be deemed amended to include all of the foregoing items of personal property and such items shall be "Collateral" as defined in the Pledge Agreement and subject to the terms of the Pledge Agreement. This Supplement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the undersigned parties have executed this Supplement to be effective for all purposes as of the date above first written. [GRANTOR] By_________________________________ Name: Title: EX-10 7 exh_10-6.txt EXHIBIT 10.6 Exhibit 10.6 NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT dated as of June 10, 2004 by and between TIMEPAYMENT CORP. LLC, a Delaware limited liability company, and AMPAC CAPITAL SOLUTIONS, LLC, a Nevada limited liability company. The parties hereto hereby agree as follows: ARTICLE I: DEFINITIONS Section 1.1. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "Acorn" means Acorn Capital Group, LLC, a Delaware limited liability company. "Acorn Credit Agreement" means the Credit Agreement of even date herewith between Acorn and Borrower. "Acorn Debt" means the Indebtedness evidenced by the Acorn Note and any and all other Indebtedness and obligations of Borrower to Acorn under the Acorn Credit Agreement. "Acorn Guaranty" means the Conditional Guaranty, dated as of the date hereof, made by Parent and Leasecomm in favor of Acorn, but effective only upon satisfaction of certain conditions specified therein and in Section 2.7 of the Acorn Credit Agreement. "Acorn Loan Documents" means the Acorn Note, the Acorn Credit Agreement, the Acorn Conditional Guaranty, the Acorn Warrant and the other instruments and documents executed pursuant to the Acorn Credit Agreement. "Acorn Note" means Borrower's Promissory Note dated as of the date hereof in the original principal amount of $8,000,000 and any substitution for or replacement thereof. "Acorn Warrant" means the Warrant Certificate, dated as of the date hereof, by and between Parent and Acorn, and any substitutions therefor or replacements thereof. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Board" means the Board of Directors of Parent. "Borrower" means TimePayment Corp. LLC, a Delaware limited liability company. "Business Day" means a day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required by law to close. "Change of Control" means at any time (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) shall become, or obtain rights (whether by means or warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 35% of the outstanding common stock of Parent; (b) the Board shall cease to consist of a majority of Continuing Directors, (c) Mr. Latour shall cease to be a member of the Board, unless a replacement reasonably acceptable to Lender is appointed within 120 days following such cessation, (d) a "change of control," "change of control event" or similar circumstance or event shall occur under or pursuant to agreements relating to Indebtedness which any Obligor is a party to, including, without limitation, the Fleet Loan Agreement, or (e) Parent shall cease to own, beneficially and of record, the full economic interest in, with full voting and dispositive power, 100% of the total outstanding capital stock of Borrower or shall cease to Control Borrower. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment Expiration Date" means the date that occurs ninety (90) days after the Effective Date. "Consolidated Net Worth" means, as of any date of determination, for Parent and its Subsidiaries on a consolidated basis, consolidated shareholder's equity of Parent and its Subsidiaries on such date, computed in accordance with GAAP, minus the book value of all intangible assets under GAAP on such date, including without limitation customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized depreciation charges and unamortized debt discount, plus amounts outstanding on such date under the Subordinated Note Purchase Documents and any other Subordinated Debt Documents. "Continuing Directors" means the directors of Parent on the date hereof and each other director, if, in each case, such other director's nomination for election to the Board is recommended by a majority of the then Continuing Directors. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, other than administrative functions, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Debt to Worth Ratio" means, as of any date of determination, the ratio of (a) the aggregate outstanding principal amount of all Indebtedness of Parent and its Subsidiaries of the type described in clauses (a) and (b) of the definition thereof set forth below, determined on a consolidated basis in accordance with GAAP, to (b) Consolidated Net Worth. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.1 are satisfied. "Equipment" means tangible equipment reasonably acceptable to Lender, whether now or hereafter owned and leased to third party users by Borrower. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event," as defined in Section 4043 of ERISA of the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by Borrower or any ERISA Affiliate from the Pension Benefit Guaranty Corporation or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from Borrower or any ERISA Affiliate of any notice, concerning the imposition of liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Event of Default" has the meaning set forth in Article VII. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Final Maturity Date" means June 30, 2007. "Fleet" means Fleet National Bank. "Fleet Loan Agreement" means the Fourth Amended and Restated Revolving Credit Agreement, dated August 22, 2000, by and between the lenders from time to time party thereto, Fleet, as agent for the Fleet Lenders, and Leasecomm, as borrower. "Fleet Waiver" means the Waiver Agreement dated as of June 3, 2004 by and between the Investors named therein and Parent. "GAAP" means generally accepted accounting principles in the United States of America as used to prepare the financial statements required to be delivered hereunder. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantors" means, collectively, Parent (but only pursuant to the Subordinated Conditional Guaranty on and after the effective date thereof) and each other Person, if any, acceptable to Lender who may from time to time guaranty the Obligations. "Guaranty Effective Date" has the meaning set forth in Section 2.7. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to loans or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all guarantees by such Person of Indebtedness of others, (h) all the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. The Indebtedness of any Person shall not include current accounts payable incurred in the ordinary course of business. "Leasecomm" means Leasecomm Corporation, a Massachusetts corporation and subsidiary of Parent, and borrower under the Fleet Loan Agreement. "Lender" means Ampac Capital Solutions, LLC, a Nevada limited liability company. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" means, collectively, all loans made pursuant to Section 2.1. "Material Adverse Effect" means, with respect to any event, occurrence, circumstance or other matter of whatever nature, a material adverse effect on (a) the business, assets, operations or financial condition of any Obligor (exclusive of events, occurrences, circumstances and other matters resulting from changes in general economic, civil or political conditions, legal standards or regulatory conditions); or (b) the ability of any Obligor to perform any material obligations under any Subordinated Note Purchase Document. "Material Indebtedness" means Indebtedness (other than the Loan or Indebtedness owing to another Obligor), of any one or more of the Obligors in an aggregate principal amount exceeding (a) in the case of Borrower, $300,000 and (b) in the case of all other Obligors, collectively, $750,000. "Mr. Latour" means Mr. Richard F. Latour, an individual. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Obligations" means any and all now existing or hereafter arising obligations of any Obligor to Lender, whether primary or secondary, direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise under any Subordinated Note Purchase Document whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys' fees incurred in any collection efforts or in any action or proceeding. All of the Obligations constitute Subordinated Debt. "Obligor" means each of Borrower and each Guarantor, if any. "Parent" means MicroFinancial Incorporated (f/k/s Boyle Leasing Technologies, Inc.), a Massachusetts corporation, and the sole member of each of Borrower and Leasecomm. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.4; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue or are being contested in compliance with Section 5.4; (c) deposits or pledges made in the ordinary course of business in compliance with worker's compensation, unemployment insurance and other social security laws or regulations; (d) deposits or pledges to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) deposits or pledges made in connection with casualty insurance maintained as permitted hereunder; (f) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which has not yet expired, or in respect of which Borrower is in good faith prosecuting an appeal or proceeding for a review or which is not an Event of Default under Section 7.1(k); (g) easements, zoning restrictions, right-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of Borrower or any Subsidiary; and (h) restrictions under federal and state securities laws on the transfer of securities, provided, that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, limited partnership, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date hereof, among Parent, Lender and Acorn. "Restricted Payment" has the meaning set forth in Section 6.5. "Senior Lender" has the meaning set forth in the Subordinated Notes. "Senior Obligations" has the meaning set forth in the Subordinated Notes. "Servicing Fee" means, collectively, all fees and other amounts paid or payable from time to time by Borrower to Parent pursuant to the Servicing Agreement dated as of June 10, 2004. "Special Purpose Subsidiary" means a Subsidiary that is a special purpose entity for the securitization and financing of lease receivables in the ordinary course of business in accordance with Section 6.8. "Subordinated Conditional Guaranty" means the Subordinated Conditional Guaranty, dated as of the date hereof, made by Parent in favor of Lender, but effective only upon satisfaction of certain conditions specified therein and in Section 2.7. "Subordinated Debt" means all Indebtedness of Borrower or any other Obligor to the Subordinated Noteholders and any other Indebtedness of Parent and its Subsidiaries that is subordinate in right of payment to that of Acorn or any other Senior Lender. "Subordinated Debt Documents" means all of the Subordinated Note Purchase Documents and any and all other instruments and agreements evidencing, or executed in connection with, any other Subordinated Debt. "Subordinated Note Purchase Documents" means this Agreement, the Subordinated Notes, the Subordinated Conditional Guaranty, the Warrant Certificates, the Registration Rights Agreement and any other documents hereafter delivered to Lender by any Obligor evidencing, guarantying or securing the Obligations. "Subordinated Noteholders" means Lender and its successors and assigns under Section 8.5 as holders of the Obligations. "Subordinated Notes" means the subordinated promissory note(s) of Borrower, executed and delivered as provided in Section 2.1, together with all replacements thereof and substitutions therefor. "Subsidiary" means, with respect to any Person (the "parent") at any date, any entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Transactions" means the execution, delivery, and performance by the Obligors of the Subordinated Note Purchase Documents, the borrowing and repayment of the Loan, the payment of interest and fees under the Subordinated Note Purchase Documents, the issuance to Lender of warrants for the purchase of shares of Parent's common stock pursuant to the Warrant Certificates (including the granting to Lender of certain registration rights pursuant to the Registration Rights Agreement), and the use of the proceeds of the Loan. "Warrant Certificates" means the Warrant Certificates, dated as of the date hereof, by and between Parent and Lender, and all replacements thereof and substitutions therefor. "Warrant Shares" has the meaning specified in Section 2.8. Section 1.2. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented, replaced or otherwise modified (subject to any restrictions on such amendments, supplements, replacements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Exhibits, Articles, Sections, and Schedules shall be construed to refer to Articles and Sections of, and Exhibits, and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.3. Specified Times and Dates; Determinations. All times specified in this Agreement shall be determined, unless specifically herein to the contrary, on the basis of the prevailing time in New York City. Unless specifically herein to the contrary, if any day or date specified in this Agreement for any notice, action or event is not a Business Day, then the due date for such notice, action or event shall be extended to the immediately succeeding Business Day; provided that interest shall accrue on any payments due by Borrower which are extended by the operation of this Section 1.3. Any determination by Lender hereunder shall be presumptive evidence of the validity and accuracy thereof. ARTICLE II: THE LOAN Section 2.1. Loan. (a) Loan. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, Lender hereby agrees to make loans to Borrower, in two installments, in the aggregate principal amount of $2,000,000. The first installment of the Loan shall be in the principal amount of $1,500,000 and shall be made on the Effective Date. The balance of $500,000 shall be made in accordance with Section 2.1(c) on the Commitment Expiration Date. (b) Subordinated Notes. The Loan shall be evidenced by the Subordinated Notes, payable to the order of Lender, as referred to herein. Additional terms and conditions relating to the Loan are set forth in the Subordinated Notes. The Subordinated Notes are hereby referenced and incorporated herein as if set forth in their entirety. (c) Second Installment. Upon satisfaction of the conditions set forth in Section 4.2, Lender will make the second installment of the Loan available to Borrower by disbursing such funds on the Commitment Expiration Date as directed in writing by Borrower. Section 2.2. Repayment of Loan. The aggregate outstanding principal amount of the Subordinated Notes shall be payable in four (4) equal quarterly payments, each in the amount of $500,000, on the last day of each fiscal quarter, commencing June 30, 2005. Any principal of the Loan not previously paid shall be payable on the Final Maturity Date. Section 2.3. Interest. (a) General. The Loan shall bear interest on the unpaid principal amount thereof from the Effective Date until payment of the Loan in full. Interest shall be payable in arrears on the last day of each month beginning on June 30, 2004. Any accrued interest that remains unpaid on the Final Maturity Date shall be due and payable on the Final Maturity Date and any accrued and unpaid interest on the Loan shall be payable in arrears on any date that any principal of the Loan is paid or payable (on the principal amount so paid or payable). (b) Interest Rate. The interest rate for the Loan shall be 13% per annum. (c) Default Interest. After the occurrence and during the continuance of an Event of Default, to the extent permitted by applicable law, Borrower shall pay on demand, on the outstanding principal amount of the Loan, interest at a per annum rate equal to the interest rate applicable to the Loan pursuant to Section 2.3(b) plus 1.00%. (d) Maximum Interest Rate. Notwithstanding anything herein to the contrary, in no event shall the interest charged hereunder exceed the maximum rate of interest permitted under applicable law. Any payment made which if treated as interest would cause the interest charged to exceed the maximum rate permitted shall instead be held by Lender to the extent of such excess and applied to future interest payments as and when such amount becomes due and payable hereunder. (e) Calculations. Interest shall be calculated on the basis of the actual days elapsed in a year of 360 days. In computing interest on the Loan (or interest on such interest), the date of the making of the Loan shall be included and the date of payment of the Loan shall be excluded. Section 2.4. Prepayment of Loan. Borrower may prepay the Loan in whole or in part, without premium or penalty, on at least two Business Days' (or such shorter period as shall be agreed to by Lender) irrevocable prior written notice to Lender. All prepayments of the Loan shall be applied first to accrued but unpaid fees payable under this Agreement and the other Subordinated Note Purchase Documents, then to accrued but unpaid interest under the Subordinated Notes and last to installments of principal under the Subordinated Notes, in the inverse order of maturity. Section 2.5. Payment Records. Lender shall maintain its records to reflect the amount and date of the Loan and of each payment of principal and interest thereon. All such records shall be presumptive evidence of the outstanding principal amount hereof; provided, however, that the failure to make any notation to Lender's records shall not limit or otherwise affect the obligations of Borrower to repay the Loan. Section 2.6. Payments. All payments by Borrower shall be payable on or prior to 12:00 Noon on the due date thereof, in immediately available funds in Dollars, without any set-off, counterclaim, withholding or deduction of any kind. All payments shall be applied by Lender as follows: first, to the payment of all accrued but unpaid fees, costs or expenses under the Subordinated Note Purchase Documents; second, to the payment of all accrued but unpaid interest under the Subordinated Note Purchase Documents; third, to the repayment of then outstanding principal amount of the Loan; and fourth, the balance, if any, to Borrower or to whomsoever may be entitled to such amounts as determined by Lender in its reasonable discretion. Section 2.7. Guaranty. The Obligations of Borrower under the Subordinated Note Purchase Documents shall be guarantied by Parent pursuant to the terms and conditions of the Subordinated Conditional Guaranty, provided, however, that such Subordinated Conditional Guaranty shall not become effective until the earlier of the day (the "Guaranty Effective Date") that (A) all obligations under the Fleet Loan Agreement shall have been discharged in full, or (B) Fleet otherwise consents to the Subordinated Conditional Guaranty. On such date Borrower shall cause Parent to become a party to this Agreement as an Obligor by executing and delivering a Joinder to Note Purchase Agreement in the form of Schedule 2.7 attached hereto. Section 2.8. Warrants and Registration Rights Agreement. As partial consideration for Lender making the Loan to Borrower, (a) Parent shall issue to Lender warrants for the purchase of (i) 110,657 shares of Parent's capital stock at a per share purchase price of $2.00 and (ii) 191,685 shares of Parent's capital stock, at a per share purchase price of $2.91, all pursuant to the terms and conditions of the respective Warrant Certificates (including without limitation certain vesting, exercise and transfer restrictions), and (b) Lender shall be entitled to certain registration rights with respect to such shares of Parent's capital stock (the "Warrant Shares") as set forth under the Registration Rights Agreement. Section 2.9. Taxes. Any and all payments made by Borrower hereunder shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto to the extent attributable to the Loan, excluding (i) taxes imposed on net income and (ii) all income and franchise taxes of the United States, any political subdivisions thereof, and any state of the United States, and any political subdivisions thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.9) Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Within 30 days after the date of any payment of Taxes, Borrower will furnish Lender with evidence of payment thereof. Borrower hereby indemnifies Lender for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section 2.9) paid by Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. Payment pursuant to this indemnification shall be made upon written demand thereof. The obligations of Borrower under this paragraph shall survive the termination of this Agreement. Lender hereby represents and warrants to Borrower that, as of the date hereof, no payments to Lender hereunder are subject to any withholding taxes of the United States. In the event, the Lender assigns its interest in this Agreement without the approval of the Borrower, Borrower shall not be obligated to pay any assignee any amounts under this Section in excess of any amounts Borrower would be obligated. Any such assignee shall (x) provide Borrower with reasonably adequate evidence that payments to such assignee hereunder are not subject to any withholding taxes of the United States or (y) agree with Borrower that payments to such assignee hereunder shall not be increased by the amount of any applicable withholding taxes of the United States. Section 2.10. Fee. As additional consideration for Lender's willingness to make the Loan, Borrower shall pay to Lender a fee in the amount of $120,000 on the Final Maturity Date. ARTICLE III: REPRESENTATIONS AND WARRANTIES Each Obligor represents and warrants to Lender on the date hereof and on the date of the making of any Loan that: Section 3.1. Organization; Powers; Authorization; Enforceability, Etc. Each Obligor is duly organized or formed, validly existing and in good standing (if and to the extent applicable) under the laws of the jurisdiction of its organization or formation, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in every jurisdiction where such qualification is required. Borrower does not have any Subsidiaries. The Transactions are within the powers of each Obligor and have been duly authorized by all necessary action for each Obligor. Each Subordinated Note Purchase Document has been duly executed and delivered by each Obligor party hereto and constitutes a legal, valid and binding obligation of such Obligor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, other than registrations, qualifications or filings under applicable federal and state securities laws or regulations that may be made after the date hereof, (b) will not, to any Obligor's knowledge, violate any applicable law or regulation or the charter, by-laws, limited liability company operating agreement or other organizational documents of any Obligor or any order of any Governmental Authority binding on any Obligor, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Obligor or its assets, or give rise to a right thereunder to require any payment to be made by such Obligor to the extent that such violation (in each case, after giving effect to the Fleet Waiver), or such default or right to payment could be reasonably expected to result in a Material Adverse Effect, and (d) will not result in the creation or imposition of any Lien on any asset of any Obligor other than pursuant to the Subordinated Note Purchase Documents. Except as set forth on Schedule 3.1 attached hereto, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Obligor, threatened against or affecting any Obligor (i) that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, or (ii) that involve the Subordinated Note Purchase Documents or the Transactions. Each Obligor is in compliance with all laws, regulations and orders (including ERISA and environmental laws, regulations and orders) of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, to the extent that any noncompliance therewith could be reasonably expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 3.2. Financial Condition. Any financial statements, balance sheets, cash flow statement or other financial reports furnished by any Obligor to Lender present fairly the financial condition of such Obligor as of the dates thereof. Any projections or pro forma financial information contained in the materials referenced above are based on good faith estimates and assumptions believed by the management of each Obligor to be reasonable at the time made, it being recognized by Lender that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period(s) covered by such financial information may differ from the projected results set forth therein by a material amount. Section 3.3. Licenses. Each Obligor is licensed and authorized to carry on its business as now conducted under all applicable laws, regulations, and orders of any Governmental Authority, except where the failure to do so, individually or in the aggregate, could not be reasonably expected to result in a Material Adverse Effect. Section 3.4. Investment and Holding Company Status. No Obligor or any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 3.5. Taxes. (a) Each Obligor has timely filed or caused to be filed all tax returns and reports required to have been filed (giving effect to any extensions) and has paid or caused to be paid all taxes required to have been paid by it, except taxes that are being contested in compliance with Section 5.5. The federal and state tax returns of each Obligor delivered to Lender prior to the Effective Date are the true, correct and complete tax returns of such Obligor as of the date thereof. (b) Borrower does not intend to and shall not treat the Loan and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event Borrower determines to take any action inconsistent with such intention or treatment, (i) it will promptly notify Lender thereof, and (ii) Borrower acknowledges that Lender may treat the Loan as part of a transaction that is subject to Internal Revenue Code section 6112 and the Treasury Regulations thereunder, and that Lender will maintain lists and other records to the extent required by such statute and regulations. Section 3.6. Security Interests; Certain Information. The state of residence or organization and any names used within the past five years of each Obligor (or potential Obligor, in the case of the Guarantors) is set forth on Schedule 3.6. Each Obligor which has not made an organizational filing in any jurisdiction has set forth on Schedule 3.6 its place of business, if it has only one place of business, or its chief executive office, if it has more than one place of business. No Obligor (as applicable) has any Subsidiaries other than those set forth on Schedule 3.6 hereto. Section 3.7. Environmental Matters. The operations of each Obligor are and have been in compliance in all material respects with all applicable federal, state or local environmental, health and safety statutes and regulations since their respective effective dates and, none of the operations of the Obligors is subject to any judicial or administrative proceeding alleging any material violation of any federal, state or local environmental, health or safety statute or regulation or are the subject of any federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent, or of any other substance into the environment. No Obligor has filed any notice under any federal, state or local law indicating past or present treatment, storage or disposal of a hazardous or toxic waste, substance or constituent, or other substance into the environment and has no material contingent liability in connection with any release of any hazardous or toxic waste, substance or constituent, or other substance into the environment. Section 3.8. Disclosure. All agreements, instruments and corporate or other restrictions, and all other matters known to any Obligor pertaining to such Obligor, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect have been disclosed to Lender. None of the written reports, financial statements, certificates or other written information (other than financial projections and pro forma information) furnished by or on behalf of any Obligor to Lender in connection with the negotiation of the Subordinated Note Purchase Documents or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. ARTICLE IV: CONDITIONS Section 4.1. Effective Date. The obligation of Lender to make the first installment of the Loan to Borrower hereunder shall not become effective until each of the following conditions is satisfied: (a) On the date on which the Loan is to be made: (i) the representations and warranties set forth in Article III and in any documents delivered herewith, shall be true and correct with the same effect as though made on and as of such date, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (ii) each of the covenants set forth in Article V shall have been complied with or performed in full as of such date; and (iii) Borrower and Parent shall be in compliance with all the terms and provisions contained herein and in the Subordinated Note Purchase Documents to be observed or performed, and no Default shall have occurred and be continuing. (b) Lender shall have also received the following documents: (i) a counterpart of this Agreement, executed by Borrower; (ii) the initial Subordinated Note, executed by Borrower; (iii) the Subordinated Conditional Guaranty, executed by Parent; (iv) each of the Warrant Certificates, executed by Parent; (v) the Registration Rights Agreement, executed by Parent and Acorn; and (vi) consolidated balance sheet and statements of income, retained earnings and cash flows for Parent's most recently ended fiscal year and interim consolidated balance sheet and statements of income, retained earnings and cash flows for Parent covering the fiscal year ended December 31, 2003. (c) Lender shall have received reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by Borrower hereunder. (d) Lender shall have received satisfactory legal opinions regarding Borrower and Parent as to the organization or formation, existence and good standing (if and to the extent applicable) of Borrower and Parent, the authorization of the Transactions, the execution, delivery and enforceability of the Subordinated Note Purchase Documents, no violations of law including margin regulations, no violations of any contracts with Fleet and other legal matters relating to Borrower and Parent, the Subordinated Note Purchase Documents or the Transactions, all in form and substance reasonably satisfactory to Lender and its counsel. (e) Lender shall have received such documents and certificates regarding Borrower and Parent as to the organization or formation, existence and good standing (if and to the extent applicable) of Borrower and Parent, the authorization of the Transactions, the execution, delivery and enforceability of the Subordinated Note Purchase Documents, the incumbency of signatories, and other legal matters relating to Borrower and Parent, the Subordinated Note Purchase Documents or the Transactions, all in form and substance satisfactory to Lender and its counsel. (f) Lender shall be satisfied that no event has occurred which could reasonably be expected to have a Material Adverse Effect. Section 4.2. Balance of Loan. Lender's obligation to make the second and last installment of the Loan on the Commitment Expiration Date shall not become effective until each of the following conditions is satisfied: (a) the representations and warranties set forth in Article III and in any documents delivered herewith, shall be true and correct with the same effect as though made on and as of such date, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (b) each of the covenants set forth in Article V shall have been complied with or performed in full as of such date; and (c) Borrower and Parent shall be in compliance with all the terms and provisions contained herein and in the Subordinated Note Purchase Documents to be observed or performed, and no Default shall have occurred and be continuing. (d) Lender shall be satisfied that no event has occurred which could reasonably be expected to have a Material Adverse Effect. ARTICLE V: AFFIRMATIVE COVENANTS Until the principal of and interest on the Loan and all fees and other Obligations payable under the Subordinated Note Purchase Documents shall have been paid in full, each Obligor covenants and agrees with Lender that: Section 5.1. Financial Statements, Reports and Other Information (a) Borrower will furnish to Lender on a monthly basis, within 15 days after the end of each of Borrower's fiscal months, compliance certification from an executive officer of each of Parent and Borrower stating that (A) no Default has occurred during such month or setting forth the details of the occurrence of any Default and any action taken or proposed to be taken by Parent or Borrower with respect thereto, (B) all covenants and conditions contained in each Subordinated Note Purchase Document have been complied with or performed in full as of such date, and (C) each of the reports delivered pursuant to this Section 5.1(a) and 5.1(b) present fairly the financial condition of the Person described in such reports and any information provided in such reports is true and correct as of the date such information is furnished. (b) Borrower will furnish to Lender on a monthly basis within 30 days after the end of each of Borrower's fiscal months internally prepared financial statements and a report setting forth in detail the amount and nature of all outstanding obligations of Borrower under the Fleet Loan Agreement as of such date. (c) Parent will furnish to Lender on an annual basis promptly after the same becomes available, but in any event within 90 days of Parent's fiscal year end, a consolidated balance sheet and statements of income, retained earnings and cash flows as of and for such fiscal year accompanied by an unqualified report by an independent public accounting firm reasonably acceptable to Lender that such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of Borrower and its consolidated Subsidiaries as of such date and for such periods in accordance with GAAP. The financial statements delivered pursuant hereto shall be accompanied by a certification from an executive officer of Parent that such financial statements present fairly the financial condition of the Persons described in such financial statements and any information provided in such financial statements is true and correct as of the date such information is furnished. (d) Promptly after the same becomes publicly available, copies of all periodic and other reports, proxy statements and other materials filed by Parent (and/or any Subsidiary of Parent) with the Securities and Exchange Commission, or with any securities exchange, or distributed by Parent to its shareholders generally, as the case may be. (e) All financial statements, material reports and material written information regarding Parent or Borrower provided to Fleet (or the bank group under the Fleet Loan Agreement) within two Business Days after the time such financial statements, reports and information are provided to Fleet (or the bank group under the Fleet Loan Agreement). (f) Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Parent, Borrower or any Subsidiary of Borrower or Parent, or compliance with the terms of the Subordinated Note Purchase Documents, as Lender may reasonably request. (g) On the date of the delivery of any financial statements or projections under this Section 5.1, Borrower shall be deemed to have made a representation to Lender that such financial statements shall present fairly the financial condition of the Person described in such financial statements, and any information provided pursuant to this Section 5.1 shall be true and correct as of the date such information is furnished and, as to projections, that such projections are based upon reasonable assumptions in light of prior performance. Any projections or pro forma financial information contained in the materials referenced above are based on good faith estimates and assumptions believed by the management of each Obligor to be reasonable at the time made, it being recognized by Lender that such financial information as it relates to future events is not to be viewed as fact and that, subject to the requirements of Section 5.12(a), actual results during the period(s) covered by such financial information may differ from the projected results set forth therein by a material amount. Section 5.2. Notices of Material Events. Borrower will furnish to Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Obligor that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) written notice of Borrower's intent to pay in full all of Borrower's obligations under the Fleet Loan Agreement no less than ten (10) Business Days prior to such payment; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section 5.2 shall be accompanied by a statement of Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 5.3. Existence. Each Obligor will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business. Section 5.4. Payment of Obligations. Each Obligor will pay its liabilities including tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Obligor has set aside on its books adequate reserves with respect thereto and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 5.5. Maintenance of Properties; Insurance. Each Obligor will (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. Section 5.6. Books and Records; Inspection Rights; Access. At Borrower's expense, Borrower will keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Borrower will permit any representatives designated by Lender, during normal business hours and upon reasonable advance notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to directly discuss its affairs, finances and condition with its partners or trustees (or its designee), officers and independent accountants, as applicable. Section 5.7. Compliance with Laws. Each Obligor will comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it (including ERISA and environmental laws), except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 5.8. Use of Proceeds. The proceeds of the Loan shall be used by Borrower solely to finance leases and the related revenues thereto and the working capital needs of Borrower. No part of the proceeds of the Loan will be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock. "Margin Stock" means "margin stock" as used and defined in Regulation U of the Regulations of the Board of Governors of the Federal Reserve System. Section 5.9. Subsidiary Guarantors. Borrower shall cause each and every Subsidiary and each Obligor shall cause each and every Affiliate of Borrower that receives any money from Borrower, except as permitted under Section 6.4, to be a party to this Agreement and to guaranty the Obligations. ARTICLE VI: NEGATIVE COVENANTS Until the principal of and interest on the Loan and all fees payable hereunder have been paid in full, each Obligor covenants and agrees with Lender that: Section 6.1. Indebtedness. Other than Indebtedness permitted under the Fleet Loan Agreement, no Obligor shall issue, incur or increase the principal amount of any of its Indebtedness, except (a) for any Indebtedness to Lender, (b) for the Acorn Debt; (c) for current liabilities for ordinary trade accounts payable, accrued payroll and severance obligations payable on customary terms in the ordinary course of business; (d) that Parent may incur purchase money Indebtedness and capital leases secured as provided in Section 6.7(c) in an aggregate principal amount not exceeding $750,000 at any time; (e) existing Indebtedness described on Schedule 6.1 attached hereto; (f) that Parent may incur Indebtedness in respect of inter-company loans and advances among Parent and its Subsidiaries which are not prohibited by Section 6.6; (g) that Parent may make Guarantees of Indebtedness and other obligations incurred by any of its Subsidiaries and permitted by the other provisions of this Section 6.1; and (h) for Indebtedness of Parent and its Subsidiaries (including Borrower) in addition to the foregoing, including, without limitation, any other Senior Obligations, provided, however, that, as of the date that any such additional Indebtedness is incurred, the Debt to Worth Ratio shall not exceed 5.00:1.00. Section 6.2. Disposition of Assets. Borrower shall not distribute, sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all, substantially all or any substantial part, of its assets, except for dispositions of assets made in the ordinary course of business (including without limitation dispositions to Special Purpose Subsidiaries in accordance with Section 6.7) so long as immediately prior to any such disposition, and after giving effect thereto, Borrower is in compliance with Section 6.1. Section 6.3. Fundamental Changes (a) Borrower shall not merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any material portion of its assets (in each case, whether now owned or hereafter acquired) other than in the ordinary course of business, or liquidate or dissolve. (b) Borrower shall not engage to any material extent in any business other than the business of leasing tangible equipment pursuant to leases and businesses reasonably related thereto. (c) Borrower shall not amend, modify or change its certificate of incorporation or by-laws or other organizational documents in any manner that would be adverse to Lender. (d) Borrower shall not create or acquire any Subsidiaries, other than Special Purpose Subsidiaries created in compliance with Section 6.8) without the prior written consent of the Lender. Section 6.4. Transactions with Affiliates. Neither Borrower nor any of its Subsidiaries shall sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on terms and conditions not less favorable to Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties. Section 6.5. Dividends and other Restricted Payments. Neither Borrower nor any of its Subsidiaries shall declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of Borrower's or such Subsidiary's capital stock or membership interests (as applicable) or any warrants, rights or options to acquire such capital stock or membership interests (as applicable), now or hereafter outstanding, return any capital to Borrower's or such Subsidiary's stockholders or members (as applicable) as such, or make any distribution or exchange of assets, capital stock, warrants, rights, options, obligations or securities to Borrower's or such Subsidiary's stockholders or members (as applicable) (in each case a "Restricted Payment"), except that: (a) Borrower may make any Restricted Payment permitted by the Senior Lender(s); and (b) From and after the Guaranty Effective Date, Borrower may pay cash dividends to Parent not to exceed, in the aggregate in any fiscal year, an amount equal to fifty percent (50%) of Borrower's net income for the immediately preceding fiscal year (determined in accordance with GAAP), provided that both at the time any such cash dividend is declared or paid, and after giving effect to the payment thereof, no Default shall have occurred and be continuing. Section 6.6. Investments. Borrower shall not make any loan or advance to any Person, or purchase or otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise acquire, any capital stock or other equity interest, warrants, rights, options, obligations or other securities of, make any capital contribution to, or otherwise invest in, any Person, except for (a) subject to Section 6.3(d), investments of Borrower and its Subsidiaries in Persons that become wholly owned Subsidiaries and Guarantors after the date hereof in accordance with the provisions of this Agreement; (b) investments in Special Purpose Subsidiaries made in compliance with Section 6.8; and (c) reimbursements to employees and directors for expenses incurred in the ordinary course of business. Section 6.7. Liens. Borrower shall not (and shall not permit any Subsidiary to), create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable or rights in respect of any thereof), except: (a) Permitted Encumbrances; (b) Liens securing the Acorn Debt; (c) Liens securing any other Senior Obligations; (d) any Lien existing on any property or asset prior to the acquisition thereof by Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (e) Liens created in compliance with Section 6.8; and (f) Liens on fixed or capital assets acquired, constructed or improved by Borrower or any Subsidiary; provided that (i) such security interests secure purchase money Indebtedness or capital leases permitted under Section 6.1(d) or otherwise approved by Lender, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of Borrower or any Subsidiary. Section 6.8. Permitted Securitizations. Lender acknowledges and agrees that a substantial portion of Borrower's assets consists of lease and/or financing agreements, lease and/or financing receivables, interests in equipment leased and/or financed to various customers and residual interests in such leased equipment. Lender further acknowledges and agrees that Borrower contemplates, after the date hereof and prior to the repayment in full of the Loan, securitizations and or similar financing arrangements with respect to the aforementioned assets. Accordingly, notwithstanding anything contained in this Agreement to the contrary, Lender agrees that: (a) the transfer or other disposition, on one or more occasions, of all or substantially all of, or of any portion of, the assets of Borrower to one or more Special Purpose Subsidiaries shall be a permitted transfer or disposition of Borrower's assets; (b) in connection with the foregoing transfer or disposition of assets to any such Special Purpose Subsidiary, Borrower shall be permitted to make loans, advances or capital contributions to, invest in or otherwise acquire all or any portion of the equity interests of such Special Purpose Subsidiary, and the Lender shall have no interest in, or Lien on, the assets of any such Special Purpose Subsidiary; and (c) the occurrence of either of the foregoing shall not require the consent or approval of Lender and shall not be an Event of Default hereunder. Upon request of Borrower, Lender agrees to execute and deliver to Borrower any and all lien waivers or other releases required by Borrower to consummate the transfer of such assets to such Special Purpose Subsidiary free and clear of any Liens or security interests granted to Lender hereunder. Borrower agrees to provide Lender with thirty (30) days' written notice prior to any transfer of any assets of Borrower to any Special Purpose Subsidiary. Borrower further agrees that all sales made by its Special Purposes Subsidiaries shall be exclusively for cash and that all such funds (other than monies applied to pay the Servicing Fee) will (i) be applied to repay that amount of the Loan related to each of such sold assets; and (ii) that any excess funds after such repayment will remain in the direct or indirect (i.e., through possession by the wholly-owned SPE) possession of Borrower. ARTICLE VII: EVENTS OF DEFAULT Section 7.1. If any of the following events ("Events of Default") shall occur: (a) Borrower shall fail to pay any principal of the Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) Borrower shall fail to pay any interest on the Loan, any fee or any other amount (other than an amount referred to in clause (a) of this Section 7.1) payable under any Subordinated Note Purchase Document when and as the same shall become due and payable; (c) any representation or warranty made or deemed made by or on behalf of any Obligor in or in connection with any Subordinated Note Purchase Document or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Subordinated Note Purchase Document or any amendment or modification hereof shall prove to have been incorrect in any material respect when made or deemed made, except to the extent made as of a specific date and except as to actions or changes in circumstances not prohibited hereunder; (d) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in Sections 5.2, 5.3 (but solely as to an actual Obligor's legal existence), 5.6 or 5.9, or in Article VI; (e) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in any Subordinated Note Purchase Document (other than those specified in clause (a), (b), (c) or (d) of this Section 7.1) and such failure shall continue for 30 days, provided such Obligor is diligently pursuing efforts to make such cure; (f) any Obligor shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable, after the expiration of any grace or cure periods; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Obligor or its debts, or of a substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Obligor or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) any Obligor shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Section 7.1, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Obligor or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) any Obligor shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against Borrower (or an aggregate amount in excess of $250,000 shall be rendered against Parent or Leasecomm) or any combination thereof and the same shall remain undischarged for a period of 10 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Obligor to enforce any such judgment; (l) any Change of Control shall occur; (m) an ERISA Event shall have occurred that, in the opinion of Lender, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; (n) any material provision of any Subordinated Note Purchase Document shall, for any reason, cease to be valid and binding on any Obligor, or any Obligor shall so state in writing; (o) any "default" or "event of default" under the Fleet Loan Agreement, after giving effect to the Fleet Waiver; then, and in every such event (other than an event with respect to Borrower described in clause (h) or (i) of this Section 7.1), and at any time thereafter during the continuance of such event, Lender may by notice to Borrower, declare the Loan then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loan so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower; and in case of any event with respect to Borrower described in clause (h) or (i) of this Section 7.1, the principal of the Loan then outstanding, together with accrued interest thereon and all fees and other Obligations of Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower. ARTICLE VIII: MISCELLANEOUS Section 8.1. Notices. Unless otherwise specified herein, all notices hereunder to any party hereto shall be in writing and shall be given (a) by personal delivery, (b) by certified mail, return receipt requested, (c) by nationally recognized overnight courier (e.g., Federal Express) or (d) by electronic facsimile transmission (with confirmation of successful transmission) or by electronic mail (provided, however, that if a notice is given by facsimile or electronic mail, a copy of such notice shall also be delivered by one of the other delivery methods set forth in clauses (a), (b) and (c) above), in each case addressed to such party at its address indicated on Schedule 3.6 or on the signature pages hereof or to any other address specified by such party in writing. All such notices, requests, demands and other communication shall be deemed given upon the earlier of (i) receipt by the party to whom such notice is directed (or a person of suitable age and discretion accepting such notice at such address), (ii) refusal to accept delivery by the party to whom such notice is directed (or by such other suitable person) or (iii) if mailed, the third Business Day following the date of mailing. Section 8.2. Waivers. Without limiting the generality of the foregoing, the making of the Loan shall not be construed as a waiver of any Default, regardless of whether Lender may have had notice or knowledge of such Default at the time. Section 8.3. Expenses; Indemnity; Damage Waiver. (a) Expenses. Borrower shall pay all reasonable out-of-pocket expenses incurred by Lender, including reasonable fees and disbursements of counsel for Lender, in connection with (i) the preparation of the Subordinated Note Purchase Documents, any amendments, modifications or waivers of the provisions thereto requested or agreed to by any Obligor (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) the administration of the Subordinated Note Purchase Documents, including any wire transfer fees, and (iii) the enforcement or protection of Lender's rights in connection with any Subordinated Note Purchase Document, including its rights under this Section 8.3, or in connection with the Loan made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof. (b) Each Obligor shall indemnify, jointly and severally, Lender and each Affiliate, director, officer, employee, agent and advisor of Lender (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees and disbursements of counsel for any Indemnitee (the "Losses"), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of, any actual or prospective claim, litigation, investigation or proceeding relating to (i) the execution or delivery of any Subordinated Note Purchase Document, the performance of the parties hereto of their respective Obligations thereunder or the consummation of the Transactions or (ii) the Loan or the use of the proceeds therefrom, in each case, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that any Losses claimed by such Indemnitee are determined by a final judgment of a court of competent jurisdiction to have been incurred by reason of gross negligence, bad faith or willful misconduct of such Indemnitee. (c) To the extent permitted by applicable law, no Obligor shall assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Subordinated Note Purchase Document or any agreement or instrument contemplated thereby, the Transactions, the Loan or the use of the proceeds thereof. (d) All amounts due under this Section 8.3 shall be payable promptly after written demand therefor. The Obligations of the Obligors under this Section 8.3 shall survive payment in full of the Loan. Section 8.4. Amendments. Any term of this Agreement or any other Subordinated Note Purchase Document may be amended, waived, discharged or terminated only by an instrument in writing signed by each party to this Agreement or such Subordinated Note Purchase Document. No notice to or demand on any Obligor shall be deemed to be a waiver of the Obligations of any Obligor or of the right of Lender to take further action without notice or demand as provided in this Agreement. No course of dealing between any Obligor and Lender shall change, modify or discharge, in whole or in part, this Agreement or any Obligations. No waiver of any term, covenant or provision of this Agreement or any other Subordinated Note Purchase Document shall be effective unless given in writing by Lender and if so given shall only be effective in the specific instance in which given. In the event Lender shall assign a portion of its interests under this Agreement or any other Subordinated Note Purchase Document, then any such consents, waivers or amendments may be consented to by lenders or assignees holding a majority in principal amount of the Loans except that each lender and assignee affected shall be required to consent to any consents, waivers or amendments which (a) increase the obligations of such lender or assignee, (b) reduce the principal amount, interest rate or fees due to such lender or assignee, (c) extend, delay or postpone the Final Maturity Date or due date of any payment of principal, interest or fees due to such lender or assignee or (d) release the Guarantors. Section 8.5. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that (a) no Obligor may assign or otherwise transfer any of its rights or Obligations hereunder without the prior written consent of Lender and (b) any assignment by Lender (or any other Noteholder) of its rights or obligations hereunder (other than to an Affiliate or any Person that acquires Lender or all or substantially all of the assets of Lender) shall be subject to Borrower's consent, which consent shall not be unreasonably withheld or delayed and shall not be required during the existence of an Event of Default. Any attempted assignment or transfer by any Obligor without the required consent (if any) shall be null and void. Section 8.6. Replacement of Subordinated Notes. Upon (a) request made by Lender (or any other Noteholder) made following an assignment permitted under Section 8.5 or (b) receipt of a Subordinated Noteholders' affidavit or other evidence reasonably satisfactory to Borrower of the loss theft, destruction or mutilation of any Subordinated Note and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to Borrower, and, in the case of any such mutilation, upon the surrender of such Subordinated Note for cancellation, Borrower, at the expense of Lender (or such Noteholder), shall execute and deliver, respectively, (a) new Subordinated Notes appropriately reflecting such assignment or (b) in lieu of such lost, stolen, destroyed, or mutilated Subordinated Note, a new Subordinated Note of like tenor. Section 8.7. Survival. All covenants, agreements, representations and warranties made by any Obligor in any Subordinated Note Purchase Document and in the certificates or other instruments delivered in connection with or pursuant to any Subordinated Note Purchase Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of each Subordinated Note Purchase Document and the making of the Loan, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Loan or any fee or any other amount payable under any Subordinated Note Purchase Document is outstanding and unpaid. The provisions of Section 8.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loan or the termination of this Agreement or any provision hereof. Section 8.8. Right of Set-off. If any amount payable hereunder or under any other Subordinated Note Purchase Document is not paid as and when due, each Obligor hereby authorizes Lender and each Affiliate of Lender to proceed, to the extent permitted by applicable law, without prior notice, by right of set-off, bankers' lien, counterclaim or otherwise, against any assets of such Obligor in any currency that may at any time be in the possession of Lender or such Affiliate, at any branch or office, to the full extent of all amounts payable to Lender hereunder or thereunder. Lender shall give prompt notice to such Obligor after any exercise of Lender's rights under the preceding sentence, but the failure to give such notice shall not affect the validity of any of Lender's actions. Section 8.9. Severability. Any provision of any Subordinated Note Purchase Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 8.10. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Each Obligor hereby designates Kristine LaCourse (c/o MicroFinancial Incorporated, 10M Commerce Way, Woburn, MA 01801) as its agent to receive service of process in any action or proceeding arising out of or relating to any Subordinated Note Purchase Document, and also as its agent for the purposes of taking any action required to be taken under the terms of the Subordinated Note Purchase Documents such as delivery of notices. (c) EACH OBLIGOR HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY SUBORDINATED NOTE PURCHASE DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, EACH OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY SUBORDINATED NOTE PURCHASE DOCUMENT. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. Section 8.11. Headings. Article and Section headings and the table of contents (if applicable) used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 8.12. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or of any other Subordinated Note Purchase Document by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement or of such other Subordinated Note Purchase Document. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BORROWER: TIMEPAYMENT CORP. LLC By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ LENDER: AMPAC CAPITAL SOLUTIONS, LLC By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ Notice Address: ------------------------------------ ------------------------------------ ------------------------------------ Attention: -------------------------- State of____________________________) ) ss. County of___________________________) On June _____, 2004, before me, a Notary Public, personally appeared __________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ---------------------------------- State of____________________________) ) ss. County of___________________________) On June _____, 2004, before me, a Notary Public, personally appeared __________________, personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature: ---------------------------------- SCHEDULE 2.7 FORM OF JOINDER TO NOTE PURCHASE AGREEMENT [Date of Joinder to Note Purchase Agreement] Ampac Capital Solutions, LLC ____________________________ ____________________________ Attention:__________________ Re: Note Purchase Agreement dated as of June 10, 2004 (as amended, supplemented, replaced or otherwise modified from time to time, the "Subordinated Note Purchase Agreement") between TimePayment Corp, LLC ("Borrower") and Ampac Capital Solutions, LLC ("Lender") Ladies and Gentlemen: 1. Reference is made to the above-captioned Subordinated Note Purchase Agreement Capitalized terms not otherwise defined herein are used herein with the meanings assigned thereto in the Subordinated Note Purchase Agreement. 2. As of the date hereof the conditions set forth in Section 2.7 of the Subordinated Note Purchase Agreement have been satisfied, with the result that (1) the Subordinated Conditional Guaranty of the undersigned, MicroFinancial Incorporated, a Massachusetts corporation and Borrower' sole member ("Parent"), in favor of Lender is effective as of the date hereof and (b) Parent is required to execute this Joinder to Note Purchase Agreement (this "Joinder") and thereby become a party to the Subordinated Note Purchase Agreement as an "Obligor". 3. Therefore, by executing this Joinder, Parent hereby agrees to be bound by all provisions relating to an Obligor under, and as defined in, the Subordinated Note Purchase Agreement. Parent further agrees, as of the date first above written, that each reference in the Subordinated Note Purchase Agreement or any other Subordinated Note Purchase Document to an "Obligor" or a "Guarantor" shall also mean and be a reference to Parent. 4. This Joinder shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, Parent has caused this Joinder to be executed by its duly authorized officer as of the day and year first above written. MICROFINANCIAL INCORPORATED By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- EX-10 8 exh_10-7.txt EXHIBIT 10.7 Exhibit 10.7 THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN NOTE PURCHASE AREEMENT DATED AS OF JUNE 10, 2004 BETWEEN TIMEPAYMENT CORP., LLC AND AMPAC CAPITAL SOLUTIONS, LLC, AS SUCH AGREEMENT MAY BE AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME. THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT AND LAWS HAVE BEEN COMPLIED WITH OR UNLESS SUCH REGISTRATION IS NOT REQUIRED. SUBORDINATED PROMISSORY NOTE ---------------------------- Boston, Massachusetts $2,000,000 Dated as of June 10, 2004 FOR VALUE RECEIVED, the undersigned, TIMEPAYMENT CORP., LLC, a Delaware limited liability company (the "Borrower"), hereby unconditionally promises to pay AMPAC CAPITAL SOLUTIONS, LLC, a Nevada limited liability company (the "Subordinated Lender"), or to its order, having its principal place of business at 7380 S. Eastern Avenue, Suite 150, Las Vegas, Nevada 89123, in lawful money of the United States of America and in immediately available funds, on the Final Maturity Date, the principal amount of Two Million Dollars ($2,000,000), or so much thereof as is then outstanding under this Subordinated Promissory Note (this "Note"), in accordance with and pursuant to Section 2.2 of that certain Note Purchase Agreement between the Borrower and the Subordinated Lender dated as of June 10, 2004, as may be amended, restated, supplemented or otherwise modified from time to time (the "Subordinated Note Agreement"). Capitalized terms used herein without definition have the meanings assigned to them in the Subordinated Note Agreement. The Borrower further agrees to pay interest in arrears in like money on the unpaid principal amount hereof from time to time outstanding, whether before or after maturity, at the rates and on the dates specified in the Subordinated Note Agreement. A. Payment of Principal and Interest. 1. The aggregate principal amount outstanding hereunder shall be payable as provided in the Subordinated Note Agreement. This Note may be prepaid in accordance with the terms and provisions of the Subordinated Note Agreement. This Note is also subject to mandatory prepayment in certain circumstances as provided in the Subordinated Note Agreement. 2. Except as otherwise provided in Section A.3 below, all principal and interest hereunder are payable in lawful money of the United States of America to the Subordinated Lender at its address specified above in immediately available funds as provided in the Subordinated Note Agreement on the dates on which such payments shall become due. 3. Notwithstanding any other provision of this Note, at the Subordinated Lender's election at any time following the Commitment Expiration Date and at any time prior to payment of the Note in full, pursuant to the terms and conditions of the respective Warrant Certificates (including without limitation certain vesting, exercise and transfer restrictions), the Subordinated Lender may exercise any option, warrant or other right it may own or possess from time to time to acquire Common Stock of the Parent in compliance with such option, warrant or other right (any such exercise, an "Exercise"). The Subordinated Lender shall be entitled, but not required, to pay for any Parent Common Stock acquired pursuant to any Exercise by notifying the Parent and the Borrower in writing of its decision to forgive an amount then due and owing under this Note equal to the price payable by the Subordinated Lender for the Parent Common Stock upon such Exercise ("Exercise Amount"). Any Exercise Amount shall be credited for purposes of this Note first to interest accrued and owing and then to principal. By its acknowledgement and agreement attached to this Note, the Parent agrees that forgiveness by the Subordinated Lender from amounts owing pursuant to this Note of the Exercise Amount in connection with any Exercise shall be good and valid consideration and payment for the Parent Common Stock issuable to the Subordinated Lender upon such Exercise. To the extent of any actual or perceived conflict between the terms of this Section A.3 and any other term of this Note or between this Section A.3 and any term of any other agreement between or among the Subordinated Lender, the Borrower or the Parent, the terms of this Section A 3 shall control and be binding. Without limiting the foregoing, no Exercise pursuant to which the Subordinated Lender elects to forgive the Exercise Amount from amounts owing hereunder shall constitute a breach of or default under Section B of this Note. B. Subordination. This Note shall at all times be wholly subordinate and junior in right of payment to all Senior Obligations to the extent and in the manner provided in this Part B. 1. Definitions. The following terms shall have the following meanings. All other capitalized terms used herein without definition shall have the meanings assigned to them in the Subordinated Note Agreement. 1.1 Agent. Any administrative or collateral agent acting on behalf of any one or more Senior Lenders and as indicated in a written notice provided to the Subordinated Lender by the Borrower and such Senior Lender(s) stating that such agent has been requested and authorized to act as agent for such Senior Lender(s) hereunder pursuant to the terms of the applicable Senior Credit Agreement (s). The Borrower agrees that any Agent, to the extent it may so act hereunder, shall exercise all of the rights and remedies hereunder on behalf of, and as agent for the benefit of, each of such Senior Lenders. Without limiting the generality of the foregoing, such Agent is authorized to execute and deliver, from time to time, on behalf of the applicable Senior Lender(s), any and all amendments and modifications to this Note and any and all waivers to any conditions herein or any default hereunder. 1.2 Bankruptcy or Liquidation Event. (a) Any dissolution, winding-up or liquidation of a Debtor, partial or complete, whether or not involving insolvency or bankruptcy proceedings, (b) any bankruptcy, insolvency, receivership or other statutory or common law proceedings or assignment for the benefit of creditors involving a Debtor or any marshalling of the assets or liabilities of a Debtor, (c) any proceeding by or against a Debtor for relief of any kind under any bankruptcy or insolvency law(s) relating to the relief of debtors or readjustments, reorganizations, compositions or extensions of indebtedness, or (d) any other marshalling of the assets of any Debtor. 1.3 Debtor. The Borrower, the Parent or any of their respective Affiliates. 1.4 Liabilities. When used with respect to any Debtor, the term "Liabilities" shall mean indebtedness, obligations and liabilities of such Debtor to the designated Person(s), whether the same is now existing or hereafter arising, direct or indirect, absolute or contingent, secured or unsecured, liquidated or unliquidated, matured or unmatured, disputed or undisputed, legal or equitable, and however made or evidenced. 1.5 Maximum Senior Debt Amount. The sum of (a) $75,000,000 plus (b) any additional Indebtedness incurred as permitted under Section 6.1 of the Subordinated Note Agreement. 1.6 Payment in Full. The expressions "prior payment in full", "payment in full", "paid or satisfied in full", "paid in full" and any other similar phrases, when used herein with respect to the Senior Obligations, shall mean the indefeasible, full and final payment in cash, in immediately available funds, of all the Senior Obligations, whether or not any of the Senior Obligations shall have been voided, disallowed or subordinated pursuant to any provisions of the United States Bankruptcy Code or any applicable state fraudulent conveyance laws, in any case whether asserted directly or indirectly. 1.7 Required Senior Lenders. For purposes of Sections 2.7 and 2.8 of this Part B, those Senior Lenders having the right to consent to amendments of the Subordinated Documents and to approve agreements effecting any transfer of the Subordinated Obligations, respectively, pursuant to the terms of their respective Senior Credit Agreements. 1.8 Senior Covenant Default. Any "Event of Default", as defined in any agreement pertaining to Senior Obligations, other than a Senior Payment Default. 1.9 Senior Credit Agreements. Any and all loan agreements, credit agreements, indentures, reimbursement agreements and other agreements providing for the extension of credit to the Borrower by one or more Senior Lenders (including but not limited to the Credit Agreement entered into by the Borrower with Acorn Capital Group, LLC, a Delaware limited liability company, dated as of June 10, 2004), in each case as the same may be amended, extended, renewed, restated, supplemented or otherwise modified from time to time in accordance with their respective terms, and any additional agreement or agreements entered into from time to time governing Indebtedness incurred to refinance, replace, restructure or refund in whole or in part the extensions of credit and the maximum commitments thereunder and under such additional agreement(s) (whether, in any case, with the original Senior Lender and its successors and assigns or otherwise, and whether provided under the original Senior Credit Agreement or other credit agreements or otherwise). 1.10 Senior Credit Documents. The Senior Credit Agreements, the Senior Notes, the Senior Security Documents and any and all other documents pertaining to Senior Obligations. 1.11 Senior Default. A Senior Payment Default or a Senior Covenant Default. 1.12 Senior Lender. Any holder of any Senior Obligation (including any Affiliate of such Senior Lender and their respective successors and assigns). 1.13 Senior Notes. Any and all promissory notes issued pursuant to any and all of the Senior Credit Agreements. 1.14 Senior Obligations. All Liabilities of any or all of the Debtors designated from time to time as Senior Obligations by a written notice to the Subordinated Lender from the Borrower (including without limitation interest accruing after the maturity of such Liabilities and interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or similar proceeding relating to any Debtor, whether or not such post-filing or post-petition interest is allowed in such proceeding and whether the applicable Senior Lender(s) is (or are) oversecured or undersecured) and other fees, charges and other amounts due on or under the applicable Senior Credit Agreements, Senior Notes and Senior Security Documents. Notwithstanding the foregoing, in no event shall the aggregate principal amount of all Senior Obligations exceed the Maximum Senior Debt Amount (as defined in Section 1.5). The term "Senior Obligations" shall include any renewals, extensions, refinancings, modifications or refundings of the Liabilities described above in this Section 1.14. 1.15 Senior Payment Default. Any default in the payment of principal, interest or fees under any Senior Obligation when due in accordance with the terms and conditions thereof. 1.16 Senior Security Documents. Any and all guaranties, security agreements, pledge agreements and other documents pursuant to which any of the Senior Obligations are secured. 1.17 Subordinated Default. Any "Event of Default", as defined in the Subordinated Note Agreement. 1.18 Subordinated Documents. The Subordinated Note Agreement, the Notes, the Subordinated Conditional Guaranty, the Warrant Certificates, the Registration Rights Agreement and any and all other documents pertaining to Subordinated Obligations. 1.19 Subordinated Obligations. All Liabilities owed by any or all of the Debtors to the Subordinated Lender, including without limitation all such Liabilities (a) in respect of subrogation rights under any guaranty or any other rights to be subrogated to the rights of the holders of the Senior Obligations in respect of payments or distributions of assets of, or ownership interests in, the Debtors made on the Senior Obligations, (b) under the Subordinated Note Agreement and the Subordinated Notes, (c) under the Subordinated Conditional Guaranty and (d) as compensation or in respect of any ownership interests (or warrants, options or other rights for the purchase thereof) in any Debtor issued or sold to the Subordinated Lender, including without limitation the Warrant Certificates and the Warrant Shares, whether by dividend, redemption, repurchase or otherwise. 2. Terms of Subordination. 2.1 Subordination. The Subordinated Lender hereby (a) covenants and agrees that the Subordinated Obligations are and shall be subordinate and subject in right of payment to the prior payment in full of all of the Senior Obligations, whether or not any portion of the Senior Obligations shall have been voided, disallowed or subordinated pursuant to Section 548 of the United States Bankruptcy Code or any applicable state fraudulent conveyance laws, whether asserted directly or under Section 544 of the United States Bankruptcy Code, and (b) irrevocably directs the Borrower to make such payment in full, and all other payments in respect of the Senior Obligations contemplated by this Note and referred to below, to the Senior Lenders (or their Agent(s), as applicable) before making any payments or distributions of any kind in respect of the Subordinated Obligations, except as provided in Section 2.4. In furtherance of the foregoing, except as provided in Sections 2.3 and 2.4, the Subordinated Lender will not demand, accept or receive, any payment of interest, principal or any other amount on account of the Subordinated Obligations or as a sinking fund for any Subordinated Obligations, or in respect of any redemption, retirement, prepayment, purchase or other acquisition of any Subordinated Obligations, including without limitation any dividends or other distributions, or exercise any right of set-off or recoupment until all of the Senior Obligations shall have been paid in full. 2.2 Distributions in Bankruptcy or Liquidation Events. (a) Distributions. Anything in the Subordinated Documents to the contrary notwithstanding, in the event of any distribution, division or application, in whole or in part, voluntary or involuntary, by operation of law or otherwise, of the assets of any Debtor or the proceeds thereof, to or for the benefit of any of the Debtors' creditors arising by reason of a Bankruptcy or Liquidation Event, then all Senior Obligations shall first be paid in full before any payment is made upon any Subordinated Obligations; and any payment or distribution of any kind or character (whether in cash, property or securities and whether or not any of such Senior Obligations has been disallowed, or estimated for purpose of allowance, under the United States Bankruptcy Code or otherwise) made upon or in respect of the Subordinated Obligations in violation of this Note shall be paid over to the Senior Lenders (or their Agent(s), as applicable), for application in payment of the Senior Obligations, unless and until the Senior Obligations shall have been paid or satisfied in full. (b) Authority to Act for Creditor. If the Subordinated Lender fails to file a proper claim or proof of debt therefor prior to thirty (30) days before the expiration of the time to file such claim or proof, then the Senior Lenders (and/or their Agent(s), as applicable) are hereby permitted and authorized (but not obligated) for the specified and limited purpose set forth in this paragraph, to file such claim or proof for or on behalf of such holder at any time prior to the expiration of the time to file such claim or proof; provided, however, that the Senior Lenders (and/or such Agent(s)) shall promptly deliver a copy of any such claim or proof so filed to the Subordinated Lender. Upon written request of any Senior Lender (or any Agent, as applicable), the Subordinated Lender shall confirm to the Senior Lenders (and such Agent) whether the Subordinated Lender shall have in fact filed a proof of claim in order for the Senior Lenders (and their Agent(s), as applicable) to exercise their rights in this paragraph. Nothing contained in this Note shall be interpreted or construed to impair the voting rights of the Subordinated Lender in any meeting relating to any Reorganization or Liquidation Event, except that the Subordinated Lender hereby covenants to the Senior Lenders that the Subordinated Lender shall not vote in favor of any reorganization plan (whether under Chapter 11 of the United States Bankruptcy Code or other statute or law) that any Senior Lender opposes. (c) Additional Action. The Subordinated Lender agrees duly and promptly to file appropriate proofs of claim in respect of the Subordinated Obligations and to execute and deliver to the Senior Lenders, or their Agent(s), as applicable, promptly following request, such assignments, proofs of claim or other instruments as may be reasonably requested by any Senior Lender (and/or their Agent(s)) to enable the Senior Lender (and/or their Agent(s)) to enforce any and all claims upon or with respect to the Subordinated Obligations and to collect and receive any and all payments and distributions which may be payable or deliverable at any time upon or with respect to the Subordinated Obligations. (d) Payments Held in Trust. In the event that any payment of principal or interest or other payment or distribution of assets of any Debtor shall be collected or received by the Subordinated Lender in violation of the subordination provisions of this Part B, before payment in full of all of the Senior Obligations, the Subordinated Lender shall forthwith deliver the same to the Senior Lenders (and/or their Agent(s), as applicable), in the form received, together with any endorsement and assignment necessary to make such delivery, for application to the Senior Obligations, whether then due or not due. If the Subordinated Lender shall fail to make such endorsement or assignment, the Senior Lenders (or such Agent(s) or any of their respective officers) are hereby irrevocably authorized to make the same. Until so delivered, the Subordinated Lender shall hold such payment or distribution in trust as the property of the Senior Lenders, segregated from all other funds and property held by the Subordinated Lender. 2.3 Permitted Payments of Subordinated Obligations. (a) For so long as no Senior Default has occurred and is continuing, or would occur as a result of such a payment, the Borrower may pay when due, but not in advance, and so long as it has not received a Blockage Notice (defined below) which shall not be required in the case of a Senior Payment Default, the Subordinated Lender may receive and retain, (i) all payments of interest in arrears under the Subordinated Notes, (ii) all regularly scheduled payments of principal under Section 2.2 of the Subordinated Note Agreement and (iii) all amounts due to the Subordinated Lender pursuant to Sections 2.10 and 8.3(a) of the Subordinated Note Agreement. (b) Upon receipt by the Borrower and the Subordinated Lender of a Blockage Notice (as defined below) or immediately upon the occurrence and during the continuation of a Senior Payment Default, then unless and until (i) all Senior Defaults that gave rise to the Blockage Notice shall have been remedied or effectively waived or shall have ceased to exist, or (ii) the Senior Obligations in respect of which such Senior Defaults shall have occurred shall have been paid in full, no direct or indirect payment (in cash, property, securities or by set-off or otherwise) of or on account of any Subordinated Obligation or as a sinking fund for any Subordinated Obligations or in respect of any redemption, retirement, purchase or other acquisition of any Subordinated Obligations shall be made prior to the expiration of the Blockage Period (as defined below). Notwithstanding the foregoing and except in the case of a Senior Payment Default, all amounts paid with respect to the Subordinated Obligations as permitted under Section 2.3(a), prior to the receipt of the Blockage Notice in question by the Subordinated Lender, may be retained by the Subordinated Lender. (c) For purposes of this Section 2.3, a "Blockage Notice" is a notice of a Senior Default that has occurred and is continuing, given to the Borrower and the Subordinated Lender by a Senior Lender (or an Agent, as applicable). (d) For purposes of this Section 2.3, a "Blockage Period" with respect to a Blockage Notice is the period commencing upon receipt of such Blockage Notice by the Borrower and the Subordinated Lender and having a duration as follows: (i) unlimited, if the Senior Default to which the Blockage Notice refers is a Senior Payment Default; or (ii) 180 days, if the Senior Default to which the Blockage Notice refers is a Senior Covenant Default. (e) Notwithstanding any provision contained in this Section 2.3 to the contrary: (i) the Borrower shall not be prohibited from making, and the Subordinated Lender shall not be prohibited from receiving and retaining, payments in respect of the Subordinated Obligations pursuant to Section 2.3(d)(ii) hereof for more than an aggregate of 179 days within any 360 day period; (ii) there shall not be more than two Blockage Notices given in any 360-day period in respect of a Senior Covenant Default under Section 2.3(d)(ii) hereof; (iii) no Senior Covenant Default (or event which, with the giving of notice and/or the passage of time would constitute a Senior Covenant Default) existing on the date on which any Blockage Notice is given to the Subordinated Lender shall be used as a basis for any subsequent Blockage Notice, unless such Senior Covenant Default (or event which, with the giving of notice and/or the passage of time would constitute a Senior Covenant Default) shall have ceased to exist for a period of at least 180 consecutive days (it being acknowledged that any subsequent action or any breach of any financial covenant, for a period commencing, or as at a date occurring, after the date of commencement of such Blockage Period, that in either case, would give rise to a Senior Covenant Default pursuant to any provisions under which a Senior Covenant Default previously existed or was continuing shall constitute a new Senior Covenant Default for this purpose); and (iv) once all Senior Defaults which gave rise to the Blockage Notice in question shall have been remedied or effectively waived or shall have ceased to exist or the Senior Obligations in respect of which such Senior Defaults shall have occurred shall have been paid in full, thereafter (unless another Blockage Period shall then be in effect or unless any Senior Obligation shall have matured, by lapse of time, acceleration, required prepayment or otherwise) all amounts which would have been payable hereunder with respect to the Subordinated Obligations but for the existence of the Blockage Period effected by the Blockage Notice delivered with respect to the Senior Default in question shall be immediately payable in their entirety. 2.4 Limitation on Exercise of Remedies by the Subordinated Lender. (a) In the event that any Subordinated Default shall occur, the Subordinated Lender shall not be entitled to, and will not, (i) ask, demand or sue for, or take or receive from any Debtor, by set-off or otherwise, payment of all or any portion of the Subordinated Obligations (including without limitation the Subordinated Conditional Guaranty) or any collateral provided therefor; (ii) accelerate any Subordinated Obligations; (iii) exercise any of its remedies in respect of any Subordinated Obligations; (iv) initiate or join in any litigation or other proceedings against, or reorganization of, any Debtor; or (v) foreclose or otherwise realize on any security given by any Debtor or any other Person (including any guarantor) to secure the Subordinated Obligations; in any such case unless and until the earliest to occur of the following: (A) the Senior Lenders shall have caused the Senior Obligations to become due prior to their stated maturity and shall have commenced the exercise of material remedies under the Senior Security Documents; (B) a Subordinated Default pursuant to Section 7.1(h) or 7.1(i) of the Subordinated Note Agreement shall have commenced; and (C) any other Subordinated Default shall have occurred under the Subordinated Note Agreement and the Subordinated Lender shall have provided to the Senior Lenders (and their Agent(s), as applicable) and the Borrower written notice of the Subordinated Lender's ability (under the terms of the Subordinated Note Agreement) to accelerate on account of the occurrence of such Subordinated Default (a "Remedy Notice"), such Remedy Notice shall have been received by the Senior Lenders (and such Agents) and the Borrower and 180 days shall have elapsed following such receipt (in any such case, the "Remedy Standstill Period"). (b) Notwithstanding the foregoing, the Remedy Standstill Period shall be inapplicable or cease to be effective if the Senior Lenders shall have caused the Senior Obligations to become due prior to their stated maturity and shall have commenced the exercise of material remedies under the Senior Security Documents or a Subordinated Default pursuant to Section 7.1(h) or 7.1(i) of the Subordinated Note Agreement shall have occurred. (c) Upon the expiration or termination of any Remedy Standstill Period, the Subordinated Lender shall be entitled to exercise any of its rights with respect to the Subordinated Obligations (but otherwise subject to the subordination and other provisions of this Note) other than any right to accelerate the maturity date of any Subordinated Obligation based upon the occurrence of any Subordinated Default in respect thereto which has been cured or otherwise remedied during such Remedy Standstill Period. 2.5 Covenants to Cooperate. In addition to its agreements set forth in Section 2.4, the Subordinated Lender, in its capacity as a holder of Subordinated Obligations, agrees to take such actions as may be reasonably necessary or appropriate, and otherwise to cooperate with the Senior Lenders (and their Agent(s), as applicable) to effectuate the subordination provided hereby. In furtherance thereof, the Subordinated Lender agrees (a) not to oppose any motion filed or supported by any Senior Lender for relief from stay or for adequate protection in respect of the Senior Obligations; (b) not to oppose any motion supported by any Senior Lender for any Debtor's use of cash collateral or post-petition borrowing from any Senior Lender; (c) not to institute against any Debtor any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States Federal or state bankruptcy or similar law, until such time as the Senior Obligations have been paid in full; and (d) not otherwise to (i) impede, interfere with or restrict or restrain the exercise by the Senior Lenders (and their Agent(s), as applicable) of their rights and remedies under the Senior Credit Documents or (ii) take or permit any action prejudicial to or inconsistent with the priority position over the Subordinated Lenders that is created in favor of the Senior Lenders by this Note. 2.6 Violation of Agreements to Take No Action and Cooperate. If the Subordinated Lender shall commence, prosecute or participate in any suit, action or proceeding against any Debtor or take any other action in any legal proceeding involving any Debtor in violation of this Note, such Debtor may interpose this Note as a defense or plea and each of the Senior Lenders (and each of their Agent(s), as applicable) are irrevocably authorized to intervene and to interpose such defense or plea in its or any Debtor's name. Without limiting the generality of Section 3 below, if the Subordinated Lender attempts to enforce or realize upon any security for the Subordinated Obligations in violation of this Note, any Debtor, any Senior Lender or any Agent (in such Debtor's, such Senior Lender's or such Agent's name) may by virtue of this Note restrain such realization or enforcement. 2.7 No Amendment of Subordinated Obligations. The Subordinated Lender shall not, without the prior written consent of the Required Senior Lenders, amend or permit the amendment of the terms of any instrument or agreement evidencing any Subordinated Obligations the effect of which is to (a) increase the maximum principal amount or rate of interest under the Subordinated Notes (it being understood that the imposition of a default rate of interest contained in the Subordinated Documents as in effect on the date hereof shall not be restricted by this clause (a)), (b) accelerate the dates (including maturity dates) upon which payments of principal or interest on the Subordinated Notes are due, (c) add or make more restrictive any event of default, any financial covenant (including the definitions applicable thereto) or any other covenant with respect to the Subordinated Notes set forth in the Subordinated Documents (as in effect on the date hereof), (d) change the redemption or prepayment provisions of the Subordinated Notes, (e) amend the Warrant to increase the shares of capital stock of the Parent issuable upon exercise thereof, (f) provide for the issuance to the Subordinated Lender of any additional warrants or other equity securities in any Debtor in violation of any Senior Credit Agreement, or (g) change, amend or supplement any other term of the Subordinated Documents if such change, amendment or supplementation would materially increase the obligations of the Borrower or confer additional material rights on the Subordinated Lender or any other holder of the Subordinated Notes in a manner adverse to the Borrower or any Senior Lender (or any Agent). 2.8 No Transfer of Subordinated Obligations. The Subordinated Lender will not sell, assign or transfer any of its interest in the Subordinated Obligations, unless the buyer, assignee or transferee thereof shall agree in writing to become bound by the provisions of this Note pursuant to a written agreement in form and substance satisfactory to the Required Senior Lenders (or their Agent(s), as applicable) executed by the buyer, assignee or transferee, an original copy of which shall have been furnished to the Senior Lenders (and such Agent(s)). In addition, the Subordinated Lender shall not grant or agree to any subordination in respect of the Subordinated Obligations or grant a security interest or participation in any of the Subordinated Obligations to any Person other than the Senior Lenders. In addition, the Subordinated Lender shall not grant or agree to any subordination in respect of the Subordinated Obligations or grant a security interest or participation in any of the Subordinated Obligations to any Person other than the Senior Lenders and to Persons to whom the Senior Lenders shall have granted or agreed to any subordination in respect of the Senior Obligations or granted a security interest or participation in any of the Senior Obligations. 3. No Collateral. The Subordinated Lender will not take or enjoy any collateral to secure the Subordinated Obligations. Without limiting the generality of the foregoing, none of the Senior Lenders (or their Agent(s), as applicable) shall have any duty to the Subordinated Lender with respect to the preservation or maintenance of any collateral or the manner in which the Senior Lenders (or such Agent(s)) enforce their respective rights in such collateral or to preserve or maintain the rights of any Person in any collateral, and the Subordinated Lender hereby waives (a) any claims which it may now or hereafter have against the Senior Lenders (or such Agent(s)) which relate to such preservation, maintenance or enforcement and (b) the right to require the Senior Lenders (or such Agent(s)) to marshal any collateral, to enforce any security interest or lien the Senior Lenders (or such Agent(s)) may now or hereafter have in any collateral securing the Senior Obligations or to pursue any claim any of the Senior Lenders (or any such Agent) may have against any guarantor of the Senior Obligations, as a condition to the Senior Lenders' (and such Agent(s)') entitlement to receive any payment on account of the Subordinated Obligations. 4. Agreements with Respect to Loan Documents. (a) The Subordinated Lender hereby agrees that at any time, and from time to time, without the consent of, or notice to, the Subordinated Lender, the Senior Lenders (and their Agent(s), as applicable) may, in their sole discretion, (i) modify or amend (with consent of other parties to the agreements so affected), grant consents under and waivers of or release any of the terms of the Senior Credit Agreements, the Senior Notes, the Senior Security Documents or any of the other Senior Credit Documents, (ii) exercise or refrain from exercising any powers or rights which the Senior Lenders (and such Agent(s)) may have thereunder and (iii) make loans and other financial accommodations to the Debtors in addition to the loans made on the date hereof, it being understood and agreed that no such modification, amendment, consent, waiver, release, exercise, failure to exercise or financial accommodation shall affect, release, or impair any of the subordination rights or other rights and benefits afforded to the Senior Lenders (and such Agent(s)) under this Note or give rise to any liabilities on the part of the Senior Lenders (or such Agent(s)) to the Subordinated Lender. Notwithstanding the foregoing, no such amendment, restatement, waiver, or other modification shall, without the prior written consent of the Subordinated Lender, (A) increase the principal amount of the Senior Obligations in excess of the Maximum Senior Debt Amount then in effect, (B) further limit the right of the Debtors to amend or otherwise modify the Subordinated Agreements, or (C) prohibit or restrict the payment of principal of, interest on, or other amounts payable with respect to, the Subordinated Notes in a manner that is more restrictive than the prohibitions and restrictions currently contained in the Senior Credit Documents (as in effect as of the date hereof). (b) Without limiting the generality of the foregoing, no right of the Senior Lenders (or their Agent(s), as applicable) to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any act or failure to act on the part of any Debtor or the Subordinated Lender, or by any act or failure to act of the Senior Lenders (or such Agent(s)), or by any non-compliance by any Debtor with any of the terms, provisions and covenants of this Note or any other Senior Credit Document, regardless of any knowledge thereof that the Senior Lenders (or such Agent(s)) may have or be charged with. 5. Relative Rights. Nothing contained in this Section 5 is intended to or shall impair, as between each Debtor, its creditors other than the Senior Lenders, and the Subordinated Lender, the obligation of such Debtor, which is absolute and unconditional, to pay to the Subordinated Lender when due the principal of and the interest on the Subordinated Obligations, or is intended to or shall affect the relative rights of the Subordinated Lender and the creditors of each Debtor other than the Senior Lenders. 6. Subrogation. After all amounts payable under or in respect of Senior Obligations are indefeasibly paid in full in cash, the Subordinated Lender shall be subrogated to the rights of holders of Senior Obligations to receive payments or distributions applicable to Senior Obligations to the extent that distributions otherwise payable to the Subordinated Lender have been applied to the payment of Senior Obligations. A distribution made under this Part B to a holder of Senior Obligations which otherwise would have been made to the Subordinated Lender is not, as between the applicable Debtor, on the one hand, and the Subordinated Lender, on the other hand, a payment by any Debtor on Senior Obligations. 7. Reliance. The Subordinated Lender acknowledges notice that, in entering into the Senior Credit Agreements and electing to hold the Senior Obligations, each of the Senior Lenders is relying, and will rely, on the subordination of the Subordinated Obligations provided herein. The Subordinated Lender expressly waives all notice of the acceptance of, or reliance on, the provisions of this Part B by the Senior Lenders. 8. Miscellaneous. 8.1 Conforming Agreement; Reinstatement. The agreements of the Borrower and the Subordinated Lender set forth in this Part B shall be continuing agreements and shall be irrevocable and shall remain in full force and effect so long as there are Senior Obligations outstanding or committed to be advanced. The liability of the Subordinated Lender hereunder shall be reinstated and revived, and the rights of the Senior Lenders (and their Agent(s), as applicable) shall continue, with respect to any amount at any time paid on account of the Senior Obligations which shall thereafter be required to be restored or returned by any Senior Lender in any Bankruptcy or Liquidation Event (including without limitation any repayment made pursuant to any provision of Chapter 5 of Title 11, United States Code), all as though such amount had not been paid. 8.2 Application of Payments. The Subordinated Lender hereby agrees that all payments received by the Senior Lenders (or their Agent(s), as applicable) may be applied, reversed and reapplied, in whole or in part, to such part of the Senior Obligations as the Senior Lenders, in their sole discretion, deem appropriate, in accordance with the provisions of their respective Senior Credit Agreements. 8.3 Specific Performance. The Subordinated Lender hereby waives any defense based on the adequacy of a remedy at law that might be asserted as a bar to the remedy of specific performance of this Note in any action brought therefor by or on behalf of the Senior Lenders. 8.4 Modification of Part B. The provisions of this Part B are for the benefit of the holders from time to time of Senior Obligations and, so long as any Senior Obligations remain unpaid, may not be modified, rescinded or canceled in whole or in part (except insofar as the effect thereof would be to cause such provisions to be more favorable to the Senior Lenders, without the prior written consent thereto of all the Senior Lenders. C. General Terms. 1. The Borrower, for itself and its legal representatives, successors and assigns, to the extent it may lawfully do so, hereby expressly waives presentment, demand, protest, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws, and consents that the Subordinated Lender may, subject to the Subordinated Note Agreement, release or surrender, exchange or substitute any personal property or other collateral security which may (without limiting the generality of Part B(3)) hereafter be held as security for the payment of this Note, and may extend the time for payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced hereby to the extent provided in the Subordinated Note Agreement without in any way affecting the liability of the Borrower; provided that such modifications do not increase the obligations hereunder. 2. This Note is one of the "Subordinated Notes" referred to in, and is entitled to the benefits of, the Subordinated Note Agreement (including Schedules and Exhibits thereto) and all other instruments and agreements evidencing the indebtedness outstanding hereunder, which Subordinated Note Agreement and other instruments and agreements are hereby made part of this Note and are deemed incorporated herein in full. The occurrence or existence of an Event of Default shall constitute a default under this Note and shall, subject to the provisions of the Subordinated Note Agreement, entitle the Subordinated Lender to accelerate the entire indebtedness hereunder and to take such other action as may be provided for in the Subordinated Note Agreement or any other instrument or agreement evidencing and/or securing this Note, all in accordance with the terms of the Subordinated Note Agreement and the provisions of Part B hereof. 3. All agreements between the Borrower and the Subordinated Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness or otherwise, shall the amount paid or agreed to be paid for the use or forbearance of the indebtedness evidenced hereby exceed the maximum amount which the Subordinated Lender is permitted to receive under applicable law. If, from any circumstances whatsoever, fulfillment of any provision hereof or of the Subordinated Note Agreement, at the time performance of such provision shall be due, shall involve exceeding such amount, then the obligation to be fulfilled shall automatically be reduced to the limit of such validity and if, from any circumstances, the Subordinated Lender should ever receive as interest an amount which would exceed such maximum amount, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof, provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Note shall be governed by such new law as of its effective date. This provision shall control every other provision of all agreements between the Borrower and the Subordinated Lender. 4. If this Note shall not be paid when due and shall be placed by the holder hereof in the hands of any attorney for collection, through legal proceedings or otherwise, the Borrower will pay reasonable attorneys' fees to the holder hereof together with reasonable costs and expenses of collection, including, without limitation, any such attorneys' fees, costs and expenses relating to any proceedings with respect to the bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation of the Borrower. 5. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED, IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). [Balance of Page Left Blank Intentionally] IN WITNESS WHEREOF, the Borrower has caused this Note to be executed under seal by its duly authorized representative as of the date first above written. WITNESS TIMEPAYMENT CORP., LLC By_____________________________________ Name:_______________________________ Title: _____________________________ [Signature Page to Subordinated Note issued to Ampac Capital Solutions, LLC] ACKNOWLEDGEMENT AND AGREEMENT MicroFinancial Incorporated hereby assents and agrees to the provisions of Section A.3 of the foregoing Subordinated Promissory Note as of the date first written therein. WITNESS MICROFINANCIAL INCORPORATED ______________________________________ By_________________________________ Name: _________________________ Title: ________________________ EX-10 9 exh_10-8.txt EXHIBIT 10.8 Exhibit 10.8 SUBORDINATED CONDITIONAL GUARANTY THIS SUBORDINATED CONDITIONAL GUARANTY (this "Guaranty"), is entered into as of June 10, 2004, by MICROFINANCIAL INCORPORATED, a Massachusetts corporation ("Guarantor"), in favor of and for the benefit of AMPAC CAPITAL SOLUTIONS, LLC, a Nevada limited liability company ("Subordinated Lender"). RECITALS 1. Pursuant to the Subordinated Note Purchase Agreement dated as of the date hereof (as amended, supplemented or modified from time to time, the "Subordinated Note Purchase Agreement"; capitalized terms used but not defined herein shall have the meanings given such terms in the Subordinated Note Purchase Agreement) by and among TimePayment Corp. LLC, a Delaware limited liability company and wholly-owned subsidiary of Guarantor ("Borrower"), and Subordinated Lender, Subordinated Lender has agreed to make the Loan to Borrower; and 2. Guarantor, as Borrower's parent, acknowledges and agrees that Guarantor has received and will receive direct and indirect benefits from the extension of the Loan made to Borrower. 3. Guarantor wishes to grant Subordinated Lender security and assurance in order to secure the payment and performance by Borrower of all of its present and future Obligations (as hereinafter defined), and, to that effect, to guaranty Borrower's Obligations as set forth herein. Accordingly, Guarantor hereby agrees as follows: A. Conditional Guaranty. 1. Subject to Section A(5), Guarantor hereby unconditionally and irrevocably guarantees to Subordinated Lender the full and punctual payment by Borrower, when due, whether at the stated due date, by acceleration or otherwise of all Obligations (as defined below) of Borrower, howsoever created, arising or evidenced, voluntary or involuntary, whether direct or indirect, absolute or contingent now or hereafter existing or owing to Subordinated Lender, (collectively, the "Guaranteed Obligations"). Except as provided in Section A(5), this Guaranty is an absolute, unconditional, continuing guaranty of payment and not of collection of the Guaranteed Obligations and includes Guaranteed Obligations arising from successive transactions which shall either continue such Guaranteed Obligations or from time to time renew such Guaranteed Obligations after the same has been satisfied. This Guaranty is in no way conditioned upon any attempt to collect from Borrower or upon any other event or contingency, and shall be binding upon and enforceable against Guarantor without regard to the validity or enforceability of any document, instrument or agreement evidencing or governing the Obligations or any other agreement or instrument executed in connection therewith (including, without limitation, this Guaranty) or contemplated thereby (each, a "Subordinated Debt Document" and, collectively, the "Subordinated Debt Documents"). If for any reason Borrower shall fail or be unable duly and punctually to pay any of the Guaranteed Obligations (including, without limitation, amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), Guarantor will forthwith pay the same, in cash. As used herein "Obligations" shall mean all obligations, liabilities and indebtedness of Borrower to Subordinated Lender under the Subordinated Note Purchase Agreement and the Subordinated Debt Documents and any documents relating thereto, whether now existing or hereafter created, absolute or contingent, direct or indirect, due or not, whether created directly or acquired by assignment or otherwise, including, without limitation, the Loans and the payment and performance of all other obligations, liabilities, and indebtedness of Borrower to Subordinated Lender under the Subordinated Debt Documents, including without limitation all fees, costs, expenses and indemnity obligations thereunder. 2. In the event any Subordinated Debt Document shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of Borrower or any of its properties in any bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceeding, Guarantor's obligations hereunder shall continue to the same extent as if such Subordinated Debt Document had not been so rejected. 3. Guarantor agrees to pay all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred in connection with the enforcement of the Guaranteed Obligations of Borrower to the extent that such costs and expenses are not paid by Borrower pursuant to the respective Subordinated Debt Documents. 4. Guarantor further agrees that if any payment made by Borrower or Guarantor to Subordinated Lender on any Guaranteed Obligation is rescinded, recovered from or repaid by Subordinated Lender, in whole or in part, in any bankruptcy, insolvency or similar proceeding instituted by or against Borrower or Guarantor, this Guaranty shall continue to be fully applicable to such Guaranteed Obligation to the same extent as though the payment so recovered or repaid had never originally been made on such Guaranteed Obligation regardless of, and, without giving effect to, any discharge or release of Guarantor's obligations hereunder granted by Subordinated Lender after the date hereof. 5. Notwithstanding the execution and delivery of this Agreement on the date hereof, the guaranty pursuant hereto shall not be deemed made, and this Guaranty shall not be effective, until the earlier of the day that (A) all obligations under the Fleet Loan Agreement shall have been discharged in full, or (B) Fleet otherwise consents to this Guaranty. B. Guaranty Continuing, Absolute, Unlimited. Subject to Section A(5) and Section D hereof, the obligations of Guarantor hereunder shall be continuing, absolute, unlimited and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim Guarantor may have against Subordinated Lender or Borrower or any other person, and shall remain in full force and effect without regard to, and, to the fullest extent permitted by applicable law, shall not be released, discharged or in any way affected by, any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof) whatsoever which might constitute a legal or equitable discharge or defense. C. Waiver. Guarantor unconditionally and irrevocably waives, to the fullest extent permitted by applicable law: (1) notice of any of the matters referred to in Section B hereof; (2) all notices which may be required by statute, rule of law or otherwise to preserve any rights against Guarantor hereunder, including, without limitation, notice of the acceptance of this Guaranty, or the creation, renewal, extension, modification or accrual of the Guaranteed Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest, nonpayment of any damages or other amounts payable under any Subordinated Debt Document; (3) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of any Subordinated Debt Document, including, without limitation, diligence in collection or protection of or realization upon the Guaranteed Obligations or any part thereof or any collateral therefor; (4) any requirement of diligence; (5) any requirement to mitigate the damages resulting from a default by Borrower under any Subordinated Debt Document; (6) the occurrence of every other condition precedent to which Guarantor or Borrower may otherwise be entitled; (7) the right to require Subordinated Lender to proceed against Borrower or any other person liable on the Guaranteed Obligations, to proceed against or exhaust any security held by Borrower or any other person, or to pursue any other remedy in Subordinated Lender's power whatsoever; (8) the right to have the property of Borrower first applied to the discharge of the Guaranteed Obligations and (9) until such time that all Guaranteed Obligations have been indefeasibly paid in full, any and all rights it may now or hereafter have under any agreement or at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Subordinated Lender) to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. Subordinated Lender may, at its election, exercise any right or remedy it may have against Borrower without affecting or impairing in any way the liability of Guarantor hereunder and Guarantor waives, to the fullest extent permitted by applicable law, any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of Guarantor against Borrower, whether resulting from such election by Subordinated Lender or otherwise. Guarantor waives any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation for any cause whatsoever of the liability, either in whole or in part, of Borrower to Subordinated Lender for the Guaranteed Obligations. Guarantor assumes the responsibility for being and keeping informed of the financial condition of Borrower and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and agrees that Subordinated Lender shall not have any duty to advise Guarantor of information regarding any condition or circumstance or any change in such condition or circumstance. Guarantor acknowledges that Subordinated Lender has not made any representations to Guarantor concerning the financial condition of Borrower. D. Subordination. This Guaranty shall at all times be wholly subordinate and junior in right of payment to all Senior Obligations to the extent and in the manner provided in this Part D. 1. Definitions. The following terms shall have the following meanings. All other capitalized terms used herein without definition shall have the meanings assigned to them in the Subordinated Note Purchase Agreement. 1.1 Agent. Any administrative or collateral agent acting on behalf of any one or more Senior Lenders and as indicated in a written notice provided to Subordinated Lender by Borrower or Guarantor and such Senior Lender(s) stating that such agent has been requested and authorized to act as agent for such Senior Lender(s) hereunder pursuant to the terms of the applicable Senior Credit Agreement (s). Guarantor agrees that any Agent, to the extent it may so act hereunder, shall exercise all of the rights and remedies hereunder on behalf of, and as agent for the benefit of, each of such Senior Lenders. Without limiting the generality of the foregoing, such Agent is authorized to execute and deliver, from time to time, on behalf of the applicable Senior Lender(s), any and all amendments and modifications to this Guaranty and any and all waivers to any conditions herein or any default hereunder. 1.2 Bankruptcy or Liquidation Event. (a) Any dissolution, winding-up or liquidation of a Debtor, partial or complete, whether or not involving insolvency or bankruptcy proceedings, (b) any bankruptcy, insolvency, receivership or other statutory or common law proceedings or assignment for the benefit of creditors involving a Debtor or any marshalling of the assets or liabilities of a Debtor, (c) any proceeding by or against a Debtor for relief of any kind under any bankruptcy or insolvency law(s) relating to the relief of debtors or readjustments, reorganizations, compositions or extensions of indebtedness, or (d) any other marshalling of the assets of any Debtor. 1.3 Debtor. Borrower, Guarantor or any of their respective Affiliates. 1.4 Liabilities. When used with respect to any Debtor, the term "Liabilities" shall mean indebtedness, obligations and liabilities of such Debtor to the designated Person(s), whether the same is now existing or hereafter arising, direct or indirect, absolute or contingent, secured or unsecured, liquidated or unliquidated, matured or unmatured, disputed or undisputed, legal or equitable, and however made or evidenced. 1.5 Maximum Senior Debt Amount. The sum of (a) $75,000,000 plus (b) any additional Indebtedness incurred as permitted under Section 6.1 of the Subordinated Note Purchase Agreement. 1.6 Payment in Full. The expressions "prior payment in full", "payment in full", "paid or satisfied in full", "paid in full" and any other similar phrases, when used herein with respect to the Senior Obligations, shall mean the indefeasible, full and final payment in cash, in immediately available funds, of all the Senior Obligations, whether or not any of the Senior Obligations shall have been voided, disallowed or subordinated pursuant to any provisions of the United States Bankruptcy Code or any applicable state fraudulent conveyance laws, in any case whether asserted directly or indirectly. 1.7 Required Senior Lenders. For purposes of Sections 2.7 and 2.8 of this Part D, those Senior Lenders having the right to consent to amendments of the Subordinated Documents and to approve agreements effecting any transfer of the Subordinated Obligations, respectively, pursuant to the terms of their respective Senior Credit Agreements. 1.8 Senior Covenant Default. Any "Event of Default", as defined in any agreement pertaining to Senior Obligations, other than a Senior Payment Default. 1.9 Senior Credit Agreements. Any and all loan agreements, credit agreements, indentures, reimbursement agreements and other agreements providing for the extension of credit to Borrower by one or more Senior Lenders (including but not limited to the credit agreement entered into by Borrower with Acorn Capital Group, LLC, a Delaware limited liability company, dated as of May __, 2004), in each case as the same may be amended, extended, renewed, restated, supplemented or otherwise modified from time to time in accordance with their respective terms, and any additional agreement or agreements entered into from time to time governing Indebtedness incurred to refinance, replace, restructure or refund in whole or in part the extensions of credit and the maximum commitments thereunder and under such additional agreement(s) (whether, in any case, with the original Senior Lender and its successors and assigns or otherwise, and whether provided under the original Senior Credit Agreement or other credit agreements or otherwise). 1.10 Senior Credit Documents. The Senior Credit Agreements, the Senior Notes, the Senior Security Documents and any and all other documents pertaining to Senior Obligations. 1.11 Senior Default. A Senior Payment Default or a Senior Covenant Default. 1.12 Senior Lender. Any holder of any Senior Obligation (including any Affiliate of such Senior Lender and their respective successors and assigns). 1.13 Senior Notes. Any and all promissory notes issued pursuant to any and all of the Senior Credit Agreements. 1.14 Senior Obligations. All Liabilities of any or all of the Debtors designated from time to time as Senior Obligations by a written notice to Subordinated Lender from Borrower or Guarantor (including without limitation interest accruing after the maturity of such Liabilities and interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or similar proceeding relating to any Debtor, whether or not such post-filing or post-petition interest is allowed in such proceeding and whether the applicable Senior Lender(s) is (or are) oversecured or undersecured) and other fees, charges and other amounts due on or under the applicable Senior Credit Agreements, Senior Notes and Senior Security Documents. Notwithstanding the foregoing, in no event shall the aggregate principal amount of all Senior Obligations exceed the Maximum Senior Debt Amount (as defined in Section 1.5 above). The term "Senior Obligations" shall include any renewals, extensions, refinancings, modifications or refundings of the Liabilities described above in this Section 1.14. 1.15 Senior Payment Default. Any default in the payment of principal, interest or fees under any Senior Obligation when due in accordance with the terms and conditions thereof. 1.16 Senior Security Documents. Any and all guaranties, security agreements, pledge agreements and other documents pursuant to which any of the Senior Obligations are secured, including without limitation the Conditional Guaranty of even date herewith executed and delivered by Guarantor and Leasecomm in favor of Acorn Capital Group, LLC. 1.17 Subordinated Default. Any "Event of Default", as defined in the Subordinated Note Purchase Agreement. 1.18 Subordinated Documents. The Subordinated Note Purchase Agreement, the Notes, this Guaranty, the Warrant Certificates, the Registration Rights Agreement and any and all other documents pertaining to Subordinated Obligations. 1.19 Subordinated Obligations. All Liabilities owed by any or all of the Debtors to Subordinated Lender, including without limitation all such Liabilities (a) in respect of subrogation rights under any guaranty or any other rights to be subrogated to the rights of the holders of the Senior Obligations in respect of payments or distributions of assets of, or ownership interests in, the Debtors made on the Senior Obligations, (b) under the Subordinated Note Purchase Agreement and the Subordinated Notes, (c) under this Guaranty and (d) as compensation or in respect of any ownership interests (or warrants, options or other rights for the purchase thereof) in any Debtor issued or sold to Subordinated Lender, including without limitation the Warrant Certificates and the Warrant Shares, whether by dividend, redemption, repurchase or otherwise. 2. Terms of Subordination. 2.1 Subordination. Subordinated Lender hereby (a) covenants and agrees that the Subordinated Obligations are and shall be subordinate and subject in right of payment to the prior payment in full of all of the Senior Obligations, whether or not any portion of the Senior Obligations shall have been voided, disallowed or subordinated pursuant to Section 548 of the United States Bankruptcy Code or any applicable state fraudulent conveyance laws, whether asserted directly or under Section 544 of the United States Bankruptcy Code, and (b) irrevocably directs Guarantor to make such payment in full, and all other payments in respect of the Senior Obligations contemplated by this Guaranty and referred to below, to Senior Lenders (or their Agent(s), as applicable) before making any payments or distributions of any kind in respect of the Subordinated Obligations, except as provided in Section 2.4. In furtherance of the foregoing, Subordinated Lender will not demand, accept or receive, any payment of interest, principal or any other amount on account of the Subordinated Obligations or as a sinking fund for any Subordinated Obligations, or in respect of any redemption, retirement, prepayment, purchase or other acquisition of any Subordinated Obligations, including without limitation any dividends or other distributions, or exercise any right of set-off or recoupment until all of the Senior Obligations shall have been paid in full. 2.2 Distributions in Bankruptcy or Liquidation Events. (a) Distributions. Anything in the Subordinated Documents to the contrary notwithstanding, in the event of any distribution, division or application, in whole or in part, voluntary or involuntary, by operation of law or otherwise, of the assets of any Debtor or the proceeds thereof, to or for the benefit of any of the Debtors' creditors arising by reason of a Bankruptcy or Liquidation Event, then all Senior Obligations shall first be paid in full before any payment is made upon any Subordinated Obligations; and any payment or distribution of any kind or character (whether in cash, property or securities and whether or not any of such Senior Obligations has been disallowed, or estimated for purpose of allowance, under the United States Bankruptcy Code or otherwise) made upon or in respect of the Subordinated Obligations in violation of this Guaranty shall be paid over to Senior Lenders (or their Agent(s), as applicable), for application in payment of the Senior Obligations, unless and until the Senior Obligations shall have been paid or satisfied in full. (b) Authority to Act for Creditor. If Subordinated Lender fails to file a proper claim or proof of debt therefor prior to thirty (30) days before the expiration of the time to file such claim or proof, then Senior Lenders (and/or their Agent(s), as applicable) are hereby permitted and authorized (but not obligated) for the specified and limited purpose set forth in this paragraph, to file such claim or proof for or on behalf of such holder at any time prior to the expiration of the time to file such claim or proof; provided, however, that Senior Lenders (and/or such Agent(s)) shall promptly deliver a copy of any such claim or proof so filed to Subordinated Lender. Upon written request of any Senior Lender (or any Agent, as applicable), Subordinated Lender shall confirm to Senior Lenders (and such Agent) whether Subordinated Lender shall have in fact filed a proof of claim in order for the Senior Lenders (and their Agent(s), as applicable) to exercise their rights in this paragraph. Nothing contained in this Guaranty shall be interpreted or construed to impair the voting rights of Subordinated Lender in any meeting relating to any Reorganization or Liquidation Event, except that Subordinated Lender hereby covenants to Senior Lenders that Subordinated Lender shall not vote in favor of any reorganization plan (whether under Chapter 11 of the United States Bankruptcy Code or other statute or law) that any Senior Lender opposes. (c) Additional Action. Subordinated Lender agrees duly and promptly to file appropriate proofs of claim in respect of the Subordinated Obligations and to execute and deliver to Senior Lenders, or their Agent(s), as applicable, promptly following request, such assignments, proofs of claim or other instruments as may be reasonably requested by any Senior Lender (and/or their Agent(s)) to enable Senior Lender (and/or their Agent(s)) to enforce any and all claims upon or with respect to the Subordinated Obligations and to collect and receive any and all payments and distributions which may be payable or deliverable at any time upon or with respect to the Subordinated Obligations. (d) Payments Held in Trust. In the event that any payment of principal or interest or other payment or distribution of assets of any Debtor shall be collected or received by Subordinated Lender in violation of the subordination provisions of this Part D, before payment in full of all of the Senior Obligations, Subordinated Lender shall forthwith deliver the same to Senior Lenders (and/or their Agent(s), as applicable), in the form received, together with any endorsement and assignment necessary to make such delivery, for application to the Senior Obligations, whether then due or not due. If Subordinated Lender shall fail to make such endorsement or assignment, Senior Lenders (or such Agent(s) or any of their respective officers) are hereby irrevocably authorized to make the same. Until so delivered, Subordinated Lender shall hold such payment or distribution in trust as the property of Senior Lenders, segregated from all other funds and property held by Subordinated Lender. 2.3 [Reserved.] 2.4 Limitation on Exercise of Remedies by Subordinated Lender. (a) In the event that any Subordinated Default shall occur, Subordinated Lender shall not be entitled to, and will not, (i) ask, demand or sue for, or take or receive from any Debtor, by set-off or otherwise, payment of all or any portion of the Subordinated Obligations under this Guaranty or any collateral provided therefor; (ii) accelerate any Subordinated Obligations; (iii) exercise any of its remedies in respect of any Subordinated Obligations; (iv) initiate or join in any litigation or other proceedings against, or reorganization of, any Debtor; or (v) foreclose or otherwise realize on any security given by any Debtor or any other Person (including any guarantor) to secure the Subordinated Obligations; in any such case unless and until the earliest to occur of the following: (A) Senior Lenders shall have caused the Senior Obligations to become due prior to their stated maturity and shall have commenced the exercise of material remedies under the Senior Security Documents; (B) a Subordinated Default pursuant to Section 7.1(h) or 7.1(i) of the Subordinated Note Purchase Agreement shall have commenced; and (C) any other Subordinated Default shall have occurred under the Subordinated Note Purchase Agreement and Subordinated Lender shall have provided to the Senior Lenders (and their Agent(s), as applicable), Borrower and Guarantor written notice of Subordinated Lender's ability (under the terms of the Subordinated Note Purchase Agreement) to accelerate on account of the occurrence of such Subordinated Default (a "Remedy Notice"), such Remedy Notice shall have been received by Senior Lenders (and such Agents), Borrower and Guarantor and 180 days shall have elapsed following such receipt (in any such case, the "Remedy Standstill Period"). (b) Notwithstanding the foregoing, the Remedy Standstill Period shall be inapplicable or cease to be effective if Senior Lenders shall have caused the Senior Obligations to become due prior to their stated maturity and shall have commenced the exercise of material remedies under the Senior Security Documents or a Subordinated Default pursuant to Section 7.1(h) or 7.1(i) of the Subordinated Note Purchase Agreement shall have occurred. (c) Upon the expiration or termination of any Remedy Standstill Period, Subordinated Lender shall be entitled to exercise any of its rights with respect to the Subordinated Obligations (but otherwise subject to the subordination and other provisions of this Guaranty) other than any right to accelerate the maturity date of any Subordinated Obligation based upon the occurrence of any Subordinated Default in respect thereto which has been cured or otherwise remedied during such Remedy Standstill Period. 2.5 Covenants to Cooperate. In addition to its agreements set forth in Section 2.4, Subordinated Lender, in its capacity as a holder of Subordinated Obligations, agrees to take such actions as may be reasonably necessary or appropriate, and otherwise to cooperate with Senior Lenders (and their Agent(s), as applicable) to effectuate the subordination provided hereby. In furtherance thereof, Subordinated Lender agrees (a) not to oppose any motion filed or supported by any Senior Lender for relief from stay or for adequate protection in respect of the Senior Obligations; (b) not to oppose any motion supported by any Senior Lender for any Debtor's use of cash collateral or post-petition borrowing from any Senior Lender; (c) not to institute against any Debtor any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any United States Federal or state bankruptcy or similar law, until such time as the Senior Obligations have been paid in full; and (d) not otherwise to (i) impede, interfere with or restrict or restrain the exercise by Senior Lenders (and their Agent(s), as applicable) of their rights and remedies under the Senior Credit Documents or (ii) take or permit any action prejudicial to or inconsistent with the priority position over Subordinated Lender that is created in favor of Senior Lenders by this Guaranty. 2.6 Violation of Agreements to Take No Action and Cooperate. If Subordinated Lender shall commence, prosecute or participate in any suit, action or proceeding against any Debtor or take any other action in any legal proceeding involving any Debtor in violation of this Guaranty, such Debtor may interpose this Guaranty as a defense or plea and each of Senior Lenders (and each of their Agent(s), as applicable) are irrevocably authorized to intervene and to interpose such defense or plea in its or any Debtor's name. Without limiting the generality of Section 3 below, if Subordinated Lender attempts to enforce or realize upon any security for the Subordinated Obligations in violation of this Guaranty, any Debtor, any Senior Lender or any Agent (in such Debtor's, such Senior Lender's or such Agent's name) may by virtue of this Guaranty restrain such realization or enforcement. 2.7 No Amendment of Subordinated Obligations. Subordinated Lender shall not, without the prior written consent of the Required Senior Lenders, amend or permit the amendment of the terms of this Guaranty or any other instrument or agreement evidencing any Subordinated Obligations the effect of which is to (a) increase the maximum principal amount or rate of interest under the Subordinated Notes (it being understood that the imposition of a default rate of interest contained in the Subordinated Documents as in effect on the date hereof shall not be restricted by this clause (a)), (b) accelerate the dates (including maturity dates) upon which payments of principal or interest on the Subordinated Notes are due, (c) add or make more restrictive any event of default, any financial covenant (including the definitions applicable thereto) or any other covenant with respect to the Subordinated Notes set forth in the Subordinated Documents (as in effect on the date hereof), (d) change the redemption or prepayment provisions of the Subordinated Notes, (e) amend the Warrant Certificates to increase the shares of capital stock of the Parent issuable upon exercise thereof, (f) provide for the issuance to Subordinated Lender of any additional warrants or other equity securities in any Debtor in violation of any Senior Credit Agreement, or (g) change, amend or supplement any other term of the Subordinated Documents if such change, amendment or supplementation would materially increase the obligations of Borrower or confer additional material rights on Subordinated Lender or any other holder of the Subordinated Notes in a manner adverse to Borrower, Guarantor or any Senior Lender (or any Agent). 2.8 No Transfer of Subordinated Obligations. Subordinated Lender will not sell, assign or transfer any of its interest in the Subordinated Obligations, unless the buyer, assignee or transferee thereof shall agree in writing to become bound by the provisions of this Part D pursuant to a written agreement in form and substance satisfactory to the Required Senior Lenders (or their Agent(s), as applicable) executed by the buyer, assignee or transferee, an original copy of which shall have been furnished to Senior Lenders (and such Agent(s)). In addition, Subordinated Lender shall not grant or agree to any subordination in respect of the Subordinated Obligations or grant a security interest or participation in any of the Subordinated Obligations to any Person other than the Senior Lenders. In addition, Subordinated Lender shall not grant or agree to any subordination in respect of the Subordinated Obligations or grant a security interest or participation in any of the Subordinated Obligations to any Person other than Senior Lenders and to Persons to whom Senior Lenders shall have granted or agreed to any subordination in respect of the Senior Obligations or granted a security interest or participation in any of the Senior Obligations. 3. No Collateral. Subordinated Lender will not take or enjoy any collateral to secure the Subordinated Obligations. Without limiting the generality of the foregoing, none of the Senior Lenders (or their Agent(s), as applicable) shall have any duty to Subordinated Lender with respect to the preservation or maintenance of any collateral or the manner in which the Senior Lenders (or such Agent(s)) enforce their respective rights in such collateral or to preserve or maintain the rights of any Person in any collateral, and Subordinated Lender hereby waives (a) any claims which it may now or hereafter have against Senior Lenders (or such Agent(s)) which relate to such preservation, maintenance or enforcement and (b) the right to require Senior Lenders (or such Agent(s)) to marshal any collateral, to enforce any security interest or lien Senior Lenders (or such Agent(s)) may now or hereafter have in any collateral securing the Senior Obligations or to pursue any claim any of Senior Lenders (or any such Agent) may have against any guarantor of the Senior Obligations, as a condition to Senior Lenders' (and such Agent(s)') entitlement to receive any payment on account of the Subordinated Obligations. 4. Agreements with Respect to Loan Documents. (a) Subordinated Lender hereby agrees that at any time, and from time to time, without the consent of, or notice to, Subordinated Lender, the Senior Lenders (and their Agent(s), as applicable) may, in their sole discretion, (i) modify or amend (with consent of other parties to the agreements so affected), grant consents under and waivers of or release any of the terms of the Senior Credit Agreements, the Senior Notes, the Senior Security Documents or any of the other Senior Credit Documents, (ii) exercise or refrain from exercising any powers or rights which the Senior Lenders (and such Agent(s)) may have thereunder and (iii) make loans and other financial accommodations to the Debtors in addition to the loans made on the date hereof, it being understood and agreed that no such modification, amendment, consent, waiver, release, exercise, failure to exercise or financial accommodation shall affect, release, or impair any of the subordination rights or other rights and benefits afforded to the Senior Lenders (and such Agent(s)) under this Guaranty or give rise to any liabilities on the part of the Senior Lenders (or such Agent(s)) to Subordinated Lender. Notwithstanding the foregoing, no such amendment, restatement, waiver, or other modification shall, without the prior written consent of Subordinated Lender, (A) increase the principal amount of the Senior Obligations in excess of the Maximum Senior Debt Amount then in effect, (B) further limit the right of the Debtors to amend or otherwise modify the Subordinated Agreements, or (C) prohibit or restrict the payment of principal of, interest on, or other amounts payable with respect to, the Subordinated Notes in a manner that is more restrictive than the prohibitions and restrictions currently contained in the Senior Credit Documents (as in effect as of the date hereof). (b) Without limiting the generality of the foregoing, no right of Senior Lenders (or their Agent(s), as applicable) to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any act or failure to act on the part of any Debtor or Subordinated Lender, or by any act or failure to act of Senior Lenders (or such Agent(s)), or by any non-compliance by any Debtor with any of the terms, provisions and covenants of this Guaranty or any other Senior Credit Document, regardless of any knowledge thereof that the Senior Lenders (or such Agent(s)) may have or be charged with. 5. Relative Rights. Nothing contained in this Section 5 is intended to or shall impair, as between each Debtor, its creditors other than Senior Lenders, and Subordinated Lender, the obligation of such Debtor, which is absolute and unconditional, to pay to Subordinated Lender when due the principal of and the interest on the Subordinated Obligations, or is intended to or shall affect the relative rights of Subordinated Lender and the creditors of each Debtor other than Senior Lenders. 6. Subrogation. After all amounts payable under or in respect of Senior Obligations are indefeasibly paid in full in cash, Subordinated Lender shall be subrogated to the rights of holders of Senior Obligations to receive payments or distributions applicable to Senior Obligations to the extent that distributions otherwise payable to Subordinated Lender have been applied to the payment of Senior Obligations. A distribution made under this Part D to a holder of Senior Obligations which otherwise would have been made to Subordinated Lender is not, as between the applicable Debtor, on the one hand, and Subordinated Lender, on the other hand, a payment by any Debtor on Senior Obligations. 7. Reliance. Subordinated Lender acknowledges notice that, in entering into the Senior Credit Agreements and electing to hold the Senior Obligations, each of Senior Lenders is relying, and will rely, on the subordination of the Subordinated Obligations provided herein. Subordinated Lender expressly waives all notice of the acceptance of, or reliance on, the provisions of this Part D by the Senior Lenders. 8. Miscellaneous. 8.1 Conforming Agreement; Reinstatement. The agreements of Guarantor and Subordinated Lender set forth in this Part D shall be continuing agreements and shall be irrevocable and shall remain in full force and effect so long as there are Senior Obligations outstanding or committed to be advanced. The liability of Subordinated Lender hereunder shall be reinstated and revived, and the rights of Senior Lenders (and their Agent(s), as applicable) shall continue, with respect to any amount at any time paid on account of the Senior Obligations which shall thereafter be required to be restored or returned by any Senior Lender in any Bankruptcy or Liquidation Event (including without limitation any repayment made pursuant to any provision of Chapter 5 of Title 11, United States Code), all as though such amount had not been paid. 8.2 Application of Payments. Subordinated Lender hereby agrees that all payments received by Senior Lenders (or their Agent(s), as applicable) may be applied, reversed and reapplied, in whole or in part, to such part of the Senior Obligations as Senior Lenders, in their sole discretion, deem appropriate, in accordance with the provisions of their respective Senior Credit Agreements. 8.3 Specific Performance. Subordinated Lender hereby waives any defense based on the adequacy of a remedy at law that might be asserted as a bar to the remedy of specific performance of this Guaranty in any action brought therefor by or on behalf of the Senior Lenders. 8.4 Modification of Part D. The provisions of this Part D are for the benefit of the holders from time to time of Senior Obligations and, so long as any Senior Obligations remain unpaid, may not be modified, rescinded or canceled in whole or in part (except insofar as the effect thereof would be to cause such provisions to be more favorable to Senior Lenders, without the prior written consent thereto of all the Senior Lenders. E. Miscellaneous. 1. Notices. Any notice delivered under this Guaranty shall be given in the manner, to the addresses and with the effect set forth in Section 8.1 of the Subordinated Note Purchase Agreement. 2. Amendments. Any term of this Guaranty may be amended, waived, discharged or terminated only by an instrument in writing signed by each party to this Guaranty and only as permitted under Section D(8.4) hereof. No notice to or demand on Guarantor shall be deemed to be a waiver of the Obligations or of the right of Subordinated Lender to take further action without notice or demand as provided in this Guaranty. No course of dealing between Guarantor and Subordinated Lender shall change, modify or discharge, in whole or in part, this Guaranty or any Obligations. No waiver of any term, covenant or provision of this Guaranty shall be effective unless given in writing by Subordinated Lender and if so given shall only be effective in the specific instance in which given. 3. Successors and Assigns. The provisions of this Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Guarantor may not assign or otherwise transfer any of its rights or Obligations hereunder without the prior written consent of Subordinated Lender (and any attempted assignment or transfer by Guarantor without such consent shall be null and void). 4. Severability. Any provision of this Guaranty held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 5. Right to Deal with Borrower. At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of Guarantor hereunder, Subordinated Lender may deal with Borrower in the same manner and as fully as if this Guaranty did not exist and shall be entitled, among other things, to grant Borrower, without notice or demand and without affecting Guarantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under any Subordinated Debt Document or any other document evidencing Obligations of Borrower to Subordinated Lender, or to waive any obligation of Borrower to perform any act or acts, as Subordinated Lender may deem advisable. 6. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY SUBORDINATED DEBT DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, GUARANTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY SUBORDINATED DEBT DOCUMENT. EACH PARTY TO THIS GUARANTY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 8.1 OF THE SUBORDINATED NOTE PURCHASE AGREEMENT. NOTHING IN THIS GUARANTY WILL AFFECT THE RIGHT OF ANY PARTY TO THIS GUARANTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. 7. Headings; Counterparts. Article and Section headings and the table of contents (if applicable) used herein are for convenience of reference only, are not part of this Guaranty and shall not affect the construction of, or be taken into consideration in interpreting, this Guaranty. This Guaranty may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Guaranty or of any other Subordinated Debt Document by telecopy shall be effective as delivery of a manually executed counterpart of this Guaranty or of such other Subordinated Debt Document. 8. No Waiver; Rights Cumulative. No course of dealing between Guarantor and Subordinated Lender, or Subordinated Lender's failure to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Any single or partial exercise of any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. All of Subordinated Lender's rights and remedies hereunder, whether established hereby or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently. 9. No Partnership. The relationship between Subordinated Lender and Guarantor shall be only of creditor-debtor and no relationship of agency, partner or joint- or co-venturer shall be created by or inferred from this Guaranty or the other Subordinated Debt Documents. Guarantor shall indemnify, defend, and save Subordinated Lender harmless from any and all claims asserted against Subordinated Lender as being the agent, partner, or joint-venturer of Guarantor. 10. Entire Agreement. This Guaranty and the other Subordinated Debt Documents embody the entire agreement and understanding between Guarantor and Secured Party with respect to the subject matter hereunder and supersede all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Guarantor acknowledges and agrees that there is no oral agreement between Guarantor and Subordinated Lender which has not been incorporated in this Guaranty or another Subordinated Debt Document. 11. Other Guaranties. The execution and delivery of this Guaranty shall not supersede, terminate, modify or supplement in any manner any other guaranty previously executed and delivered to Subordinated Lender by Guarantor and no release or termination of any guaranty shall be construed to terminate or release any other guaranty unless such guaranty is specifically referred to in any such termination. F. Covenant of Guarantor. Guarantor hereby covenants and agrees that from and after the date hereof, it will not, nor will it permit Leasecomm to, originate any new lease financing business (other than through its [_____] division), it being understood and agreed that all new leases (other than [_____] leases) will be financed by Borrower after the date hereof. [ REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK ] IN WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty as of the day and year first above written. MICROFINANCIAL INCORPORATED By: -------------------------------- Name: ------------------------------ Title: ----------------------------- Commonwealth of Massachusetts) ) ss. County of ___________________) On May __, 2004, before me, a Notary Public, personally appeared , personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. SEAL Signature:______________________________ EX-10 10 exh_10-9.txt EXHIBIT 10.9 Exhibit 10.9 THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. MICROFINANCIAL INCORPORATED (Incorporated under the laws of The Commonwealth of Massachusetts) WARRANT CERTIFICATE No. 1 To Purchase 100,000 Shares of Common Stock This is to certify that, for value received, ACORN CAPITAL GROUP, LLC, having an office at Two Greenwich Office Park, Greenwich, CT 06831, or any subsequent holder hereof (the "HOLDER"), is entitled to purchase from MICROFINANCIAL INCORPORATED a Massachusetts corporation (the "COMPANY"), in whole or in part, at an exercise price of $6.00 per share, subject to adjustment as hereinafter provided (the "EXERCISE PRICE"), at any time after 9:00 a.m. (Boston time) on December 9, 2004 (the "EXERCISABLE DATE") and prior to 5:00 p.m. (Boston time) on June 10, 2007, (the "EXPIRATION DATE"), 100,000 shares of fully paid and non-assessable shares of the Common Stock $0.01 par value, of the Company (the "COMMON STOCK"). As used herein, the period from the First Exercisable Date through the Expiration Date shall be the "EXERCISE PERIOD". This Warrant Certificate, any other warrants issued as provided herein and any other warrants issued as provided in the Credit Agreement (as defined below), are hereinafter collectively referred to as the "WARRANTS" and all shares of Common Stock and other securities purchased or purchasable upon exercise of this Warrant are hereinafter collectively referred to as "WARRANT SHARES." The number of shares of Common Stock and the Exercise Price are subject to adjustment as hereinafter set forth. Capitalized terms used herein and not expressly defined herein shall have the meanings assigned thereto in that certain Credit Agreement dated as of June 10, 2004 by and among the Holder, TimePayment Corp. LLC and the Company, as amended, modified or restated from time to time (as amended, modified or restated, the "CREDIT AGREEMENT"). SECTION 1. EXERCISE OF WARRANT. 1.1 Time and Manner of Exercise. This Warrant may be exercised by the Holder hereof, in whole or in part, any time during the Exercise Period by surrender of this Warrant, with the form of subscription attached hereto (the "SUBSCRIPTION") completed and duly executed by such Holder, to the Company at its principal office at 10-M Commerce Way, Woburn, Massachusetts 01801, or at such other address as the Company may designate by notice in writing to the Holder hereof at the address of such Holder on the books of the Company. Notwithstanding the foregoing, the Holder may only exercise this Warrant in part if the Holder is exercising for at least 25,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) or all Warrant Shares represented by this Warrant, if less than 25,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) remain outstanding in the aggregate. 1.2 Payment. Payment in an amount equal to the product of (a) the number of shares of Common Stock designated in the Subscription, times (b) the Exercise Price shall be due to the Company, in cash or by certified or official bank check payable to the Company within five (5) Business Days after the date of exercise. 1.3 When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in subsection 1.1, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock (or of the other securities or property to which such Holder is entitled upon such exercise in accordance with the terms hereof) shall be issuable upon such exercise as provided in subsection 1.2, shall be deemed to have become the Holder or Holders of record thereof. 1.4 Delivery of Stock Certificates, etc. As soon as practicable after the exercise of this Warrant, in whole or in part, and in any event within 10 days thereafter, the Company at its expense will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder may direct: (a) a certificate or certificates for the number of full shares of Common Stock to which such Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Exercise Price of one full share of Common Stock, which shall be paid to the Holders thereof on the Business Day next preceding the date of such exercise; (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, for the number of shares of Common Stock in respect of which this Warrant shall not have been exercised; (c) each certificate representing shares of Common Stock issued upon exercise of this Warrant shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to, or in combination with, any other legend required under applicable state securities law and agreements or by-law provisions relating to the transfer of the Company's securities): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. SECTION 2. INVESTMENT REPRESENTATIONS. The Holder hereof understands that this Warrant (and the Common Stock issuable upon exercise of this Warrant) to be purchased by such Holder have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The Holder further understands that neither this Warrant nor the Common Stock issuable upon the exercise of this Warrant may be offered, sold or otherwise transferred, pledged or hypothecated unless or until this Warrant or the Common Stock issuable upon the exercise of this Warrant, as the case may be, is registered under the Securities Act or an exemption form such registration is available. The Holder hereof has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and to obtain any additional information necessary to verify the accuracy of the information given to such Holder. The Holder hereof represents that such Holder is an accredited investor under Rule 501(a) of Regulation D of the Securities Act and that such Holder is able to bear the economic risk of such Holder's investment in the Company contemplated hereby. The Holder is acquiring this Warrant for its own account for investment purposes without a view to any distribution thereof in violation of the Securities Act. SECTION 3. MAINTENANCE OF WARRANT REGISTER; ASSIGNMENT AND TRANSFER AND REPLACEMENT. 3.1 Registered Holders. The Company will maintain a register containing the name and address of the Holder of this Warrant. The "REGISTERED HOLDER" of this Warrant shall be the person in whose name such Warrant is registered in said warrant register. Any registered Holder of this Warrant may change such Holder's address as shown on the warrant register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the registered Holder of this Warrant shall be mailed, by certified or registered mail, return receipt requested, postage prepaid, or delivered to such registered Holder at its address as shown on the warrant register. 3.2 Assignment and Transfer of the Warrant. Subject to Section 9 and on the basis of the foregoing representations set forth in Section 2 above, this Warrant has not been registered under the Securities Act, and neither this Warrant nor the rights evidenced hereby shall be assigned, pledged, transferred or otherwise disposed of unless either (a) this Warrant first shall have been registered under the Securities Act, or (b) the Company first shall have been furnished with an opinion of legal counsel reasonably satisfactory to the Company stating that such sale or transfer is an exempted transaction under the Securities Act and, unless such opinion states that such Warrant may be transferred by the transferee immediately after acquisition without registration under the Securities Act, a written agreement by the transferee thereof not to sell or transfer such Warrant without complying with the requirements provided for in this subsection 3.2. Upon surrender of this Warrant to the Company for transfer as an entirety by the registered Holder (as permitted by this Section) at the offices of the Company referred to in Section 1.1 hereof, with the form of assignment attached hereto completed and duly executed by the registered Holder, the Company shall, at the Company's expense, issue a new Warrant of the same denomination to the assignee. 3.3 Replacement. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue a new Warrant of like tenor and denomination and deliver the same at the holder's expense (a) in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or (b) in lieu of the Warrant lost, stolen or destroyed, upon receipt of (i) a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction, and (ii) an indemnity reasonably satisfactory to the Company. SECTION 4. ADJUSTMENT OF STOCK ISSUABLE UPON EXERCISE. 4.1 Adjustment for Subdivisions, Combinations or Consolidation of Common Stock. If the outstanding shares of Common Stock are subdivided by stock split, stock dividends or otherwise, into a greater number of shares of Common Stock, concurrently with the effectiveness of such subdivision, the Exercise Price then in effect shall be proportionately decreased and the number of Warrant Shares shall be proportionately increased so that the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased in proportion to such increase in outstanding shares of Common Stock and the aggregate consideration payable upon the exercise of this Warrant with respect to the Warrant Shares before giving effect to such subdivision shall not change. If the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, concurrently with the effectiveness of such combination or consolidation, the Exercise Price then in effect shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased so that the number of shares of Common Stock issuable upon the exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares of Common Stock and the aggregate consideration payable upon the exercise of this Warrant with respect to the Warrant Shares before giving effect to such combination or consolidation shall not change. 4.2 No Impairment. The Company will not, by amendment of its certificate of incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants hereunder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any share of stock receivable upon the exercise of the Warrants above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares upon the exercise of all Warrants at the time outstanding. 4.3 Certificate as to Adjustment. In each case of an adjustment in the number of shares of Common Stock or the number or type of other stock, securities or property receivable on the exercise of the Warrants, the Company at its expense shall cause its chief financial officer (who may be the independent public accountants then auditing the books of the Company) to compute such adjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (a) the number of Warrant Shares issuable upon exercise of this Warrant, and (b) the Exercise Price. The Company will forthwith mail a copy of each such certificate to each Holder of a Warrant at the time outstanding. 4.4. Notices of Record Date: In case: (a) the Company shall take a record of the Holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of the Warrants) for the purpose of any stock split, stock dividend, subdivision, combination or consolidation, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another person, or any conveyance of all or substantially all of the assets of the Company to another person, or (c) of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to each Holder of a Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of any stock split, stock dividend, subdivision, combination or consolidation, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is expected to take place, and the time, if any is to be fixed, as of which the Holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of the Warrants) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date specified in the notice on which any such action is to be taken. 4.5 Adjustments For Consolidation, Merger, Sale of Assets, Reorganization, Etc. If the Company effects a capital reorganization or reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the Common Stock), or sells or otherwise disposes of all or substantially all the properties and assets of the Company as an entirety to any other person, the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reorganization, reclassification, consolidation, merger, sale or other disposition, shall be entitled to receive, in lieu of the Common Stock issuable upon such exercise prior to such consummation, the kind and number of shares of stock or other securities or property of the Company or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such Holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition such Holder had exercised this Warrant. The provisions of this subsection 4.5 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. The Company shall not effect any such merger, consolidation, or similar reorganization in which the Company does not survive or in which its Common Stock changes, unless prior to or simultaneously with the consummation thereof the successor corporation shall assume by written instrument executed and mailed or delivered to the Holder of this Warrant at the last address of such Holder appearing on the books of the Company, the obligations to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 4.6 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of this Warrant after the effective date of such dissolution pursuant to this Section 4 to a bank or trust company as a trustee for the holders of this Warrant. 4.7 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 4, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation, or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any stock or other securities, including in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. 4.8 Calculations Made to Nearest Cent or Full Share. All calculations under this Section 4 shall be made to the nearest cent or to the nearest full share, as the case may be (with one-half of a cent or a share being rounded to the next highest full cent or share). SECTION 5. OTHER NOTICES. In case at any time: (a) the Company shall declare any dividend or other distribution upon its Common Stock payable in stock to the Holders of its Common Stock; or (b) the Company shall propose a subdivision of its outstanding Common Stock into a greater number of shares of Common Stock or propose a combination of its outstanding Common Stock into a smaller number of shares of Common Stock; or (c) the Company shall propose any capital reorganization or any reclassification of capital stock of the Company or any consolidation, merger or sale of all or substantially all of its properties and assets; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, and in each of said cases, the Company shall cause notice thereof to be mailed to the Holder of this Warrant at the last address appearing on the books of the Company or given by such Holder to the Company for the purpose of notice. Such notices shall be mailed at least twenty (20) days prior to the date on which the books of the Company shall close, or a record date shall be taken for such dividend, distribution, stock split or combination or issue of rights or to vote upon such capital reorganization, reclassification, consolidation, merger or sale of properties and assets, as the case may be, and shall specify such record date or date for the closing of the transfer books. SECTION 6. RESERVATION OF STOCK ISSUABLE UPON EXERCISE. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for issuance and delivery upon the exercise of this Warrant, such number of its shares of Common Stock as shall from time to time be issuable upon the exercise of this Warrant; and if at any time the number of authorized but unissued shares of its Common Stock shall not be sufficient for such purpose, the Company will take such corporate actions as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of its Common Stock to such number of shares as shall be sufficient for such purpose. SECTION 7. RIGHTS AS STOCKHOLDER. The registered Holder of this Warrant, as such, shall not be entitled to vote or receive dividends or be deemed the Holder of shares of Common Stock for any purpose, nor shall anything contained in this Warrant be construed to confer upon the registered Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any action by the Company (whether upon any recapitalization, issue of shares, reclassification of shares, consolidation, merger, conveyance or otherwise), receive notice of meetings or other action affecting stockholders (except for notices provided for in this Warrant), receive dividends or subscription rights, or otherwise until this Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have become deliverable as provided in Section 1 hereof, at which time the person or persons in whose name or names the certificate or certificates for the shares of Common Stock being purchased are to be issued shall be deemed the holder or holders of record of shares of Common Stock for all purposes. SECTION 8. REMEDIES. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. SECTION 9. TRANSFERABILITY. This Warrant may be transferred or assigned in whole or in part by the Holder either to an affiliate (as that term is defined in the Securities Act) of the Holder or to anyone else except for a competitor if the Holder has complied with the terms and conditions of (i) this Warrant and (ii) all applicable federal and state securities laws; provided however that (other than in the case of a transfer or assignment of this Warrant to an affiliate of the Holder), such compliance shall include, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company. Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Form of Assignment annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. For purposes of this Agreement, "competitor" shall mean any company that is primarily engaged in the business of manufacturing, selling, licensing or developing products that are competitive with products being manufactured, sold, leased, developed or licensed by the Company or any Subsidiary on or after the date hereof. Notwithstanding the foregoing, this Warrant may only be assigned in part if the Holder is assigning the right to receive at least 25,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) or all Warrant Shares represented by this Warrant if less than 25,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) remain outstanding in the aggregate. SECTION 10. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by recognized overnight courier first class registered or certified air mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. SECTION 11. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in The Commonwealth of Massachusetts and shall be construed and enforced in accordance with and governed by the laws of such commonwealth. All section headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or unenforceability of any other provision. IN WITNESS WHEREOF, MICROFINANCIAL INCORPORATED has caused this instrument to be duly executed by its duly authorized officer this ____ day of June, 2004. Attest: MICROFINANCIAL INCORPORATED By: - --------------------------------- ------------------------------------ Chief Financial Officer Name: Title: ELECTION TO PURCHASE MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, Massachusetts 01801 Ladies and Gentlemen: The undersigned hereby subscribes for _______ shares of the Common Stock of MICROFINANCIAL INCORPORATED covered by the within Warrant and tenders payment herewith in the amount of $________________ in accordance with the terms thereof. Such payment is hereby tendered in the form of $ in cash or certified or bank check. You are instructed as follows: 1. To issue certificate(s) for said shares to Name: Address: 2. To deliver said certificate(s) by registered mail, return receipt requested, to Name: Address: Very truly yours, [INSERT HOLDER] ---------------------------------------- Name: Title: Address: FORM OF ASSIGNMENT [To be signed only upon transfer of Warrant] For value received, the undersigned hereby sells, assigns and transfers unto ____________ _______________________________ the right represented by the within Warrant to purchase ___________ shares of Common Stock of MICROFINANCIAL INCORPORATED to which the within Warrant relates, and appoints _____________________ Attorney to transfer such right on the books of MICROFINANCIAL INCORPORATED with full power of substitution in the premises. Dated: ---------------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) (Address) Signed in the presence of: - ---------------------------------- EX-10 11 exh_10-10.txt EXHIBIT 10.10 Exhibit 10.10 THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. MICROFINANCIAL INCORPORATED (Incorporated under the laws of The Commonwealth of Massachusetts) WARRANT CERTIFICATE No. 2 To Purchase up to 191,685 Shares of Common Stock This is to certify that, for value received, AMPAC CAPITAL SOLUTIONS, LLC, having an office at 7380 Eastern Avenue, Suite 150, Las Vegas, Nevada, 89123, or any subsequent holder hereof (the "HOLDER"), is entitled to purchase from MICROFINANCIAL INCORPORATED a Massachusetts corporation (the "COMPANY"), in whole or in part, at an exercise price of $2.91 per share, subject to adjustment as hereinafter provided (the "EXERCISE PRICE"), at any time after 9:00 a.m. (Boston time) on December 9, 2004 (the "FIRST EXERCISABLE DATE") and prior to 5:00 p.m. (Boston time) on June 10, 2007, (the "EXPIRATION DATE"), 143,746 shares of fully paid and non-assessable shares of the Common Stock $0.01 par value, of the Company (the "COMMON STOCK"). In the event the Holder makes the second installment of the Loan available to TimePayment Corp. LLC on the Commitment Expiration Date, pursuant to Section 2.1(c) of the Note Agreement, the Holder shall be entitled to purchase from the Company, in whole or in part, at the Exercise Price during the Exercise Period (as defined below), an additional 47,939 shares of fully paid and non-assessable shares of Common Stock. As used herein, the period from the First Exercisable Date through the Expiration Date shall be the "EXERCISE PERIOD". This Warrant Certificate, any other warrants issued as provided herein and any other warrants issued as provided in the Note Agreement (as defined below), are hereinafter collectively referred to as the "WARRANTS" and all shares of Common Stock and other securities purchased or purchasable upon exercise of this Warrant are hereinafter collectively referred to as "WARRANT SHARES." The number of shares of Common Stock and the Exercise Price are subject to adjustment as hereinafter set forth. Capitalized terms used herein and not expressly defined herein shall have the meanings assigned thereto in that certain Note Purchase Agreement dated as of June 10, 2004 by and between the Holder and TimePayment Corp. LLC, as amended, modified or restated from time to time (as amended, modified or restated, the "NOTE AGREEMENT"). SECTION 1. EXERCISE OF WARRANT. 1.1 Time and Manner of Exercise. This Warrant may be exercised by the Holder hereof, in whole or in part, any time during the Exercise Period by surrender of this Warrant, with the form of subscription attached hereto (the "SUBSCRIPTION") completed and duly executed by such Holder, to the Company at its principal office at 10-M Commerce Way, Woburn, Massachusetts 01801, or at such other address as the Company may designate by notice in writing to the Holder hereof at the address of such Holder on the books of the Company. Notwithstanding the foregoing, the Holder may only exercise this Warrant in part if the Holder is exercising for at least 50,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) or all Warrant Shares represented by this Warrant, if less than 50,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) remain outstanding in the aggregate. 1.2 Payment. Payment in an amount equal to the product of (a) the number of shares of Common Stock designated in the Subscription, times (b) the Exercise Price shall be due to the Company, in cash, by certified or official bank check payable to the Company within five (5) Business Days after the date of exercise, or by forgiveness of amounts owed Ampac Capital Solutions, LLC pursuant to the terms and conditions of Section 3 of the Subordinated Promissory Note of TimePayment Corp. LLC executed and delivered to the Holder on the date hereof and all replacements thereof and substitutions therefore (the "SUBORDINATED PROMISSORY NOTE"). 1.3 Net Issue Election. The Holder hereof may elect to receive, without the payment by such Holder of any additional consideration, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of net issue subscription attached hereto duly executed by such Holder, at the office of the Company. Thereupon, the Company shall issue to such Holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: Y(A-B) --------- X = A where: X = the number of shares to be issued to such Holder pursuant to this Section. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Section. A = the fair market value of one share of Common Stock, as determined in accordance with the following provisions, as at the time the net issue election is made pursuant to this Section. B = the Exercise Price in effect under this Warrant at the time the net issue election is made pursuant to this Section. (a) "FAIR MARKET VALUE" means, with respect to one share of Common Stock, the average of the daily closing prices for a share of Common Stock on the five (5) consecutive trading days commencing immediately before the date of determination of such fair market value. The closing price for each day shall be: (i) if the Common Stock shall be listed or admitted to trading on any national securities exchange, the average of the last reported sales prices on the specified days (or if there is no reported sale on any such trading date, the average of the closing bid and asked prices on such trading date); (ii) if the Common Stock is not traded or admitted to trading on any national securities exchange, the closing price, if reported, or if the closing price is not reported, the average of the closing bid and asked prices, as reported by the New York Stock Exchange or similar source or, if no such source exists, as furnished by two members of the National Association of Securities Dealers, Inc., selected by the Company for that purpose, on the specified dates; (iii) if the Common Stock is not traded or admitted to trading on any national securities exchange or New York Stock Exchange, the Fair Market Value of such shares on such dates as determined in good faith by the Company's Board of Directors; (iv) if the date upon which a determination of the price is made is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's Articles of Organization, then all amounts to be payable per share to holders of the Common Stock pursuant to the Company's Articles of Organization in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the Articles of Organization, assuming for the purposes of this clause (iv) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding on such date. In the event that clause (iii) in the immediately preceding sentence is applicable, the Board of Directors of the Company shall promptly respond in writing to an inquiry by the Holder hereof as to the fair market value of one share of Common Stock. 1.4 When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in subsection 1.1, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock (or of the other securities or property to which such Holder is entitled upon such exercise in accordance with the terms hereof) shall be issuable upon such exercise as provided in subsection 1.2 or 1.3, as the case may be, shall be deemed to have become the Holder or Holders of record thereof. 1.5 Delivery of Stock Certificates, etc. As soon as practicable after the exercise of this Warrant, in whole or in part, and in any event within 10 days thereafter, the Company at its expense will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder may direct: (a) a certificate or certificates for the number of full shares of Common Stock to which such Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Exercise Price of one full share of Common Stock, which shall be paid to the Holders thereof on the Business Day next preceding the date of such exercise; (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, for the number of shares of Common Stock in respect of which this Warrant shall not have been exercised; (c) each certificate representing shares of Common Stock issued upon exercise of this Warrant shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to, or in combination with, any other legend required under applicable state securities law and agreements or by-law provisions relating to the transfer of the Company's securities): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. SECTION 2. INVESTMENT REPRESENTATIONS. The Holder hereof understands that this Warrant (and the Common Stock issuable upon exercise of this Warrant) to be purchased by such Holder have not been registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The Holder further understands that neither this Warrant nor the Common Stock issuable upon the exercise of this Warrant may be offered, sold or otherwise transferred, pledged or hypothecated unless or until this Warrant or the Common Stock issuable upon the exercise of this Warrant, as the case may be, is registered under the Securities Act or an exemption form such registration is available. The Holder hereof has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and to obtain any additional information necessary to verify the accuracy of the information given to such Holder. The Holder hereof represents that such Holder is an accredited investor under Rule 501(a) of Regulation D of the Securities Act and that such Holder is able to bear the economic risk of such Holder's investment in the Company contemplated hereby. The Holder is acquiring this Warrant for its own account for investment purposes without a view to any distribution thereof in violation of the Securities Act. SECTION 3. MAINTENANCE OF WARRANT REGISTER; ASSIGNMENT AND TRANSFER AND REPLACEMENT. 3.1 Registered Holders. The Company will maintain a register containing the name and address of the Holder of this Warrant. The "REGISTERED HOLDER" of this Warrant shall be the person in whose name such Warrant is registered in said warrant register. Any registered Holder of this Warrant may change such Holder's address as shown on the warrant register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the registered Holder of this Warrant shall be mailed, by certified or registered mail, return receipt requested, postage prepaid, or delivered to such registered Holder at its address as shown on the warrant register. 3.2 Assignment and Transfer of the Warrant. Subject to Section 9 and on the basis of the foregoing representations set forth in Section 2 above, this Warrant has not been registered under the Securities Act, and neither this Warrant nor the rights evidenced hereby shall be assigned, pledged, transferred or otherwise disposed of unless either (a) this Warrant first shall have been registered under the Securities Act, or (b) the Company first shall have been furnished with an opinion of legal counsel reasonably satisfactory to the Company stating that such sale or transfer is an exempted transaction under the Securities Act and, unless such opinion states that such Warrant may be transferred by the transferee immediately after acquisition without registration under the Securities Act, a written agreement by the transferee thereof not to sell or transfer such Warrant without complying with the requirements provided for in this subsection 3.2. Upon surrender of this Warrant to the Company for transfer as an entirety by the registered Holder (as permitted by this Section) at the offices of the Company referred to in Section 1.1 hereof, with the form of assignment attached hereto completed and duly executed by the registered Holder, the Company shall, at the Company's expense, issue a new Warrant of the same denomination to the assignee. 3.3 Replacement. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue a new Warrant of like tenor and denomination and deliver the same at the holder's expense (a) in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or (b) in lieu of the Warrant lost, stolen or destroyed, upon receipt of (i) a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction, and (ii) an indemnity reasonably satisfactory to the Company. SECTION 4. ADJUSTMENT OF STOCK ISSUABLE UPON EXERCISE. 4.1 Adjustment for Subdivisions, Combinations or Consolidation of Common Stock. If the outstanding shares of Common Stock are subdivided by stock split, stock dividends or otherwise, into a greater number of shares of Common Stock, concurrently with the effectiveness of such subdivision, the Exercise Price then in effect shall be proportionately decreased and the number of Warrant Shares shall be proportionately increased so that the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased in proportion to such increase in outstanding shares of Common Stock and the aggregate consideration payable upon the exercise of this Warrant with respect to the Warrant Shares before giving effect to such subdivision shall not change. If the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, concurrently with the effectiveness of such combination or consolidation, the Exercise Price then in effect shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased so that the number of shares of Common Stock issuable upon the exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares of Common Stock and the aggregate consideration payable upon the exercise of this Warrant with respect to the Warrant Shares before giving effect to such combination or consolidation shall not change. 4.2 No Impairment. The Company will not, by amendment of its certificate of incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants hereunder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any share of stock receivable upon the exercise of the Warrants above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares upon the exercise of all Warrants at the time outstanding. 4.3 Certificate as to Adjustment. In each case of an adjustment in the number of shares of Common Stock or the number or type of other stock, securities or property receivable on the exercise of the Warrants, the Company at its expense shall cause its chief financial officer (who may be the independent public accountants then auditing the books of the Company) to compute such adjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (a) the number of Warrant Shares issuable upon exercise of this Warrant, and (b) the Exercise Price. The Company will forthwith mail a copy of each such certificate to each Holder of a Warrant at the time outstanding. 4.4. Notices of Record Date: In case: (a) the Company shall take a record of the Holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of the Warrants) for the purpose of any stock split, stock dividend, subdivision, combination or consolidation, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another person, or any conveyance of all or substantially all of the assets of the Company to another person, or (c) of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to each Holder of a Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of any stock split, stock dividend, subdivision, combination or consolidation, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is expected to take place, and the time, if any is to be fixed, as of which the Holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of the Warrants) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date specified in the notice on which any such action is to be taken. 4.5 Adjustments For Consolidation, Merger, Sale of Assets, Reorganization, Etc. If the Company effects a capital reorganization or reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the Common Stock), or sells or otherwise disposes of all or substantially all the properties and assets of the Company as an entirety to any other person, the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reorganization, reclassification, consolidation, merger, sale or other disposition, shall be entitled to receive, in lieu of the Common Stock issuable upon such exercise prior to such consummation, the kind and number of shares of stock or other securities or property of the Company or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such Holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition such Holder had exercised this Warrant. The provisions of this subsection 4.5 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. The Company shall not effect any such merger, consolidation, or similar reorganization in which the Company does not survive or in which its Common Stock changes, unless prior to or simultaneously with the consummation thereof the successor corporation shall assume by written instrument executed and mailed or delivered to the Holder of this Warrant at the last address of such Holder appearing on the books of the Company, the obligations to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 4.6 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of this Warrant after the effective date of such dissolution pursuant to this Section 4 to a bank or trust company as a trustee for the holders of this Warrant. 4.7 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 4, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation, or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any stock or other securities, including in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. 4.8 Calculations Made to Nearest Cent or Full Share. All calculations under this Section 4 shall be made to the nearest cent or to the nearest full share, as the case may be (with one-half of a cent or a share being rounded to the next highest full cent or share). SECTION 5. OTHER NOTICES. In case at any time: (a) the Company shall declare any dividend or other distribution upon its Common Stock payable in stock to the Holders of its Common Stock; or (b) the Company shall propose a subdivision of its outstanding Common Stock into a greater number of shares of Common Stock or propose a combination of its outstanding Common Stock into a smaller number of shares of Common Stock; or (c) the Company shall propose any capital reorganization or any reclassification of capital stock of the Company or any consolidation, merger or sale of all or substantially all of its properties and assets; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, and in each of said cases, the Company shall cause notice thereof to be mailed to the Holder of this Warrant at the last address appearing on the books of the Company or given by such Holder to the Company for the purpose of notice. Such notices shall be mailed at least twenty (20) days prior to the date on which the books of the Company shall close, or a record date shall be taken for such dividend, distribution, stock split or combination or issue of rights or to vote upon such capital reorganization, reclassification, consolidation, merger or sale of properties and assets, as the case may be, and shall specify such record date or date for the closing of the transfer books. SECTION 6. RESERVATION OF STOCK ISSUABLE UPON EXERCISE. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for issuance and delivery upon the exercise of this Warrant, such number of its shares of Common Stock as shall from time to time be issuable upon the exercise of this Warrant; and if at any time the number of authorized but unissued shares of its Common Stock shall not be sufficient for such purpose, the Company will take such corporate actions as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of its Common Stock to such number of shares as shall be sufficient for such purpose. SECTION 7. RIGHTS AS STOCKHOLDER. The registered Holder of this Warrant, as such, shall not be entitled to vote or receive dividends or be deemed the Holder of shares of Common Stock for any purpose, nor shall anything contained in this Warrant be construed to confer upon the registered Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any action by the Company (whether upon any recapitalization, issue of shares, reclassification of shares, consolidation, merger, conveyance or otherwise), receive notice of meetings or other action affecting stockholders (except for notices provided for in this Warrant), receive dividends or subscription rights, or otherwise until this Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have become deliverable as provided in Section 1 hereof, at which time the person or persons in whose name or names the certificate or certificates for the shares of Common Stock being purchased are to be issued shall be deemed the holder or holders of record of shares of Common Stock for all purposes. SECTION 8. REMEDIES. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. SECTION 9. TRANSFERABILITY. This Warrant may be transferred or assigned in whole or in part by the Holder either to an affiliate (as that term is defined in the Securities Act) of the Holder or to anyone else except for a competitor if the Holder has complied with the terms and conditions of (i) this Warrant and (ii) all applicable federal and state securities laws; provided however that (other than in the case of a transfer or assignment of this Warrant to an affiliate of the Holder), such compliance shall include, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company. Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Form of Assignment annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. For purposes of this Agreement, "competitor" shall mean any company that is primarily engaged in the business of manufacturing, selling, licensing or developing products that are competitive with products being manufactured, sold, leased, developed or licensed by the Company or any Subsidiary on or after the date hereof. Notwithstanding the foregoing, this Warrant may only be assigned in part if the Holder is assigning the right to receive at least 50,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) or all Warrant Shares represented by this Warrant if less than 50,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) remain outstanding in the aggregate. SECTION 10. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by recognized overnight courier first class registered or certified air mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. SECTION 11. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in The Commonwealth of Massachusetts and shall be construed and enforced in accordance with and governed by the laws of such commonwealth. All section headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or unenforceability of any other provision. IN WITNESS WHEREOF, MICROFINANCIAL INCORPORATED has caused this instrument to be duly executed by its duly authorized officer this ____ day of June, 2004. Attest: MICROFINANCIAL INCORPORATED By: - ------------------------------------ ----------------------------------- Chief Financial Officer Name: Richard F. Latour Title: Chief Executive Officer ELECTION TO PURCHASE (CASH) MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, Massachusetts 01801 Ladies and Gentlemen: The undersigned hereby subscribes for _______ shares of the Common Stock of MICROFINANCIAL INCORPORATED covered by the within Warrant and tenders payment herewith in the amount of $________________ in accordance with the terms thereof. Such payment is hereby tendered in the form of $ _______in cash or certified or bank check. You are instructed as follows: 1. To issue certificate(s) for said shares to Name: Address: 2. To deliver said certificate(s) by registered mail, return receipt requested, to Name: Address: Very truly yours, [INSERT HOLDER] ------------------------------------- Name: Title: Address: ELECTION TO PURCHASE (FORGIVENESS OF DEBT) MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, Massachusetts 01801 Ladies and Gentlemen: The undersigned hereby subscribes for _______ shares of the Common Stock of MICROFINANCIAL INCORPORATED covered by the within Warrant and shall hereby forgive an aggregate amount of $_______ due and payable under the Subordinated Promissory Note in accordance with the terms and conditions of the Subordinated Promissory Note and the Warrant. You are instructed as follows: 1. To issue certificate(s) for said shares to Name: Address: 2. To deliver said certificate(s) by registered mail, return receipt requested, to Name: Address: Very truly yours, [INSERT HOLDER] ------------------------------------- Name: Title: Address: NET ISSUE ELECTION SUBSCRIPTION FORM (TO BE EXECUTED UPON EXERCISE OF WARRANT PURSUANT TO SECTION 1.3) The undersigned hereby irrevocably elects to exchange its Warrant for such shares of Common Stock pursuant to the Net Issue Election provisions of the within Warrant, as provided for in Section 1.3 of such Warrant. Please issue a certificate or certificates for such Common Stock in the name of: Name: ---------------------------------------------------------- Address: ---------------------------------------------------------- ---------------------------------------------------------- SSN: ---------------------------------------------------------- (Please PRINT name, address and social security number in the spaces provided above). Signature: ---------------------------------------------------------- Note: the above signature should correspond exactly with the name on the first page of the Warrant or with the name of the Assignee appearing on the assignment form attached to such Warrant. And if said number of shares shall not be all the shares exchangeable or purchasable under the within Warrant, a new Warrant is to be issued in the name of the above for the balance remaining of the shares purchasable rounded up to the next higher number of shares. FORM OF ASSIGNMENT [To be signed only upon transfer of Warrant] For value received, the undersigned hereby sells, assigns and transfers unto ____________ _______________________________ the right represented by the within Warrant to purchase ___________ shares of Common Stock of MICROFINANCIAL INCORPORATED to which the within Warrant relates, and appoints _____________________ Attorney to transfer such right on the books of MICROFINANCIAL INCORPORATED with full power of substitution in the premises. Dated: -------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) (Address) Signed in the presence of: - --------------------------------------- EX-10 12 exh_10-11.txt EXHIBIT 10.11 Exhibit 10.11 THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. MICROFINANCIAL INCORPORATED (Incorporated under the laws of The Commonwealth of Massachusetts) WARRANT CERTIFICATE No. 3 To Purchase up to 110,657 Shares of Common Stock This is to certify that, for value received, AMPAC CAPITAL SOLUTIONS, LLC, having an office at 7380 Eastern Avenue, Suite 150, Las Vegas, Nevada 89123, or any subsequent holder hereof (the "HOLDER"), is entitled to purchase from MICROFINANCIAL INCORPORATED a Massachusetts corporation (the "COMPANY"), in whole or in part, at an exercise price of $2.00 per share, subject to adjustment as hereinafter provided (the "EXERCISE PRICE"), at any time after 9:00 a.m. (Boston time) on December 9, 2004 (the "FIRST EXERCISABLE DATE") and prior to 5:00 p.m. (Boston time) on June 10, 2007, (the "EXPIRATION DATE"), 82,993 shares of fully paid and non-assessable shares of the Common Stock $0.01 par value, of the Company (the "COMMON STOCK"). In the event the Holder makes the second installment of the Loan available to TimePayment Corp. LLC on the Commitment Expiration Date, pursuant to Section 2.1(c) of the Note Agreement, the Holder shall be entitled to purchase from the Company, in whole or in part, at the Exercise Price during the Exercise Period (as defined below), an additional 27,664 shares of fully paid and non-assessable shares of Common Stock. As used herein, the period from the First Exercisable Date through the Expiration Date shall be the "EXERCISE PERIOD". This Warrant Certificate, any other warrants issued as provided herein and any other warrants issued as provided in the Note Agreement (as defined below), are hereinafter collectively referred to as the "WARRANTS" and all shares of Common Stock and other securities purchased or purchasable upon exercise of this Warrant are hereinafter collectively referred to as "WARRANT SHARES." The number of shares of Common Stock and the Exercise Price are subject to adjustment as hereinafter set forth. Capitalized terms used herein and not expressly defined herein shall have the meanings assigned thereto in that certain Note Purchase Agreement dated as of June 10, 2004 by and between the Holder and Timepayment Corp. LLC, as amended, modified or restated from time to time (as amended, modified or restated, the "NOTE AGREEMENT"). SECTION 1. EXERCISE OF WARRANT. 1.1 Time and Manner of Exercise. This Warrant may be exercised by the Holder hereof, in whole or in part, any time during the Exercise Period by surrender of this Warrant, with the form of subscription attached hereto (the "SUBSCRIPTION") completed and duly executed by such Holder, to the Company at its principal office at 10-M Commerce Way, Woburn, Massachusetts 01801, or at such other address as the Company may designate by notice in writing to the Holder hereof at the address of such Holder on the books of the Company. Notwithstanding the foregoing, the Holder may only exercise this Warrant in part if the Holder is exercising for at least 30,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) or all Warrant Shares represented by this Warrant, if less than 30,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) remain outstanding in the aggregate. 1.2 Payment. Payment in an amount equal to the product of (a) the number of shares of Common Stock designated in the Subscription, times (b) the Exercise Price shall be due to the Company, in cash, by certified or official bank check payable to the Company within five (5) Business Days after the date of exercise, or by forgiveness of amounts owed Ampac Capital Solutions, LLC pursuant to the terms and conditions of Section 3 of the Subordinated Promissory Note of TimePayment Corp. LLC executed and delivered to the Holder on the date hereof and all replacements thereof and substitutions therefore (the "SUBORDINATED PROMISSORY NOTE"). 1.3 Net Issue Election. The Holder hereof may elect to receive, without the payment by such Holder of any additional consideration, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of net issue subscription attached hereto duly executed by such Holder, at the office of the Company. Thereupon, the Company shall issue to such Holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: Y(A-B) --------- X = A where: X = the number of shares to be issued to such Holder pursuant to this Section. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Section. A = the fair market value of one share of Common Stock, as determined in accordance with the following provisions, as at the time the net issue election is made pursuant to this Section. B = the Exercise Price in effect under this Warrant at the time the net issue election is made pursuant to this Section. (a) "FAIR MARKET VALUE" means, with respect to one share of Common Stock, the average of the daily closing prices for a share of Common Stock on the five (5) consecutive trading days commencing immediately before the date of determination of such fair market value. The closing price for each day shall be: (i) if the Common Stock shall be listed or admitted to trading on any national securities exchange, the average of the last reported sales prices on the specified days (or if there is no reported sale on any such trading date, the average of the closing bid and asked prices on such trading date); (ii) if the Common Stock is not traded or admitted to trading on any national securities exchange, the closing price, if reported, or if the closing price is not reported, the average of the closing bid and asked prices, as reported by the New York Stock Exchange or similar source or, if no such source exists, as furnished by two members of the National Association of Securities Dealers, Inc., selected by the Company for that purpose, on the specified dates; (iii) if the Common Stock is not traded or admitted to trading on any national securities exchange or New York Stock Exchange, the Fair Market Value of such shares on such dates as determined in good faith by the Company's Board of Directors; (iv) if the date upon which a determination of the price is made is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's Articles of Organization, then all amounts to be payable per share to holders of the Common Stock pursuant to the Company's Articles of Organization in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the Articles of Organization, assuming for the purposes of this clause (iv) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding on such date. In the event that clause (iii) in the immediately preceding sentence is applicable, the Board of Directors of the Company shall promptly respond in writing to an inquiry by the Holder hereof as to the fair market value of one share of Common Stock. 1.4 When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in subsection 1.1, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock (or of the other securities or property to which such Holder is entitled upon such exercise in accordance with the terms hereof) shall be issuable upon such exercise as provided in subsection 1.2 or 1.3, as the case may be, shall be deemed to have become the Holder or Holders of record thereof. 1.4 Delivery of Stock Certificates, etc. As soon as practicable after the exercise of this Warrant, in whole or in part, and in any event within 10 days thereafter, the Company at its expense will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder may direct: (a) a certificate or certificates for the number of full shares of Common Stock to which such Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Exercise Price of one full share of Common Stock, which shall be paid to the Holders thereof on the Business Day next preceding the date of such exercise; (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, for the number of shares of Common Stock in respect of which this Warrant shall not have been exercised; (c) each certificate representing shares of Common Stock issued upon exercise of this Warrant shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to, or in combination with, any other legend required under applicable state securities law and agreements or by-law provisions relating to the transfer of the Company's securities): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. 1.5 Transfer of Warrant Shares. The Holder shall not be entitled to sell, transfer or pledge any Warrant Shares issued hereunder until six months after the Effective Date regardless of whether such sale, transfer or pledge is exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"). SECTION 2. INVESTMENT REPRESENTATIONS. The Holder hereof understands that this Warrant (and the Common Stock issuable upon exercise of this Warrant) to be purchased by such Holder have not been registered under the Securities Act or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The Holder further understands that neither this Warrant nor the Common Stock issuable upon the exercise of this Warrant may be offered, sold or otherwise transferred, pledged or hypothecated unless or until this Warrant or the Common Stock issuable upon the exercise of this Warrant, as the case may be, is registered under the Securities Act or an exemption form such registration is available. The Holder hereof has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and to obtain any additional information necessary to verify the accuracy of the information given to such Holder. The Holder hereof represents that such Holder is an accredited investor under Rule 501(a) of Regulation D of the Securities Act and that such Holder is able to bear the economic risk of such Holder's investment in the Company contemplated hereby. The Holder is acquiring this Warrant for its own account for investment purposes without a view to any distribution thereof in violation of the Securities Act. SECTION 3. MAINTENANCE OF WARRANT REGISTER; ASSIGNMENT AND TRANSFER AND REPLACEMENT. 3.1 Registered Holders. The Company will maintain a register containing the name and address of the Holder of this Warrant. The "REGISTERED HOLDER" of this Warrant shall be the person in whose name such Warrant is registered in said warrant register. Any registered Holder of this Warrant may change such Holder's address as shown on the warrant register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the registered Holder of this Warrant shall be mailed, by certified or registered mail, return receipt requested, postage prepaid, or delivered to such registered Holder at its address as shown on the warrant register. 3.2 Assignment and Transfer of the Warrant. Subject to Section 9 and on the basis of the foregoing representations set forth in Section 2 above, this Warrant has not been registered under the Securities Act, and neither this Warrant nor the rights evidenced hereby shall be assigned, pledged, transferred or otherwise disposed of unless either (a) this Warrant first shall have been registered under the Securities Act, or (b) the Company first shall have been furnished with an opinion of legal counsel reasonably satisfactory to the Company stating that such sale or transfer is an exempted transaction under the Securities Act and, unless such opinion states that such Warrant may be transferred by the transferee immediately after acquisition without registration under the Securities Act, a written agreement by the transferee thereof not to sell or transfer such Warrant without complying with the requirements provided for in this subsection 3.2. Upon surrender of this Warrant to the Company for transfer as an entirety by the registered Holder (as permitted by this Section) at the offices of the Company referred to in Section 1.1 hereof, with the form of assignment attached hereto completed and duly executed by the registered Holder, the Company shall, at the Company's expense, issue a new Warrant of the same denomination to the assignee. 3.3 Replacement. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue a new Warrant of like tenor and denomination and deliver the same at the holder's expense (a) in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or (b) in lieu of the Warrant lost, stolen or destroyed, upon receipt of (i) a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction, and (ii) an indemnity reasonably satisfactory to the Company. SECTION 4. ADJUSTMENT OF STOCK ISSUABLE UPON EXERCISE. 4.1 Adjustment for Subdivisions, Combinations or Consolidation of Common Stock. If the outstanding shares of Common Stock are subdivided by stock split, stock dividends or otherwise, into a greater number of shares of Common Stock, concurrently with the effectiveness of such subdivision, the Exercise Price then in effect shall be proportionately decreased and the number of Warrant Shares shall be proportionately increased so that the number of shares of Common Stock issuable upon the exercise of this Warrant shall be increased in proportion to such increase in outstanding shares of Common Stock and the aggregate consideration payable upon the exercise of this Warrant with respect to the Warrant Shares before giving effect to such subdivision shall not change. If the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, concurrently with the effectiveness of such combination or consolidation, the Exercise Price then in effect shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased so that the number of shares of Common Stock issuable upon the exercise of this Warrant shall be decreased in proportion to such decrease in outstanding shares of Common Stock and the aggregate consideration payable upon the exercise of this Warrant with respect to the Warrant Shares before giving effect to such combination or consolidation shall not change. 4.2 No Impairment. The Company will not, by amendment of its certificate of incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants hereunder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any share of stock receivable upon the exercise of the Warrants above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares upon the exercise of all Warrants at the time outstanding. 4.3 Certificate as to Adjustment. In each case of an adjustment in the number of shares of Common Stock or the number or type of other stock, securities or property receivable on the exercise of the Warrants, the Company at its expense shall cause its chief financial officer (who may be the independent public accountants then auditing the books of the Company) to compute such adjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (a) the number of Warrant Shares issuable upon exercise of this Warrant, and (b) the Exercise Price. The Company will forthwith mail a copy of each such certificate to each Holder of a Warrant at the time outstanding. 4.4. Notices of Record Date: In case: (a) the Company shall take a record of the Holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of the Warrants) for the purpose of any stock split, stock dividend, subdivision, combination or consolidation, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another person, or any conveyance of all or substantially all of the assets of the Company to another person, or (c) of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to each Holder of a Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of any stock split, stock dividend, subdivision, combination or consolidation, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is expected to take place, and the time, if any is to be fixed, as of which the Holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of the Warrants) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least twenty (20) days prior to the date specified in the notice on which any such action is to be taken. 4.5 Adjustments For Consolidation, Merger, Sale of Assets, Reorganization, Etc. If the Company effects a capital reorganization or reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the Common Stock), or sells or otherwise disposes of all or substantially all the properties and assets of the Company as an entirety to any other person, the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reorganization, reclassification, consolidation, merger, sale or other disposition, shall be entitled to receive, in lieu of the Common Stock issuable upon such exercise prior to such consummation, the kind and number of shares of stock or other securities or property of the Company or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such Holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition such Holder had exercised this Warrant. The provisions of this subsection 4.5 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. The Company shall not effect any such merger, consolidation, or similar reorganization in which the Company does not survive or in which its Common Stock changes, unless prior to or simultaneously with the consummation thereof the successor corporation shall assume by written instrument executed and mailed or delivered to the Holder of this Warrant at the last address of such Holder appearing on the books of the Company, the obligations to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 4.6 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of this Warrant after the effective date of such dissolution pursuant to this Section 4 to a bank or trust company as a trustee for the holders of this Warrant. 4.7 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 4, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation, or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any stock or other securities, including in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. 4.8 Calculations Made to Nearest Cent or Full Share. All calculations under this Section 4 shall be made to the nearest cent or to the nearest full share, as the case may be (with one-half of a cent or a share being rounded to the next highest full cent or share). SECTION 5. OTHER NOTICES. In case at any time: (a) the Company shall declare any dividend or other distribution upon its Common Stock payable in stock to the Holders of its Common Stock; or (b) the Company shall propose a subdivision of its outstanding Common Stock into a greater number of shares of Common Stock or propose a combination of its outstanding Common Stock into a smaller number of shares of Common Stock; or (c) the Company shall propose any capital reorganization or any reclassification of capital stock of the Company or any consolidation, merger or sale of all or substantially all of its properties and assets; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, and in each of said cases, the Company shall cause notice thereof to be mailed to the Holder of this Warrant at the last address appearing on the books of the Company or given by such Holder to the Company for the purpose of notice. Such notices shall be mailed at least twenty (20) days prior to the date on which the books of the Company shall close, or a record date shall be taken for such dividend, distribution, stock split or combination or issue of rights or to vote upon such capital reorganization, reclassification, consolidation, merger or sale of properties and assets, as the case may be, and shall specify such record date or date for the closing of the transfer books. SECTION 6. RESERVATION OF STOCK ISSUABLE UPON EXERCISE. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for issuance and delivery upon the exercise of this Warrant, such number of its shares of Common Stock as shall from time to time be issuable upon the exercise of this Warrant; and if at any time the number of authorized but unissued shares of its Common Stock shall not be sufficient for such purpose, the Company will take such corporate actions as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of its Common Stock to such number of shares as shall be sufficient for such purpose. SECTION 7. RIGHTS AS STOCKHOLDER. The registered Holder of this Warrant, as such, shall not be entitled to vote or receive dividends or be deemed the Holder of shares of Common Stock for any purpose, nor shall anything contained in this Warrant be construed to confer upon the registered Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any action by the Company (whether upon any recapitalization, issue of shares, reclassification of shares, consolidation, merger, conveyance or otherwise), receive notice of meetings or other action affecting stockholders (except for notices provided for in this Warrant), receive dividends or subscription rights, or otherwise until this Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have become deliverable as provided in Section 1 hereof, at which time the person or persons in whose name or names the certificate or certificates for the shares of Common Stock being purchased are to be issued shall be deemed the holder or holders of record of shares of Common Stock for all purposes. SECTION 8. REMEDIES. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. SECTION 9. TRANSFERABILITY. This Warrant may be transferred or assigned in whole or in part by the Holder either to an affiliate (as that term is defined in the Securities Act) of the Holder or to anyone else except for a competitor if the Holder has complied with the terms and conditions of (i) this Warrant and (ii) all applicable federal and state securities laws; provided however that (other than in the case of a transfer or assignment of this Warrant to an affiliate of the Holder), such compliance shall include, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company. Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Form of Assignment annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery. For purposes of this Agreement, "competitor" shall mean any company that is primarily engaged in the business of manufacturing, selling, licensing or developing products that are competitive with products being manufactured, sold, leased, developed or licensed by the Company or any Subsidiary on or after the date hereof. Notwithstanding the foregoing, this Warrant may only be assigned in part if the Holder is assigning the right to receive at least 30,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) or all Warrant Shares represented by this Warrant if less than 30,000 Warrant Shares (as adjusted for stock splits, stock dividends, subdivisions and the like) remain outstanding in the aggregate. In addition, this Warrant may not be transferred or assigned in whole or in part until six months after the Effective Date. SECTION 10. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by recognized overnight courier first class registered or certified air mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. SECTION 11. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in The Commonwealth of Massachusetts and shall be construed and enforced in accordance with and governed by the laws of such commonwealth. All section headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or unenforceability of any other provision. IN WITNESS WHEREOF, MICROFINANCIAL INCORPORATED has caused this instrument to be duly executed by its duly authorized officer this ____ day of June, 2004. Attest: MICROFINANCIAL INCORPORATED By: /s/ Richard F. Latour - ------------------------------------------ -------------------------------- Chief Financial Officer Name: Richard F. Latour Title: Chief Executive Officer ELECTION TO PURCHASE (CASH) MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, Massachusetts 01801 Ladies and Gentlemen: The undersigned hereby subscribes for _______ shares of the Common Stock of MICROFINANCIAL INCORPORATED covered by the within Warrant and tenders payment herewith in the amount of $________________ in accordance with the terms thereof. Such payment is hereby tendered in the form of $ _______in cash or certified or bank check. You are instructed as follows: 1. To issue certificate(s) for said shares to Name: Address: 2. To deliver said certificate(s) by registered mail, return receipt requested, to Name: Address: Very truly yours, [INSERT HOLDER] --------------------------------------- Name: Title: Address: ELECTION TO PURCHASE (FORGIVENESS OF DEBT) MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, Massachusetts 01801 Ladies and Gentlemen: The undersigned hereby subscribes for _______ shares of the Common Stock of MICROFINANCIAL INCORPORATED covered by the within Warrant and shall hereby forgive an aggregate amount of $_______ due and payable under the Subordinated Promissory Note in accordance with the terms and conditions of the Subordinated Promissory Note and the Warrant. You are instructed as follows: 1. To issue certificate(s) for said shares to Name: Address: 2. To deliver said certificate(s) by registered mail, return receipt requested, to Name: Address: Very truly yours, [INSERT HOLDER] ------------------------------------------- Name: Title: Address: NET ISSUE ELECTION SUBSCRIPTION FORM (TO BE EXECUTED UPON EXERCISE OF WARRANT PURSUANT TO SECTION 1.3) The undersigned hereby irrevocably elects to exchange its Warrant for such shares of Common Stock pursuant to the Net Issue Election provisions of the within Warrant, as provided for in Section 1.3 of such Warrant. Please issue a certificate or certificates for such Common Stock in the name of: Name: ---------------------------------------------------------- Address: ---------------------------------------------------------- ---------------------------------------------------------- SSN: ---------------------------------------------------------- (Please PRINT name, address and social security number in the spaces provided above). Signature: ---------------------------------------------------------- Note: the above signature should correspond exactly with the name on the first page of the Warrant or with the name of the Assignee appearing on the assignment form attached to such Warrant. And if said number of shares shall not be all the shares exchangeable or purchasable under the within Warrant, a new Warrant is to be issued in the name of the above for the balance remaining of the shares purchasable rounded up to the next higher number of shares. FORM OF ASSIGNMENT [To be signed only upon transfer of Warrant] For value received, the undersigned hereby sells, assigns and transfers unto ____________ _______________________________ the right represented by the within Warrant to purchase ___________ shares of Common Stock of MICROFINANCIAL INCORPORATED to which the within Warrant relates, and appoints _____________________ Attorney to transfer such right on the books of MICROFINANCIAL INCORPORATED with full power of substitution in the premises. Dated: -------------------------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) (Address) Signed in the presence of: - --------------------------------------------- EX-10 13 exh_10-12.txt EXHIBIT 10.12 Exhibit 10.12 MICROFINANCIAL INCORPORATED ACORN/AMPAC REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made as of this 10th day of June, 2004 by and among MicroFinancial Incorporated (the "COMPANY"), and each of the holders set forth on Schedule A attached hereto, along with their successors and assigns (the "HOLDERS"). W I T N E S S E T H: WHEREAS, the Company, TimePayment Corp. LLC and Acorn Capital Group, LLC ("ACORN") are parties to that certain Credit Agreement dated as of the date hereof pursuant to which the Company issued Acorn that certain warrant certificate to purchase shares of Common Stock of the Company dated as of the date hereof (the "ACORN WARRANT"); WHEREAS, the Company, TimePayment Corp. LLC and Ampac Capital Solutions, LLC ("AMPAC") are parties to that certain Note Purchase Agreement dated as of the date hereof pursuant to which the Company issued Ampac those certain warrant certificates to purchase shares of Common Stock of the Company dated as of the date hereof (the "AMPAC WARRANTS"); and WHEREAS, the Company and the Holders wish to enter into a Registration Rights Agreement as set forth herein to provide for registration of the shares of Common Stock issuable upon exercise of the Acorn Warrant and Ampac Warrants. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Incidental Registration. 1.1. If the Company at any time proposes to register any of its equity securities under the Securities Act (other than a Registration (i) relating to shares of Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or (ii) in connection with an acquisition by the Company of another company), whether as a result of a primary or secondary offering or pursuant to registration rights granted to holders of other securities of the Company, the Company shall, each such time, subject to the provisions of Section 1.2, give prompt written notice to the Holders of its intention to do so and of such Holders' rights under this Section 1, at least 20 days prior to the anticipated filing date of the Registration Statement relating to such Registration. Such notice shall offer all of the Holders the opportunity to include in such Registration Statement such number of Registrable Securities as each such Holder may request. Upon the written request of any such Holder made within 10 days after the receipt of the Company's notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder), the Company shall use its best efforts to effect the Registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof; provided, that (x) if such Registration involves an underwritten offering, all Holders requesting to be included in the Company's Registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company; and (y) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 1.1 and prior to the effective date of the Registration Statement filed in connection with such Registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all Holders and shall thereupon be relieved of its obligation to register any Registrable Securities in connection with such Registration. If a Registration pursuant to this Section 1.1 involves an underwritten public offering, any Holder requesting to be included in such Registration may elect, in writing prior to the effective date of the Registration Statement filed in connection with such Registration, not to register such Registrable Securities in connection with such Registration. The Company shall pay all Registration Expenses in connection with each Registration of Registrable Securities requested pursuant to this Section 1. 1.2. Priority in Incidental Registrations. If a Registration pursuant to this Section 1 involves an underwritten offering and the managing underwriter advises the Company that, in its good faith opinion, the number of equity securities (including all Registrable Securities) which the Company, the Holders and any other persons intend to include in such Registration exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such Registrable Securities can be sold, the Company will include in such Registration (i) first, securities (the "2003 REGISTRABLE SECURITIES") that the Company proposes to sell for the account of other Persons holding certain warrants (the "2003 Warrants") having registration rights pursuant to that certain Registration Rights Agreement, dated April 14, 2003 (the "2003 REGISTRATION RIGHTS AGREEMENT") (ii) second, Acorn Registrable Securities proposed to be registered by the Holders thereof, pro rata based on the number of Acorn Registrable Securities proposed to be registered by each such Holder, (iii) third, Ampac Registrable Securities proposed to be registered by the Holders thereof, pro rata based on the number of Ampac Registrable Securities proposed to be registered by each such Holder, and (iv) fourth, securities that the Company proposes to issue and sell for its own account. 1.3. Filing of Registration Statement. The Company shall file a Registration Statement with the Commission within 60 days after the date hereof registering (i) the shares of Common Stock issuable to the holders of the Ampac Warrants upon exercise of the Ampac Warrants, (ii) the shares of Common Stock issuable to the holders of the 2003 Warrants upon exercise of the 2003 Warrants (if such holders desire such shares to be registered) and (iii) the shares of Common Stock issuable to the holders of the Acorn Warrant upon exercise of the Acorn Warrant (if such holders desire such shares to be registered), subject to the provisions of Section 1.2. Such Registration (i) shall not be an underwritten offering, unless the Company decides in its sole discretion to engage an underwriter in connection with such Registration and (ii) shall be subject to all provisions of this Agreement, including without limitation, Sections 2.2 and 2.11. The Company shall use its best efforts to have such Registration Statement declared Effective by the Commission within 180 days after the date hereof. 2. Registration Procedures. In connection with any offering of Registrable Securities registered pursuant to this Agreement, the Company shall: 2.1. Prepare and file with the Commission as soon as practicable, and in any event within 120 days after receipt of a request for Registration, a Registration Statement on any form for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the sale of the Registrable Securities in accordance with the intended methods of distribution thereof, and use commercially reasonable efforts to cause such Registration Statement to become and remain Effective as provided herein, provided that at least fifteen (15) days prior to filing with the Commission a Registration Statement or disclosure document constituting part of a Registration Statement or any amendments or supplements thereto, the Company will (x) furnish to one counsel selected by the Holders of a Majority covered by such Registration Statement copies of all such documents proposed to be filed for said counsel's review and comment and (y) notify each Holder covered by such Registration Statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. 2.2. Prepare and file with the Commission such amendments and supplements to such Registration Statement and any disclosure document constituting part of such Registration Statement used in connection therewith as may be necessary to keep Effective such Registration Statement for a period of not less than 180 days or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold (but not before the expiration of the 90 day period, if applicable, referred to in Section 4(3) of the Securities Act and Rule 174 under the Securities Act, or any successor thereto, if applicable), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement. 2.3. Furnish to each Holder and each underwriter, if any, of Registrable Securities covered by such Registration Statement such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the disclosure document included in such Registration Statement (including each preliminary disclosure document), in conformity with the requirements of the Securities Act, and such other documents as any Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. 2.4. Use commercially reasonable efforts to register or qualify such Registrable Securities under such other state securities or "blue sky" laws of such jurisdictions as any Holder, and underwriter, if any, of Registrable Securities covered by such Registration Statement reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder and each underwriter, if any, to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided that the Company will not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2, (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction. 2.5. Immediately notify each Holder of such Registrable Securities at any time when a disclosure document relating thereto is required to be delivered under the Securities Act of the happening of any event which comes to the Company's attention if as a result of such event the disclosure document included in such Registration Statement contains an untrue statement of material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly prepare and furnish to such Holder a supplement or amendment to such disclosure document so that, as thereafter delivered to the Holders of such Registrable Securities, such disclosure document will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 2.6. Use commercially reasonable efforts to cause all such Registrable Securities to be listed on a national securities exchange or the NASDAQ national market and on each securities exchange upon which similar securities issued by the Company may then be listed, and enter into such customary agreements including a listing application and indemnification agreement in customary form, and to provide a transfer agent and registrar for such Registrable Securities covered by such Registration Statement no later than the effective date of such Registration Statement. 2.7. Enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as the Holders of a Majority covered by such Registration Statement or the underwriters retained by such Holders, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including customary representations, warranties, indemnities and agreements. 2.8. Make available for inspection by any Holder covered by such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's and its Affiliates' officers, directors and employees to supply all information and respond to all inquiries reasonably requested by any such Inspector in connection with such Registration Statement. 2.9. Use commercially reasonable efforts to obtain (a) a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the Holders of a Majority being sold reasonably request and (b) at the time of any underwritten sale pursuant to a Registration Statement, a "bring-down comfort letter", dated as of the date of such sale, from the Company's independent certified public accountants covering such matters of the type customarily covered by comfort letters as the Holders of a Majority covered by such Registration Statement and the underwriters reasonably request. 2.10. Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to the Holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve months, beginning with the first month after the Registration Statement is Effective, which earnings statement shall satisfy the provisions of the Securities Act and Rule 158 thereunder. 2.11. In the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such Registration Statement for sale in any jurisdiction, the Company will use its best efforts promptly to obtain the withdrawal of such order. It shall be a condition precedent to the obligation of the Company to take any action with respect to securities of a Holder that such Holder shall furnish to the Company such information regarding the securities held by such Holder and the intended method of disposition thereof as the Company shall reasonably request and as shall be required in connection with the action taken by the Company. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.5, such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended disclosure document contemplated by Section 2.5 hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies (including, without limitation, any and all drafts), other than permanent file copies, then in such Holder's possession, of the disclosure document covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in Section 2.2 shall be extended by the greater of (x) three months or (y) the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.5 hereof to and including the date when each Holder covered by such Registration Statement shall have received the copies of the supplemented or amended disclosure document contemplated by Section 5.6. 3. Indemnification. 3.1. Indemnification by the Company. In the event of any Registration of any securities of the Company under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless, to the full extent permitted by law, each of the Holders of any Registrable Securities covered by such Registration Statement, their respective directors and officers, general partners, limited partners and managing directors, each person who participates as an underwriter in the offering or sale of such securities and each other person, if any, who controls, is controlled by or is under common control with any such Holder or any such underwriter within the meaning of the Securities Act (and directors, officers, controlling persons, partners and managing directors of any of the foregoing), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent, which consent will not be unreasonably withheld) to which such Holder, any such director or officer or general or limited partner or managing director or any such underwriter or controlling person may become subject under the Securities Act, state securities or "blue sky" laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary, final or summary disclosure document contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such Registration. The Company shall reimburse each such Holder and each such director, officer, general partner, limited partner, managing director or underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending such loss, claim, liability, action or proceeding, provided, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement or amendment or supplement thereto or in any such preliminary, final or summary disclosure document in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder in its capacity as a Holder in the Company or any such director, officer, general or limited partner, managing director or underwriter specifically stating that it is for use in the preparation thereof. The indemnity provided for herein shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any such director, officer, general partner, limited partner, managing director, underwriter or controlling person and shall survive the transfer of such securities by such Holder. 3.2. Indemnification by the Holders and Underwriters. Any Holder of the Registrable Securities of which are included in any Registration Statement shall, severally (and not jointly with any other Holder), indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) above) the Company and its directors, officers, controlling persons from such Registration Statement, any preliminary, final or summary disclosure document contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives through an instrument duly executed by or on behalf of such Holder specifically stating that it is for use in the preparation of such Registration Statement, preliminary, final or summary disclosure document or amendment or supplement, or a document incorporated by reference into any of the foregoing. No Holders shall be liable in the aggregate for any amounts exceeding the product of the sale price per Registrable Security (after deduction of applicable underwriting discounts and commissions and transfer taxes) and the number of Registrable Securities sold pursuant to such Registration Statement or disclosure document by such Holder. 3.3. Notices of Claims, etc. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be, made pursuant to this Section 3, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, promptly give written notice to the indemnifying party of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and, jointly with any other indemnifying party similarly notified, to assume the defense thereof, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and parties arises in respect of such claim after the assumption of the defense thereof, and the indemnifying party will not be subject to any liability for any settlement made without its consent (which consent shall not be unreasonably withheld). No indemnifying party will consent of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels as may be reasonably necessary. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event any party will have the right to retain, at its own expense, counsel with respect to the defense of a claim. 3.4. Other Indemnification. Indemnification similar to that specified in the preceding subsections of this Section 3 (with appropriate modifications) shall be given by the Company and each Holder with respect to any required Registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. 3.5. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section is for any reason held to be unenforceable although applicable in accordance with its terms, the Company, the Holders and the underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, the Holders and the underwriters, in such proportions that the underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing in the disclosure document bears to the public offering price appearing therein and the Company and the Holders are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. As between the Company and the Holders, such parties shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect (x) the relative benefits received by the Company, on the one hand, and the Holders of the Registrable Securities included in the offering on the other hand, from the offering of the Registrable Securities and any other securities included such offering, and (y) the relative fault of the Company, on the one hand, and the Holders of the Registrable Securities included in the offering, on the other, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Holders of the Registrable Securities on the other, with respect to such offering shall be deemed to be in the same proportion as the sum of the total purchase price paid to the Company in respect of the Registrable Securities plus the total net proceeds from the offering of any securities included in such offering (before deducting expenses) received by the Company bears to the amount by which the total net proceeds from the offering of Registrable Securities (before deducting expenses but after deducting applicable underwriting discounts and commissions and transfer taxes) received by the Holders of the Registrable Securities with respect to such offering exceeds the purchase price paid to the Company in respect of the Registrable Securities, and in each case the net proceeds received from such offering shall be determined as set forth in the disclosure document. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Holders of the Registrable Securities, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. Notwithstanding anything to the contrary contained herein, the Company and the Holders agree that any contribution required to be made by such Holder pursuant to this Section 3.5 shall not exceed the net proceeds from the offering of Registrable Securities (before deducting expenses but after deducting applicable underwriting discounts and commissions and transfer taxes) received by such Holder with respect to such offering. For purposes of this Section, each Person, if any, who controls a Holder or an underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Holder or Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company. 3.6. Rule 144. The Company will furnish to any Holder, upon request made by such Holder at any time, a written statement signed by the Company, addressed to such Holder, describing briefly the action the Company has taken or proposes to take to comply with the current public information requirements of Rule 144 or Rule 144A. The Company will, at the request of any Holder, remove from the stock certificates representing such Registrable Securities that portion of any restrictive legend which relates to the registration provisions of the Securities Act on the second anniversary date of this Agreement, provided that the Holder is not at this time (or within the previous 90 days) and affiliate of the Company. 4. DEFERRAL; BLACK-OUT. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the Holders named in any registration statement filed hereunder a certificate signed by the President or Chief Executive Officer of the Company stating that the Board of Directors of the Company has made the good faith determination (after consultation with counsel) (i) that continued use by the Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, premature disclosure in such registration statement (or the prospectus relating thereto) of material, nonpublic information (the "NON-PUBLIC INFORMATION") concerning the Company, its business or prospects or any proposed material transaction involving the Company, (ii) that such premature disclosure would be materially adverse to the Company or any such proposed material transaction or would make the successful consummation by the Company of any such material transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such registration statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the Holders to use the registration statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Shares pursuant thereto shall be suspended for a period (the "SUSPENSION PERIOD") of not more than 120 days after delivery by the Company of the certificate referred to above in this Section 4. During the Suspension Period, none of the Holders shall offer or sell any Registrable Securities pursuant to or in reliance upon the registration statement (or the prospectus relating thereto). Notwithstanding the foregoing (a) if disclosure of the Non-Public Information is made during a Suspension Period, then the Company shall promptly terminate the Suspension Period and immediately notify the Holders of such termination and (b) the Company may not implement the right to initiate a Suspension Period more than twice in any twelve month period. To the extent that the Company initiates one or more Suspension Periods hereunder, the Company shall maintain the effectiveness of the Registration Statement for an additional number of days equal to the aggregate amount of days that the Company implemented such Suspension Periods. 5. Miscellaneous. 5.1 No Waiver; Cumulative Remedies. No failure or delay on the part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other further exercise thereof or the exercise of any other right, power or remedy hereunder. 5.2 Notices. All notices and other communications from the Company to the Holders shall be mailed by recognized overnight courier first class registered or certified air mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holders who has so furnished an address to the Company. 5.3 Modification, etc. This Agreement and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Holders of a majority of the Ampac Registrable Securities, the Holders of a Majority of the Acorn Registrable Securities, and the Company. This Agreement is being delivered in The Commonwealth of Massachusetts and shall be construed and enforced in accordance with and governed by the laws of such commonwealth without regard to its conflict of laws principles. All section headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 5.4 No Inconsistent Agreements. The Company will not, at any time after the effective date of this Agreement, enter into any agreement or contract (whether written or oral) with respect to any of its securities which is inconsistent in any respect with the registration rights granted by the Company to the Holders pursuant to this Agreement or otherwise conflicts with the provisions hereof. 5.5 Assignment. This Agreement shall inure to the benefit and be binding upon each Holder and its heirs, successors and assigns. The Company's obligations under this Agreement shall not be assigned, and its duties under this Agreement shall not be delegated. 5.6 Legend. Any shares issued in connection with the exercise of the Warrants shall bear the following legend: THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. 6. Certain Definitions. "ACORN REGISTRABLE SECURITIES" shall mean (i) all shares of Common Stock and other securities issued or issuable upon exercise of the Acorn Warrant, and (ii) all shares of Common Stock and other securities directly or indirectly issued or issuable with respect to such Common Stock or other securities by way of stock dividend, or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization. As to any particular Acorn Registrable Securities, such securities shall cease to be Acorn Registrable Securities when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act. "AFFILIATES" shall have the meaning defined to such term under Rule 501 of Regulation D of the Securities Act. "AMPAC REGISTRABLE SECURITIES" shall mean (i) all shares of Common Stock and other securities issued or issuable upon exercise of the Ampac Warrants, and (ii) all shares of Common Stock and other securities directly or indirectly issued or issuable with respect to such Common Stock or other securities by way of stock dividend, or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization. As to any particular Ampac Registrable Securities, such securities shall cease to be Ampac Registrable Securities when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act. "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act of the Exchange Act. "COMMON STOCK" shall mean the Company's common stock, $0.01 par value per share. "EFFECTIVE" shall mean that all requirements under the Securities Act with respect to a Registration Statement have been satisfied and that the Commission has declared the Registration Statement effective. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "HOLDERS OF A MAJORITY" shall mean Persons holding a majority of the registrable securities (as defined in the 2003 Registration Rights Agreement) party to the 2003 Registration Rights Agreement, and if there are no such Persons, the holders of a majority of the Registrable Securities. "PERSON" shall mean any individual, partnership, corporation, limited liability company, association, trust, joint venture, unincorporated organization or other entity and any government, governmental department or agency or political subdivision thereof. "REGISTRABLE SECURITIES" shall mean the Acorn Registrable Securities and the Ampac Registrable Securities. "REGISTRATION" shall mean registration of the Company's Common Stock pursuant to an Effective Registration Statement. "REGISTRATION STATEMENT" shall mean any disclosure document that the Company is required to file under the Securities Act in connection with a public offering of Registrable Securities. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time or any other federal act, rule or regulation requiring Registration with any federal agency in connection with a public offering of Registrable Securities. [remainder of page intentionally left blank] IN WITNESS WHEREOF, MICROFINANCIAL INCORPORATED has caused this Acorn/Ampac Registration Rights Agreement to be duly executed as a document under seal by its duly authorized officer this ____ day of June, 2004. MICROFINANCIAL INCORPORATED By: ________________________________ Name: Title: HOLDERS: ACORN CAPITAL GROUP, LLC By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- AMPAC CAPITAL SOLUTIONS, LLC By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- SCHEDULE A HOLDERS Acorn Capital Group, LLC Ampac Capital Solutions, LLC EX-99 14 exh_99.txt EXHIBIT 99.1 Contact: Richard F. Latour President and CEO Tel: 781-994-4800 MICROFINANCIAL INCORPORATED Secures New Funding Facility Woburn, MA--June 14, 2004 MicroFinancial Incorporated (NYSE-MFI), announced today that the Company has secured a $10 million credit facility that will enable it to immediately resume microticket contract originations. Previously, MicroFinancial had suspended contract originations when the Company's previous credit facility failed to renew in October 2002. The new facility is comprised of a one-year $8 million line of credit from Acorn Capital Group, and a $2 million three-year subordinated note from AMPAC. In conjunction with raising new capital, the Company also announced the inauguration of a new wholly owned operating subsidiary, TimePayment Corp. LLC. Mr. Richard F. Latour, President and CEO, said, "We are very pleased to be reentering the lease origination market and believe this agreement is a critical next step in our turnaround process. Although our current bank agreement made securing this facility a lengthier and more challenging effort than we had expected, this new capital will enable us to begin originating new leases, and thereby, contribute to the long-term success of the Company. We continue to seek a larger, more permanent line of credit under more favorable terms as the next step in this process in order to provide better service to our customers." Mr. Richard F. Latour, concluded, "I would like to express gratitude to our employees, customers and shareholders who have supported us during this difficult period." About Microfinancial MicroFinancial Inc. (NYSE: MFI), headquartered in Woburn, MA, is a financial intermediary specializing in leasing and financing for products in the $500 to $10,000 range. The company has been in operation since 1986. Statements in this release that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as "believes," "anticipates," "expects," "views, " and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Readers should not place undue reliance on forward-looking statements, which reflect the management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. The Company cannot assure that it will be able to anticipate or respond timely to changes which could adversely affect its operating results in one or more fiscal quarters. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of the Company's common stock. For a more complete description of the prominent risks and uncertainties inherent in the Company's business, see the risk factors described in documents the Company files from time to time with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----