-----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, KnKwCRTv1YSs0lHxbeNeIAOBKbt0CnG+aofe/w2jn2/vXRJ6vlNmuSAiqF7cPMOA gjN5fY25+qpNZdXh3BQERQ== 0000950135-00-002975.txt : 20000523 0000950135-00-002975.hdr.sgml : 20000523 ACCESSION NUMBER: 0000950135-00-002975 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000522 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-14771 FILM NUMBER: 640845 BUSINESS ADDRESS: STREET 1: 950 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 7818900177 MAIL ADDRESS: STREET 1: 950 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02154 FORMER COMPANY: FORMER CONFORMED NAME: BOYLE LEASING TECHNOLOGIES INC DATE OF NAME CHANGE: 19980605 10-Q 1 MICROFINANCIAL INCORPORATED 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File No. 1-14771 MICROFINANCIAL INCORPORATED (Exact name of Registrant as specified in its Charter) Massachusetts 04-2962824 (State or other jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 950 Winter Street, Waltham, MA 02451 (Address of Principal Executive Offices) (781) 890-0177 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) of the Securities and Exchange act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No As of May 11, 2000, 12,710,046 shares of the registrant's common stock were outstanding. 2 MICROFINANCIAL INCORPORATED Table of Contents Page Part I FINANCIAL INFORMATION Item 1 Financial Statements (unaudited): Condensed Consolidated Balance Sheets December 31, 1999 and March 31, 2000 3 Condensed Consolidated Statements of Operations Three months ended March 31, 1999 and 2000 4 Condensed Consolidated Statements of Cash Flows Three months ended March 31, 1999 and 2000 5 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operation 12 Item 3 Quantitative and Qualitative Disclosures about Market Risk 15 Part II OTHER INFORMATION Item 1 Legal Proceedings 17 Item 6 Exhibits and Reports on Form 8-K 22 Signatures 23 2 3 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (Unaudited)
December 31, March 31, 1999 2000 ----------- --------- ASSETS Net investment in leases and loans: Receivables due in installments $ 321,578 $ 348,703 Estimated residual value 21,070 25,433 Initial direct costs 8,164 9,271 Loans receivable 20,073 19,604 Less: Advance lease payments and deposits (2,164) (651) Unearned income (100,815) (114,056) Allowance for credit losses (41,719) (43,455) --------- --------- Net investment in leases and loans: $ 226,187 $ 244,849 Investment in service contracts 14,250 14,516 Cash and cash equivalents 11,062 16,372 Property and equipment, net 7,713 7,918 Other assets 6,644 7,489 --------- --------- Total assets $ 265,856 $ 291,144 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 144,871 $ 168,335 Subordinated notes payable 9,238 8,250 Capitalized lease obligations 1,244 1,105 Accounts payable 339 207 Dividends payable 514 508 Other liabilities 4,748 4,833 Income taxes payable 3,544 3,425 Deferred income taxes payable 22,520 22,674 --------- --------- Total liabilities 187,018 209,337 --------- --------- Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; 25,000,000 authorized; 13,347,726 shares issued at 12/31/99; 13,374,646 issued at 3/31/00 133 134 Additional paid-in capital 47,920 47,968 Retained earnings 36,656 41,119 Treasury stock (667,790 shares of common stock at 12/31/99, 826,790 shares of common stock at 3/31/00), at cost (5,777) (7,322) Notes receivable from officers and employees (94) (92) --------- --------- Total stockholders' equity 78,838 81,807 --------- --------- Total liabilities and stockholders' equity $ 265,856 $ 291,144 ========= =========
The accompanying notes are an integral part of the consolidated financial statements 3 4 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (Unaudited)
For the quarters ended March 31, -------------------------------- 1999 2000 ---- ---- Revenues: Income on financing leases and loans $ 12,377 $ 15,544 Income on service contracts 1,184 2,190 Rental income 5,681 5,810 Loss and damage waiver fees 1,396 1,470 Service fees 1,817 3,627 ----------- ----------- Total revenues 22,455 28,641 ----------- ----------- Expenses: Selling general and administrative 6,004 6,329 Provision for credit losses 5,399 8,529 Depreciation and amortization 1,687 2,033 Interest 2,620 3,075 ----------- ----------- Total expenses 15,710 19,966 ----------- ----------- Income before provision for income taxes 6,745 8,675 Provision for income taxes 2,776 3,705 ----------- ----------- Net Income $ 3,969 $ 4,970 =========== =========== Net Income per common share - basic $ 0.33 $ 0.39 =========== =========== Net Income per common share - diluted $ 0.33 $ 0.39 =========== =========== Dividends per common share $ 0.035 $ 0.040 =========== =========== Weighted average shares used to compute: Basic Net Income per share 12,002,922 12,788,578 ----------- ----------- Fully diluted Net Income per share 12,109,050 12,893,559 ----------- -----------
The accompanying notes are an integral part of the consolidated financial statements 4 5 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
For the quarter ended March 31, ---------------------------- 1999 2000 ---- ---- Cash flows from operating activities: Cash received from customers $ 38,281 $ 41,887 Cash paid to suppliers and employees (5,886) (11,066) Cash paid for income taxes (530) (3,845) Interest paid (2,895) (3,097) Interest received 816 365 --------- --------- Net cash provided by operating activities 29,786 24,244 --------- --------- Cash flows from investing activities: Investment in lease contracts (21,235) (35,226) Investment in direct costs (979) (2,520) Investment in service contracts (1,845) (1,314) Investment in loans receivable (8,431) 0 Investment in fixed assets (137) (399) Issuance of notes from officers and employees (1) 0 Repayment of notes from officers 102 2 Investment in notes receivable (298) (31) Repayment of notes receivable 87 239 --------- --------- Net cash used in investing activities (32,737) (39,249) --------- --------- Cash flows from financing activities: Proceeds from secured debt 28,959 63,618 Repayment of secured debt (56,944) (24,899) Proceeds from refinancing of secured debt 93,548 141,557 Prepayment of secured debt (93,548) (156,557) Proceeds from short term demand notes payable 685 112 Repayment of short term demand notes payable (26) (367) Proceeds from issuance of subordinated debt 0 0 Repayment of subordinated debt (10,747) (1,000) Proceeds from sale of common stock 46,116 0 Proceeds from exercise of common stock options 0 49 Repayment of capital leases (189) (139) Purchase of treasury stock 0 (1,545) Payment of dividends (347) (514) --------- --------- Net cash provided by (used in) financing activities 7,507 20,315 --------- --------- Net increase (decrease) in cash and cash equivalents: 4,556 5,310 Cash and cash equivalents, beginning of period: 6,817 11,062 --------- --------- Cash and cash equivalents, end of period: $ 11,373 $ 16,372 ========= =========
(continued on following page) The accompanying notes are an integral part of the consolidated financial statements. 5 6 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Continued) (Unaudited)
For the quarter ended March 31, ---------------------------- 1999 2000 ---- ---- Reconciliation of net income to net cash provided by operating activities: Net Income $ 3,969 $ 4,970 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,688 2,033 Provision for credit losses 5,399 8,529 Recovery of equipment cost and residual value, net of revenue recognized 15,536 10,793 Increase (decrease) in current taxes (500) (119) Increase in deferred income taxes 2,775 154 Change in assets and liabilities: Decrease (increase) in other assets 426 (1,973) (Decrease) increase in accounts payable (10) (132) Increase (decrease) in accrued liabilities 503 (11) -------- -------- Net cash provided by operating activities $ 29,786 $ 24,244 ======== ======== Supplemental disclosure of noncash activities: Property acquired under capital leases $ 213 $ -- Accrual of common stock dividends $ 467 $ 508
The accompanying notes are an integral part of the consolidated financial statements. 6 7 MICROFINANCIAL INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (tables in thousands, except share and per share data) (Unaudited) (A) Nature of Business: MicroFinancial Incorporated (the "Company") which operates primarily through its wholly owned subsidiary, Leasecomm Corporation, is a specialized finance company that primarily leases and rents commercial "microticket" equipment and provides other financing services in amounts generally ranging from $900 to $2,500 with an average amount financed of approximately $1,500 and an average lease term of 44 months. The Company does not market its services directly to lessees but sources leasing transactions through a network of independent sales organizations and other dealer based origination networks nationwide. The Company funds its operations primarily through borrowings under its credit facilities, issuances of subordinated debt and on balance sheet securitizations. (B) Summary of Significant Accounting Policies: Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission for interim financial statements. Accordingly, the interim statements do not include all of the information and disclosures required for the annual financial statements. In the opinion of the Company's management, the consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of these interim results. These financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report and Form 10-K for the year ended December 31, 1999. The results for the three-month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements included in the Company's Annual Report and Form 10-K for the year ended December 31,1999. Allowance for Credit Losses: The Company maintains an allowance for credit losses on its investment in leases, loans and service contracts at an amount that it believes is sufficient to provide an adequate provision against losses in its portfolio. The allowance is determined principally on the basis of the historical loss experience of the Company and the level of recourse provided by such leases, loans and service contracts, if any. In addition, the allowance reflects management's judgment of the additional loss potential considering future economic conditions and the nature and characteristics 7 8 of the underlying lease portfolio. The Company determines the necessary periodic provision for the credit losses taking into account actual and expected losses in the portfolio as a whole and the relationship of the allowance to the net investment in leases, loans and service contracts. The following table sets forth the Company's allowance for credit losses as of December 31, 1998 and, 1999 and March 31, 2000 and the related provision, charge-offs and recoveries for the year ended December 31, 1999 and the three months ended March 31, 2000. Balance at December 31, 1998 ....... $24,850 Provision for credit losses......... 37,836 Charge-offs......................... 35,957 Recoveries.......................... 14,990 ------- Charge-offs, net of recoveries..... 20,967 ------- Balance at December 31, 1999........ $41,719 ======= Provision for credit losses......... 8,529 Charge-offs......................... 8,708 Recoveries.......................... 3,848 ------- Charge-offs, net of recoveries..... 4,860 Transfer to other asset reserve..... 1,933 ------- Balance at March 31, 2000........... $43,455 =======
For the three months ended March 31, 2000, the Company reserved $1.9 million against other receivables. The allowance reflects management's judgement of loss potential considering future economic conditions and the nature of the underlying receivables. The following table sets forth the Company's other asset reserve as of December 31, 1999 and March 31, 2000 and the related provision, charge-offs and recoveries for the three months ended March 31, 2000. Balance at December 31, 1999............... $ 0 ====== Transfer from allowance for credit losses.. 1,933 ------ Charge-offs................................ 0 Recoveries................................. 0 ------ Charge-offs, net of recoveries............ 0 Balance at March 31, 2000.................. $1,933 ======
8 9 Earnings Per Share: The Company applies the principles set forth in Statement of Financial Accounting Standard No. 128, "Earnings Per Share." ("SFAS No.128") which specifies the computation, presentation and disclosure requirements for net income per share. Basic net income per common share is computed based upon the weighted average number of common shares outstanding during the period. Dilutive net income per common share gives effect to all dilutive potential common shares outstanding during the period. Under SFAS No. 128, the computation of dilutive earnings per share does not assume the issuance of common shares that have an antidilutive effect on the net income per share. Options to purchase zero and 830,000 shares of common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 1999 and 2000 respectively because their effects were antidilutive.
For quarter ended March 31, ---------------------- 1999 2000 ---- ---- Net Income $ 3,969 $ 4,970 Shares used in computation: Weighted average common shares outstanding used in computation of net income per common share 12,002,922 12,788,578 Dilutive effect of common stock options 106,128 104,981 Shares used in computation of net income per common share - assuming dilution 12,109,050 12,893,559 ----------- ----------- Net income per common share $ 0.33 $ 0.39 Net income per common share assuming dilution $ 0.33 $ 0.39
Notes Payable: On December 21, 1999, the Company entered into a revolving line of credit and term loan facility with a group of financial institutions whereby it may borrow a maximum of $150,000,000 based upon qualified lease receivables. Outstanding borrowings with respect to the revolving line of credit bear interest based at Prime for Prime Rate Loans, the prevailing rate per annum as offered in the interbank Eurodollar market (Eurodollar) plus 1.75% for Eurodollar Loans or the seven day Money Market rate plus 1.75% for Swing Line advances. If the Eurodollar Loans are not renewed upon their maturity they automatically convert into prime rate loans. Swing Line advances have a 7 day maturity and upon their maturity they automatically convert into prime rate loans. In addition, the Company's aggregate outstanding principal amount of Swing Line advances shall not exceed $5 million. The prime rates at December 31, 1999, and March 31, 2000 9 10 were 8.50% and 9.00% respectively. The 90-day Eurodollar rates December 31, 1999, and March 31, 2000 were 5.9375% and 6.2500%, respectively. The 7-day Money Market rates December 31, 1999, and March 31, 2000 were 5.6875% and 6.2200%, respectively. The Company had borrowings outstanding under these agreements with the following terms:
December 31, 1999 March 31, 2000 --------------------- -------------------- Type Rate Amount Rate Amount - ---- ---- ------ ---- ------ (in thousands) (in thousands) Prime 8.5000% $ 14,330 9.0000% 5,095 Swing Line 8.0600% 1,743 Swing Line 8.0625% 1,888 Eurodollar 7.9375% 17,500 7.7200% 17,500 Eurodollar 7.8125% 12,000 8.0000% 12,000 Eurodollar 8.0000% 65,000 7.9400% 50,000 ----------- ---------- Total Outstanding $108,830 $88,226 ----------- ----------
Outstanding borrowings are collateralized by leases and service contracts pledged specifically to the financial institutions. All balances under the revolving line of credit will be automatically converted to a term loan on September 30, 2001 provided the line of credit is not renewed and no event of default exists at that date. All converted term loans are payable over the term of the underlying leases, loans and service contracts, but in any event not to exceed 36 monthly installments. The most restrictive covenants of the agreement have minimum net worth and income requirements. BLT III has two series of notes outstanding, the 1997-A Notes and the 1998-A Notes. In August 1997, BLT III issued the 1997-A Notes in aggregate principal amount of $44,763,000 and in November 1998, BLT III issued the 1998-A Notes in aggregate principal amount of $40,769,000. In March 2000, MFI I issued the 2000-1 Notes in aggregate principal amount of $50,056,686. Outstanding borrowings are collateralized by a specific pool of lease receivables. At December 31, 1999 and March 31,2000, BLT and MFI I had borrowings outstanding under the series of notes with the following terms: 10 11
December 31, 1999 March 31, 2000 -------------------- -------------------- Series Rate Amount Rate Amount - ------ ---- ------ ---- ------ (in thousands) (in thousands) BLT III 1997-A Notes 6.4200% $ 9,498 6.4200% $ 6,017 1998-A Notes 6.0300% $25,473 6.0300% $23,219 MFI I 2000-1 Notes $ -- 7.3750% $50,057 -------- --------- Total Outstanding $34,971 $79,293 -------- ---------
The Company also had other notes payable which totaled $816,000 and $1,070,000, at March 31, 2000 and December 31,1999, respectively. The notes are due on demand and bear interest at a rate of prime less 1.00%. Stock Options: Under the 1998 Equity Incentive Plan (the "1998 Plan") which was adopted on July 9, 1998 the Company had reserved 2,000,000 shares of the Company's common stock for issuance pursuant to the 1998 Plan. The Company granted a total of 730,000 options during the three months ended March 31, 2000, to various members of management and board of directors. A total of 1,630,000 options were outstanding at March 31, 2000 of which 171,000 were vested. Dividends: On February 14, 2000 the Company's Board of Directors approved a dividend of $.04 per common share for all outstanding common shares as of March 31, 2000 which were paid on April 17, 2000. 11 12 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Quarter ended March 31, 2000 as compared to the quarter ended March 31, 1999. Net income for the three months ended March 31, 2000 was approximately $5.0 million, an increase of $1.0 million or 25% from the three months ended March 31, 1999. This represents diluted earnings per share for the three months ended March 31, 2000 of $0.39 per share on weighted average outstanding shares of 12,893,559 as compared to $0.33 per share on weighted average outstanding shares of 12,109,050 for the three months ended March 31, 1999. Total revenues for the three months ended March 31, 2000 were $28.6 million, an increase of $6.2 million, or 28%, from the three months ended March 31, 1999. The increase was primarily due to an increase of $3.2 million, or 26%, in income on financing leases and loans, $1.1 million, or 17%, in rental and service contract income and $1.9 million, or 59%, in fee income. The increase in income on financing leases and loans was due to the increased number of leases originated. The majority of the increase in rental and service contract income is a result of the increased number of lessees that have continued to rent their equipment beyond their original lease term and the increased number of service contracts originated. The increase in fee income is the result of increased fees from the lessees related to the collection and legal process employed by the Company. Selling, general and administrative expenses increased by $325,000, or 5%, for the three months ended March 31, 2000, as compared to the three months ended March 31, 1999. Compensation and personnel related expenses increased by $618,000, or 18%, due to an increase in overall compensation levels, an increase in the number of employees needed to maintain the Company's portfolio as well as an increase of $142,000 in contract labor. These increases were offset in part by the expenses billed back to lessees related to the collection and legal process employed by the Company. Depreciation and amortization increased by $346,000, or 21%, due to the increased number of rental contracts and amortization of the Company's investment in service contracts. The Company's provision for credit losses increased by $3.1 million or 58%, for the three months ended March 31, 2000 as compared to the three months ended March 31, 1999. This increase is a result of the Company's historical policy, based on experience, of providing a provision for credit losses based upon the dealer fundings and revenue recognized in any period and the Company's review of their overall receivables. Dealer fundings increased by $6.5 million, or 21% and total revenues increased by $6.2 million, or 28% for the three months ended March 31, 2000 as compared to the three months ended March 31, 1999. This provision reflects management's judgement of loss potential considering economic conditions and the nature of the underlying receivables. Net interest expense increased by $455,000, or 17%, for the three months ended March 31, 2000 as compared to the three months ended March 31, 1999. This increase resulted from the 12 13 Company's increased level of borrowings on its revolving line of credit as well as rising interest rates. Dealer fundings were $37.3 million for the three months ended March 31, 2000, up $6.5 million, or 21% as compared to the three months ended March 31, 1999. This increase is a result of a 118% growth in the Company's Point Of Sale business, as well as, continued growth in the Company's Non-Point Of Sale business. Total cash from customers increased by $3.6 million or 9.0% to a total of $41.9 million. This increase is primarily the result of an increase in the size of the overall portfolio. Investment in lease and loan receivables due in installments, estimated residuals, and service contracts were up from $377 million in December of 1999 to $408.3 million in March of 2000, representing an 8% increase. Liquidity and Capital Resources General The Company's lease and finance business is capital-intensive and requires access to substantial short-term and long-term credit to fund new leases, loans and service contracts. Since inception, the Company has funded its operations primarily through borrowings under its credit facilities, issuances of subordinated debt and its on-balance sheet securitizations. The Company will continue to require significant additional capital to maintain and expand its volume of leases, loans and service contracts, as well as to fund future acquisitions of leasing companies or portfolios. The Company's uses of cash include the origination and acquisition of leases, loans and service contracts, payment of interest expenses, repayment of borrowings under its credit facilities, subordinated debt and securitizations, payment of selling, general and administrative expenses, income taxes, capital expenditures, and the Company's stock repurchase program. The Company utilizes its credit facility to fund the origination and acquisition of leases, loans and service contracts that satisfy the eligibility requirements established pursuant to each facility. At March 31, 2000, the Company had an aggregate maximum of $150.0 million available for borrowing under its credit facility, of which approximately $88.2 million was outstanding as of such date. To date, cash flow from its portfolio and other fees have been sufficient to repay current amounts due under the credit facilities and subordinated debt. The Company believes that the cash flow from its operations and the amounts available under its credit facilities will be sufficient to fund the Company's operations for the foreseeable future. Although the Company is not currently involved in negotiations and has no current commitments or agreements with respect to any acquisition, to the extent that the Company successfully consummates acquisitions, it may be necessary to finance such acquisitions through the issuance of additional debt or equity securities, the incurrence of indebtedness or a combination of both. 13 14 Note on Forward Looking Information Statements in this document 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," 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. Such statements contain a number of risks and uncertainties, including but not limited to: the Company's dependence on point-of-sale authorization systems and expansion into new markets; the Company's significant capital requirements; risks associated with economic downturns; higher interest rates; intense competition; change in regulatory environment and risks associated with acquisitions. 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 risks factors described in the Company's Form S-1 Registration Statement and other documents filed from time to time with the Securities and Exchange Commission. 14 15 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market-Rate-Sensitive Instruments and Risk Management The following discussion about the Company's risk management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. This analysis presents the hypothetical loss in earnings, cash flows, or fair value of the financial instrument and derivative instruments held by the Company at March 31, 2000, that are sensitive to changes in interest rates. The Company uses interest-rate swaps to manage the primary market exposures associated with underlying liabilities and anticipated transactions. The Company uses these instruments to reduce risk by creating offsetting market exposures. The instruments held by the Company are not held for trading purposes. In the normal course of operations, the Company also faces risks that are either nonfinancial or nonquantifiable. Such risks principally include country risk, credit risk and legal risk, and are not represented in the analysis that follows. Interest Rate Risk Management This analysis presents the hypothetical loss in earnings of the financial instruments and derivative instruments held by the Company at March 31, 2000 that are sensitive to changes in interest rates. The Company enters into interest rate swaps to reduce exposure to interest-rate risk connected to existing liabilities. The Company does not hold or issue derivative financial instruments for trading purposes. Because the Company's net-earnings exposure under the combined debt and interest-rate swap was to 90-day Eurodollar Rate, the hypothetical loss was modeled by calculating the 10 percent adverse change in 90-day Eurodollar Rate and then multiplying it by the face amount of the debt (which equaled the face amount of the interest rate swap). The implicit yield to the Company on all of its leases, loans and service contracts is on a fixed interest rate basis due to the leases, loans and service contracts having scheduled payments that are fixed at the time of origination of the lease, loan or service contract. When the Company originates or acquires leases, loans and service contracts it bases its pricing in part on the "spread" it expects to achieve between the implicit yield rate to the Company on each lease, loan or service contract and the effective interest cost it will pay when it finances such leases, loans and service contracts through its Credit Facilities. Increases in the interest rates during the term of each lease, loan or service contract could narrow or eliminate the spread, or result in a negative spread. The Company has adopted a policy designed to protect itself against interest rate volatility during the term of each lease, loan or service contract. Given the relatively short average life of the Company's leases, loans and service contracts, the Company's goal is to maintain a blend of fixed and variable interest rate obligations. As of 15 16 March 31, 2000, the Company's outstanding fixed rate indebtedness, including indebtedness outstanding under the Company's securitizations and indebtedness subject to the swap described below, represented 55% of the Company's outstanding indebtedness. In July 1997, the Company entered into an interest rate swap agreement with one of its banks. This agreement, which expires in July 2000, has a notional amount of $17.5 million, which represented 18% of the Company's fixed rate indebtedness outstanding at March 31, 2000. The interest rate associated with the swap is capped at 6.6%. During the term of the swap, the Company has agreed to match the swap amount with 90-day Eurodollar loans. If at any time the 90-day Eurodollar rate exceeds the swap cap of 6.6%, the bank would pay the Company the difference. Through March 31, 2000, the Company had entered into Eurodollar loans with interest rates ranging from 7.72% to 8.00%. This arrangement effectively changes the Company's floating interest rate exposure on the $17.5 million notional amount to a fixed rate of 8.35%. The aggregate hypothetical loss in earnings on an annual basis on the financial instruments and derivative instruments that would have resulted from a hypothetical increase of 10% in the 90-day Eurodollar rate, sustained for one month, is estimated to be $12,175. 16 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Management believes, after consultation with counsel, that the allegations against the Company included in the lawsuits described below are without merit, and the Company is vigorously defending each of the allegations. The Company also is subject to claims and suits arising in the ordinary course of business. At this time, it is not possible to estimate the ultimate loss or gain, if any, related to these lawsuits, nor if any such loss will have a material adverse effect on the Company's results of operations or financial position. I. On August 24, 1999, a purported class action lawsuit was filed in Middlesex Superior Court for The Commonwealth of Massachusetts against the Company and its wholly-owned subsidiary Leasecomm Corporation ("Leasecomm"). The complaint has been amended four times, most recently by the Fourth Amended Complaint and Jury Claim filed on or about November 4, 1999 (as amended, the "Clark Complaint"). The purported class consists of individuals and businesses that have been sued by Leasecomm in a Massachusetts court for allegedly breaching Leasecomm's Non Cancellable Equipment Lease Agreement or Non Cancellable Lease Agreement (the "Lease Agreements") containing a forum selection clause. The forum selection clause is an agreement between the parties to the Lease Agreements to submit to the jurisdiction of the courts of The Commonwealth of Massachusetts for the bringing of any suit or other proceeding. The purported class would be limited to individuals and businesses that: have no place of business or residence in New England; have been sued in a Massachusetts court for breach of the Lease Agreements; had no more than three employees as of the date of the Lease Agreement; had been in existence for no more than three years as of the date of the Lease Agreement; and had entered into Lease Agreements with scheduled monthly lease payments which aggregated to less than $5,000. The Clark Complaint alleges that enforcement of the forum selection clause is not fair or reasonable because, among other things, litigation in Massachusetts is prohibitively costly and time consuming for purported class members, purported class members have no choice but to enter into the Lease Agreement because of Leasecomm's greater bargaining power, and purported class members allegedly have valid defenses to the claims asserted against them by Leasecomm. The Plaintiffs seek: a declaration that the forum selection clause is not fair or reasonable as to purported class members and that the Massachusetts courts lack personal jurisdiction over purported class members; dismissal without prejudice of all cases pending in Massachusetts against purported class members; a permanent injunction preventing Leasecomm and its affiliates from bringing suit in Massachusetts against purported class members; a permanent injunction preventing Leasecomm or its affiliates from entering into Lease Agreements containing the forum selection clause; unspecified monetary damages against Leasecomm and the Company in favor of purported class members equal to double or treble the moneys collected in connection with lawsuits filed against purported class members in Massachusetts courts, together with attorneys' fees and costs. 17 18 The parties have filed various motions with the Court, which will be heard by the Court within the next several months. Since this matter is in an early stage, there can be no assurance as to its eventual outcome. However, the forum selection clause at issue in this litigation has been enforced in other cases. II. On June 3, 1999 a purported class action lawsuit was filed in Middlesex Superior Court in The Commonwealth of Massachusetts against Leasecomm. The complaint was amended on or about July 26, 1999 (as amended, the "McKenzie-Pollock Complaint"). On September 3, 1999 Leasecomm removed the action to the United States District Court for the District of Massachusetts. The purported class consists of individuals who entered into a Lease Agreement with Leasecomm between June 4, 1993 and the date of the McKenzie-Pollock Complaint. Plaintiffs allege: that Leasecomm causes individuals to enter into non-cancellable, long-term leases when there is no reasonable expectation that most of the individuals would need or use the equipment for the duration of the lease term; that Leasecomm conceals or misrepresents the nature of the terms of its Lease Agreements; that the Lease Agreements are non-negotiable adhesion contracts which are oppressive and unfair; that the cost of acquiring the equipment through Leasecomm is often double or triple the retail cost of the equipment; that Leasecomm violates state usury laws; that Leasecomm engages in unfair debt collection practices; that Leasecomm brings lawsuits against purported class members in Massachusetts even though it has no jurisdiction over them in Massachusetts courts; that Leasecomm fails to make proper service and then files pleadings which state that proper service was made, thereby obtaining default judgments against certain members of the purported class; that Leasecomm conspired with its salespersons to cause members of the purported class to enter into unconscionable leases by concealing and misrepresenting their terms; that Leasecomm failed to comply with the Truth in Lending Act and the Massachusetts Consumer Credit Cost Disclosure Act; and that Leasecomm has engaged in unfair trade practices in violation of the Massachusetts consumer protection statute. Plaintiffs and the members of the purported class seek: unspecified damages for monetary losses allegedly sustained by them as a result of this conduct by Leasecomm and reimbursement of costs and attorneys' fees; treble damages and other punitive damages; rescission of the Lease Agreements, or a declaration that they are void, and return of all moneys paid to Leasecomm; and damages for unjust enrichment. The parties have filed various motions with the Court. In December 1999, the Court granted Leasecomm's motion to dismiss in part, and ordered that the federal Truth in Lending and Fair Debt Collection Practices claims be dismissed. The Court then ordered the remaining claims to be remanded to the Middlesex Superior Court for further proceedings, including decisions on the balance of Leasecomm's motion to dismiss, since all federal claims in the case had been dismissed. Leasecomm subsequently filed a renewed motion to dismiss in the Superior Court, again asserting 18 19 that the remaining non-federal claims are legally insufficient and should have been presented in earlier court proceedings, which will be heard by the Court within the next several months. Since this matter is in an early stage, there can be no assurance as to its eventual outcome. III. On October 25, 1999, a purported class action lawsuit was filed in Middlesex Superior Court in The Commonwealth of Massachusetts against Leasecomm (the "Lamar Complaint"). The purported class consists of all individuals and businesses who, on or after September 28, 1996, signed a Leasecomm agreement which states that it is "non-cancelable" and/or contains certain standard provisions relating to delivery and acceptance of the leased equipment and warranties and servicing for the equipment. The Plaintiffs contend that these particular lease terms are contrary to Article 2A of the Uniform Commercial Code as adopted in Massachusetts and that Leasecomm's use of these terms constitutes an unfair and deceptive trade practice under Chapter 93A of the Massachusetts General Laws. The Plaintiffs seek a declaration that the lease terms in question are unfair and deceptive and that Leasecomm's use of those terms is unfair and deceptive. The Plaintiffs also seek a Court order requiring Leasecomm to notify all purported class members of the Court's ruling in the case; to stop using the lease terms or similar lease terms which allegedly misstate lessees' rights under Massachusetts law; to refrain from enforcing those lease terms against any of the purported class members; to refrain from providing or communicating incorrect information regarding lessees' rights under Massachusetts law; and to include in every lease agreement language which conspicuously describes the rights of lessees under Massachusetts law. Finally, the Plaintiffs seek reimbursement of their costs and attorneys' fees. The parties have filed various motions with the Court, which will be heard by the Court over the next several months. Since this matter is in an early stage, there can be no assurance as to its eventual outcome. IV. On January 20, 2000, the Company filed suit against Sentinel Insurance Company Limited ("Sentinel"), in the United States District Court for the District of Massachusetts (the "Sentinel Complaint"). On August 18, 1999, Sentinel had issued a Business Performance Insurance Policy (the "Policy") to the Company as collateral for a Twelve Million Dollar ($12,000,000) loan (the "Loan") that the Company had made to Premier Holidays International, Inc. ("Premier"). The Loan was personally guaranteed by Premier's President, Daniel DelPiano ("DelPiano"). Pursuant to the terms of the Policy, Sentinel was obligated to make payment to the Company for any and all amounts payable under the terms of the Loan, in the event a default by Premier occurred. After Premier and DelPiano defaulted on their repayment obligations, the Company made demand on Sentinel for payment under the Policy. The Company filed the Sentinel Complaint after Sentinel refused to make payment to the Company under the Policy. On February 3, 2000, the Company amended its Complaint to assert claims against Premier and DelPiano arising out of their failure to make payments required under the Loan and the personal guaranty. On March 1, 2000, the Company filed a motion for summary judgment on its claims against Sentinel, seeking judgment in the amount of approximately $13.0 million, plus post-judgment interest and attorneys' fees. 19 20 Subsequently, on January 26, 2000, Premier and DelPiano filed suit against the Company, its wholly-owned subsidiary, Leasecomm Corporation, and Sentinel in the Superior Court of Fulton County, Georgia (the "Premier Complaint"). Premier and DelPiano allege that, notwithstanding the plain wording of both the Loan and the Policy, Premier agreed to borrow the full amount of the Loan only upon alleged representations by the Company that it would loan Premier an additional Forty-Five Million Dollars ($45,000,000). The documents evidencing the Loan, and the documents evidencing the Policy, refer only to the amount of the Loan ($12,000,000), and not to any greater amount. Premier alleges that, as a result, it has suffered actual and consequential damages in the amount of Seven Hundred Sixty-Nine Million Three Hundred Fifty Thousand Dollars ($769,350,000) plus interest, costs, and attorneys' fees. Premier also seeks punitive damages in the amount of Five Hundred Million Dollars ($500,000,000). Premier also seeks injunctive relief barring the Company and Leasecomm from making demand on or commencing court action to collect on the Policy. On February 22, 2000, Leasecomm removed this case to federal court for the Northern District of Georgia. The parties have filed various motions with the Court, which will be heard over the next several months. Among the Company's and Leasecomm's motions, are motions to dismiss the Premier Complaint, or, alternatively, to transfer this case to federal court in Massachusetts; and, a motion for preliminary injunction regarding the Sentinel Complaint, seeking an order requiring Sentinel, Premier and Del Piano to turn over to the Company any collateral in their possession or to which the Company and Leasecomm may be entitled as a result of both Premier's and Sentinel's defaults under the Loan and the Policy, respectively. Since this matter is in an early stage, there can be no assurance as to its eventual outcome. V. On April 3, 2000 a purported class action suit was filed in Superior Court of the State of California, County of San Mateo against Leasecomm and MicroFinancial as well as a number of other defendants with whom Leasecomm and MicroFinancial are alleged to have done business, directly or indirectly. The action is alleged as a "consumer fraud class action on behalf of defrauded California small businesses and their owners, who were induced to purchase services and/or goods from Defendants through false and misleading representations and material omissions." More specifically, the complaint seeks certification of a class of California persons and entities who purchased services or goods from Internet Success Systems, Inc., Fortune Financial Systems, Inc. (previously known as Fortune 21, Inc.), Fortune Financial Systems of Nevada, Inc., MarketComm Production; Bizz-e Inc. (also known as Bizz-e.com, Inc.), Cardservice International Inc. (also known as Cardservice Global Solutions) or Power Communications, Inc., directly or indirectly, at any time between February 7, 1997 and the present date. The complaint seeks certification of a subclass of those class members who entered into any lease agreement contracts with Leasecomm Corporation for the purposes of financing the goods or services allegedly purchased from these other entities. The class action complaint alleges ten causes of action for: (1) fraud and deceit; (2) negligent misrepresentation; (3) violations of California's Business & Professions Code ss.ss.17200 et seq. (unfair competition); (4) violations of California's Business & Professions Code ss.ss.17500 20 21 et seq. (false advertising); (5) violations of California's Civil Code ss.ss.1750 et seq. (Consumer Legal Remedies Act); (6) unjust enrichment; (7) fraud in the inducement of contract; (8) fraud in the inception of contract; (9) lack of consideration for contact; and (10) breach of the contractual covenant of good faith and fair dealing. The complaint prays for compensatory general and special damages according to proof; restitution and disgorgement according to proof; rescission of class member contracts with Leasecomm Corporation; injunctive relief against enforcement of class member contracts with Leasecomm Corporation; prejudgment interest; punitive and exemplary damages, costs, attorneys fees and such other relief as the court deems just. Since this matter is in an early stage, there can be no assurance as to its eventual outcome. 21 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Index EXHIBIT DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.1 Standard Terms and Condition of Indenture dated as of March 21, 2000 governing the MFI Finance Corp. I, 7.375% Lease-Backed Notes, Series 2000-1 (the "2000-1 Notes") 10.2 Supplement to Indenture dated March 21,2000 governing the 2000-1 Notes. 10.3 Specimen 2000-1 Note. 10.4 Standard Terms and Conditions of Servicing governing the 2000-1 Notes. 27 Financial Data Schedule (b) Not Applicable 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MicroFinancial Incorporated By: /s/ Peter R. Bleyleben ----------------------------------------- President and Chief Executive Officer By: /s/ Richard F. Latour ----------------------------------------- Executive Vice President, Chief Operating and Chief Financial Officer Date: May 22, 2000 23 EX-10.1 2 CONDITION OF INDENTURE DATED AS OF MARCH 21, 2000 1 Exhibit 10.1 INDENTURE among MICROFINANCIAL INCORPORATED, as Servicer, MFI FINANCE CORP. I, as Issuer, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION as Back-up Servicer Dated as of March 1, 2000 2 TABLE OF CONTENTS
PAGE ARTICLE ONE DEFINITIONS Section 1.01 Definitions 2 Section 1.02 Usage of Terms 19 Section 1.03 Legal Holidays 19 ARTICLE TWO THE NOTES Section 2.01 Form Generally 20 Section 2.02 Series; Denomination 20 Section 2.03 Execution, Authentication, Delivery and Dating 21 Section 2.04 [Reserved] 21 Section 2.05 Registration, Registration of Transfer and Exchange 21 Section 2.06 Limitation on Transfer and Exchange 22 Section 2.07 Mutilated, Destroyed, Lost or Stolen Note 23 Section 2.08 Payment of Principal and Interest; Principal and Interest Rights Preserved 24 Section 2.09 Persons Deemed Owner 25 Section 2.10 Cancellation 25 Section 2.11 Tax Treatment 25 ARTICLE THREE [reserved] ARTICLE FOUR ISSUANCE OF NOTES; SUBSTITUTIONS OF COLLATERAL Section 4.01 Conditions to Initial Issuance of Notes 27 Section 4.02 Issuances of Additional Series of Notes 28 Section 4.03 Security for Notes 30 Section 4.04 Substitution, Removal and Purchase of Contracts in Trust Estate 31 Section 4.05 Requirements for All Contracts in Trust Estate 32 Section 4.06 Releases 33 Section 4.07 Trust Estate 34 Section 4.08 Notice of Release 34 ARTICLE FIVE SATISFACTION AND DISCHARGE Section 5.01 Satisfaction and Discharge of Indenture 35 Section 5.02 Application of Trust Money 35
i 3 PAGE ARTICLE SIX DEFAULTS AND REMEDIES Section 6.01 Events of Default 36 Section 6.02 Acceleration of Stated Maturity Date; Rescission and Annulment 37 Section 6.03 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee 37 Section 6.04 Remedies 38 Section 6.05 Optional Preservation of Trust Estate 39 Section 6.06 Indenture Trustee May File Proofs of Claim 39 Section 6.07 Indenture Trustee May Enforce Claims Without Possession of Notes 40 Section 6.08 Application of Money Collected Following an Event of Default 40 Section 6.09 Limitation on Suits 41 Section 6.10 Unconditional Right of Noteholders to Receive Principal and Interest 42 Section 6.11 Restoration of Rights and Remedies 42 Section 6.12 Rights and Remedies Cumulative 42 Section 6.13 Delay or Omission; Not Waiver 42 Section 6.14 Control by Noteholders 42 Section 6.15 Waiver of Certain Events by Less than All Noteholders 43 Section 6.16 Undertaking for Costs 43 Section 6.17 Waiver of Stay or Extension Laws 43 Section 6.18 Sale of Trust Estate 44 Section 6.19 Action on Notes 45 ARTICLE SEVEN THE INDENTURE TRUSTEE Section 7.01 Certain Duties and Responsibilities 46 Section 7.02 Notice of Default and Other Events 47 Section 7.03 Certain Rights of Indenture Trustee 48 Section 7.04 Not Responsible for Recitals or Issuance of Notes 48 Section 7.05 May Hold Notes 49 Section 7.06 Money Held in Trust 49 Section 7.07 Compensation and Reimbursement 49 Section 7.08 Corporate Trustee Required; Eligibility 50 Section 7.09 Resignation and Removal; Appointment of Successor 50 Section 7.10 Acceptance of Appointment by Successor 51 Section 7.11 Merger, Conversion, Consolidation or Succession to Business of Indenture Trustee 52 Section 7.12 Co-Indenture Trustees and Separate Indenture Trustees 52 Section 7.13 Rights with Respect to the Servicer 53 Section 7.14 Appointment of Authenticating Agent 53 Section 7.15 Indenture Trustee to Hold Contracts 54 Section 7.16 Money for Note Payments to Be Held in Trust 55 ARTICLE EIGHT THE NOTE INSURANCE POLICIES Section 8.01 Payments under the Note Insurance Policies 57
4 PAGE ARTICLE NINE AMENDMENTS; SUPPLEMENTAL INDENTURES Section 9.01 Amendments and Supplemental Indentures without Consent of Noteholders 58 Section 9.02 Amendments or Supplemental Indentures with Consent of Noteholders 59 Section 9.03 Execution of Amendments and Supplemental Indentures 60 Section 9.04 Effect of Amendments and Supplemental Indentures 60 Section 9.05 Reference in Notes to Amendments and Supplemental Indentures 60 Section 9.06 Certain Amendments 60 ARTICLE TEN REDEMPTION OF NOTES Section 10.01 Redemption at the Option of the Issuer; Election to Redeem 61 Section 10.02 Notice to Indenture Trustee; Deposit of Redemption Price 61 Section 10.03 Notice of Redemption by the Issuer 61 Section 10.04 Notes Payable on Redemption Date 62 Section 10.05 Release of Series Contracts 62 ARTICLE ELEVEN REPRESENTATIONS, WARRANTIES AND COVENANTS Section 11.01 Representations and Warranties 63 Section 11.02 Covenants 64 Section 11.03 Other Matters as to the Issuer 69 ARTICLE TWELVE ACCOUNTS AND ACCOUNTINGS Section 12.01 Collection of Money 70 Section 12.02 Collection Account; Redemption Account 70 Section 12.03 Cash Collateral Account 72 Section 12.04 Reports by Indenture Trustee to the Note Insurer and Noteholders 73 ARTICLE THIRTEEN PROVISIONS OF GENERAL APPLICATION Section 13.01 General Provisions 75 Section 13.02 Acts of Noteholders 75 Section 13.03 Notices, etc., to Indenture Trustee, the Note Insurer, Issuer and Servicer 75 Section 13.04 Notices to Noteholders; Waiver 76 Section 13.05 Effect of Headings and Table of Contents 76 Section 13.06 Successors and Assigns 76 Section 13.07 Separability 76 Section 13.08 Benefits of Indenture 77 Section 13.09 Governing Law 77 Section 13.10 Counterparts 77 Section 13.11 Compliance Certificates and Opinions 77 Section 13.12 Consent to Jurisdiction 78
5 This INDENTURE, dated as of March 1, 2000 (this "Indenture"), is among MFI Finance Corp. I, as Issuer (the "Issuer"), MicroFinancial Incorporated, as Servicer (the "Servicer"), and Norwest Bank Minnesota, National Association, as Indenture Trustee (in such capacity, the "Indenture Trustee") and as Back-up Servicer (in such capacity, the "Back-up Servicer"). PRELIMINARY STATEMENT The Issuer has duly authorized the execution and delivery of this Indenture to provide for the issuance of the Issuer's Notes issuable as provided in this Indenture. All covenants and agreements made by the Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer herein are for the benefit and security of the Holders of the Notes and, to the extent set forth herein, the Note Insurer. The Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer are entering into this Indenture, and the Indenture Trustee is accepting the trusts created hereby, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. All things necessary to make this Indenture a valid agreement of the Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer in accordance with its terms have been done. GRANTING CLAUSE To secure the payment of the principal of and interest on the Notes in accordance with their terms, the payment of all of the sums payable under this Indenture (other than sums payable to the Issuer) and the performance of the covenants contained in this Indenture, the Issuer hereby Grants to the Indenture Trustee, solely in trust and as collateral security as provided in this Indenture, for the benefit of the Holders of the Notes and the Note Insurer, any and all of the Issuer's right, title and interest in, to and under the following and any and all benefits accruing to the Issuer from: (a) the Contracts and the Receivables and all payments received or receivable on or with respect to the Contracts and the Receivables and due after the applicable Cut-Off Date (including Servicing Charges); (b) the Equipment; (c) each Insurance Policy related to the Contracts and any Insurance Proceeds related thereto; (d) the Contract Acquisition Agreement; (e) the Servicing Agreement; (f) all amounts from time to time on deposit in the Collection Account, the Cash Collateral Account and the Redemption Account (including any Eligible Investments and other property in such accounts); (g) the Contract Files; (h) the Note Insurance Policies (provided, that the right and interest of the Holders of a Series of Notes in and to the Note Insurance Policies is limited to the Note Insurance Policy issued in respect of such Series of Notes); (i) amounts on deposit in the Operating Account that constitute proceeds of the foregoing and (j) proceeds of the foregoing (including, but not by way of limitation, all cash proceeds, accounts, accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit accounts, insurance proceeds, condemnation awards, rights to payment of any and every kind, and other forms of obligations and receivables which at any time constitute all or part or are included in the proceeds of any of the foregoing), in each case above whether now owned or hereafter acquired (all of the foregoing being hereinafter referred to as the "Collateral" or "Trust Estate"). The foregoing Grant does not constitute and is not intended to result in a creation or an assumption by the Indenture Trustee, any Noteholder or the Note Insurer of any obligation of the Issuer, the Company, the Servicer or any other Person in connection with the Trust Estate or under any agreement or instrument relating thereto. The Indenture Trustee acknowledges its acceptance on behalf of the Noteholders and the Note Insurer of all right, title and interest previously held by the Issuer in, to and under the Trust Estate, and 6 declares that it shall maintain such right, title and interest in accordance with the provisions hereof and agrees to perform the duties herein required to the best of its ability to the end that the interests of the Noteholders and the Note Insurer may be adequately and effectively protected. ARTICLE ONE DEFINITIONS SECTION 1.01 DEFINITIONS . Except as otherwise expressly provided herein or in the applicable Supplement, or unless the context otherwise requires, the following terms have the respective meanings set forth below for all purposes of this Indenture, and the definitions of such terms are equally applicable both to the singular and plural forms of such terms. Each capitalized term used and not otherwise defined herein shall have the meaning assigned thereto in the Servicing Agreement or in the Contract Acquisition Agreement. "Accrual Date": With respect to any Series of Notes, the date upon which interest begins accruing on such Notes, as specified in such Notes and the applicable Supplement. "Accrual Period": With respect to any Series of Notes and (i) each Payment Date other than an Initial Payment Date, the period beginning on the sixteenth day of the immediately preceding calendar month and ending on the fifteenth day of the calendar month in which such Payment Date occurs, and (ii) an Initial Payment Date, the period beginning on the related Accrual Date and ending on the fifteenth day of the calendar month in which such Initial Payment Date occurs. "Acquisition Date": Any Delivery Date or date of substitution of a Substitute Contract, as the context may require. "Act": With respect to any Noteholder, the meaning specified in Section 13.02. "Additional Contract": Each Contract acquired by the Issuer on an Acquisition Date other than the Initial Delivery Date. "Additional Principal Amount": The amount, if any, payable to Noteholders pursuant to Section 12.02(d)(x) hereof. "Additional Servicer Fee": The amount, if any, of the fee payable in accordance with Section 6.02 of the Servicing Agreement to a successor Servicer appointed pursuant to Section 6.02 of the Servicing Agreement that is in excess of the Servicer Fee. "Affiliate": With respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate IPB": The aggregate of the Implicit Principal Balances of all Series Contracts for all Outstanding Series of Notes. 2 7 "Aggregate Initial IPB": The sum of all Series Initial IPB for all Outstanding Series of Notes. "Agreement Regarding Operating Account": The Agreement Regarding Operating Account, dated as of March 1, 2000, between the Indenture Trustee and Fleet National Bank, as agent under the Credit Agreement. "Amended Contract Schedule": With respect to any Series Contract Schedule, the list of Contracts amending such Series Contract Schedule pursuant to any acquisition, removal, substitution, repurchase or modification of Contracts in accordance with the terms hereof and the Contract Acquisition Agreement, and accompanied by a MFI Certificate and a Company Certificate. "Annualized Default Rate": Unless otherwise specified in any applicable Supplement, for any Determination Date, the product (stated as a percentage) of (a) twelve and (b) a fraction, the numerator of which is equal to (i) the sum of the Implicit Principal Balances of all Contracts that have become Defaulted Contracts during the related Due Period minus (ii) the amount of Recoveries, Residual Proceeds and Servicing Charges received during such Due Period, and the denominator of which is the Aggregate IPB as of the first day of such Due Period. "Authenticating Agent": Initially, the Indenture Trustee, and thereafter, any entity appointed by the Indenture Trustee pursuant to Section 7.14 hereof. "Back-up Servicer": Norwest Bank Minnesota, National Association. "Back-up Servicer Fee": With respect to each Series of Notes, the fee payable on each Payment Date to the Back-up Servicer in consideration for the Back-up Servicer's performance of its duties pursuant to this Indenture and the Servicing Agreement as Back-up Servicer, in an amount equal to the product of (i) one-twelfth of the applicable Back-up Servicer Fee Rate and (ii) the Outstanding Principal Amount of such Series of Notes immediately following the preceding Payment Date; provided that, with respect to the Initial Payment Date for each Series of Notes issued pursuant to this Indenture, the Back-up Servicer Fee shall equal the amount specified in the applicable Supplement. "Back-up Servicer Fee Rate": With respect to each Series of Notes, the rate per annum specified in the applicable Supplement. "Benefit Plan Investor": The meaning specified in 29 C.F.R.ss. 2510.3-101. "Board of Directors": Either the board of directors of the Issuer or of the Servicer, as the context may require, or any duly authorized committee of such Board. "Board Resolution": A copy of a resolution certified by the Secretary or an Assistant Secretary of the Issuer, the Servicer or the Company to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification and delivered to the Indenture Trustee. "Business Day": Any day other than a Saturday, a Sunday or a day on which banking institutions in New York City or in the city in which the principal place of business of the Issuer or the Servicer or the Corporate Trust Office of the Indenture Trustee under this Indenture is located are authorized or obligated by law or executive order to remain closed. 3 8 "Calculation Date": The last day of a Due Period, except that, with respect to any calculation of the Series Initial IPB, the Calculation Date shall mean the close of business on the related Cut-Off Date. "Cash Collateral Account": The trust account or accounts created and maintained pursuant to Section 12.03 hereof. "Cash Collateral Account Factor": The meaning specified in the applicable Supplement. "Cash Collateral Account Required Balance": As of any determination date, the sum of all Series Cash Collateral Account Required Balances. "Change of Control": (a) Either or both Key Employees (i) die, (ii) are unable to work for a period of six consecutive months, or (iii) cease to be employed in an executive capacity by the Reported Companies; and (b) such condition exists for a period of ninety days without approval by the Controlling Party of a replacement for such Key Employee. "Code": The Internal Revenue Code of 1986. "Collateral": The meaning specified in the Granting Clause of this Indenture. "Collateralization Percentage": The meaning specified in the applicable Supplement. "Collection Account": The meaning specified in Section 12.02(a) hereof. "Company": Leasecomm Corporation. "Company Certificate": The meaning specified in the Contract Acquisition Agreement. "Concentration Limits": The meaning specified in the Contract Acquisition Agreement. "Consolidated Net Deficit": With respect to any period, the consolidated net deficit of the Reported Companies for such period. "Consolidated Net Income": With respect to any period, the consolidated net income of the Reported Companies for such period, without giving effect to (i) any gain or loss arising from any write-up of assets and (ii) any extraordinary or nonrecurring gains. "Contract": Each Lease Contract or Rental Contract. "Contract Acquisition Agreement": The Contract Acquisition Agreement, dated as of March 1, 2000, between the Issuer and the Company. "Contract Assets": The meaning specified in the Contract Acquisition Agreement. "Contract File": The meaning specified in the Contract Acquisition Agreement. "Controlling Party": The Note Insurer or, if (i) a Note Insurer Default has occurred and is continuing or (ii) 124 days have elapsed since the date on which all amounts owing to the Note Insurer under all applicable Note Insurance Agreements have been paid in full, all Note Insurance Agreements 4 9 have been terminated and all Note Insurance Policies have been surrendered to the Note Insurer for cancellation, the Majority Holders. "Corporate Trust Office": The principal corporate trust office of the Indenture Trustee at 6th Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479, or at such other address as the Indenture Trustee may designate from time to time by notice to the Note Insurer, the Noteholders and the Issuer, or the principal corporate trust office of any successor Indenture Trustee. "Credit Agreement": The Third Amended and Restated Revolving Credit Agreement, dated as of December 21, 1999, among the lenders party thereto, Fleet National Bank (formerly known as BankBoston, N.A.), as agent, and the Company, as amended from time to time or any credit agreement entered into by the Company or MicroFinancial as substitution therefor. "Customer": The lessee or obligor under each related Contract, including any guarantor of such Person. "Customer Prepayment Amount": The meaning specified in Section 4.04(d)(ii). "Cut-Off Date": With respect to the Delivery Date for any Series of Notes, including the Initial Delivery Date, the meaning specified in the applicable Supplement and, with respect to any Contracts acquired by the Issuer and Granted by the Issuer hereunder on any Acquisition Date that is not a Delivery Date, the Calculation Date immediately preceding such Acquisition Date. "Default": Any occurrence or circumstance which with notice or the lapse of time or both would become an Event of Default. "Defaulted Contract": A Contract shall become a Defaulted Contract at the earlier to occur of (a) the Calculation Date as of which such Contract has been delinquent for a period of 181 or more days and (b) the date as of which the Servicer determines in good faith in accordance with its customary practices that it shall not make a Servicer Advance with respect to such Contract, that a prior Servicer Advance with respect to such Contract is unrecoverable or that the remaining Scheduled Payments under the related Contract are uncollectible. "Delinquency Rate": For any Determination Date, the percentage equivalent of a fraction, the numerator of which is the sum of the Implicit Principal Balances as of the last day of the related Due Period of all Contracts that are Delinquent Contracts (and that are more than 30 days past due) as of such date, and the denominator of which is the Aggregate IPB as of the last day of such Due Period. "Delinquent Contract": For any Determination Date, any Contract (a) as to which the entire amount of the Scheduled Payment was not received when due and which remains unpaid in whole or in part as of the last day of the related Due Period and (b) which is not a Defaulted Contract. "Delivery Date": The date on which the Notes of a Series are first executed, authenticated and delivered, as specified in the related Supplement, including the Initial Delivery Date in the case of the first Series of Notes issued hereunder. "Determination Date": The fourth Business Day preceding each Payment Date. 5 10 "Discount Rate": With respect to a Series of Notes, unless otherwise specified in the related Supplement, the rate equal to the sum of the applicable Note Interest Rate, the Trustee Fee Rate, the Back-up Servicer Fee Rate and the applicable Note Insurer Premium Rate. "Dollar(s)": Lawful money of the United States of America. "Due Date": With respect to each Contract, each date on which a Scheduled Payment is due from a Customer thereunder. "Due Period": As to any Determination Date or Payment Date, the period beginning on the first day and ending on the last day of the calendar month preceding the month in which such Determination Date or Payment Date occurs. "Electronic Ledgers": The electronic master records of all contracts of the Company or the Servicer similar to and including the Contracts. "Eligible Contract": The meaning specified in the Contract Acquisition Agreement. "Eligible Investments": Any and all of the following: (a) direct obligations of, and obligations fully guaranteed by, the United States of America, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Federal Home Loan Banks or any agency or instrumentality of the United States of America the obligations of which are backed by the full faith and credit of the United States of America; (b) (i) demand and time deposits in, certificates of deposit of, banker's acceptances issued by or federal funds sold by any depository institution or trust company (including the Indenture Trustee or its agent acting in their respective commercial capacities) incorporated under the laws of the United States of America or any State thereof and subject to supervision and examination by federal and/or state authorities, so long as at the time of such investment or contractual commitment providing for such investment, such depository institution or trust company has a short term unsecured debt rating in one of the two highest available rating categories of S & P and the highest available rating category of Moody's and provided that each such investment has an original maturity of no more than 365 days, and (ii) any other demand or time deposit or deposit which is fully insured by the Federal Deposit Insurance Corporation; (c) repurchase obligations with a term not to exceed 30 days with respect to any security described in clause (a) above and entered into with a depository institution or trust company (acting as a principal) rated "A" or higher by S & P, rated A2 or higher by Moody's; provided, however, that collateral transferred pursuant to such repurchase obligation must be of the type described in clause (a) above and must (i) be valued weekly at current market price plus accrued interest, (ii) pursuant to such valuation, equal, at all times, 105% of the cash transferred by the Indenture Trustee in exchange for such collateral and (iii) be delivered to the Indenture Trustee or, if the Indenture Trustee is supplying the collateral, an agent for the Indenture Trustee, in such a manner as to accomplish perfection of a security interest in the collateral by possession of certificated securities; 6 11 (d) securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any State thereof which has a long term unsecured debt rating in the highest available rating category of each of the Rating Agencies at the time of such investment; (e) commercial paper having an original maturity of less than 365 days and issued by an institution having a short term unsecured debt rating in the highest available rating category of each of the Rating Agencies at the time of such investment; (f) a guaranteed investment contract approved by each of the Rating Agencies and the Controlling Party and issued by an insurance company or other corporation having a long term unsecured debt rating in the highest available rating category of each of the Rating Agencies at the time of such investment; (g) money market funds having ratings in one of the two highest available rating categories of S & P and the highest available rating category of Moody's at the time of such investment which invest only in other Eligible Investments; any such money market funds which provide for demand withdrawals being conclusively deemed to satisfy any maturity requirement for Eligible Investments set forth in this Indenture; and (h) any other investment approved by the Controlling Party and each Rating Agency. Each of the Eligible Investments may be purchased by the Indenture Trustee or through an Affiliate of the Indenture Trustee. "Equipment": The equipment leased or rented or purportedly leased or rented to the Customers pursuant to the Contracts, together with any replacement parts, additions or repairs thereof, and any accessories incorporated therein or affixed thereto. "ERISA": The Employee Retirement Income Security Act of 1974. "Event of Default": The meaning specified in Section 6.01 hereof. "Existing Indebtedness": The meaning specified in the Contract Acquisition Agreement. "Expected Rental Termination Date": With respect to each Rental Contract, the Due Date occurring in the last month of the period corresponding to the multiple of monthly payments used to determine the price paid by the Company to purchase such Contract. "Final Due Date": With respect to (a) each Lease Contract, the final Due Date thereunder and (b) each Rental Contract, the Expected Rental Termination Date. "Final Payment Date": With respect to any Note of a Series, the date on which the final principal payment on such Note is made as therein or herein provided, whether at the Stated Maturity Date or by acceleration or redemption. "Floor Percentage": The meaning specified in the applicable Supplement. 7 12 "Grant": To grant, bargain, warrant, alienate, remise, release, convey, assign, transfer, mortgage, pledge, create and grant a security interest in and right of set-off against, deposit, set over and confirm. A Grant of the Contracts, the Receivables or of any other instrument shall include all rights, powers and options (but none of the obligations) of the Granting party thereunder, including, without limitation, the immediate and continuing right to claim, collect, receive and receipt for payments in respect of the Contracts and the related Receivables, or any other payment due thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options, to bring proceedings in the name of the Granting party or otherwise, and generally to do and receive anything which the Granting party is or may be entitled to do or receive thereunder or with respect thereto. "Guaranty Amounts": Any and all amounts paid by the individual guarantor indicated on the applicable Contract. "Holder" or "Noteholder": The Person in whose name a Note is registered in the Note Register. "Implicit Principal Balance" or "IPB": With respect to any Contract and any date of determination, the present value of the remaining stream of Scheduled Payments (or, in the case of a Rental Contract, the present value of the expected remaining stream of Scheduled Payments, assuming that such stream of Scheduled Payments will terminate at the related Expected Rental Termination Date) due with respect to such Contract after the applicable Calculation Date (reduced by the applicable Servicer Fee but not reduced by any Additional Servicer Fee) calculated by discounting such Scheduled Payments (assuming such Scheduled Payments are received on the last day of the related Due Period) to such Calculation Date at an annual rate equal to the applicable Discount Rate, at the same frequency as the Payment Dates; except that on the Calculation Date, (a) on or immediately following the deposit into the Collection Account of Insurance Proceeds equal to the outstanding Implicit Principal Balance of the related Contract or the Purchase Price, or on or immediately following the delivery of a Substitute Contract, (b) on or immediately following the date that a Contract has become a Defaulted Contract or a Terminated Rental Contract, or (c) immediately preceding the Final Due Date of a Contract, the Implicit Principal Balance of the related Receivable shall be zero. To the extent that the Final Due Date of any Series Contract is later than the Stated Maturity Date of the last maturing Notes of the related Series of Notes, any Scheduled Payment due on such Contract after the Calculation Date immediately preceding such Stated Maturity Date shall not be taken into account in calculating the Implicit Principal Balance of such Contract. "Indenture Trustee": Norwest Bank Minnesota, National Association. "Independent": When used with respect to any specified Person means such a Person, who since the time of appointment and for at least five years prior thereto (a) is in fact independent of the Issuer, (b) does not have any direct financial interest or any material indirect financial interest in the Issuer or in any Affiliate of the Issuer, (c) is not connected with the Issuer as an officer, employee, shareholder, promoter, underwriter, trustee, partner, director, customer, supplier or person performing similar functions, (d) is not a person controlling or under common control with any such stockholder, customer, supplier or other person and (e) is not a member of the immediate family of any such stockholder, director, officer, employee, customer, supplier or other person. For the purposes of this definition, an "Affiliate" of a person or an entity controlling, controlled by, or under common control with such first person or entity and the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a person or entity, whether through ownership of voting securities, by contract or otherwise; provided that, solely with respect to the Articles of Organization of 8 13 the Issuer, any Person owning more than 5% of the equity interest in an entity shall be deemed to have control of such entity. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Indenture Trustee, such Person shall be appointed by an Issuer Order and approved by the Indenture Trustee in the exercise of reasonable care, and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof. "Independent Accountants": Any firm of independent certified public accountants of recognized national standing satisfactory to the Controlling Party. "Initial Cash Collateral Account Deposit": The amount, if any, required to be deposited by the Issuer into the Cash Collateral Account in connection with the issuance of any new Series of Notes, as specified in the applicable Supplement. "Initial Delivery Date": The date on which the first Series of Notes are executed, authenticated and delivered. "Initial Payment Date": The meaning specified in the applicable Supplement. "Insurance Policy": With respect to an item of Equipment and the related Contract, any insurance policy maintained by the Customer pursuant to the related Contract that covers physical damage to the Equipment or general liability (including policies procured by the Company or the Servicer, if any, on behalf of the Customer). "Insurance Proceeds": With respect to an item of Equipment and the related Contract, any amount received pursuant to an Insurance Policy, net of any costs of collecting such amounts not otherwise reimbursed. "Insurer": Any insurance company or other insurer providing any Insurance Policy. "Interest Calculation Convention": The meaning specified in the applicable Supplement. "Investment Letter": The meaning specified in Section 2.06. "Issuer": MFI Finance Corp. I. "Issuer Order" and "Issuer Request": A written order or request signed in the name of the Issuer by its Chairman of the Board, its President, or any Vice President, and delivered to the Indenture Trustee. "Key Employee": Each of Peter von Bleyleben and Richard Latour. "Lease Contracts": Lease contracts and all rights with respect thereto, including all guaranties and other agreements or arrangements of whatever character from time to time supporting or securing payment of any lease contract and all rights with respect to any agreements or arrangements with the vendors, dealers or manufacturers of the Equipment to the extent specifically related to any lease contract, which contracts are identified on either a Series Contract Schedule delivered to the Indenture Trustee and the Note Insurer on a Delivery Date or on an Amended Contract Schedule delivered to the Indenture Trustee and the Note Insurer on an Acquisition Date; provided that, from and after the date on which a Lease Contract is repurchased, removed or substituted by the Company or the Issuer in accordance with Section 4.04 hereof, such repurchased, removed or replaced Lease Contract shall no longer constitute a Lease Contract for purposes of the Transaction Documents. 9 14 "Lien": The meaning specified in the Contract Acquisition Agreement. "Loss and Damage Waiver Fee": With respect to a Contract, the aggregate monthly fees payable by the Customer under such Contract in lieu of such Customer obtaining an Insurance Policy. "Majority Holders": Holders of Notes representing at least 51% in Outstanding Principal Amount of all Notes of all Series. "MFI Certificate": An MFI Certificate, substantially in the form attached hereto as Exhibit D. "Monthly Servicer's Report": The report prepared by the Servicer pursuant to Section 4.01 of the Servicing Agreement. "Moody's": Moody's Investors Service, Inc. "Net Worth Requirement": The requirement that the consolidated Tangible Net Worth of the Reported Companies must be at least equal to $70,000,000 plus 50.00% of the aggregate amount of Consolidated Net Income of the Reported Companies for each of the fiscal quarters ending after September 30, 1999, but without deducting therefrom any amount of Consolidated Net Deficit for any of such fiscal quarters. All such amounts shall be calculated in accordance with generally accepted accounting principles except as otherwise specified herein. "Nonrecoverable Advance": The meaning specified in the Servicing Agreement. "Noteholder" or "Holder": The Person in whose name a Note is registered in the Note Register. "Note Insurance Agreement": With respect to each Series of Notes, the applicable Note Insurance Agreement, dated as of the related Transaction Documents Date, among the Note Insurer, the Issuer, the Company, the Servicer, the Back-up Servicer and the Indenture Trustee. "Note Insurance Policy": Each note guaranty insurance policy issued by the Note Insurer insuring each Series of Notes in accordance with the terms thereof, the form of which is attached hereto as Exhibit E. "Note Insurer": Ambac Assurance Corporation. "Note Insurer Default": The occurrence and continuance of any one or more of the following events: (a) the failure by the Note Insurer to make a payment under a Note Insurance Policy in accordance with its terms; (b) the Superintendent of Insurance of the State of New York (or any Person succeeding to the duties of such Superintendent) (the "Superintendent") shall apply for an order (i) pursuant to Section 7402 of the New York Insurance Law (or any successor provision thereto), directing him to rehabilitate the Note Insurer, (ii) pursuant to section 7404 of the New York Insurance Law (or any successor provision thereto), directing him to liquidate the business of the Note Insurer or (iii) pursuant to Section 7416 of the New York Insurance Law (or any successor provision thereto), dissolving the corporate existence of the Note Insurer and, in each case, such application shall not be dismissed or withdrawn 10 15 during a period of 60 consecutive days or a court of competent jurisdiction enters an order granting the relief sought; (c) the Superintendent shall determine that the Note Insurer is insolvent within the meaning of Section 1309 of the New York Insurance Law or any successor section; (d) the Note Insurer shall commence a voluntary case or other proceeding seeking rehabilitation, liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors; or (e) an involuntary case or other proceeding shall be commenced against the Note Insurer seeking rehabilitation, liquidation, reorganization or other relief with respect to it or its debts under bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property and such case or proceeding is not dismissed or otherwise terminated within a period of 60 consecutive days or a court of competent jurisdiction enters an order granting the relief sought in such case or proceeding. "Note Insurer Premium": With respect to each Series of Notes, the fee payable on each Payment Date to the Note Insurer, in an amount equal to the product of (i) one-twelfth of the applicable Note Insurer Premium Rate and (ii) the Outstanding Principal Amount of such Series of Notes immediately following the preceding Payment Date; provided that, with respect to the Initial Payment Date for each Series of Notes issued pursuant to this Indenture, the Note Insurer Premium shall equal the amount specified in the applicable Supplement. "Note Insurer Premium Rate": With respect to each Series of Notes, the meaning specified in the applicable Supplement. "Note Interest Rate": With respect to each Series of Notes, the meaning specified in the applicable Supplement. "Note Purchase Agreement": With respect to each Series of Notes, the meaning specified in the applicable Supplement. "Note Register" and "Note Registrar": The respective meanings specified in Section 2.05 hereof. "Notes": Collectively, all Outstanding Series of Notes or all Outstanding Notes of any one Series, as the context may require. "Officer's Certificate": A certificate signed by the Chairman of the Board, the President, a Vice President, the Treasurer, the Controller, an Assistant Controller or the Secretary of the company on whose behalf the certificate is delivered, and delivered to the Indenture Trustee, which certificate shall comply 11 16 with the applicable requirements of Section 13.11 hereof. Unless otherwise specified, any reference in this Indenture to an Officer's Certificate shall be to an Officer's Certificate of the Issuer. "Operating Account": The bank account maintained by MicroFinancial Incorporated in the name of Leasecomm Corporation at Fleet National Bank or any bank account substituted therefor. "Opinion of Counsel": A written opinion of counsel who may, except as otherwise expressly provided in this Indenture, be counsel for the Issuer and who shall be reasonably satisfactory to the Indenture Trustee and the Controlling Party and which opinion shall comply with the applicable requirements of Section 13.11 hereof. "Outstanding": With respect to Notes of any Series, as of any date of determination, all Notes theretofore authenticated and delivered under this Indenture except: (a) Notes theretofore canceled by the Note Registrar or delivered to the Note Registrar for cancellation; (b) Notes for whose payment money in the necessary amount has been theretofore irrevocably deposited with the Indenture Trustee or any Paying Agent (other than the Issuer) in trust for the Holders of such Notes (provided, however, that if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or any provision therefor, satisfactory to the Indenture Trustee, has been made, in accordance with Article Ten hereof); and (c) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, unless proof satisfactory to the Indenture Trustee is presented that any such Notes are held by a bona fide purchaser; provided, that for purposes of disbursing payments from the Note Insurance Policies and in determining whether the Holders of the requisite Outstanding Principal Amount of Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Issuer or any other obligor upon the Notes or any Affiliate of the Issuer or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, or waiver, only Notes which the Indenture Trustee knows to be so owned shall be so disregarded. "Outstanding Principal Amount": With respect to any Outstanding Note or Series of Notes (including, for purposes of accruing interest thereon, any Notes called for redemption but not yet redeemed), the unpaid principal amount of such Note or all Notes of such Series, as applicable. "Paying Agent": The Indenture Trustee or any other Person that meets the eligibility standards for the Indenture Trustee specified in Section 7.08 hereof and is authorized by the Issuer pursuant to Section 7.16 hereof to pay the principal of, or interest on, any Notes on behalf of the Issuer. "Payment Date": For each Series of Notes, the sixteenth day of each calendar month (or if such day is not a Business Day, the next succeeding Business Day) commencing on the Initial Payment Date for such Series. 12 17 "Person": Any individual, corporation, partnership, association, joint-stock company, limited liability company, limited liability partnership, statutory or common law trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof. "Placement Agent": The meaning specified in the applicable Supplement. "Preference Claim": The meaning specified in Section 8.01. "Prepayment Differential": The meaning specified in Section 4.04(d)(ii). "Principal Distribution Amount": Except as otherwise set forth in the applicable Supplement, as to any Series of Notes, (a) as of each Payment Date prior to the Stated Maturity Date of such Series, an amount equal to: (i) the applicable Targeted Principal Distribution Amount for such Series for such Payment Date, or (ii) if the amounts available in the Collection Account and the Cash Collateral Account (including any Reinvestment Income) after payment of all amounts required by clauses (i) through (v) of Section 12.02(d) hereof are less than the Targeted Principal Distribution Amounts for all Series of Notes, an amount equal to the product of (A) the total funds available for payment of principal on all Series of Notes in accordance with the priorities set forth in Section 12.02(d) hereof, and (B) the applicable Pro Rata Share with respect to the Targeted Principal Distribution Amount (computed without giving effect to this subclause (ii)) for such Series of Notes; (b) on and after the Stated Maturity Date of such Series, an amount equal to the Outstanding Principal Amount of the Notes of such Series as of such date. "Private Placement Memorandum" or "Final Private Placement Memorandum": The Private Placement Memorandum related to any direct or indirect offering of a Series of Notes and having the date specified in the applicable Supplement. "Proceeding": Any suit in equity, action at law or other judicial or administrative proceeding. "Pro Rata Share": With respect to: (a) any distribution of the Principal Distribution Amount on any Series of Notes on any Payment Date, a fraction (expressed as a decimal), the numerator of which is the Targeted Principal Distribution Amount scheduled to be paid on such Series of Notes on such Payment Date, and the denominator of which is the aggregate Targeted Principal Distribution Amounts in respect of all Series of Notes on such Payment Date; 13 18 (b) any distribution of interest on any Series of Notes on any Payment Date, a fraction (expressed as a decimal), the numerator of which is the amount of interest scheduled to be paid on such Series of Notes on such Payment Date and the denominator of which is the amount of interest scheduled to be paid on all Series of Notes on such Payment Date; and (c) any payments of Additional Principal Amounts, with respect to any Series, on any Payment Date, a fraction (expressed as a decimal), the numerator of which is the decline in the related Series IPB since the Calculation Date preceding the Trigger Event, and the denominator of which is the decline in the Aggregate IPB since the Calculation Date preceding the Trigger Event. "Purchase Price": With respect to any Contract repurchased by the Company pursuant to Section 3.03 of the Contract Acquisition Agreement or removed by the Issuer pursuant to Section 4.04(d) hereof, the sum of (a)(i) in the case of a Lease Contract, the Implicit Principal Balance (computed without giving effect to clauses (b) and (c) of the definition of Implicit Principal Balance) of such Contract on the Calculation Date on or immediately preceding the date as of which the Contract is removed or repurchased, (ii) in the case of a Rental Contract, the greater of (A) the Implicit Principal Balance (computed without giving effect to clauses (b) and (c) of the definition of Implicit Principal Balance) of such Rental Contract on the Calculation Date on or immediately preceding the date as of which the Contract is removed or repurchased and (B) the scheduled termination fee payable pursuant to such Rental Contract, (b) any Scheduled Payments with respect to such Contract due on or prior to such Calculation Date but not received through such Calculation Date, and (c) with respect to the related Equipment, the greater of (i) the amount, if any, recorded in the books and records of the Company as the "unguaranteed residual"and (ii) the fair market value of the Issuer's interest in such Equipment at the time of such repurchase or removal. "Rating Agency": With respect to any Series of Notes and any date of determination, each nationally recognized statistical rating organization which has been requested by the Issuer to provide a rating for such Series of Notes and which, as of such date of determination, is so rating such Series of Notes. "Rating Agency Condition" means, with respect to any action and a Series of Notes, that each Rating Agency with respect to such Series shall have been given ten Business Days (or such shorter period as is acceptable to such Rating Agency) prior notice thereof and that no Rating Agency shall have notified the Issuer, the Servicer, the Indenture Trustee or the Note Insurer in writing that such action will result in a qualification, reduction or withdrawal of its then-current rating, whether explicit or implied (including any notice to the Note Insurer regarding the "shadow rating"), of such Series of Notes. "Receivable": With respect to any Contract, all of and the right to receive all of (a) the Scheduled Payments, (b) any prepayments made with respect of such Contract, (c) any Guaranty Amounts, (d) any Insurance Proceeds, (e) any Residual Proceeds, (f) any Recoveries and (g) any Servicing Charges. "Record Date": The close of business on the last day of the calendar month preceding the applicable Payment Date, whether or not a Business Day, except that, with respect to an Initial Payment Date, the Record Date shall be the related Delivery Date. "Recoveries": For any Due Period during which or occurring after the date on which any Contract becomes a Defaulted Contract and with respect to such Defaulted Contract, all payments that the 14 19 Servicer received from or on behalf of a Customer during such Due Period in respect of such Defaulted Contract or from liquidation or re-leasing of the related Equipment, including but not limited to Scheduled Payments, Guaranty Amounts, and Insurance Proceeds, as reduced by (a) any unreimbursed Servicer Advances with respect to such Contract and (b) any out-of-pocket expenses reasonably incurred by the Servicer in enforcing such Defaulted Contract. "Redemption Account": The meaning specified in Section 12.02(e) hereof. "Redemption Date": A date fixed pursuant to Section 10.01 hereof. "Redemption Price": With respect to any Series of Notes being redeemed pursuant to Article Ten hereof, and as of the related Redemption Date, the Outstanding Principal Amount of such Series of Notes, together with, in each case, interest accrued and unpaid thereon to but excluding the related Redemption Date at the applicable Note Interest Rate (exclusive of installments of interest and principal maturing on or prior to such date, payment of which shall have been made or duly provided for to the Holder of such Note on the applicable Record Date or as otherwise provided in this Indenture). "Redemption Record Date": With respect to any redemption of Notes, a date fixed pursuant to Section 10.01 hereof. "Registered Holder": The Person whose name appears on the Note Register on the applicable Record Date or Redemption Record Date. "Reinvestment Income": Any interest or other earnings earned on all or part of the Trust Estate. "Rental Contract": Each contract in respect of (i) a residential or commercial security monitoring agreement or (ii) an equipment rental agreement with an unspecified term related to point of sale bankcard equipment or such other personal property as is approved in advance by the Controlling Party, and all rights with respect thereto, including all guaranties and other agreements or arrangements of whatever character from time to time supporting or securing payment of any rental contract and all rights with respect to any agreements or arrangements with the vendors, dealers or manufacturers of the related Equipment or the provider of any monitoring service to the extent specifically related to any rental contract, which contracts are identified on either a Series Contract Schedule delivered to the Indenture Trustee and the Note Insurer on a Delivery Date or on an Amended Contract Schedule delivered to the Indenture Trustee and the Note Insurer on an Acquisition Date; provided that, from and after the date on which a Rental Contract is repurchased, removed or substituted by the Company or the Issuer in accordance with Section 4.04 hereof, such repurchased, removed or replaced Rental Contract shall no longer constitute a Rental Contract for purposes of the Transaction Documents. "Reported Companies": MicroFinancial Incorporated and its consolidated subsidiaries. "Required Collateralization Amount": With respect to a Series of Notes, as of any date of determination, the greater of (a) the related Collateralization Percentage multiplied by the Series IPB, and (b) the related Floor Percentage multiplied by the Series Initial IPB. "Required Prepayment Amount": The meaning specified in Section 4.04(d)(ii). 15 20 "Residual Proceeds": With respect to a Contract that is not a Defaulted Contract and the related Equipment, the net proceeds (excluding Insurance Proceeds) of any sale, re-lease or re-rental (including any lease or rental renewal) or other disposition of such Equipment. "Responsible Officer": When used with respect to the Indenture Trustee, any officer assigned to the Corporate Trust Department (or any successor thereto), including any Vice President, Senior Trust Officer, Trust Officer, Assistant Trust Officer, any Assistant Secretary, any Trust Officer or any other Officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Indenture, and also, with respect to a particular matter, any other officer, to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Sale": The meaning specified in Section 6.18 hereof. "Scheduled Payment": With respect to a Due Period and a Contract, the periodic payment, including, if so specified in the applicable Supplement, any payments pursuant to any "PUT" (Purchase Upon Termination) clause or balloon payment provision (but excluding any amounts in respect of Servicing Charges), as set forth in such Contract, due from the Customer in such Due Period, calculated without regard to any modification granted pursuant to Section 3.01(b)(v) of the Servicing Agreement. "Securities Act": The Securities Act of 1933, as amended. "Series": A separate Series of Notes issued pursuant to this Indenture, with the specific terms identified in the applicable Supplement. "Series Cash Collateral Account Required Balance": With respect to a Series of Notes then Outstanding, as of any determination date, an amount equal to the sum of (a) the Initial Cash Collateral Account Deposit for such Series and (b) the product of (i) the positive excess, if any, of the Required Collateralization Amount for such Series minus the difference between (A) the Series IPB, and (B) the Outstanding Principal Amount of such Series of Notes, after giving effect to any payments of principal expected to occur on the Payment Date occurring on or immediately after such determination date; and (ii) the related Cash Collateral Account Factor; provided, that, if a Trigger Event has occurred, the Series Cash Collateral Account Required Balance shall be an amount equal to zero. "Series Contracts": With respect to each Series of Notes, the Contracts listed on the related Series Contract Schedule, including any Substitute Contracts. "Series Contract Schedule": For each Series of Notes, the list of Contracts and Receivables attached to the applicable Supplement for such Series of Notes, together with and as amended by all related Amended Contract Schedules, each of which shall include with respect to each Contract as of the 16 21 related Acquisition Date: (a) a number identifying the Contract, (b) the Implicit Principal Balance of the related Receivable, (c) the identity of the Customer, (d) the State of the Customer's billing address, (e) the original and remaining term, (f) the Scheduled Payment, (g) the frequency with which Scheduled Payments are due, (h) the zip code of the Customer's billing address, (i) the amount of any Loss and Damage Waiver Fee, (j) whether such Contract is a Lease Contract or a Rental Contract and whether the terms of such Contract include a PUT clause or any balloon payment, (k) the equipment type, and (l) any additional items specified in the related Supplement. "Series Initial IPB": With respect to any Series of Notes, the aggregate Implicit Principal Balance of the related Series Contracts as calculated on the close of business on the related Cut-Off Date. "Series IPB": With respect to any Series of Notes, as of any determination date, the sum of the Implicit Principal Balances of all related Series Contracts, as of such determination date. "Servicer": MicroFinancial Incorporated. "Servicer Advance": The meaning set forth in Section 3.04 of the Servicing Agreement. "Servicer Event of Default": The meaning specified in Section 6.01(a) of the Servicing Agreement. "Servicer Fee": With respect to each Contract (other than Defaulted Contracts or Contracts that are extended beyond their Final Due Date, as to which there is no Servicer Fee) and each Due Period, $3.00 per Scheduled Payment becoming due during such Due Period. "Servicing Agreement": The Servicing Agreement, dated as of March 1, 2000, among the Servicer, the Issuer, the Back-up Servicer and the Indenture Trustee, as amended from time to time. "Servicing Charges": For any Due Period, the sum of (a) all late payment charges paid by Customers on Contracts that are Delinquent Contracts after payment in full of any Scheduled Payments due in a prior or current Due Period, (b) all Loss and Damage Waiver Fees, (c) any termination fees payable with respect to a Rental Contract and (d) any other incidental charges or fees received from a Customer, including but not limited to, late fees, collection fees, and returned check charges in excess of any Scheduled Payment. "Servicing Officers": The persons listed on a certificate of the Servicer from time to time delivered by the Servicer to the Issuer and the Indenture Trustee. "S & P": Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "State": Any state of the United States of America and, in addition, the District of Columbia and Puerto Rico. "Stated Maturity Date": With respect to any Series of Notes, the meaning specified in the applicable Supplement. "Substitute Contract": The meaning specified in the Contract Acquisition Agreement. 17 22 "Supplement": A Supplement to this Indenture, substantially in the form of Exhibit B attached hereto, pursuant to which a Series of Notes is issued. "Tangible Net Worth": The sum, with respect to the Reporting Companies, on a consolidated basis, of (a) the capital stock, (b) additional paid-in capital (less accrued dividends), (c) retained earnings and (d) subordinated debt less (x) net organizational costs and net good will, (y) treasury stock and (z) 25% of debt issue costs. "Targeted Balance": Except as otherwise set forth in the related Supplement, for any Payment Date and any Series of Notes, the amount indicated under the column "Targeted Balance" on Schedule B to the applicable Supplement for such Payment Date. "Targeted Principal Distribution Amount": Except as otherwise set forth in the related Supplement, with respect to a Payment Date and a Series of Notes, (a) for any Payment Date prior to the applicable Stated Maturity Date, if the Aggregate IPB equals or exceeds the aggregate Targeted Balance for all Outstanding Series, an amount equal to the Outstanding Principal Amount of the Notes of such Series as of such Payment Date (before giving effect to distributions on such date), minus the amount of the applicable Targeted Balance for such Series for such Payment Date; (b) for any Payment Date prior to the applicable Stated Maturity Date, if the Aggregate IPB is less than the aggregate Targeted Balance for all Outstanding Series, an amount equal to the Outstanding Principal Amount of the Notes of such Series as of such Payment Date (before giving effect to distributions on such date), minus the lesser of (i) the amount of the applicable Targeted Balance for such Series for such Payment Date, and (ii) the applicable Series IPB; and (c) for any Payment Date on or after the applicable Stated Maturity Date, an amount equal to the Outstanding Principal Amount of the Notes of such Series as of such date. "Terminated Rental Contract": A Rental Contract that has been terminated by the related Customer prior to the related Expected Rental Termination Date. "Transaction Documents": This Indenture, the Servicing Agreement, the Contract Acquisition Agreement, the Agreement Regarding Operating Account and, with respect a particular Series of Notes, the related Supplement, the related Notes, the related Note Purchase Agreement(s), the related Note Insurance Agreement and the related Note Insurance Policy. "Transaction Documents Date": With respect to each Series of Notes, the meaning specified in the applicable Supplement. "Transition Cost": Any documented expenses reasonably incurred by a successor Servicer or the Indenture Trustee in connection with a transfer of servicing from the Servicer to a successor Servicer as successor Servicer pursuant to Section 6.02 of the Servicing Agreement, but not to exceed $75,000 in the aggregate. 18 23 "Trigger Event": The occurrence of any one or more of the following events, unless waived in writing by the Controlling Party: (a) in any Due Period, the average of the Annualized Default Rates for the three consecutive prior Due Periods equals or exceeds 7.00%; (b) for any Due Period, the Annualized Default Rate equals or exceeds 21.00%; (c) in any Due Period, the average of the Delinquency Rates for the three consecutive prior Due Periods equals or exceeds 14.50%; (d) the Net Worth Requirement is not met and such failure to meet the Net Worth Requirement remains uncured for a period of thirty days after delivery of the financial statements reflecting such failure or after the date on which such financial statements were required to have been delivered; (e) a Change of Control; (f) an Event of Default; (g) a Servicer Event of Default; (h) any failure on the part of the Company duly to observe or perform in any material respect any covenants or agreements of the Company set forth in Section 3.03 of the Contract Acquisition Agreement; or (i) the occurrence of any other event designated as an additional Trigger Event in any Supplement. "Trust Estate": The meaning specified in the Granting Clause of this Indenture. "Trustee Fee": With respect to each Series of Notes, the fee payable on each Payment Date to the Indenture Trustee in consideration for the Indenture Trustee's performance of its duties pursuant to this Indenture as Indenture Trustee, in an amount equal to the product of one-twelfth of the Trustee Fee Rate and the Outstanding Principal Amount of such Series immediately following the preceding Payment Date; provided that with respect to the Initial Payment Date for each Series of Notes, the Trustee Fee shall equal the amount calculated as set forth in the applicable Supplement. "Trustee Fee Rate": The meaning specified in the applicable Supplement. "Vice President": With respect any entity, any vice president, whether or not designated by a number or a word or words added before or after the title "vice president." "Withdrawn Collateral": The meaning specified in Section 5.01(b) hereof. 19 24 SECTION 1.02 USAGE OF TERMS . With respect to all terms in this Indenture, the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to a "writing" include printing, typing, lithography and other means of reproducing words in a tangible form; references to agreements and other contractual instruments and statutes and other laws include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms and not prohibited by this Indenture; references to Persons include their permitted successors and assigns; the term "including" means "including without limitation" and, unless the context requires otherwise, the term "or" means "and/or." SECTION 1.03 LEGAL HOLIDAYS. In any case in which the date of any Payment Date or the Stated Maturity Date of any Note shall not be a Business Day, then (notwithstanding any other provision of a Note or this Indenture) payment of principal or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of any such Stated Maturity Date or Payment Date and, assuming such payment is actually made on such subsequent Business Day, no additional interest shall accrue on the amount so paid for the period from and after any such nominal date. 20 25 ARTICLE TWO THE NOTES SECTION 2.01 FORM GENERALLY. Each Series of Notes issued hereunder and the certificates of authentication affixed thereto shall be substantially in the form set forth in Exhibit A hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and the applicable Supplement, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may, consistently herewith, be determined by the officers executing such Notes, such determination to be conclusively evidenced by their execution of the Notes. The definitive Notes shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any manner acceptable to the Indenture Trustee and the initial purchasers of the Notes, all as determined by the officers executing such Notes, such determination to be conclusively evidenced by their execution of such Notes. SECTION 2.02 SERIES; DENOMINATION. (a) This Indenture provides for the issuance by the Issuer from time to time of one or more Series of Notes. Each Note in a Series shall bear upon the face thereof the designation selected for the Series to which it belongs. All Notes of a Series shall be identical except for differences in registration information and denomination. Each Series of Notes issued under this Indenture shall be in all respects equally and ratably secured with all other Series of Notes by the Collateral Granted by the Issuer on the Initial Delivery Date and from time to time thereafter (provided, that (a) each Note Insurance Policy is and is to be issued specific to a Series of Notes and the Holders of Notes of any other Series shall have no right or interest in the Note Insurance Policy issued in respect of such other Series and (b) all cash amounts shall be applied by the Trustee in accordance with the express provisions hereof) and shall be entitled to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Indenture and the applicable Supplement. The Supplement with regard to a Series of Notes shall establish, without limitation, the following terms and provisions of such Series, each of which the Issuer shall determine in authorizing the issuance of any Series: (i) designation of the Series; (ii) the applicable Delivery Date, Initial Payment Date, Accrual Date, Transaction Documents Date, the schedules to be attached to such Supplement containing the Targeted Balances with respect to such Series of Notes and the Series Contract Schedule, and if applicable, the date of the related Private Placement Memorandum, and the applicable Cut-Off Date; (iii) the maximum aggregate principal amount of Notes of such Series that may be issued; 21 26 (iv) the related Note Interest Rate or the method for determining the related Note Interest Rate and the Interest Calculation Convention; (v) the amount of any Initial Cash Collateral Account Deposit; (vi) the Note Insurance Policy number; (vii) the Stated Maturity Date for such Series; (viii) any additional Trigger Events, if applicable, for such Series; and (ix) any additional conditions to the issuance of Notes of such Series or additional defined terms related to such Series. (b) The aggregate principal amount of Notes of each Series which may be authenticated and delivered under this Indenture is specified in the applicable Supplement, except for Notes authenticated and delivered upon registration of transfer or in exchange for or in lieu of, other Notes pursuant to Sections 2.04, 2.05, 2.07 or 9.05 hereof. The Notes shall be issuable only as registered Notes without coupons in minimum denominations of $500,000 and integral multiples of $0.01 in excess thereof; provided, that the foregoing shall not restrict or prevent the transfer in accordance with Sections 2.05 and 2.06 hereof of any Note with a remaining Outstanding Principal Amount of less than its original minimum denomination. SECTION 2.03 EXECUTION, AUTHENTICATION, DELIVERY AND DATING. (a) The Notes shall be manually executed on behalf of the Issuer by its President, Treasurer or one of its Vice Presidents. Notes bearing the manual signatures of individuals who were at any time the proper officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication or delivery of such Notes or did not hold offices at the date of authentication or delivery of such Notes. (b) Each Note shall bear on its face the applicable Delivery Date and be dated as of the date of its authentication. (c) No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Indenture Trustee or by any Authenticating Agent by the manual signature of one of its authorized officers, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. SECTION 2.04 [RESERVED] SECTION 2.05 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. (a) The Issuer shall cause to be kept at an office or agency to be maintained by the Issuer in accordance with Section 11.02(m) hereof a register (the "Note Register"), in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Notes and the registration of transfers of Notes. Norwest Bank Minnesota, National Association, Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479, is hereby appointed "Note 22 27 Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Indenture Trustee shall have the right to examine the Note Register at all reasonable times and to rely conclusively upon a Certificate of the Note Registrar as to the names and addresses of the Holders of the Notes and the principal amounts and numbers of such Notes as held. (b) Upon surrender for registration of transfer of any Note at the office or agency of the Issuer to be maintained as provided in Section 11.02(m) hereof and subject to the conditions set forth in Section 2.06 hereof, the Issuer shall execute, and the Indenture Trustee or its agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations, and of a like aggregate principal amount, Series and Stated Maturity Date. (c) At the option of the Holder, Notes of a Series may be exchanged for other Notes of such Series of any authorized denominations and of a like aggregate principal amount and Stated Maturity Date, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, and the Indenture Trustee or its agent shall authenticate and deliver, the Notes which the Noteholder making the exchange is entitled to receive. (d) All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of such transfer or exchange. (e) Every Note presented or surrendered for registration of transfer or exchange shall (if so required by the Issuer or the Note Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Note Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. (f) No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 2.04 or 9.05 hereof not involving any registration of transfer. SECTION 2.06 LIMITATION ON TRANSFER AND EXCHANGE. (a) The Notes have not been registered or qualified under the Securities Act or the securities laws of any state. No transfer of any Note shall be made unless that transfer is made in a transaction which does not require registration or qualification under the Securities Act or under applicable state securities or "Blue Sky" laws. In the event that a transfer is to be made, such Noteholder's prospective transferee shall deliver to the Indenture Trustee either (i) an investment letter substantially in the form set forth on Exhibit C hereto (the "Investment Letter") or (ii) an opinion of counsel that the transfer is exempt from such registration or qualification under the Securities Act (which opinion shall not be at the expense of the Issuer, the Indenture Trustee, the Servicer or the Trust Estate). Neither the Issuer nor the Indenture Trustee is obligated to register or qualify the Notes under the Securities Act or any other securities law. Any such Holder desiring to effect such transfer shall, and does hereby agree to, indemnify the Indenture Trustee, the Note Insurer and the Issuer against any liability, cost or expense (including attorneys' fees) that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws. MicroFinancial Incorporated (whether or not acting as Servicer) shall provide to the Indenture Trustee the information required to be delivered to Holders and prospective transferees of Notes in connection with resales of the Notes to permit compliance with Rule 144A promulgated under the Securities Act in connection with such resales and, promptly upon its receipt thereof, the Indenture 23 28 Trustee shall furnish such information to any Holder or any prospective transferee designated by a Holder. (b) No acquisition or transfer of a Note or any interest therein may be made to any "Benefit Plan Investor"(as defined in 29 C.F.R. ss.2510.3-101) or to any Person who is directly or indirectly purchasing the Notes or an interest therein on behalf of, as named fiduciary of, as trustee of, or with assets of, such a Benefit Plan Investor unless the Indenture Trustee is provided with evidence that establishes to the reasonable satisfaction of the Indenture Trustee that (i) either no "prohibited transaction" under ERISA or the Code will occur in connection with such prospective acquirer's or transferee's acquisition and holding of the Notes or that the acquisition and holding of the Notes by such prospective acquirer or transferee is subject to a statutory or administrative exemption, and (ii) that the prospective acquirer's or transferee's acquisition and holding will not subject the Issuer, the Servicer or the Indenture Trustee to any obligation or liability (including obligations or liabilities under ERISA or Section 4975 of the Code) in addition to those explicitly undertaken in the Transaction Documents. In the absence of a change in applicable law, the delivery of an executed Investment Letter shall be deemed to provide satisfactory evidence of compliance with this Section 2.06(b). (c) The Indenture Trustee shall have no liability to the Trust Estate or any Noteholder arising from a transfer of any such Note in reliance upon a certification described in this Section 2.06. SECTION 2.07 MUTILATED, DESTROYED, LOST OR STOLEN NOTE. If (i) any mutilated Note is surrendered to the Note Registrar, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee and the Note Insurer such security or indemnity as may be required by the Indenture Trustee to save the Issuer, the Indenture Trustee and the Note Insurer or any agent of any of them harmless (it being understood that the unsecured written undertaking of any domestic institutional Holder shall be deemed to be sufficient for such purposes), then, in the absence of notice to the Issuer or the Note Registrar that such Note has been acquired by a bona fide purchaser, the Issuer shall execute and, upon its request, the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of the same Series, initial principal amount and Stated Maturity Date, bearing a number not contemporaneously outstanding. If after the delivery of such new Note, a bona fide purchaser of the original Note in lieu of which such new Note was issued presents for payment such original Note, the Note Insurer, the Issuer and the Indenture Trustee shall be entitled to recover such new Note from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expenses incurred by the Note Insurer, the Issuer or the Indenture Trustee or any agent of any of them in connection therewith. If any such mutilated, destroyed, lost or stolen Note shall have become or shall be about to become due and payable, or shall have become subject to redemption in full, in lieu of issuing a new Note, the Issuer may pay such Note without surrender thereof, except that any mutilated Note shall be surrendered. No service charge shall be made to a Holder for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 2.05 or 9.05 hereof not involving any registration of transfer. Every new Note issued pursuant to this Section 2.07, in lieu of any destroyed, lost or stolen Note, shall constitute an original additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of 24 29 this Indenture equally and proportionately with any and all other Notes duly issued hereunder. Upon the issuance of any new Note under this Section, the Indenture Trustee or Note Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.08 PAYMENT OF PRINCIPAL AND INTEREST; PRINCIPAL AND INTEREST RIGHTS PRESERVED. (a) Unless otherwise specified in the applicable Supplement, for each applicable Accrual Period, the Notes of each Series shall accrue interest on the Outstanding Principal Amount thereof (as of the first day of the related Accrual Period) from and including the first day to and including the last day of such Accrual Period at the related Note Interest Rate and using the related Interest Calculation Convention. Interest shall be due and payable in arrears on each Payment Date, with each payment of interest calculated as described above on the Outstanding Principal Amount of the Notes immediately following the making of payments on the preceding Payment Date or on the applicable Delivery Date, if there has not been a preceding Payment Date. In making any such interest payment, if the interest calculation with respect to a Note shall result in a portion of such payment being less than $0.01, then such payment shall be decreased to the nearest whole cent, and no subsequent adjustment shall be made in respect thereof. (b) The principal of each Note shall be payable in installments ending no later than the applicable Stated Maturity Date thereof unless such Note becomes due and payable at an earlier date by declaration of acceleration, call for redemption or otherwise. All reductions in the principal amount of a Note effected by payments of installments of principal made on any Payment Date shall be binding upon all future Holders of such Note and of any Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, whether or not such payment is noted on such Note. Each installment of principal payable on the Notes shall be in an amount equal to the Principal Distribution Amount and the Additional Principal Amount, if any, available to be paid in accordance with the priorities of Sections 12.02(d) hereof. The principal payable on the Notes of each Series shall be paid in accordance with the terms of the applicable Supplement or, if not specified therein, then on each Payment Date beginning on the applicable Initial Payment Date and ending on the applicable Final Payment Date, and with respect to all of the Notes within a Series, on a pro rata basis based upon the ratio that the Outstanding Principal Amount of a Note bears to the Outstanding Principal Amount of all Notes of such Series; provided, that if as a result of such proration a portion of such principal would be less than $0.01, then such payment shall be increased to the nearest whole cent, and such portion shall be deducted from the next succeeding principal payment. (c) The principal of and interest on the Notes are payable by check mailed by first-class mail to the Person whose name appears as the Registered Holder of such Note on the Note Register at the address of such Person as it appears on the Note Register except that such payment shall be by wire transfer in immediately available funds to the account specified in the Note Purchase Agreement (or such alternative account specified in writing to the Indenture Trustee by any Registered Holder at least five Business Days prior to the Record Date for the Payment Date on which wire transfers will commence), in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. All payments on the Notes shall be paid without any requirement of presentment. The Issuer shall notify the Person in whose name a Note is registered at the close of 25 30 business on the Record Date next preceding the Payment Date on which the Issuer expects that the final installment of principal of such Note will be paid that the Issuer expects that such final installment will be paid on such Payment Date. Such notice shall be mailed no later than the tenth day prior to such Payment Date and shall specify the place where such Note may be surrendered. Funds representing any such checks returned undeliverable shall be held in accordance with Section 7.16 hereof. Each Noteholder shall surrender its Note to the Indenture Trustee promptly following payment of the final installment of principal of such Note. Each Holder of Notes does by its acceptance of a Note agree to indemnify the Indenture Trustee, the Note Insurer and the Issuer against any liability, cost or expenses (including attorneys' fees) that may result if such Noteholder fails to so deliver such Note. (d) Notwithstanding any of the foregoing provisions with respect to payments of principal of and interest on the Notes, if the Notes have become or been declared due and payable following an Event of Default and such acceleration of maturity and its consequences have not been rescinded and annulled, then payments of principal of and interest on such Notes shall be made in accordance with Section 6.08 hereof. SECTION 2.09 PERSONS DEEMED OWNER. Prior to due presentment for registration of transfer of any Note, the Issuer, the Note Insurer, the Indenture Trustee and any agent of the Issuer, the Note Insurer or the Indenture Trustee shall treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving payments of principal of and interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Issuer, the Note Insurer, the Indenture Trustee nor any agent of the Issuer, the Note Insurer or the Indenture Trustee shall be affected by notice to the contrary. SECTION 2.10 CANCELLATION. All Notes surrendered to the Indenture Trustee for payment, registration of transfer or exchange (including Notes surrendered to any Person other than the Indenture Trustee which shall be delivered to the Indenture Trustee) shall be promptly canceled by the Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.10, except as expressly permitted by this Indenture. All canceled Notes held by the Indenture Trustee shall be disposed of by the Indenture Trustee as is customary with its standard practice. SECTION 2.11 TAX TREATMENT. The Issuer has structured this Indenture and the Notes with the intention that the Notes qualify under applicable tax laws as indebtedness secured by the Trust Estate. The Issuer, the Indenture Trustee, the Servicer, the Note Insurer and each Noteholder, by acceptance of its Note (and any Person that is a beneficial owner of any interest in a Note, by virtue of such Person's acquisition of a beneficial interest therein) agree to report the transactions contemplated hereby in accordance with such stated intentions unless and until determined to the contrary by an applicable taxing authority. 26 31 ARTICLE THREE [reserved] 27 32 ARTICLE FOUR ISSUANCE OF NOTES; SUBSTITUTIONS OF COLLATERAL SECTION 4.01 CONDITIONS TO INITIAL ISSUANCE OF NOTES. The Series of Notes to be issued on the Initial Delivery Date may be executed by the Issuer and delivered to the Indenture Trustee for authentication, and thereupon, the same shall be authenticated and delivered by the Indenture Trustee upon Issuer Order and upon receipt by the Indenture Trustee of the following: (a) an executed Company Certificate and MFI Certificate, each with the related Series Contract Schedule attached thereto; (b) the original manually executed counterpart of each Contract and, except as otherwise provided in the Transaction Documents, all other items included in the Contract File with respect to each Contract; (c) a Board Resolution of each of the Issuer, the Servicer and the Company authorizing, as applicable, the execution, delivery and performance of the Transaction Documents and the transactions contemplated hereby and by the other Transaction Documents, certified by the Secretary or an Assistant Secretary of the Issuer, the Servicer or the Company, as applicable; (d) a copy of an officially certified document, dated not more than 30 days prior to the Initial Delivery Date, evidencing the due organization and good standing of each of the Issuer, the Servicer and the Company in their respective States of incorporation; (e) copies of the Articles of Organization and By-Laws of each of the Issuer, the Servicer and the Company, certified by the Secretary or an Assistant Secretary of the Issuer, the Servicer and the Company, as applicable; (f) (i) evidence of filing with the Secretary of State of the State (and with the relevant county, if required by the applicable state law) of the Company's chief executive office of UCC-1 financing statements executed by the Company, as debtor, and naming the Issuer as secured party, the Indenture Trustee for the benefit of the Noteholders and the Note Insurer as assignee and the Contract Assets as collateral; and (ii) evidence of filing with the Secretary of State of the State (and with the relevant county, if required by the applicable state law) of the Issuer's chief executive office of UCC-1 financing statements executed by the Issuer, as debtor, and naming the Indenture Trustee for the benefit of the Noteholders and the Note Insurer as secured party, and the Trust Estate as collateral; (g) a certificate listing the Servicing Officers of the Servicer as of the Initial Delivery Date; (h) an executed copy of a Supplement for the Series of Notes to be issued on the Initial Delivery Date and an executed copy of the Servicing Agreement, the Contract Acquisition Agreement and the applicable Note Purchase Agreement; (i) a Note Insurance Policy for the Series of Notes being issued on such date; (j) evidence of the deposit by the Issuer of the Initial Cash Collateral Account Deposit; 28 33 (k) evidence of the deposit by the Issuer into the Collection Account of any amounts due and paid on the Contracts since the applicable Cut-off Date; (l) an executed Officer's Certificate of each of the Issuer and the Company certifying that all of the terms of the Contract Acquisition Agreement have been complied with; (m) favorable opinions of counsel (i) to the effect that the Notes of such Series will be characterized as debt for tax purposes, (ii) regarding the security interest of the Indenture Trustee in the Trust Estate, (iii) regarding true sale and the nonconsolidation matters of the Issuer and the Company in the event of a bankruptcy of the Company, and (iv) regarding certain basic corporate matters and that the Issuer is not required to be registered as an "investment company" under the Investment Company Act of 1940; and (n) such other documents as are required by the applicable Note Purchase Agreement or as the Indenture Trustee or the Note Insurer may reasonably require. SECTION 4.02 ISSUANCES OF ADDITIONAL SERIES OF NOTES. (a) Additional Series of Notes may be issued by the Issuer in accordance with the terms of this Indenture, provided, however, that if the Series delivered on the Initial Delivery Date is then Outstanding, any additional Series of Notes shall not have a Stated Maturity Date any earlier than the Stated Maturity Date for such initial Series of Notes. In addition, all additional Series of Notes must be approved in writing by the Controlling Party; provided, that nothing herein shall obligate the Note Insurer to issue any Note Insurance Policy, rather such obligation shall arise only under a written commitment issued by the Note Insurer, at the sole and absolute discretion of the Note Insurer, to issue a Note Insurance Policy. (b) On or before the Delivery Date relating to any new Series of Notes, the parties hereto shall execute and deliver a Supplement specifying the terms applicable to such new Series of Notes. The terms set forth in such Supplement may modify or amend, subject to Article Nine hereof, the terms of this Indenture solely as applied to such new Series of Notes; provided, that any additional Trigger Events specified in such Supplement shall be Trigger Events for all purposes for all Series so long as any Notes of the Series related to such Supplement are Outstanding. Each new Series of Notes shall be executed by the Issuer and delivered to the Indenture Trustee for authentication, and thereupon, the same shall be authenticated and delivered by the Indenture Trustee upon Issuer Order and the fulfillment of the following conditions to issuance: (i) the Issuer shall have delivered or caused to be delivered to the Indenture Trustee the original manually executed counterpart of each Contract to be made a part of the Trust Estate on such Delivery Date, and, except as otherwise provided in the Transaction Documents, all other items included in the related Contract File, and an Officer's Certificate of the Issuer certifying that all of the terms of the Contract Acquisition Agreement have been complied with; (ii) the Issuer shall have delivered to the Indenture Trustee an executed Company Certificate and MFI Certificate, subjecting all Series Contracts of such Series to the provisions of the Transaction Documents, and providing a Series Contract Schedule with respect to all Series Contracts; 29 34 (iii) on or before the tenth Business Day immediately preceding the Delivery Date for the Series to be issued (unless the parties to be notified agree to a shorter time period), the Issuer shall have given the Indenture Trustee, the Servicer, the Note Insurer and each Rating Agency notice of such issuance and the applicable Delivery Date; (iv) the Issuer shall have delivered to the Indenture Trustee the related Supplement, executed by each party hereto (including the Note Insurer, as an acknowledgment party) other than the Indenture Trustee; (v) the Issuer shall have delivered to the Indenture Trustee an Officers' Certificate of the Issuer certifying (A) that such issuance will not result in the occurrence of a Trigger Event or an Event of Default under this Indenture and the Issuer is not in Default under this Indenture, (B) that the issuance of the Series applied for will not result in a breach of any of the terms, conditions or provisions of, or constitute a default under, any agreement or instrument to which the Issuer is a party or by which it is bound, or any order of any court or administrative agency entered in any proceeding to which the Issuer is a party or by which it may be bound or to which it may be subject, and (C) that all conditions precedent provided in this Indenture relating to the execution and delivery of the additional Series of Notes applied for have been complied with; (vi) to the extent not previously filed or delivered, the Issuer shall have delivered to the Indenture Trustee (A) evidence of filing with the Secretary of State of the State (and with the relevant county, if required by the applicable state law) of the Company's chief executive office of UCC-1 financing statements executed by the Company, as debtor, and naming the Issuer as secured party, the Indenture Trustee for the benefit of the Noteholders and the Note Insurer as assignee and the Contract Assets as collateral; and (B) evidence of filing with the Secretary of State of the State (and with the relevant county, if required by the applicable state law) of the Issuer's chief executive office of UCC-1 financing statements executed by the Issuer, as debtor, and naming the Indenture Trustee for the benefit of the Noteholders and the Note Insurer as secured party, and the Trust Estate as collateral; (vii) the Issuer shall have delivered to the Indenture Trustee an Officers' Certificate certifying that attached thereto are true and correct copies of (a) letters from S & P and Moody's confirming that the Notes of such Series have been rated "AAA" by S & P and "Aaa" by Moody's, as applicable, and (b) letters from each Rating Agency confirming that the rating on each other Series of Notes has not been or will not be withdrawn or downgraded on the applicable Delivery Date as a result of such issuance; (viii) the Issuer shall have delivered or caused to be delivered to the Indenture Trustee a financial guaranty insurance policy issued by the Note Insurer with respect to the payment of principal and interest of such new Series of Notes in form and substance substantially the same as the Note Insurance Policy issued by the Note Insurer with respect to the Notes issued on the Initial Delivery Date, and evidence that the rating of the Note Insurer shall not have been downgraded, qualified or withdrawn; (ix) the Issuer shall have delivered to the Indenture Trustee favorable opinions of counsel (i) to the effect that the Notes of such Series will be characterized as debt for tax purposes and that the issuance of such Series will not adversely affect the characterization of the Notes of any Outstanding Series as debt for tax purposes, (ii) confirming the status of the security interest of the Indenture Trustee in the Trust Estate, (iii) confirming true sale and the nonconsolidation matters of the Issuer and the Company or the Servicer in the event of a bankruptcy of the 30 35 Company or the Servicer, and (iv) confirming basic corporate matters and that the Issuer is not required to be registered as an "investment company" under the Investment Company Act of 1940; (x) the Issuer shall have delivered to the Indenture Trustee evidence of the deposit by the Issuer into the Collection Account of any amounts due and paid under the Contracts of such Series of Notes since the related Cut-off Date and evidence of the deposit by the Issuer of any applicable amounts to the Cash Collateral Account; (xi) the Issuer shall have delivered to the relevant party or parties such other documents, certificates, instruments, opinions, or other items as may be required by the terms of the Supplement creating such Series of Notes or as may be required by the Note Insurer; and (xii) the Indenture Trustee shall have received from each of the Note Insurer and the Issuer an officer's certificate certifying that no Note Insurer Default has occurred and is continuing with respect to any outstanding Series of Notes. Upon satisfaction of the above conditions, the Indenture Trustee shall execute the Supplement and shall authenticate and deliver to or upon the order of the Issuer the applicable Notes, and provide notice to all existing Noteholders of the issuance of such Series of Notes. SECTION 4.03 SECURITY FOR NOTES. (a) The Issuer and the Company shall file UCC-1 financing statements described in Sections 4.01(f) and 4.02(b)(vi) hereof in accordance with such Sections. In addition, as soon as practicable but no later than 30 days after the Initial Delivery Date and any subsequent Delivery Date or Acquisition Date, as the case may be, the Issuer and the Company shall file with respect to all Contracts Granted to the Indenture Trustee on such date as to which the original cost of the underlying Equipment was in excess of $10,000, UCC assignments assigning to the Indenture Trustee on behalf of the Holders of the Notes and the Note Insurer, the Company's security interest in the Equipment under such Contracts. From time to time, the Servicer shall take or cause to be taken such actions and execute such documents as are necessary to perfect and protect the Indenture Trustee's and the Note Insurer's respective interests in the Contracts and the Equipment owned by the Issuer (provided that, with respect to financing statements filed regarding Equipment, the original cost of such Equipment was in excess of $10,000) against all other Persons, including, without limitation, the filing of financing statements, amendments thereto and continuation statements, the execution of transfer instruments and the making of notations on or taking possession of all records or documents of title. (b) If any change in either the Company's or the Issuer's name, identity, structure or the location of its principal place of business, chief executive office or jurisdiction of organization occurs, then the Issuer shall, or the Issuer shall cause the Company, to deliver 30 days prior written notice of such change or relocation to the Servicer, the Note Insurer and the Indenture Trustee and no later than the effective date of such change or relocation, the Servicer shall file such amendments or statements as may be required to preserve and protect the Indenture Trustee's and the Note Insurer's respective interests in the Trust Estate. (c) During the term of this Indenture, the Issuer shall maintain each of its chief executive office, principal place of business and jurisdiction of organization in one of the States of the United States. 31 36 (d) The Servicer agrees to pay all reasonable costs and disbursements in connection with the perfection and the maintenance of perfection, as against all third parties, of the Indenture Trustee's and the Note Insurer's respective right, title and interest in and to the Trust Estate (other than with respect to the Equipment related to a Contract the original cost of which was less than $10,000). (e) The Indenture Trustee shall hold the original manually executed counterpart of each Contract at its office in the State of Minnesota, and at any such new address in the State of Minnesota as the Indenture Trustee shall inform the Servicer, the Issuer and the Note Insurer in writing from time to time. The Indenture Trustee shall hold each Contract for the benefit of Noteholders and the Note Insurer, and maintain accurate records pertaining to each Contract to maintain a current inventory thereof. The Indenture Trustee may, if requested by the Servicer in writing in the form attached hereto as Exhibit F for purposes of servicing a Contract, temporarily release to the Servicer such Contract. Any Contract temporarily released from the custody of the Indenture Trustee to the Servicer or its agents shall have stamped on it prior to delivery a legend to the effect that the Contract is subject to a security interest in favor of Norwest Bank Minnesota, National Association, as Indenture Trustee. The Servicer shall promptly return the Contract to the Indenture Trustee when the need therefor no longer exists. SECTION 4.04 SUBSTITUTION, REMOVAL AND PURCHASE OF CONTRACTS IN TRUST ESTATE. (a) NOTICE OF BREACH OF REPRESENTATION OR WARRANTY. If at any time the Issuer, the Servicer or the Indenture Trustee obtains knowledge (within the meaning of 7.01(e) hereof, in the case of the Indenture Trustee), discovers or is notified by the Company, the Issuer, the Note Insurer or the Servicer that any of the representations and warranties of the Company in the Contract Acquisition Agreement were incorrect at the time as of which such representations and warranties were made, then the Person discovering, or obtaining knowledge or receiving notification of such defect, omission, or circumstance shall promptly notify the other parties to this Indenture and the Note Insurer. (b) MANDATORY REPURCHASE OR SUBSTITUTION UPON BREACH OF CERTAIN REPRESENTATIONS OR WARRANTIES. In the event that any representation or warranty of the Company in the Contract Acquisition Agreement was incorrect as of the date made and the interests of the Note Insurer or the Holders of any Notes are materially and adversely affected thereby, or if the Company is otherwise required to take action under Section 3.03 of the Contract Acquisition Agreement with respect to such a breach, the Issuer shall require the Company, pursuant to the Contract Acquisition Agreement, to eliminate or otherwise cure the circumstance or condition which has caused such breach within 30 days of discovery or notice thereof by or to the Issuer, the Company or the Servicer. If the Company fails or the Company or the Servicer is unable to cure such circumstance or condition in accordance with the Contract Acquisition Agreement, then the Issuer shall require the Company, pursuant to the Contract Acquisition Agreement, to substitute a Substitute Contract for or to repurchase at the Purchase Price, each affected Contract within the time specified in Section 3.03 of the Contract Acquisition Agreement. The proceeds of any such repurchase shall be remitted by or on behalf of the Issuer to the Servicer for deposit by the Servicer in the Collection Account pursuant to Section 3.03 of the Servicing Agreement. (c) INDENTURE TRUSTEE TO ACT. If the Issuer fails to enforce the purchase or substitution obligations of the Company under the Contract Acquisition Agreement in accordance with clause (b) above, the Indenture Trustee is hereby appointed attorney-in-fact to act on behalf of and in the name of the Issuer to require such purchase or substitution. 32 37 (d) PROHIBITION ON VOLUNTARY REPURCHASE OR SUBSTITUTION; MANDATORY DEPOSITS OR SUBSTITUTIONS RELATED TO PREPAID CONTRACTS; DE MINIMIS EXCEPTION TO PROHIBITION. (i) Except as set forth in subclause (iii) below, no party to this Indenture or the Contract Acquisition Agreement may purchase, remove or otherwise release any Contract from the Trust Estate, unless such purchase, removal or release is required by this Indenture. (ii) In addition to the mandatory repurchase or substitution required pursuant to clauses (b) and (c) of this Section 4.04, a Contract shall be removed from the Trust Estate if the Servicer permits any Customer to prepay or terminate a Contract in accordance with Section 3.09 of the Servicing Agreement and all amounts paid by the Customer in respect thereof (the "Customer Prepayment Amount") are remitted to the Indenture Trustee for deposit to the Collection Account. Unless otherwise specified by the terms of such Contract, the Servicer may permit the Customer Prepayment Amount to be less than the Purchase Price for such Contract (the "Required Prepayment Amount"), and cause the release of the related Contract and related Equipment, only if the differential between the Required Prepayment Amount and the Customer Prepayment Amount (such differential, the "Prepayment Differential") is remitted by the Issuer to the Indenture Trustee for deposit to the Collection Account; and provided further that the amount of such Prepayment Differential shall be deemed to be a voluntary repurchase subject to the limitations and restrictions of subclauses (iii) and (iv) below. At the option of the Issuer, in lieu of remitting the Customer Prepayment Amount and the Prepayment Differential to the Indenture Trustee, such removal may instead be effected by the substitution of a Substitute Contract in accordance with subclause (iii) below, provided that such substitution shall be deemed to be a voluntary removal subject to the limitations and restrictions of this Section 4.04(d). (iii) In addition to the mandatory repurchases and substitutions required under clauses (b), (c) and (d)(ii) of this Section 4.04, the Issuer may also, at its option, voluntarily (A) repurchase at the Purchase Price any Defaulted Contract or Delinquent Contract and (B) substitute a Substitute Contract for any Defaulted Contract, Delinquent Contract or prepaid or early terminated Contract. Any such Substitute Contract shall meet the same requirements as those specified in Section 3.04 of the Contract Acquisition Agreement for substitutions by the Company upon the breach of a representation or warranty. The sum of (x) the Purchase Price for all repurchased or removed Contracts paid by the Company or the Issuer, (y) the aggregate IPB of all Substitute Contracts delivered by the Company or the Issuer and (z) the aggregate Prepayment Differential paid by the Issuer in respect of all prepaid or early terminated Contracts, shall not exceed 10% of the Aggregate Initial IPB. It is intended that Customer Prepayment Amounts not be included in calculating such 10% limitation. SECTION 4.05 REQUIREMENTS FOR ALL CONTRACTS IN TRUST ESTATE. (a) The Issuer shall comply with the requirements relating to the acquisition of Contracts as set forth in the Contract Acquisition Agreement (including compliance with the Eligibility Criteria and Concentration Limits set forth therein) within the time periods set forth therein. On or prior to the Business Day preceding each Acquisition Date, the Indenture Trustee will review the related Contract in accordance with paragraph (b) below. The Indenture Trustee shall confirm, by execution and delivery of a certificate of the Indenture Trustee to the Issuer, the Noteholders and the Note Insurer, that the Indenture Trustee has received the manually executed original of each Contract. In the case of any Substitute Contracts acquired by the Issuer, the Issuer shall provide (x) to the Indenture Trustee on the 33 38 applicable date of delivery the items listed in (i) and (ii) below and (y) to the Note Insurer the item listed in (i) below: (i) an Officer's Certificate of each of the Company and the Issuer, each such Officer's Certificate having attached thereto an Amended Contract Schedule and subjecting such Substitute Contract to the provisions thereof and hereof and providing with respect to the Substitute Contract the information required to supplement the related Series Contract Schedule; and (ii) the original manually executed counterpart of the Contract relating to such Substitute Contract and, if applicable, all or any of the other items included in the Contract File. The Issuer shall also provide to the Indenture Trustee and the Note Insurer, at the end of each calendar quarter, evidence that any necessary financing statements have been filed in accordance with Sections 4.01(f), 4.02(b)(vi) and 4.03 hereof with respect to all such Substitute Contracts acquired during such period. (b) Upon receipt of each Contract, the Indenture Trustee shall confirm that (i) each such Contract is the original manually executed counterpart of such Contract; (ii) each such Contract has been executed by the Customer named thereon; and (iii) each such Contract is identified on the applicable Series Contract Schedule delivered therewith by Contract number and Customer name. If, upon such examination of the Contracts, the Indenture Trustee determines that any such Contract does not satisfy the requirements set forth above or in clause (a) hereof, or is unable to confirm that the requirements have been met, the Indenture Trustee shall promptly notify the Issuer, the Servicer and the Note Insurer by telephone or telecopy and shall deliver an exception report to each such party setting forth any missing or defective items with respect to such Contracts. (c) Within forty-five days after each Acquisition Date, the Indenture Trustee shall review any exception report delivered in accordance with paragraph (b) above and shall verify that it has possession of any missing items noted thereon. The Indenture Trustee shall send such verification report and notice of any defects to the Issuer, the Company and the Note Insurer within such forty-five days and shall take any appropriate action under the Contract Acquisition Agreement. SECTION 4.06 RELEASES OF INDIVIDUAL OR SERIES CONTRACTS IN TRUST ESTATE. (a) The Issuer shall be entitled to obtain a release from the lien of this Indenture for any individual Contract and the related Contract Assets at any time (i) after a payment by the Company or the Issuer of the Purchase Price of the Contract and the related Contract Assets, (ii) after a Substitute Contract is substituted for such Contract and the related Contract Assets, (iii) twelve months after the Final Due Date of a Contract that is not a Defaulted Contract and for which the IPB of such Contract has been reduced to zero or (iv) with respect to Defaulted Contracts, upon request of the Servicer, subject to the requirements set forth below. Notwithstanding the foregoing, (y) in the case of a Defaulted Contract, such Contract and the related Equipment shall be released from the lien of this Indenture only following the sale, lease or other disposition of the related Equipment in accordance with Section 3.01(b)(i) of the Servicing Agreement, provided that the related Recovery and Residual Proceeds shall not be released from the lien of this Indenture and (z) no release may be effected pursuant to clause (iii) above if a Trigger Event or Event of Default shall have occurred and be continuing. In order to effect such release, the Issuer shall deliver to the Indenture Trustee and the Note Insurer an Officer's Certificate substantially in the form attached hereto as Exhibit G (A) identifying the Receivable and the related Contract and 34 39 Equipment to be released, (B) requesting the release thereof, (C) setting forth the amount deposited in the Collection Account with respect thereto, in the event that the subject Contract and the related Equipment are being released from the lien of this Indenture pursuant to (i) or (iii) above, and (D) certifying that the amount deposited in the Collection Account (1) equals the Purchase Price of the Contract, in the event that the subject Contract and the related Equipment are being released from the lien of this Indenture pursuant to (i) above or (2) equals the entire amount of Insurance Proceeds or Recoveries received with respect to such Contract and related Equipment in the event of a release from the lien of this Indenture pursuant to subclause (y) above. (b) In addition, except in the case in which a Series of Notes is redeemed with the proceeds from a new Series of Notes, the Issuer shall be entitled, in connection with any permitted redemption or other retirement of a Series of Notes to obtain a release from the lien of the Indenture for any of the related Series Contracts and related Contract Assets to the extent that, after giving effect to such release, the sum of (i) the amount of funds then held in the Cash Collateral Account and (ii) the Aggregate IPB of the Contracts remaining in the Trust Estate after giving effect to such release, equals or exceeds the sum of (y) the Required Collateralization Amount for each Series of Notes (after giving effect to such payment of principal) plus (z) the Outstanding Principal Amount of all Series of Notes (after giving effect to such payment of principal). (c) Upon satisfaction of the conditions specified in subsection (a) or (b), as applicable, the Indenture Trustee shall release from the lien of this Indenture and deliver to or upon the order of the Issuer (or to or upon the order of the Company if it has satisfied its obligations under Section 4.04 hereof and Section 3.04 of the Contract Acquisition Agreement with respect to a Contract) the Contract and all related Contract Assets described in the Issuer's request for release. SECTION 4.07 TRUST ESTATE. The Indenture Trustee may, and when required by the provisions of Articles Four, Five, Six and Twelve hereof shall, execute instruments to release property from the lien of this Indenture, or convey the Indenture Trustee's interest in the same, in a manner and under circumstances which are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article Four shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. SECTION 4.08 NOTICE OF RELEASE. The Indenture Trustee shall be entitled to receive at least 10 days notice of any action to be taken pursuant to Section 4.06 hereof, accompanied by copies of any instruments involved. 35 40 ARTICLE FIVE SATISFACTION AND DISCHARGE SECTION 5.01 SATISFACTION AND DISCHARGE OF INDENTURE. (a) Following payment in full of (i) all of the Notes of each Series issued hereunder, (ii) the fees and charges of the Indenture Trustee, (iii) all other obligations of the Issuer under this Indenture and each other Transaction Document and (iv) all amounts owing to the Note Insurer under each Note Insurance Agreement, and the release by the Indenture Trustee of the Trust Estate in accordance with Section 5.01(b) hereof, this Indenture shall be discharged and the Indenture Trustee shall provide notice of such discharge to each of the Rating Agencies. (b) Upon payment in full of the amounts referred to in clauses (i) through (iv) of Section 5.01(a) hereof, the Issuer may submit to the Indenture Trustee an Officer's Certificate requesting the release to the Issuer or its designee of a stated amount of the funds on deposit in the Cash Collateral Account and some or all of the other Trust Estate (collectively, the "Withdrawn Collateral"), accompanied by an Opinion of Counsel reasonably acceptable to the Controlling Party to the effect that, after the release of the Withdrawn Collateral, there will remain an amount in the Cash Collateral Account or otherwise subject to this Indenture at least equal to the payments of interest previously made on the Outstanding Notes and the Principal Distribution Amounts that are subject to recapture as preferential transfers pursuant to Section 547 of the Bankruptcy Code or, alternatively, to the effect that no such payments are subject to recapture. In rendering such Opinion of Counsel, such counsel may rely as to factual matters, including, without limitation, the date on which funds were received and the source of funds, upon an Officer's Certificate. Promptly after receipt of such Officer's Certificate, Opinion of Counsel and authorization to release from the Controlling Party, the Indenture Trustee shall release the Withdrawn Collateral from the lien of this Indenture, and deliver the Withdrawn Collateral to the Issuer or its designee. The Issuer shall be entitled to deliver more than one such Officer's Certificate and Opinion of Counsel until the entire Trust Estate is released and delivered to the Issuer or its designee. Notwithstanding the foregoing, the Controlling Party may waive the requirement that the Issuer deliver such Officer's Certificate and/or Opinion of Counsel and authorize the Indenture Trustee by written direction to release all or a portion of the Cash Collateral Account or other items of the Trust Estate from the lien of this Indenture upon payment in full of the amounts referred to in clauses (i) through (iv) of Section 5.01(a) hereof. Notwithstanding termination of this Indenture, the Indenture Trustee shall remain obligated to make claims under the Note Insurance Policy with respect to any Preference Claim. (c) In connection with the discharge of this Indenture and the release of the Trust Estate, the Indenture Trustee shall release from the lien of this Indenture and deliver to or upon the order of the Issuer all property remaining in the Trust Estate and shall execute and file, at the expense of the Issuer, UCC financing statements evidencing such discharge and release. SECTION 5.02 APPLICATION OF TRUST MONEY. Subject to the last paragraph of Section 7.16 hereof, all monies held by the Indenture Trustee pursuant to Section 5.01 hereof shall be held in trust and if invested, shall be invested in Eligible Investments of the type described in clause (a) of the definition thereof, and applied by the Indenture Trustee, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent as the Indenture Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Indenture Trustee; 36 41 such money shall be segregated from other funds to the extent required in this Indenture and to the extent required by law. 37 42 ARTICLE SIX DEFAULTS AND REMEDIES SECTION 6.01 EVENTS OF DEFAULT. "Event of Default" wherever used herein means any one of the following events: (a) default in the payment of any interest on any Note on any Payment Date; (b) the failure to have paid in full the principal of any Note at the related Stated Maturity Date; (c) default in the payment of any other amounts due hereunder (including any reimbursement payments due to the Note Insurer) on the applicable due date therefor; (d) default in the performance of any covenant of the Issuer, or breach of any representation or warranty of the Issuer, in this Indenture, the Contract Acquisition Agreement, any Note Insurance Agreement or the Servicing Agreement (other than a covenant or warranty default in the performance of which or breach of which is elsewhere in this Section specifically dealt with) which default or breach has a material adverse effect on the Noteholders or the Note Insurer, and continuance of such default or breach for a period of 30 days after the earlier of the Issuer's receipt of written notice of such default or the date on which the Issuer obtains actual knowledge thereof; (e) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Issuer under the United States Bankruptcy Code or any other applicable federal or state bankruptcy, insolvency, reorganization, liquidation or other similar law now or hereafter in effect or any arrangement with creditors or appointing a receiver, liquidator, assignee, trustee, or sequestrator (or other similar official) for the Issuer or for any substantial part of its property, or ordering the winding up or liquidation of the Issuer's affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (f) the institution by the Issuer of proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Issuer to the institution of bankruptcy or insolvency proceedings against the Issuer, or the filing by the Issuer of a petition or answer or consent seeking reorganization or relief under the United States Bankruptcy Code or any other applicable federal or state bankruptcy insolvency, reorganization, liquidation or other similar law now or hereafter in effect, or the consent by the Issuer to the filing of any such petition or to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Issuer or of any substantial part of the Issuer's property, or the making by the Issuer of any assignment for the benefit of creditors, or the admission by it in writing of its inability, or the failure by it generally, to pay its debts as they become due, or the taking of corporate action by the Issuer in furtherance of any such action; (g) the payment by the Note Insurer of any amounts under any Note Insurance Policy pursuant to Section 8.01 hereof; or (h) the Issuer or the Trust Estate is required to register as an "investment company" pursuant to the Investment Company Act of 1940, as amended. 38 43 SECTION 6.02 ACCELERATION OF STATED MATURITY DATE; RESCISSION AND ANNULMENT. If an Event of Default shall have occurred and be continuing, then, and in every such case, the Indenture Trustee shall, at the direction of the Controlling Party, declare the principal of all the Notes to be immediately due and payable, by notice given in writing to the Issuer (and to the Indenture Trustee if given by Noteholders); provided, that the Note Insurer, if the Note Insurer is the Controlling Party, shall not declare the Outstanding Principal Amount of all of the Notes immediately due and payable unless the Note Insurer shall have endorsed the Note Insurance Policies to provide coverage for any shortfall in the payment of accelerated principal and any interest due on the Outstanding Notes on the date established for redemption thereof pursuant to such acceleration, and upon any such declaration, such principal shall become immediately due and payable without any presentment, demand, protest or other notice of any kind (except such notices as shall be expressly required by the provisions of this Indenture), all of which are hereby expressly waived. At any time after such a declaration of acceleration has been made, but before any Sale of the Trust Estate has been made or a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as provided hereinafter in this Article, the Controlling Party, by written notice to the Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences (except that in the case of a payment default on the Notes, the consent of all the Noteholders shall be required to rescind and annul such a declaration and its consequences) if: (a) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay (i) all overdue installments of interest on all Notes; (ii) the principal of any Notes, which has become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by such Notes from the time such principal first became due until the date when paid; and (iii) all sums paid or advanced, together with interest thereon, by the Indenture Trustee, the Note Insurer or any Noteholder hereunder or by the Note Insurer under any Note Insurance Agreement or any Note Insurance Policy, and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, the Note Insurer and the Noteholders, their agents and counsel incurred in connection with the enforcement of this Indenture to the date of such payment or deposit; and (b) all Events of Default have been cured or waived as provided in Section 6.15 hereof, other than the nonpayment of the principal on any of the Notes which has become due solely by such declaration of acceleration. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 6.03 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE TRUSTEE. The Issuer covenants that if an Event of Default shall have occurred and be continuing and any of the Notes have been declared due and payable and such declaration has not been rescinded and annulled, the Issuer shall, upon demand of the Indenture Trustee and at the direction of the Controlling Party, pay to the Indenture Trustee, for the benefit of the Holders of the Notes and the Note Insurer, the whole amount then due and payable on the Notes for principal and interest, with interest upon the overdue principal at 39 44 the rate borne by the Notes and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, the Note Insurer and their respective agents and counsel. If the Issuer fails to pay such amount forthwith upon such demand, the Indenture Trustee, in its own name and as Indenture Trustee of an express trust shall, at the direction of the Controlling Party, institute Proceedings for the collection of the sums so due and unpaid, and prosecute such Proceeding to judgment or final decree, and enforce the same against the Issuer and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer, wherever situated. If an Event of Default shall have occurred and be continuing, the Indenture Trustee shall, at the direction of the Controlling Party proceed, to protect and enforce its rights and the rights of such Controlling Party by such appropriate Proceedings as the Indenture Trustee, at the direction of the Controlling Party, shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 6.04 REMEDIES. If an Event of Default shall have occurred and be continuing, the Indenture Trustee shall, at the direction of the Controlling Party, do one or more of the following as the Controlling Party shall direct: (a) institute Proceedings for the collection of all amounts then due and payable on the Notes or under this Indenture, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Issuer the monies adjudged due; (b) take possession of and sell the Trust Estate securing the Notes or any portion thereof or rights or interest therein, at one or more Sales called and conducted in any manner permitted by law; (c) institute any Proceedings from time to time for the complete or partial foreclosure of the lien created by this Indenture with respect to the Trust Estate securing the Notes; (d) during the continuance of a default under a Contract, exercise any of the rights of the lessor under such Contract; (e) exercise any remedies of a secured party under the UCC or any applicable law and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee, the Note Insurer or the Holders of the Notes hereunder; and (f) institute proceedings against the Note Insurer for the collection of any amounts then due and payable under any Note Insurance Policy, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Note Insurer the monies adjudged due; provided, that without the consent of the Note Insurer, or, if a Note Insurer Default has occurred and is continuing, all the Holders of Outstanding Notes, the Indenture Trustee may not sell or otherwise liquidate any portion of the Trust Estate unless the proceeds of such Sale or liquidation distributable to the Noteholders are sufficient to discharge in full the amounts then due and unpaid upon the Notes for principal and interest together with all amounts owed to the Note Insurer under the Note Insurance Agreements. 40 45 SECTION 6.05 OPTIONAL PRESERVATION OF TRUST ESTATE. If (i) an Event of Default shall have occurred and be continuing with respect to the Notes and (ii) no Notes have been declared due and payable, or such declaration and its consequences have been annulled and rescinded, the Indenture Trustee shall, at the direction of the Controlling Party, elect, by giving written notice of such election to the Issuer, to take possession of and retain the Trust Estate securing the Notes intact, collect or cause the collection of the proceeds thereof and make and apply all payments and deposits and maintain all accounts in respect of such Notes in accordance with the provisions of Article Twelve of this Indenture. If the Indenture Trustee is unable to or is stayed from giving such notice to the Issuer for any reason whatsoever, such election shall be effective as of the time of such determination or request, as the case may be, notwithstanding any failure to give such notice, and the Indenture Trustee shall give such notice upon the removal or cure of such inability or stay (but shall have no obligation to effect such removal or cure). Any such election may be rescinded with respect to any portion of the Trust Estate securing the Notes remaining at the time of such rescission by written notice to the Indenture Trustee and the Issuer from the Controlling Party. SECTION 6.06 INDENTURE TRUSTEE MAY FILE PROOFS OF CLAIM. In case of the pendency of any receivership, conservatorship, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial Proceeding relating to the Issuer or any other obligor upon any of the Notes or the property of the Issuer or of such other obligor or their creditors, the Indenture Trustee (irrespective of whether the principal of any of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand on the Issuer for the payment of overdue principal or interest) shall be entitled and empowered, to intervene in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Notes issued hereunder and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel and any other amounts due the Indenture Trustee under Section 7.07 hereof) and of the Note Insurer and the Noteholders allowed in such judicial Proceeding, and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any receiver, assignee, trustee, liquidator, or sequestrator (or other similar official) in any such judicial Proceeding is hereby authorized by the Note Insurer and each Noteholder to make such payments to the Indenture Trustee, and in the event that the Indenture Trustee shall consent to the making of such payments directly to the Note Insurer or the Noteholders, to pay to the Indenture Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel, and any other amounts due the Indenture Trustee under Section 7.07 hereof. Nothing contained in this Indenture shall be deemed to authorize the Indenture Trustee to authorize or consent to or accept or adopt on behalf of the Note Insurer or any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Note Insurer or any of the Notes or the rights of any Holder thereof, or to authorize the Indenture Trustee to vote in respect of the claim of the Note Insurer or any Noteholder in any such Proceeding. 41 46 SECTION 6.07 INDENTURE TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES. (a) In all Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all of the Noteholders, and it shall not be necessary to make any Noteholder a party to any such Proceedings. (b) All rights of actions and claims under this Indenture or any of the Notes may be prosecuted and enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any Proceeding relating thereto, and any such Proceedings instituted by the Indenture Trustee shall be brought in its own name as Indenture Trustee of an express trust, and any recovery whether by judgment, settlement or otherwise shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel, be for the Note Insurer and the ratable benefit of the Holders of the Notes. SECTION 6.08 APPLICATION OF MONEY COLLECTED FOLLOWING AN EVENT OF DEFAULT. If the Notes have been declared due and payable following an Event of Default and such declaration has not been rescinded or annulled, any money collected by the Indenture Trustee with respect to the Notes pursuant to this Article Six or otherwise and any other money that may be held thereafter by the Indenture Trustee as security for the Notes shall be applied in the following order, at the date or dates fixed by the Indenture Trustee and, in case of the distribution of such money on account of principal or interest, with no requirement of presentment, provided that each Noteholder shall surrender its Note promptly following payment in full thereof; provided that if there are insufficient funds to make the payments of interest or principal specified in clause Fifth and Sixth below, then the amount available to be paid pursuant to such clause and at such level of priority will be allocated to each Series of Notes based on the applicable pro rata share; provided further, that proceeds of a claim under a Note Insurance Policy shall be used only to pay interest and principal on the applicable Series in the manner set forth in clauses Fifth and Sixth below: FIRST: To the payment to the Indenture Trustee of the Trustee Fee then due, and any reasonable costs and expenses incurred by it in connection with enforcing the remedies provided for in this Article Six; SECOND: To the payment of all amounts due the Servicer, including any amounts due to a successor Servicer that has been appointed pursuant to Section 6.02 of the Servicing Agreement, pursuant to Section 3.08 of the Servicing Agreement and Section 12.02(d)(i) hereof and to pay the Servicer the amount necessary to reimburse the Servicer for any other unrecovered Servicer Advances; THIRD: To the payment to the Back-up Servicer of the Back-up Servicer Fee and any Transition Costs then due; FOURTH: To the payment to the Note Insurer of the Note Insurer Premium then due; FIFTH: To the payment of the amounts then due and unpaid upon the Notes of each Series for interest, with interest (to the extent that payment thereof is legally enforceable at the respective rate or rates prescribed therefor in the Notes) on overdue interest, in the proportion in which the Outstanding Principal Amount of each Series of Notes represents of the Outstanding Principal Amount of all Series of 42 47 Notes, without preference or priority of any kind, according to the amounts due and payable on the Notes for interest; SIXTH: To the payment of the remaining Outstanding Principal Amount of the Notes, in the proportion in which the Outstanding Principal Amount of each Series of Notes represents of the Outstanding Principal Amount of all Series of Notes, without preference or priority of any kind; SEVENTH: To the payment to the Note Insurer of (a) any amounts previously paid by the Note Insurer under any of the Note Insurance Policies and not theretofore repaid, together with interest thereon, and (b) any other amounts due under the Note Insurance Agreements and amounts necessary to reimburse the Note Insurer for any costs or expenses incurred by it in connection with any enforcement action with respect to this Indenture, the Note Insurance Agreements or the Notes; EIGHTH: To reimburse the Noteholders, pro rata, for any reasonable costs or expenses incurred by them in connection with any enforcement action with respect to this Indenture or the Notes; NINTH: To the payment to the Indenture Trustee and the Back-up Servicer, any other amounts due to the Indenture Trustee or the Back-up Servicer as expressly provided herein and in the Servicing Agreement; TENTH: To the payment to the Servicer of any other amounts due the Servicer as expressly provided herein and in the Servicing Agreement; and ELEVENTH: To the payment of any surplus to or at the written direction of the Issuer or any other person legally entitled thereto. SECTION 6.09 LIMITATION ON SUITS. No Holder of any Note shall have any right to institute any Proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder for so long as a Note Insurer Default has not occurred, and if a Note Insurer Default has occurred, unless (a) such Holder has previously given written notice to the Indenture Trustee of a continuing Event of Default; (b) the Majority Holders shall have made written request to the Indenture Trustee to institute Proceedings in respect of such Event of Default in its own name as Indenture Trustee hereunder; (c) such Holder or Holders have offered to the Indenture Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Indenture Trustee for 60 days after its receipt of such notice, request and offer of security or indemnity has failed to institute any such Proceedings; and (e) no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Majority Holders; it being understood and intended that no one or more Holders of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Notes, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this 43 48 Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders of Notes. SECTION 6.10 UNCONDITIONAL RIGHT OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment of the principal and interest on such Note as such principal and interest becomes due and payable and to institute any Proceeding for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 6.11 RESTORATION OF RIGHTS AND REMEDIES. If the Indenture Trustee, the Note Insurer or any Noteholder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Indenture Trustee, the Note Insurer or to such Noteholder, then, and in every case, the Issuer, the Indenture Trustee, the Note Insurer and the Noteholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee, the Note Insurer and the Noteholders shall continue as though no such Proceeding had been instituted. SECTION 6.12 RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 2.07 hereof, no right or remedy herein conferred upon or reserved to the Indenture Trustee, the Note Insurer or to the Noteholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.13 DELAY OR OMISSION; NOT WAIVER. No delay or omission of the Indenture Trustee, the Note Insurer or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article Six or by law to the Indenture Trustee, the Note Insurer or to the Noteholders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee, the Note Insurer or by the Noteholders, as the case may be, subject in each case, however, to the right of the Controlling Party to control any such right and remedy except as provided in Section 6.14 hereof. SECTION 6.14 CONTROL BY NOTEHOLDERS. The Controlling Party shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee or exercising any trust or power conferred on the Indenture Trustee; provided that: 44 49 (a) such direction shall not be in conflict with any rule of law or with this Indenture including, without limitation, any provision hereof which expressly provides for approval by a greater percentage of Outstanding Principal Amount of all Notes; (b) any direction to the Indenture Trustee by the Noteholders to undertake a private sale of the Trust Estate shall be by the Holders of all Outstanding Notes, unless the condition set forth in Section 6.18(b)(ii) hereof is met; (c) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee which is not inconsistent with such direction; provided that, subject to Section 7.01 hereof, the Indenture Trustee need not take any action which a Responsible Officer or Officers of the Indenture Trustee in good faith determines might involve it in personal liability or be unjustly prejudicial to the Noteholders not consenting; and (d) the Indenture Trustee has been furnished reasonable indemnity against costs, expenses and liabilities which it might incur in connection therewith as provided in Section 7.01(f) hereof. SECTION 6.15 WAIVER OF CERTAIN EVENTS BY LESS THAN ALL NOTEHOLDERS. The Controlling Party may on behalf of the Holders of all the Notes waive any past Default, Event of Default or Trigger Event hereunder and its consequences, except: (a) a Default described in Sections 6.01(a), (b), (d), (e) or (f) hereof, or (b) in respect of a covenant or provision hereof which under Article Nine hereof cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such Default, Event of Default or Trigger Event shall cease to exist, and any Event of Default or other consequence arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default, Event of Default or Trigger Event or impair any right consequent thereon. SECTION 6.16 UNDERTAKING FOR COSTS. All parties to this Indenture agree, and each Holder of any Note by its acceptance of such Note shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 6.16 shall not apply to any suit instituted by the Indenture Trustee or the Note Insurer, or to any suit instituted by the Majority Holders, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of or interest on any Note on or after the Stated Maturity Date expressed in such Note. SECTION 6.17 WAIVER OF STAY OR EXTENSION LAWS. 45 50 The Issuer covenants (to the extent that it may lawfully do so) that it shall not, at any time, insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 6.18 SALE OF TRUST ESTATE . (a) The power to effect any sale (a "Sale") of any portion of the Trust Estate pursuant to Section 6.04 hereof shall not be exhausted by any one or more Sales as to any portion of the Trust Estate remaining unsold, but shall continue unimpaired until the entire Trust Estate securing the Notes shall have been sold or all amounts payable on the Notes and under this Indenture with respect thereto shall have been paid. The Indenture Trustee may from time to time postpone any Sale by public announcement made at the time and place of such Sale. (b) To the extent permitted by applicable law, the Indenture Trustee shall not, in any private Sale, sell to a third party (i) the Trust Estate unless the provisions of Section 6.04 are satisfied, or (ii) any portion thereof unless: (i) the Note Insurer, or if a Note Insurer Default has occurred the Holders of all Outstanding Notes, consents in writing to or directs the Indenture Trustee to make such Sale; or (ii) if a Note Insurer Default has occurred, the proceeds of such Sale would not be less than the sum of all amounts due to the Indenture Trustee hereunder and the Outstanding Principal Amount of all Notes and interest due or to become due thereon on the Payment Date next succeeding such Sale. (c) The Indenture Trustee, the Note Insurer or the Noteholders may bid for and acquire any portion of the Trust Estate in connection with a public Sale thereof, and in lieu of paying cash therefor, any Noteholder may make settlement for the purchase price by crediting against amounts owing on the Notes of such Holder or other amounts owing to such Holder secured by this Indenture, that portion of the net proceeds of such Sale to which such Holder would be entitled, after deducting the reasonable costs, charges and expenses incurred by the Indenture Trustee, the Note Insurer or the Noteholders in connection with such Sale. The Notes need not be produced in order to complete any such Sale, or in order for the net proceeds of such Sale to be credited against the Notes. The Indenture Trustee, the Note Insurer or the Noteholders may hold, lease, operate, manage or otherwise deal with any property so acquired in any manner permitted by law. (d) The Indenture Trustee shall execute and deliver an appropriate instrument of conveyance transferring its interest in any portion of the Trust Estate in connection with a Sale thereof. In addition, the Indenture Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the Issuer to transfer and convey its interest in any portion of the Trust Estate in connection with a Sale thereof, and to take all action necessary to effect such Sale. No purchaser or transferee at such a sale shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. 46 51 (e) The method, manner, time, place and terms of any Sale of all or any portion of the Trust Estate shall be commercially reasonable. SECTION 6.19 ACTION ON NOTES . The Indenture Trustee's right to seek and recover judgment on the Notes or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Trust Estate or upon any of the assets of the Issuer. 47 52 ARTICLE SEVEN THE INDENTURE TRUSTEE SECTION 7.01 CERTAIN DUTIES AND RESPONSIBILITIES. (a) Except during the continuance of an Event of Default known to the Indenture Trustee as provided in subsection (e) below: (i) the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and (ii) in the absence of bad faith or negligence on its part, the Indenture Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions, which by any provision hereof are specifically required to be furnished to the Indenture Trustee, the Indenture Trustee shall be under a duty to examine the same and to determine whether or not they conform to the requirements of this Indenture. (b) In the event that an Event of Default known to the Indenture Trustee as provided in subsection (e) below shall have occurred and be continuing, the Indenture Trustee shall exercise such of the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in its exercise, as a reasonable person would exercise or use under the circumstances in the conduct of his or her own affairs. (c) No provision of this Indenture shall be construed to relieve the Indenture Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct or bad faith, except that: (i) this subsection (c) shall not be construed to limit the effect of subsection (a) of this Section; (ii) the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Indenture Trustee, unless it shall be proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; (iii) the Indenture Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Controlling Party or the Holders of Notes representing such percentage of Outstanding Principal Amount as may be required by the terms hereof, in accordance with Section 6.14 hereof relating to the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred upon the Indenture Trustee, under this Indenture, the Contract Acquisition Agreement or the Servicing Agreement; and (iv) no provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for 48 53 believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it, provided that nothing contained in this Indenture shall excuse the Indenture Trustee for failure to perform its duties as Indenture Trustee under this Indenture. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section 7.01. (e) For all purposes under this Indenture, the Indenture Trustee shall not be deemed to have notice of any Event of Default described in Section 6.01(e) or 6.01(f) hereof or any Default described in Section 6.01(d) hereof or of any Trigger Event unless a Responsible Officer assigned to and working in the Indenture Trustee's corporate trust department has actual knowledge thereof or unless written notice of any event which is in fact such an Event of Default, Default or Trigger Event is received by the Indenture Trustee at the Corporate Trust Office, and such notice references any of the Notes generally, the Issuer, the Trust Estate or this Indenture. (f) The Indenture Trustee shall be under no obligation to institute any suit, or to take any remedial proceeding under this Indenture, or to enter any appearance or in any way defend in any suit in which it may be made defendant, or to take any steps in the execution of the trusts hereby created or in the enforcement of any rights and powers hereunder until it shall be indemnified to its satisfaction against any and all costs and expenses, outlays and counsel fees and other reasonable disbursements and against all liability, except liability that is adjudicated, in connection with any action so taken. (g) Notwithstanding any extinguishment of all right, title and interest of the Issuer in and to the Trust Estate following an Event of Default and a consequent declaration of acceleration of the maturity of any of the Notes, whether such extinguishment occurs through a Sale of the Trust Estate to another person or the acquisition of the Trust Estate by the Indenture Trustee, the rights of the Noteholders shall continue to be governed by the terms of this Indenture. (h) Notwithstanding anything to the contrary contained herein, the provisions of subsections (e) through (g), inclusive, of this Section 7.01 shall be subject to the provisions of subsections (a) through (c), inclusive, of this Section 7.01. (i) The Indenture Trustee shall provide the reports and accountings as required pursuant to Section 12.04 hereof. SECTION 7.02 NOTICE OF DEFAULT AND OTHER EVENTS. Promptly after the occurrence of any Default, Trigger Event or Note Insurer Default known to the Indenture Trustee (within the meaning of Section 7.01(e) hereof) which is continuing, within one Business Day of obtaining such knowledge, the Indenture Trustee shall transmit by telephonic or telegraphic communication confirmed by mail to the Note Insurer and by mail to all Holders of Notes, as their names and addresses appear on the Note Register, notice of such Default, Trigger Event or Note Insurer Default known to the Indenture Trustee. 49 54 SECTION 7.03 CERTAIN RIGHTS OF INDENTURE TRUSTEE. Except as otherwise provided in Section 7.01, (a) the Indenture Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other obligation, paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Issuer mentioned herein shall be sufficiently evidenced by an Issuer Request or Issuer Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Indenture Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Indenture Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (d) the Indenture Trustee may consult with counsel and the written advice of such counsel selected by the Indenture Trustee with due care or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Indenture Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Noteholders pursuant to this Indenture, unless such Noteholders shall have offered to the Indenture Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) unless so directed by the Controlling Party and the requirements of clause (e) above are met, the Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document, but the Indenture Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Indenture Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer, upon reasonable notice and at reasonable times personally or by agent or attorney; and (g) the Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. SECTION 7.04 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES. (a) The recitals contained in this Indenture and in the Notes, except the certificates of authentication on the Notes, shall be taken as the statements of the Issuer, and the Indenture Trustee assumes no responsibility for their correctness. The Indenture Trustee makes no representations as to the validity or condition of the Trust Estate or any part thereof, or as to the title of the Issuer thereto or as to the security afforded thereby or hereby, or as to the validity or genuineness of any securities at any time pledged and deposited with the Indenture Trustee hereunder or as to the validity or sufficiency of this 50 55 Indenture or any of the Notes. The Indenture Trustee shall not be accountable for the use or application by the Issuer of any of the Notes or the proceeds thereof or of any money paid to the Issuer or upon Issuer Order under any provisions hereof. (b) Except as otherwise expressly provided herein and without limiting the generality of the foregoing, the Indenture Trustee shall have no responsibility or liability for or with respect to the validity of any Equipment or Contract, the perfection of any security interest (whether as of the date hereof or at any future time), the maintenance of or the taking of any action to maintain such perfection, the validity of the assignment of any portion of the Trust Estate to the Indenture Trustee or of any intervening assignment, the review of any Contract (it being understood that the Indenture Trustee has not reviewed and does not intend to review the substance or form of any such Contract), the performance or enforcement of any Contract, the validity and sufficiency of the Note Insurance Policies, the compliance by the Issuer or the Servicer with any covenant or the breach by the Issuer or the Servicer of any warranty or representation made hereunder or in any related document or the accuracy of any such warranty or representation, any investment of monies in the Collection Account or any loss resulting therefrom, the acts or omissions of the Issuer, the Servicer, the Note Insurer or any Customer, any action of the Servicer taken in the name of the Indenture Trustee, or the validity of the Servicing Agreement or the Contract Acquisition Agreement. (c) Except as otherwise expressly provided herein, the Indenture Trustee shall not have any obligation or liability under any Contract by reason of or arising out of this Indenture or the granting of a security interest in such Contract hereunder or the receipt by the Indenture Trustee of any payment relating to any Contract pursuant hereto, nor shall the Indenture Trustee be required or obligated in any manner to perform or fulfill any of the obligations of the Issuer under or pursuant to any Contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it, or the sufficiency of any performance by any party, under any Contract. SECTION 7.05 MAY HOLD NOTES. The Indenture Trustee, the Servicer, any Paying Agent, the Note Registrar, any Authenticating Agent or any other agent of the Issuer, in its individual or any other capacity, may become the owner or pledgee of Notes, and, if operative, may otherwise deal with the Issuer with the same rights it would have if it were not Indenture Trustee, Servicer, Paying Agent, Note Registrar, Authenticating Agent or such other agent. SECTION 7.06 MONEY HELD IN TRUST. Money and investments held in trust by the Indenture Trustee or any Paying Agent hereunder shall be held in one or more trust accounts hereunder but need not be segregated from other funds except to the extent required in this Indenture or required by law. The Indenture Trustee or any Paying Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Issuer or otherwise specifically provided in this Indenture. 51 56 SECTION 7.07 COMPENSATION AND REIMBURSEMENT. The Issuer agrees: (a) to pay the Indenture Trustee monthly its fee for all services rendered by it hereunder as Indenture Trustee, in the amount of the Trustee Fee (which compensation shall not otherwise be limited by any provision of law in regard to the compensation of a trustee of an express trust), and to pay to the Back-up Servicer its fee for all services rendered hereunder and under the Servicing Agreement as Back-up Servicer, in the amount of the Back-up Servicer Fee; (b) except as otherwise expressly provided herein, to reimburse the Indenture Trustee or the Back-up Servicer upon its request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Indenture Trustee or the Back-up Servicer in accordance with any provision of this Indenture or the Servicing Agreement (including the reasonable compensation and the expenses and disbursements of the Indenture Trustee's and Back-up Servicer's agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify and hold harmless the Trust Estate and the Indenture Trustee from and against any loss, liability, expense, damage or injury (other than those attributable to a Noteholder in its capacity as an investor in any of the Notes) sustained or suffered pursuant to this Indenture by reason of any acts, omissions or alleged acts or omissions arising out of activities of the Trust or the Indenture Trustee (including without limitation any violation of any applicable laws by the Issuer as a result of the transactions contemplated by this Indenture), including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, that the Issuer shall not indemnify the Indenture Trustee if such loss, liability, expense, damage or injury is due to the Indenture Trustee's gross negligence or willful misconduct, willful misfeasance or bad faith in the performance of duties. Any indemnification pursuant to this Section shall only be payable from the assets of the Issuer and shall not be payable from the assets of the Trust Estate. The provisions of this indemnity shall run directly to and be enforceable by an injured Person subject to the limitations hereof and this indemnification agreement shall survive the termination of this Indenture. SECTION 7.08 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a trustee hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 (or a lesser amount with the approval of the Controlling Party and the Rating Agencies), subject to supervision or examination by federal or state authority and having an office within the United States of America, not affiliated (within the meaning of Rule 3a-7 under the Investment Company Act) with the Issuer or any other Person involved in the organization or operation of the Issuer, and which shall have a commercial paper or other short-term rating of the highest short term rating categories by each of the Rating Agencies, or otherwise acceptable to each of the Rating Agencies and the Controlling Party. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. 52 57 SECTION 7.09 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of the Indenture Trustee and no appointment of a successor Indenture Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Indenture Trustee under Section 7.10 hereof. (b) The Indenture Trustee may resign at any time by giving 30 days written notice thereof to the Issuer, the Note Insurer and to each Noteholder. If an instrument of acceptance by a successor Indenture Trustee shall not have been delivered to the Indenture Trustee within 30 days after the giving of such notice of resignation, the resigning Indenture Trustee may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and may prescribe, appoint a successor Indenture Trustee. (c) The Indenture Trustee may be removed by the Controlling Party at any time if one of the following events have occurred: (i) the Indenture Trustee shall cease to be eligible under Section 7.08 hereof and shall fail to resign after written request therefor by the Issuer, the Note Insurer or any Noteholder, or (ii) the Indenture Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Indenture Trustee or of its property shall be appointed or any public officer shall take charge or control of the Indenture Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, or (iii) the Indenture Trustee has failed to perform its duties in this Indenture or has breached any representation or warranty made in this Indenture. (d) If the Indenture Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Indenture Trustee for any cause with respect to any of the Notes, the Issuer by a Board Resolution, shall promptly appoint a successor Indenture Trustee satisfactory to the Controlling Party. If no successor Indenture Trustee shall have been so appointed by the Issuer within 30 days of notice of removal or resignation and shall have accepted appointment in the manner hereinafter provided, then the Controlling Party may appoint a successor Indenture Trustee. If the Note Insurer is the Controlling Party and has failed to appoint a successor Indenture Trustee within 90 days after succeeding to the right to so appoint a successor Indenture Trustee, then the Majority Holders may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee with respect to the Notes. (e) The Issuer shall give notice in the manner provided in Section 13.04 hereof of each resignation and each removal of the Indenture Trustee and each appointment of a successor Indenture Trustee with respect to the Notes to the Noteholders and the Rating Agencies. Each notice shall include the name of the successor Indenture Trustee and the address of its Corporate Trust Office. 53 58 SECTION 7.10 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. Every successor Indenture Trustee appointed hereunder shall execute, acknowledge and deliver to the Issuer and the retiring Indenture Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Indenture Trustee shall become effective and such successor Indenture Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Indenture Trustee but, on request of the Issuer or the successor Indenture Trustee, such retiring Indenture Trustee shall, upon payment of its reasonable out-of-pocket costs and expenses, execute and deliver an instrument transferring to such successor Indenture Trustee all the rights, powers and trusts of the retiring Indenture Trustee, and shall duly assign, transfer and deliver to such successor Indenture Trustee all property and money held by such retiring Indenture Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 7.07 hereof. Upon request of any such successor Indenture Trustee, the Issuer shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Indenture Trustee all such rights, powers and trusts. No successor Indenture Trustee shall accept its appointment unless at the time of such acceptance such successor Indenture Trustee shall be eligible under this Article. SECTION 7.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS OF INDENTURE TRUSTEE. Any Person into which the Indenture Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Indenture Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Indenture Trustee, shall be the successor of the Indenture Trustee hereunder, provided that such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto, and notice thereof shall be provided by the Indenture Trustee to the Noteholders and the Rating Agencies. In case any Notes have been authenticated, but not delivered, by the Indenture Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Indenture Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Indenture Trustee had itself authenticated such Notes. SECTION 7.12 CO-INDENTURE TRUSTEES AND SEPARATE INDENTURE TRUSTEES. At any time or times, for the purpose of meeting the legal requirements of any jurisdiction in which any of the Trust Estate may at the time be located, the Issuer, the Controlling Party and the Indenture Trustee shall have power to appoint, and, upon the written request of the Indenture Trustee, the Controlling Party or of the Holders representing at least 25% in Outstanding Principal Amount of all Notes, the Issuer shall for such purpose join with the Indenture Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Indenture Trustee and meeting the requirements of Section 7.08 hereof, either to act as co-Indenture Trustee, jointly with the Indenture Trustee of all or any part of such Trust Estate, or to act as separate Indenture Trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Issuer does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case an Event of Default shall have occurred and be continuing, the Indenture Trustee alone shall have power to make such appointment. 54 59 Should any written instrument from the Issuer be reasonably required by any co-Indenture Trustee or separate Indenture Trustee so appointed for more fully confirming to such co-Indenture Trustee or separate Indenture Trustee such property, title, right or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Issuer. Every co-Indenture Trustee or separate Indenture Trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms: (a) the Notes shall be authenticated and delivered by, and all rights, powers, duties and obligations under this Indenture in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Indenture Trustee under this Indenture, shall be exercised solely by the Indenture Trustee; (b) the rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee by this Indenture in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Indenture Trustee or by the Indenture Trustee and such co-Indenture Trustee or separate Indenture Trustee jointly, as shall be provided in the instrument appointing such co-Indenture Trustee or separate Indenture Trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Indenture Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-Indenture Trustee or separate Indenture Trustee; (c) the Indenture Trustee at any time, by an instrument in writing executed by it, with the concurrence of the Issuer evidenced by a Board Resolution, may accept the resignation of or remove any co-Indenture Trustee or separate Indenture Trustee, appointed under this Section, and, in case an Event of Default shall have occurred and be continuing, the Indenture Trustee shall have power to accept the resignation of, or remove, any such co-Indenture Trustee or separate Indenture Trustee without the concurrence of the Issuer. Upon the written request of the Indenture Trustee, the Issuer shall join with the Indenture Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-Indenture Trustee or separate Indenture Trustee that has so resigned or been removed may be appointed in the manner provided in this Section; (d) no co-Indenture Trustee or separate Indenture Trustee hereunder shall be personally liable by reason of any act or omission of the Indenture Trustee or any other such Indenture Trustee hereunder nor shall the Indenture Trustee be liable by reason of any act or omission of any co-Indenture Trustee or separate Indenture Trustee selected by the Indenture Trustee with due care or appointed in accordance with directions to the Indenture Trustee pursuant to Section 6.14; and (e) any Act of Noteholders delivered to the Indenture Trustee shall be deemed to have been delivered to each such co-Indenture Trustee and separate Indenture Trustee. SECTION 7.13 RIGHTS WITH RESPECT TO THE SERVICER. The Indenture Trustee's rights and obligations with respect to the Servicer and the Back-up Servicer shall be governed by the Servicing Agreement. 55 60 SECTION 7.14 APPOINTMENT OF AUTHENTICATING AGENT. The Indenture Trustee may appoint an Authenticating Agent or Agents with respect to the Notes which shall be authorized to act on behalf of the Indenture Trustee to authenticate Notes issued upon original issue or upon exchange, registration of transfer or pursuant to Section 2.05 hereof, and Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Indenture Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Notes by the Indenture Trustee or the Indenture Trustee's certificate of authentication or the delivery of Notes to the Indenture Trustee for authentication, such reference shall be deemed to include authentication and delivery on behalf of the Indenture Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Indenture Trustee by an Authenticating Agent and delivery of the Notes to the Authenticating Agent on behalf of the Indenture Trustee. Each Authenticating Agent shall be acceptable to the Issuer, the Note Insurer and the Noteholders and shall at all times be a corporation having a combined capital and surplus of not less than the equivalent of $50,000,000 and subject to supervision or examination by Federal or state authority or the equivalent foreign authority, in the case of an Authenticating Agent who is not organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of such Authenticating Agent, shall continue to be an Authenticating Agent without the execution or filing of any paper or any further act on the part of the Indenture Trustee or such Authenticating Agent; provided, that such corporation shall be otherwise eligible under this Section. An Authenticating Agent may resign at any time by giving written notice thereof to the Indenture Trustee, the Note Insurer and to the Issuer. The Indenture Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent, the Note Insurer and to the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Indenture Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Issuer and the Controlling Party and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Notes, if any, with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Note Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Indenture Trustee may pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section and the Indenture Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 7.07 hereof. 56 61 If an appointment is made pursuant to this Section, the Notes may have endorsed thereon, in addition to the Indenture Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This is one of the Notes described in the within-mentioned Indenture. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION As Indenture Trustee By: ---- as Authenticating Agent By: ---- Authorized Officer SECTION 7.15 INDENTURE TRUSTEE TO HOLD CONTRACTS. The Indenture Trustee hereby acknowledges receipt of (subject to any exceptions as may be noted by the Indenture Trustee to the Servicer and the Controlling Party pursuant to Section 4.05 hereof) and shall hold each Contract, together with any documents relating thereto that may from time to time be delivered to the Indenture Trustee, until such time as such Contract is released from the lien of this Indenture pursuant to the terms of this Indenture. Except as set forth in Section 4.05 hereof, the Indenture Trustee shall be under no duty or obligation to inspect, review or examine the Contracts and other documents to determine that the same are genuine, enforceable or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face. SECTION 7.16 MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST. The Indenture Trustee shall execute and deliver, and if there is any Paying Agent other than the Indenture Trustee, the Issuer shall cause each Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee and the Controlling Party an instrument in which such Paying Agent shall agree with the Indenture Trustee that, subject to the provisions of this Section, such Paying Agent shall: (a) hold all sums held by it for the payment of principal or interest on Notes in trust for the benefit of the Noteholders entitled thereto and the Note Insurer until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Indenture Trustee, the Note Insurer and the Noteholders notice of any Default by the Issuer (or any other obligor upon the Notes) in the making of any payment of principal or interest; and (c) at any time during the continuance of any such Default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent. The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Issuer Order direct any Paying Agent to pay, to the 57 62 Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which such sums were held by such Paying Agent; and, upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Indenture Trustee or any Paying Agent in trust for the payment of the principal or interest on any Note and remaining unclaimed for three years after such principal or interest has become due and payable shall be paid to the Issuer on Issuer Request or to the Note Insurer if such payment had been made by the Note Insurer; and the Holder of such Note shall thereafter, as an unsecured general creditor, and subject to any applicable statute of limitations, look only to the Issuer for payment thereof, and all liability of the Indenture Trustee, such Paying Agent or the Note Insurer with respect to such trust money or the related Note, shall thereupon cease; provided, that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the city in which the Corporate Trust Office is located, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Issuer; and provided further, that any amounts held that are proceeds of a claim made under a Note Insurance Policy shall be returned to the Note Insurer, and the Noteholders shall look only to the Note Insurer for such payments. The Indenture Trustee may also adopt and employ, at the expense of the Issuer, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Noteholders whose right to or interest in monies due and payable but not claimed is determinable from the records of any Paying Agent, at the last address as shown on the Note Register for each such Noteholder). 63 ARTICLE EIGHT THE NOTE INSURANCE POLICIES SECTION 8.01 PAYMENTS UNDER THE NOTE INSURANCE POLICIES. With respect to any applicable Series, if on the close of business on the fourth Business Day prior to any Payment Date, the funds on deposit in the Collection Account and available to be distributed on such Payment Date pursuant to Section 12.02(d) hereof (after taking into account any transfers from the Cash Collateral Account in accordance with Section 12.03 and any amounts payable pursuant to Section 12.02(d)(i) through (iv) hereof) are not sufficient to make the payment of interest due on the Outstanding Notes of such Series on such Payment Date in accordance with Section 12.02(d)(v) hereof, the Indenture Trustee shall, no later than 10:00 a.m. (Central Time), on the third Business Day immediately preceding such Payment Date make a claim under the applicable Note Insurance Policy in an amount equal to such insufficiency (the "Interest Deficiency Draw Amount"). In addition, with respect to any Series, if on the close of business on the fourth Business Day immediately prior to the related Stated Maturity Date the funds on deposit in the Collection Account (after taking into account any transfers from the Cash Collateral Account in accordance with Section 12.03 and any amounts payable pursuant to Section 12.02(d)(i) through (v) hereof) are not sufficient to pay the entire Outstanding Principal Amount of all Notes of the applicable Series (after giving effect to the application of funds available to pay the Pro Rata Share of the Principal Distribution Amount of each Outstanding Series in accordance with Section 12.02(d)(vi) hereof), the Indenture Trustee shall, no later than 10:00 a.m. (Central Time), on the third Business Day immediately preceding such Payment Date, make a claim under the applicable Note Insurance Policy in an amount equal to such insufficiency (the "Note Principal Balance Deficiency"). Proceeds of claims on the Note Insurance Policies shall be deposited in the Collection Account or the Redemption Account, as applicable, by 11:00 a.m. (Central Time) on the later of (i) the second Business Day after receipt by the Note Insurer of notice of such claim and (ii) the Business Day immediately preceding such Payment Date and used solely to pay amounts due in respect of interest on the applicable Notes on each Payment Date prior to the Stated Maturity Date and principal of and interest on the applicable Notes at the Stated Maturity Date. In addition, on any day that the Indenture Trustee has actual knowledge or receives notice that any amount previously paid to a Noteholder has been subsequently recovered from such Noteholder pursuant to a final order of a court of competent jurisdiction that such payment constitutes an avoidable preference within the meaning of any applicable bankruptcy law to such Noteholder (a "Preference Claim"), the Indenture Trustee shall make a claim within one Business Day upon the relevant Note Insurance Policy for the full amount of such Preference Claim in accordance with the terms of such Note Insurance Policy. Any proceeds of any such Preference Claim received by the Indenture Trustee shall be paid to the related Noteholders. 64 ARTICLE NINE AMENDMENTS; SUPPLEMENTAL INDENTURES SECTION 9.01 AMENDMENTS AND SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS. The Issuer, the Servicer, the Back-up Servicer and the Indenture Trustee, with the written consent of the Controlling Party, at any time and from time to time, may enter into one or more amendments or indentures supplemental hereto, in form satisfactory to the Indenture Trustee, for any of the following purposes, provided that any such amendment or supplement, as evidenced by an Opinion of Counsel if requested by the Indenture Trustee, will not have a material adverse affect on any Noteholder: (a) to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; or (b) to evidence the succession of another Person to the Issuer, and the assumption by such successor of the covenants of the Issuer herein and in the Notes contained, in accordance with Section 11.02(o) hereof; or (c) to add to the covenants of the Issuer, for the benefit of the Note Insurer or the Holders of all Notes, or to surrender any right or power herein conferred upon the Issuer; or (d) to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; or (e) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provisions with respect to matters or questions arising under this Indenture, which shall not be inconsistent with the provisions of this Indenture, provided that such action shall not adversely affect the interests of the Holders of the Notes; or (f) to evidence the succession of the Indenture Trustee pursuant to Article Seven hereof; or (g) to add events to the list of Events of Default; or (h) to substitute one or more Contracts in accordance with Section 4.04 hereof and to add Additional Contracts; or (i) so long as, as of the date of such amendment, no Note Insurer Default has occurred and is continuing with respect to any Series then Outstanding and the Rating Agency Condition has been met with respect to all Series then Outstanding, to amend the definition of "Collateralization Percentage," or "Trigger Event"; or (j) as may be necessary to effectuate the issuance of any additional Series of Notes in accordance with the terms of this Indenture and the related Supplement; provided that any such amendment does not modify this Indenture in a manner described in paragraphs (a)(i) through (a)(viii) of Section 9.02 hereof. 65 The Indenture Trustee is hereby authorized to join in the execution of any such amendment or supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Indenture Trustee shall not be obligated to enter into any such amendment or supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. Promptly after the execution by the Issuer, the Servicer, the Back-up Servicer and the Indenture Trustee of any amendment or supplemental indenture, and the consent thereto by the Note Insurer, pursuant to this Section, the Issuer shall mail to the Rating Agencies and each Noteholder a copy of such amendment or supplemental indenture. SECTION 9.02 AMENDMENTS OR SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. (a) With the prior written consent of (i) the Note Insurer, unless a Note Insurer Default shall have occurred and be continuing, and (ii) (A) the Holders of not less than 51% of the Outstanding Principal Amount of all Series of Notes, or (B) in respect of matters relating only to discrete Series of Notes the Holders of not less than 51% of the Outstanding Principal Amount of such Series of Notes, by Act of said Holders delivered to the Issuer and the Indenture Trustee and written notice thereof delivered to the Rating Agencies, the Issuer, the Servicer, the Back-up Servicer and the Indenture Trustee may enter into amendments or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Notes under this Indenture. Notwithstanding the foregoing, no such amendment or supplemental indenture shall, without the consent of the Holders of each Outstanding Note: (i) change the Stated Maturity Date of any Note or the due date of any installment of principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the Note Interest Rate or change any place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment; or (ii) reduce the percentage in Outstanding Principal Amount of Notes, the consent of the Holders of which is required for any such amendment or supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain provisions of this Indenture or Events of Default or their consequences; or (iii) impair or adversely affect the Trust Estate except as otherwise expressly permitted herein; or (iv) modify or alter the proviso to the definition of the term "Outstanding" or "Outstanding Principal Amount"; or (v) modify or alter the provisions of the proviso to Section 6.04 hereof; or (vi) modify any of the provisions of this Section 9.02, except to increase the percentage of Holders required for any modification or waiver or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of each Holder of each Outstanding Note affected thereby; or 66 (vii) permit the creation of any lien ranking prior to or on a parity with the lien of this Indenture with respect to any part of the Trust Estate or terminate the lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Note of the security afforded by the lien of this Indenture; or (viii) modify any of Sections 4.02, 6.01(a) or (b), 6.02, 6.03, 6.18, or 12.02(d) hereof. (b) The Indenture Trustee is hereby authorized to join in the execution of any supplemental indenture pursuant to clause (a) above and to make any further appropriate agreements and stipulations that may be therein contained, but the Indenture Trustee shall not be obligated to enter into any such supplemental indenture that affects the Indenture Trustee's own rights, duties, liabilities or immunities under this Indenture. Promptly after the execution by the Issuer, the Servicer, the Back-up Servicer and the Indenture Trustee of any supplemental indenture pursuant to this Section, the Issuer shall mail to the Holders of the Notes, the Note Insurer and the Rating Agencies a copy of such supplemental indenture. SECTION 9.03 EXECUTION OF AMENDMENTS AND SUPPLEMENTAL INDENTURES. In executing any amendment or supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive upon request, and (subject to Section 7.01 hereof) shall be fully protected in relying in good faith upon, an Opinion of Counsel reasonably acceptable to the Indenture Trustee stating that the execution of such amendment or supplemental indenture is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such amendment or supplemental indenture which affects the Indenture Trustee's own duties or immunities under this Indenture or otherwise. SECTION 9.04 EFFECT OF AMENDMENTS AND SUPPLEMENTAL INDENTURES. Upon the execution of any amendment or supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such amendment or supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05 REFERENCE IN NOTES TO AMENDMENTS AND SUPPLEMENTAL INDENTURES. Notes authenticated and delivered after the execution of any amendment or supplemental indenture pursuant to this Article may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such amendment or supplemental indenture. If the Issuer shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee and the Issuer, to any such amendment or supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes. SECTION 9.06 CERTAIN AMENDMENTS. If any party to this Indenture is unable to sign any amendment due to its dissolution, winding up or comparable circumstances, then the consent of the Noteholders representing at least 51% in Outstanding Principal Amount of all Notes of all Series shall be sufficient to allow an amendment that otherwise meets the requirements of this Article Nine to become effective without such party's signature; provided, however, that no such amendment shall impose on the 67 party that is unable to provide a signature any obligation or liability in excess of what is then currently imposed hereunder prior to such amendment. 68 ARTICLE TEN REDEMPTION OF NOTES SECTION 10.01 REDEMPTION AT THE OPTION OF THE ISSUER; ELECTION TO REDEEM. Except as may be otherwise specified in the related Supplement, the Issuer shall have the option to redeem all of the Outstanding Notes of any Series of Notes at any time after the Outstanding Principal Amount of such Series of Notes is less than 10% of the original Outstanding Principal Amount of such Series of Notes as of the related Delivery Date, in each case at the applicable Redemption Price plus any fees due hereunder and all amounts due to the Note Insurer under the related Note Insurance Agreement. With respect to any such permitted redemption, the Note Insurer shall have the same option to redeem any such Series of Notes in the absence of the exercise thereof by the Issuer. The Issuer or the Note Insurer, as the case may be, shall set the Redemption Date and the Redemption Record Date for a Series of Notes and give notice thereof to the Indenture Trustee pursuant to Section 10.02 hereof. Installments of interest and principal that are due regarding a Series of Notes on or prior to the related Redemption Date shall continue to be payable to the Holders of such Notes called for redemption as of the relevant Record Dates according to their terms and the provisions of Section 2.08 hereof. The election of the Issuer or the Note Insurer to redeem any Notes pursuant to this Section shall be evidenced by a Board Resolution or written notice from the Note Insurer, respectively, directing the Indenture Trustee to make the payment of the Redemption Price on all of the Notes to be redeemed from monies deposited with the Indenture Trustee pursuant to Section 10.02 hereof. SECTION 10.02 NOTICE TO INDENTURE TRUSTEE; DEPOSIT OF REDEMPTION PRICE. In the case of any redemption pursuant to Section 10.01 hereof, the Issuer or the Note Insurer, as applicable, shall, at least 15 days prior to the related Redemption Date, notify the Indenture Trustee and the Holders of the Series of Notes to be redeemed of such Redemption Date and shall deposit into the Redemption Account on such notification date an amount equal to the Redemption Price of all Notes to be redeemed on such Redemption Date plus any fees due hereunder and all amounts due to the Note Insurer under the related Note Insurance Agreement. SECTION 10.03 NOTICE OF REDEMPTION BY THE ISSUER. Upon receipt of such notice and such deposit set forth in Section 10.02 above, the Indenture Trustee shall provide notice of redemption pursuant to Section 10.01 hereof by first-class mail, postage prepaid, mailed no later than the Business Day following the date on which such deposit was made, to each Holder of Notes whose Notes are to be redeemed, at his address in the Note Register. All notices of redemption shall state: (a) the applicable Redemption Date; (b) the applicable Redemption Price; and 69 (c) that on such Redemption Date, the Redemption Price will become due and payable upon each such Note in the related Series, and that interest thereon shall cease to accrue on such date. Notice of redemption of a Series of Notes shall be given by the Indenture Trustee in the name and at the expense of the Issuer or the Note Insurer, as applicable. Failure to give notice of redemption, or any defect therein, to any Holder of any Note selected for redemption shall not impair or affect the validity of the redemption of any other Note. SECTION 10.04 NOTES PAYABLE ON REDEMPTION DATE. Notice of redemption having been given as provided in Section 10.03 hereof, the Series of Notes to be redeemed shall, on the applicable Redemption Date, become due and payable at the Redemption Price and on such Redemption Date (unless the Issuer or the Note Insurer, as applicable, shall default in the payment of the Redemption Price) such Notes shall cease to bear interest. The Holders of such Notes shall be paid the Redemption Price by the Paying Agent on behalf of the Issuer; provided, that installments of principal and interest that are due regarding such Series of Notes on or prior to such Redemption Date shall be payable to the Holders of such Notes registered as such on the relevant Record Dates according to their terms and the provisions of Section 2.08 hereof. If the Holders of any Note called for redemption shall not be so paid, the principal and premium, if any, on such Series of Notes shall, until paid, bear interest from the applicable Redemption Date at the related Note Interest Rate. SECTION 10.05 RELEASE OF SERIES CONTRACTS. In connection with any redemption permitted under this Article Ten, the Issuer or the Note Insurer, as the case may be, shall be permitted to obtain a release of the related Series Contracts, (a) to the extent provided in Section 4.06(b) hereof and (b) so long as the applicable Redemption Price shall have been deposited into the Redemption Account as required by Section 10.02, and the Insurance Policy has been terminated with respect to such Series or the Note Insurer otherwise consents to such release. 70 ARTICLE ELEVEN REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 11.01 REPRESENTATIONS AND WARRANTIES. The Issuer hereby makes the following representations and warranties for the benefit of the Indenture Trustee, the Note Insurer and the Noteholders on which the Indenture Trustee relies in accepting the Trust Estate in trust and in authenticating the Notes. Such representations and warranties are made as of the Initial Delivery Date and, except as specifically provided herein, each additional Delivery Date, and shall survive the Grant of the Trust Estate to the Indenture Trustee. (a) ORGANIZATION AND GOOD STANDING. The Issuer is a corporation duly organized, validly existing and in good standing under the laws of its State of incorporation and each other State where the nature of its business requires it to qualify, except to the extent that the failure to so qualify would not in the aggregate materially adversely affect the Trust Estate or the ability of the Issuer to perform its obligations under the Transaction Documents. The Issuer has not operated under any other names and does not have any trade names, fictitious names or "doing business as" names. The Issuer has no subsidiaries; (b) AUTHORIZATION. The Issuer has the power, authority and legal right to execute, deliver and perform under the terms of the Transaction Documents and the execution, delivery and performance of the Transaction Documents have been duly authorized by the Issuer by all necessary corporate action; (c) BINDING OBLIGATION. Assuming the due authorization, execution and delivery by each other party thereto, each of (i) this Indenture, (ii) the applicable Note Insurance Agreement, (iii) the Servicing Agreement, (iv) the Contract Acquisition Agreement, (v) the Notes then Outstanding and (vi) the Note Purchase Agreement constitutes a legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms except (A) as such enforcement may be subject to or limited by applicable bankruptcy, conservatorship, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, whether a proceeding at law or in equity; (d) NO VIOLATION. The consummation of the transactions contemplated by the terms of the Transaction Documents will not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice, lapse of time or both) a default under the organizational documents or bylaws of the Issuer, or any indenture, agreement, mortgage, deed of trust or other instrument to which the Issuer is a party or by which it is bound, or in the creation or imposition of any Lien upon any of its properties pursuant to the terms of such indenture, agreement, mortgage, deed of trust or other such instrument, other than any Lien created or imposed pursuant to the terms of the Transaction Documents, or violate any law or, any material order, rule or regulation applicable to the Issuer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Issuer or any of its properties. (e) NO PROCEEDINGS. There are no Proceedings or investigations to which the Issuer, or any of the Issuer's Affiliates, is a party pending, or, to the knowledge of the Issuer, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (A) 71 asserting the invalidity of the Transaction Documents, (B) seeking to prevent the issuance of any of the Notes or the consummation of any of the transactions contemplated by the Transaction Documents or (C) seeking any determination or ruling that would materially and adversely affect the performance by the Issuer of its obligations under, or the validity or enforceability of, the Transaction Documents. (f) APPROVALS. All approvals, authorizations, consents, orders or other actions of any Person, or of any court, governmental agency or body or official, required in connection with the execution and delivery of the Transaction Documents and with the valid and proper authorization, issuance and sale of the Notes pursuant to this Indenture (except approvals of State securities officials under any applicable securities or "blue sky" laws), have been or will be taken or obtained on or prior to the applicable Delivery Date. (g) PLACE OF BUSINESS. The Issuer's principal place of business and chief executive office is located at 950 Winter Street, Suite 4100B, Waltham, Massachusetts 02451. (h) TRANSFER AND ASSIGNMENT. Upon the delivery to the Indenture Trustee of the Contracts and the filing of the financing statements described in Sections 4.01(f) and 4.02(b)(vi) hereof, the Indenture Trustee for the benefit of the Noteholders shall have a first priority perfected security interest in the Receivables and the Contracts and in the proceeds thereof, except for Liens permitted under Section 11.02(a) and limited to the extent set forth in Section 9-306 of the UCC as in effect in the applicable jurisdiction. All filings (including, without limitation, UCC filings pursuant to Section 4.01 and 4.02 hereof, but excluding any UCC filings with respect to Equipment except as otherwise provided herein) as are necessary in any jurisdiction to perfect the ownership or other interest of the Indenture Trustee in the Trust Estate, including the transfer of the Contracts and the payments to become due thereunder, have been made. (i) PARENT OF THE ISSUER. The Company is the registered owner of all of the issued and outstanding common stock of the Issuer, all of which common stock has been validly issued, is fully paid and nonassessable and is owned of record. (j) CONTRACT ACQUISITION AGREEMENT. As of the Initial Delivery Date, the Issuer has entered into the Contract Acquisition Agreement with the Company relating to its acquisition of the Contracts and the related Contract Assets, and the representations and warranties made by the Company relating to the Contracts and the related Contract Assets have been validly assigned to and are for the benefit of the Issuer, the Indenture Trustee, the Note Insurer and the Noteholders and such representations and warranties are true and correct in all material respects. (k) BULK TRANSFER LAWS. The transfer, assignment and conveyance of the Contracts, the Equipment and the Receivables by the Company to the Issuer pursuant to the Contract Acquisition Agreement or by the Issuer pursuant to this Indenture is not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction. (l) THE CONTRACTS. The Issuer hereby restates and makes each of the representations and warranties with respect to the Contracts and the related Contract Assets that are made by the Company in Section 3.01 of the Contract Acquisition Agreement in each case as of the date as of which the related representation or warranty speaks. SECTION 11.02 COVENANTS. 72 The Issuer hereby makes the following covenants for the benefit of the Indenture Trustee, the Note Insurer and the Noteholders, on which the Indenture Trustee relies in accepting the Trust Estate in trust and in authenticating the Notes. Such covenants are made as of the Initial Delivery Date, but shall survive the Grant of the Trust Estate to the Indenture Trustee. (a) NO LIENS. Except for the conveyances and grant of security interests hereunder, the Issuer will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on, any Collateral now existing or hereafter created, or any interest therein, prior to the termination of this Indenture pursuant to Section 5.01 hereof; the Issuer will notify the Indenture Trustee of the existence of any Lien on any Collateral immediately upon discovery thereof and shall pay or cause to be paid all taxes, fees, assessments, governmental charges and levies when due or payable or levied against its property, including any property that is part of the Collateral; and the Issuer shall defend the right, title and interest of the Indenture Trustee in, to and under the Trust Estate now existing or hereafter created, against all claims of third parties claiming through or under the Issuer; provided, that nothing in this Section 11.02(a) shall prevent or be deemed to prohibit the Issuer from suffering to exist upon any of the Trust Estate any Liens for municipal or other local taxes and other governmental charges if such taxes or governmental charges shall not at the time be due and payable or if the Issuer shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto. (b) DELIVERY OF COLLECTIONS. The Issuer agrees to hold in trust and promptly pay to the Servicer all amounts received by the Issuer in respect of the Trust Estate (other than amounts distributed to or for the benefit of the Issuer pursuant to Article Twelve hereof). (c) OBLIGATIONS WITH RESPECT TO CONTRACTS. The Issuer shall duly fulfill all obligations on its part to be fulfilled under or in connection with each Contract and shall do nothing to impair the rights of the Indenture Trustee (for the benefit of the Noteholders and the Note Insurer) in the Receivables, the Contracts and any other assets comprising the Trust Estate. As long as there is no event of default under the applicable Contract, the Issuer shall do nothing to disturb the Customer's quiet enjoyment of the related Equipment and the Customer's unrestricted use thereof for its intended purpose. (d) COMPLIANCE WITH LAW. The Issuer shall comply, in all material respects, with all acts, rules, regulations, orders, decrees and directions of any governmental authority applicable to the Contracts or any part thereof; provided, that the Issuer may contest any act, regulation, order, decree or direction in any reasonable manner which shall not materially and adversely affect the rights of the Indenture Trustee (for the benefit of the Noteholders and the Note Insurer) in the Receivables, the Contracts and the related Equipment. The Issuer shall comply, in all material respects, with all requirements of law applicable to the Issuer. (e) PRESERVATION OF SECURITY INTEREST. The Issuer shall execute and file such continuation statements and any other documents which may be required by law to fully preserve and protect the interest of the Indenture Trustee (for the benefit of the Noteholders and the Note Insurer) in the Trust Estate; provided, that the Issuer shall not be required to file financing statements or any related agreements or documentation with respect to any Equipment the original cost of which was not in excess of $10,000. (f) MAINTENANCE OF OFFICE, ETC. The Issuer shall not, without providing 30 days notice to the Indenture Trustee and the Controlling Party and without filing such amendments to any previously filed financing statements or any new filings as the Indenture Trustee or the Controlling Party may require or 73 as may be required in order to maintain the Indenture Trustee's perfected security interest in the Trust Estate, (a) change the location of its principal executive office or its jurisdiction of organization, or (b) change its name, identity or corporate structure in any manner which would make any financing statement or continuation statement filed by the Issuer in accordance with the Servicing Agreement or this Indenture seriously misleading within the meaning of Article 9-402 of any applicable enactment of the UCC. (g) FURTHER ASSURANCES. Except as set forth in Section 11.02(e), the Issuer shall make, execute or endorse, acknowledge, and file or deliver to the Indenture Trustee from time to time such schedules, confirmatory assignments, conveyances, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Trust Estate, as the Indenture Trustee may request and reasonably require. (h) NOTICE OF LIENS. The Issuer shall notify the Indenture Trustee and the Controlling Party promptly after becoming aware of any Lien on any Collateral, except for any Liens for municipal or other local taxes if such taxes shall not at the time be due or payable without penalty or if the Issuer or the related customer shall currently be contesting the validity thereof in good faith by appropriate proceedings and the Issuer shall have set aside on its books adequate reserves with respect thereto. (i) ACTIVITIES OF THE ISSUER. The Issuer (i) shall engage in only (A) the acquisition, ownership, leasing, selling and pledging of the property acquired by the Issuer pursuant to the Contract Acquisition Agreement, and causing the issuance of, receiving and selling the Notes issued pursuant to this Indenture and (B) the exercise of any powers permitted to corporations under the corporate law of the State of its incorporation which are incidental to the foregoing or necessary to accomplish the foregoing and the Issuer shall incur no debt other than trade payables and expense accruals in connection with its operations in the normal course of business and other than as contemplated by the Transaction Documents; (ii) shall (A) maintain its books, records and cash management accounts separate from the books and records and cash management accounts of any other Person and in accordance with generally accepted accounting principles (except as otherwise permitted under the Transaction Documents with respect to the Operating Account), (B) maintain separate bank accounts and, except for a limited period of time between receipt by the Company or the Servicer of certain payments on the Contracts and the underlying proceeds as specified in the Servicing Agreement and the Agreement Regarding Operating Account, or as otherwise provided in the Transaction Documents, ensure that no funds or assets of the Issuer shall be commingled with those of the Company, the Servicer or any other Person, (C) keep in full effect its existence, rights and franchises as a corporation under the laws of its State of incorporation, and shall obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, including all of its licenses, permits, governmental approvals, rights and privileges necessary in the normal conduct of its business as now conducted or presently proposed to be conducted; (D) observe all procedures required by its Articles of Organization, its by-laws and the laws of the State of its incorporation; (E) maintain its good standing under the laws of the State of its incorporation, (F) keep correct and complete books and records of account and minutes of meeting and other proceedings of its board of directors and shareholders, (G) obtain proper authorization from its board of directors or shareholders, as appropriate and act solely in its own name and through its duly authorized officers and agents in the conduct of its business, (H) reflect in its financial statements that the Contract Assets have been sold and assigned to the Issuer and that the Contract Assets have been Granted by the Issuer to the Indenture Trustee and that the assets of the Issuer are not available to pay the creditors of the Company, (I) maintain a separate telephone number and stationery reflecting a separate address and identity from that of the Company; and (iii) shall not (A) dissolve or liquidate in whole or in part, (B) own any 74 subsidiary or lend or advance any moneys to, or make an investment in, any Person, (C) make any capital expenditures, (D)(1) commence any case, proceeding or other action under any existing or future bankruptcy, insolvency or similar law seeking to have an order for relief entered with respect to it, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, (2) seek appointment of a receiver, trustee, custodian or other similar official for it or any part of its assets, (3) make a general assignment for the benefit of creditors, or (4) take any action in furtherance of, or consenting or acquiescing in, any of the foregoing, (E) guarantee (directly or indirectly), endorse or otherwise become contingently liable (directly or indirectly) for the obligations of, or own or purchase any stock, obligations or securities of or any other interest in, or make any capital contribution to, any other Person, (F) merge or consolidate with any other Person except as provided in subsection (o) of this Section 11.02, (G) engage in any other action that bears on whether the separate legal identity of the Issuer shall be respected, including without limitation (1) holding itself out as being liable for the debts of any other party or (2) acting other than in its corporate name and through its duly authorized officers or agents, or (H) create, incur, assume, or in any manner become liable in respect of, any indebtedness other than as contemplated by the Transaction Documents and other than trade payables and expense accruals incurred in the ordinary course of business and which are incidental to its business purpose. The Issuer shall not amend any article in its Articles of Organization that deals with any matter discussed above without the prior written consent of the Controlling Party. On or before April 15 of each year, so long as any of the Notes are Outstanding, the Issuer shall furnish to each Noteholder, the Indenture Trustee and the Note Insurer, an Officer's Certificate confirming that the Issuer has complied with its obligations under this Section 11.02(i). (j) DIRECTORS. The Issuer agrees that at all times, at least two of the directors of the Issuer (or two persons, one of whom is serving as both a director and an executive officer) shall be Independent; provided, that such Independent directors may serve in similar capacities for other "special purpose corporations" formed by the Company and its Affiliates. The Issuer's Articles of Organization shall at all times provide that such Independent directors shall have a fiduciary duty to the Holders of the Notes and will always require unanimous consent of the board of directors of the Issuer to file any bankruptcy petition on behalf of the Issuer. (k) PRESERVATION OF THE EQUIPMENT. The Issuer warrants that it is the lawful owner and possessor of the Equipment or has a valid perfected security interest therein and that it will warrant and defend such Equipment against all Persons, claims and demands whatsoever. The Issuer shall not assign, sell, pledge, or exchange, or in any way encumber or otherwise dispose of the Equipment, except as permitted under this Indenture. (l) TAXABLE INCOME FROM THE CONTRACTS. The Issuer shall treat the Notes issued by it as debt and shall treat the Contracts as owned by it for federal, state and local income tax purposes, and the affiliated group of which the Issuer is a member within the meaning of section 1504 of the Code and the Issuer and such affiliated group shall report and include in the computation of the Issuer's gross income for such tax purposes the rental and other income from the Contracts, and shall deduct the interest paid or accrued with respect to the Notes in accordance with its applicable method of accounting for such purposes. (m) MAINTENANCE OF OFFICE OR AGENCY. The Issuer shall maintain an office or agency within the United States of America where Notes may be presented or surrendered following payment in full, where Notes may be surrendered for registration of transfer or exchange and where notices and demand to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer hereby initially appoints the Indenture Trustee as the Paying Agent and its Corporate Trust Office as the office for each of 75 said purposes. The Issuer shall give 30 days prior written notice to the Indenture Trustee, the Note Insurer and the Noteholders of any change in the identity of the Paying Agent or the location, of any such office or agency. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Indenture Trustee, and the Issuer hereby irrevocably appoints the Indenture Trustee its agent to receive all such presentations, surrenders, notices and demands. (n) ENFORCEMENT OF SERVICING AGREEMENT AND CONTRACT ACQUISITION AGREEMENT. The Issuer shall take all actions necessary, and diligently pursue all remedies available to it, to the extent commercially reasonable, to enforce the obligations of the Servicer under the Servicing Agreement and the Company under the Contract Acquisition Agreement and to secure its rights thereunder. (o) ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The Issuer shall not consolidate or merge with or into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person (if other than the Issuer) formed by or surviving such consolidation or merger or which acquires by conveyance or transfer the properties and assets of the Issuer substantially as an entirety shall be a Person organized and existing as a limited purpose corporation under the laws of the United States of America or any State thereof and shall have expressly assumed, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee and the Note Insurer, in form and substance reasonably satisfactory to the Indenture Trustee, the Majority Noteholders and the Note Insurer, the obligation to make due and punctual payments of the principal of and interest on all of the Notes and to perform every covenant of the Transaction Documents on the part of the Issuer to be performed or observed; (ii) the Rating Agency Condition shall have been met; (iii) immediately after giving effect to such transaction, no Event of Default or Default shall have occurred and be continuing; (iv) the Issuer shall have delivered to the Indenture Trustee and the Note Insurer an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such Supplement comply with this Article Eleven and that all conditions precedent herein provided for relating to such transaction have been complied with and an Opinion of Counsel, for the benefit of the Indenture Trustee, the Note Insurer and the Noteholders, confirming the enforceability of documents in connection with such consolidation, merger, conveyance or transfer; (v) such consolidation, merger, conveyance or transfer shall be on such terms as shall fully preserve the lien and security of this Indenture, the perfection and priority thereof and the rights and powers of the Indenture Trustee, the Note Insurer and the Holders of the Notes under the Transaction Documents; (vi) the surviving corporation shall be a "special purpose entity"; i.e., shall have an organizational charter substantially similar to the Articles of Organization of the Issuer including specific limitations on the business purposes, and provisions for independent directors; and 76 (vii) the Controlling Party shall have given its prior written consent, which consent shall not be unreasonably withheld or delayed. (p) SUCCESSOR SUBSTITUTED. Upon any consolidation or merger, or any conveyance or transfer of the properties and assets of the Issuer substantially as an entirety in accordance with Section 11.02(o) hereof, the Person formed by or surviving such consolidation or merger (if other than the Issuer) or the Person to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such Person had been named as the Issuer herein. In the event of any such conveyance or transfer, the Person named as the "Issuer" in the first paragraph of this Indenture or any successor which shall theretofore have become such in the manner prescribed in this Article shall be released from its liabilities as obligor and maker on all the Notes and from its obligations under this Indenture and may be dissolved, wound-up and liquidated at any time thereafter. (q) USE OF PROCEEDS. The proceeds from the sale of the Notes shall be used by the Issuer (i) to pay the Existing Indebtedness, (ii) to pay the expenses associated with this transaction, and (iii) for general corporate purposes. None of the transactions contemplated in this Indenture, the Contract Acquisition Agreement or the Servicing Agreement (including the use of the proceeds from the sale of the Notes) will result in a violation of Section 7 of the Securities and Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including Regulations T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Issuer does not own or intend to carry or purchase any "margin stock" within the meaning of said Regulation U, including margin securities originally issued by it. (r) NOTICE OF TRIGGER EVENTS. Upon the Issuer's obtaining knowledge of the occurrence of any Trigger Event, the Issuer shall within one Business Day of obtaining such knowledge notify the Note Insurer, the Indenture Trustee, the Rating Agencies and the Noteholders of such occurrence. SECTION 11.03 OTHER MATTERS AS TO THE ISSUER. (a) LIMITATION ON LIABILITY OF DIRECTORS, OFFICERS, OR EMPLOYEES OF THE ISSUER. The directors, officers, any incorporator, agents, subscriber to the capital stock, stockholder, or employees of the Issuer shall not be under any liability to the Trust Estate, the Note Insurer, the Indenture Trustee, the Noteholders, the Company, the Servicer, the Back-up Servicer or any other Person hereunder or pursuant to any document delivered hereunder, it being expressly understood that all such liability is expressly waived and released as a condition of, and as consideration for, the execution of this Indenture and the issuance of the Notes. (b) PARTIES SHALL NOT INSTITUTE INSOLVENCY PROCEEDINGS. During the term of this Indenture and for one year and one day after the termination hereof, none of the parties hereto, the Noteholders, the Note Insurer or any Affiliate thereof shall file any involuntary petition or otherwise institute or orchestrate, or cooperate in the institution or orchestration of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceeding under any federal or state bankruptcy or similar law against the Issuer. 77 ARTICLE TWELVE ACCOUNTS AND ACCOUNTINGS SECTION 12.01 COLLECTION OF MONEY. Except as otherwise expressly provided herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall, upon request from the Servicer, provide the Servicer with sufficient information regarding the amount of collections with respect to the Contracts received by the Indenture Trustee in the accounts held in the name of the Indenture Trustee to permit the Servicer to perform its duties under the Servicing Agreement. The Indenture Trustee shall hold all such money and property so received by it as part of the Trust Estate and shall apply it as provided in this Indenture. If any Contract becomes a Defaulted Contract, the Indenture Trustee, upon Issuer or Servicer request may and, upon the request of the Controlling Party, shall take such action as may be appropriate to enforce the payment by or performance of the related Customer, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and to proceed thereafter as provided in Article Six hereof. SECTION 12.02 COLLECTION ACCOUNT; REDEMPTION ACCOUNT. (a) Prior to the Initial Delivery Date, the Indenture Trustee shall open and maintain a trust account at its Corporate Trust Office (the "Collection Account") in the name of the Indenture Trustee for the benefit of the Noteholders and the Note Insurer, for the receipt of (i) payments with respect to the Contract Assets remitted to the Indenture Trustee by the Servicer or received directly by the Indenture Trustee, (ii) amounts transferred from the Cash Collateral Account in accordance with Section 12.03(d) hereof, (iii) proceeds of claims made under any of the Note Insurance Policies, in accordance with Article Eight hereof, upon receipt, and (iv) any Reinvestment Income and (v) any other amounts required by the terms of this Indenture to be so deposited. Funds in the Collection Account shall not be commingled with any other monies. All payments to be made from time to time by the Issuer to the Noteholders out of funds in the Collection Account pursuant to this Indenture shall be made by the Indenture Trustee or the Paying Agent of the Issuer. All monies deposited from time to time in the Collection Account pursuant to this Indenture shall be held by the Indenture Trustee as part of the Trust Estate as herein provided. (b) Upon Issuer Order, the Indenture Trustee shall invest the funds in the Collection Account in Eligible Investments; provided, that all monies on deposit in the Collection Account pursuant to Section 12.02(a)(iii) hereof shall remain uninvested. The Issuer Order shall specify the Eligible Investments in which the Indenture Trustee shall invest, shall state that the same are Eligible Investments and shall further specify the percentage of funds to be invested in each Eligible Investment. No such Eligible Investment shall mature later than the second Business Day preceding the next following Payment Date and shall not be sold or disposed of prior to its maturity; provided that Eligible Investments of the type described in clause (a) of the definition of Eligible Investments may mature on the Business Day immediately preceding such Payment Date. In the absence of an Issuer Order, the Indenture Trustee shall invest funds in the Collection Account in Eligible Investments described in clause (g) of the definition thereof. Eligible Investments shall be made in the name of the Indenture Trustee for the benefit of the Noteholders and the Note Insurer. The Indenture Trustee shall provide to the Servicer and the Note Insurer monthly written confirmation of such investments, describing the Eligible Investments in which 78 such amounts have been invested. Any funds not so invested must be insured by the Federal Deposit Insurance Corporation. (c) Any income or other gain from investments in Eligible Investments as outlined in (b) above shall be credited to the Collection Account and any loss resulting from such investments shall be charged to such account; provided, that the Issuer shall make or cause to be made no later than the applicable Payment Date a deposit to the Collection Account to the extent of any losses therein. The Indenture Trustee shall not be liable for any loss incurred on any funds invested in Eligible Investments pursuant to the provisions of this Section 12.02 (other than in its capacity as obligor under any Eligible Investment). (d) On each Payment Date if either no Default or Event of Default shall have occurred and be continuing or a Default or Event of Default shall have occurred and be continuing but the entire Outstanding Principal Amount of all Notes shall not have been declared due and payable pursuant to Section 6.02 hereof, after making all transfers and deposits to the Collection Account referred to in Section 12.02(a) hereof, the Indenture Trustee shall withdraw from the Collection Account all funds then on deposit therein, including the Reinvestment Income, and shall make the following disbursements in the following order in accordance with the provisions of and instructions on the Monthly Servicer's Report; provided that (x) the proceeds of claims under any of the Note Insurance Policies shall be used solely to pay interest and principal due under paragraphs (v) and (vi) of this Section 12.02(d) in accordance with the terms of the applicable Note Insurance Policy; (y) the Indenture Trustee shall withdraw from the Collection Account and make interest payments based on the Outstanding Principal Amount of each Series of Notes even if it shall not have received the Monthly Servicer's Report; and (z) if there are insufficient funds to make the payments of interest or principal specified in clause (v) or (vi) below, then the amount available to be paid pursuant to such clause shall be allocated to each Series of Notes based on the applicable Pro Rata Share, provided that proceeds of a claim under any Note Insurance Policy to pay any Outstanding Principal Amount upon the Stated Maturity Date of a Series of Notes shall be used solely to pay such Outstanding Principal Amount after giving effect to the application of funds available to pay the Pro Rata Share of the Principal Distribution Amount of each Outstanding Series: (i) to pay to the Servicer: (A) the Servicer Fee then due for all Notes; (B) any amounts received from Customers to pay the taxes described in Section 3.07 of the Servicing Agreement, to the extent deposited in the Collection Account; (C) all amounts received in respect of Receivables as to which the Servicer has made an unrecovered Servicer Advance, to the extent of such Servicer Advance; and (D) the amount necessary to reimburse the Servicer for any Nonrecoverable Advance (provided that such Nonrecoverable Advance was a permissible Servicer Advance when made); (ii) to pay to the Indenture Trustee the Trustee Fee then due for all Notes; (iii) to pay to the Back-up Servicer the Back-up Servicer Fee then due for all Notes and any Transition Costs incurred by it; (iv) to pay to the Note Insurer the Note Insurer Premium then due for all Notes; (v) to pay the interest due on that Payment Date on all Series of Outstanding Notes and any overdue interest, to be applied as provided in Section 2.08 hereof; (vi) to pay the Principal Distribution Amount on all Series of Outstanding Notes, to be applied to the payment of Note principal as provided in Section 2.08 hereof; 79 (vii) to deposit into the Cash Collateral Account an amount necessary to bring the balance therein to an amount equal to the Cash Collateral Account Required Balance; (viii) to pay to a successor Servicer after a successor Servicer has been appointed pursuant to Section 6.02 of the Servicing Agreement, the Additional Servicer Fee, if any, and to pay any successor Servicer, the Note Insurer or the Indenture Trustee, any costs incurred by any successor Servicer, the Note Insurer (solely pursuant to Section 6.02 of the Servicing Agreement) or the Indenture Trustee of the type referred to in the definition of "Transition Costs" and not previously reimbursed; (ix) to pay to the Note Insurer, any amounts previously paid by the Note Insurer under any Note Insurance Policy and not heretofore repaid, together with interest thereon in accordance with the applicable Note Insurance Agreement; (x) on and after the first Payment Date following the initial occurrence of a Trigger Event, apply any remaining funds to the payment of Note principal on all Series of Outstanding Notes, in the amount of the Pro Rata Share for each Series; (xi) to pay to the following Persons, sequentially in the following order, any other amounts expressly provided for in any Transaction Document then due and unpaid: the Noteholders, the Servicer, the Note Insurer, the Indenture Trustee and the Back-up Servicer; and (xii) to remit any excess funds to or at the direction of the Issuer in accordance with the instructions on the Monthly Servicer's Report. (e) Prior to the Initial Delivery Date, the Issuer shall cause the Indenture Trustee to open and maintain a trust account at the Corporate Trust Office (the "Redemption Account") in the name of the Indenture Trustee for the benefit of Noteholders and the Note Insurer, for the receipt of the Redemption Price of any Notes to be redeemed in accordance with Article Ten hereof. On any Redemption Date, the Indenture Trustee shall withdraw the applicable Redemption Price from the Redemption Account and the Paying Agent shall remit the Redemption Price to the applicable Noteholders in accordance with Section 10.04 hereof. Moneys in the Redemption Account shall be invested in the name of the Indenture Trustee for the benefit of the Noteholders and the Note Insurer in Eligible Investments that mature no later than two Business Days prior to the relevant Redemption Date. Any monies deposited in the Redemption Account for purposes of redeeming Notes pursuant to Article Ten hereof shall, subject to Section 7.16 hereof, remain in the Redemption Account until used to redeem such Notes. SECTION 12.03 CASH COLLATERAL ACCOUNT. (a) Prior to the Initial Delivery Date, the Issuer shall cause the Indenture Trustee to open and maintain a trust account at the Corporate Trust Office (the "Cash Collateral Account") in the name of the Indenture Trustee for the benefit of the relevant Noteholders and the Note Insurer, for the receipt of (i) the Initial Cash Collateral Account Deposit required to be made with respect to a Series of Notes and (ii) deposits pursuant to Section 12.02(d)(vii). Monies received in the Cash Collateral Account shall be invested at the written direction of the Issuer in Eligible Investments during the term of this Indenture, and any income or other gain realized from such investment, shall be held by the Indenture Trustee in the Cash Collateral Account as part of the Trust Estate as security for the Notes subject to disbursement and 80 withdrawal as herein provided. Monies shall be subject to withdrawal in accordance with Section 12.03(d) hereof. (b) Upon Issuer Order, all or a portion of the Cash Collateral Account shall be invested and reinvested at the Issuer's written direction in one or more Eligible Investments. In the absence of an Issuer Order, the Indenture Trustee shall invest funds in the Cash Collateral Account in Eligible Investments described in clause (g) of the definition thereof. Eligible Investments shall be made in the name of the Indenture Trustee for the benefit of the relevant Noteholders and the Note Insurer. All income or other gain from such investments shall be credited to such Cash Collateral Account and any loss resulting from such investments shall be charged to such Cash Collateral Account; provided, that the Issuer shall make or cause to be made on any Determination Date a deposit to the Cash Collateral Account to the extent of any losses therein caused as a result of the Issuer's investment instructions. No Eligible Investment shall mature later than the Business Day preceding the next following Determination Date and shall not be sold or disposed of prior to its maturity. The Indenture Trustee shall provide to the Servicer and the Note Insurer monthly written confirmation of such investments, describing the Eligible Investments in which such amounts have been invested. Any funds not so invested must be insured by the Federal Deposit Insurance Corporation. (c) If any amounts invested as provided in Section 12.03(b) hereof shall be needed for disbursement from the Cash Collateral Account as set forth in Section 12.03(d) hereof, the Indenture Trustee shall cause such investments of such Cash Collateral Account to be sold or otherwise converted to cash to the credit of such Cash Collateral Account. The Indenture Trustee shall not be liable for any investment loss resulting from investment of money in the Cash Collateral Account in any Eligible Investment in accordance with the terms hereof (other than in its capacity as obligor under any Eligible Investment). (d) Disbursements from the Cash Collateral Account shall be made, to the extent funds therefor are available, only as follows: (i) in the event that the amount in the Collection Account at 10:00 a.m. Central Time on the Determination Date immediately preceding any Payment Date is less than the sum of (1) the amounts required to be paid from the Collection Account on such Payment Date pursuant to clauses (i) through (v) of Section 12.02(d) hereof plus (2) the Principal Distribution Amount determined in accordance with clauses (a)(i) and (b) of the definition thereof, the Indenture Trustee shall withdraw funds from the Cash Collateral Account on or prior to 4:00 p.m. Central Time on such Determination Date to the extent necessary to make such payments on such Payment Date and deposit such funds into the Collection Account; (ii) subject to subparagraph (iii) of this Section 12.03(d), in the event that on any Payment Date the balance in the Cash Collateral Account equals an amount greater than the Cash Collateral Account Required Balance (after giving effect to the distributions required under Section 12.03(d)(i) and Section 12.02(d)(i) through (vii) hereof on such Payment Date), the Indenture Trustee shall withdraw funds in the Cash Collateral Account in such amount so that the remaining amount in the Cash Collateral Account after such withdrawal will equal the Cash Collateral Account Required Balance, and deposit such funds into the Collection Account for disbursement in accordance with the provisions of Section 12.02(d) hereof; and (iii) in the event that on any Payment Date a Trigger Event has occurred, the Indenture Trustee shall withdraw all funds from the Cash Collateral Account and deposit such 81 funds into the Collection Account for disbursement in accordance with the provisions of Section 12.02(d) hereof. SECTION 12.04 REPORTS BY INDENTURE TRUSTEE TO THE NOTE INSURER AND NOTEHOLDERS. (a) On each Payment Date, the Indenture Trustee shall account to each Holder of Notes on which payments of principal and interest are then being made the amount which represents principal and the amount which represents interest, and shall contemporaneously advise the Issuer and the Note Insurer of all such payments. The Indenture Trustee shall satisfy its obligations under this Section 12.04 by delivering the Monthly Servicer's Report to each Holder of the Notes, the Note Insurer, the Issuer, the Rating Agencies and the Placement Agent. On or before the 15th day prior to any Final Payment Date the Indenture Trustee shall provide notice to the Note Insurer, the Rating Agencies and the Holders of the applicable Series of Notes of the Final Payment Date for such Notes. Such notice shall include (1) a statement that interest shall cease to accrue as of the last day preceding the date on which the Final Payment Date occurs, and (2) shall specify the place or places at which the Notes of such Series are to be surrendered following payment thereof. (b) At least annually, or as otherwise required by law, the Indenture Trustee shall distribute to Noteholders any information returns or other tax information or statements as are required by applicable tax law to be distributed to the Noteholders. The Servicer shall prepare or cause to be prepared all such information for distribution by the Indenture Trustee to the Noteholders. 82 ARTICLE THIRTEEN PROVISIONS OF GENERAL APPLICATION SECTION 13.01 GENERAL PROVISIONS. All of the provisions of this Article shall apply to this Indenture, as supplemented by each Supplement. SECTION 13.02 ACTS OF NOTEHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee, and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.01 hereof) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 13.02. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 13.03 NOTICES, ETC., TO INDENTURE TRUSTEE, THE NOTE INSURER, ISSUER AND SERVICER. Any request, demand, authorization, direction, notice, consent, waiver or Act of Noteholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with any party hereto shall be sufficient for every purpose hereunder if in writing and telecopied or mailed, first-class postage prepaid and addressed to the appropriate address below: (a) to the Indenture Trustee at Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479, Facsimile: (612) 667-3464, or at any other address previously furnished in writing to the Issuer, the Note Insurer, the Noteholders and the Servicer; or (b) to the Note Insurer at Ambac Assurance Corporation, One State Street Plaza, New York, New York 10004, Facsimile: (212) 208-3547, or at any other address previously furnished in writing by the Note Insurer to the Indenture Trustee, the Noteholders, the Servicer and the Issuer; or 83 (c) to the Issuer at 950 Winter Street, Suite 4100B, Waltham, Massachusetts 02451, Facsimile: (781) 890-1368, or at any other address previously furnished in writing to the Indenture Trustee, the Note Insurer, the Noteholders and the Servicer by the Issuer; or (d) to the Servicer at 950 Winter Street, Suite 4100, Waltham, Massachusetts 02451, Facsimile: (781) 890-1368, or at any other address previously furnished in writing to the Indenture Trustee, the Note Insurer, the Noteholders and the Issuer. (e) to each of (i) S & P, Attention: Asset Backed Surveillance Group, 55 Water Street, New York, New York 10041, Facsimile: (212) 438-2646 and (ii) Moody's, 99 Church Street, New York, NY 10007, Facsimile: (212) 553-7820. SECTION 13.04 NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture provides for notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Noteholder affected by such event, at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case in which notice to Noteholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice which is mailed in the manner herein provided shall conclusively be presumed to have been duly given. Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Indenture Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice. SECTION 13.05 EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 13.06 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Indenture by the Issuer shall bind its successors and assigns, whether so expressed or not. There shall be no assignment hereof, except in accordance with the provisions of Section 7.10 hereof. 84 SECTION 13.07 SEPARABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 13.08 BENEFITS OF INDENTURE. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, the Noteholders, and any Paying Agent which may be appointed pursuant to the provisions hereof, and any of their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Indenture or under the Notes. SECTION 13.09 GOVERNING LAW. THE INDENTURE AND EACH NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS OF ANY STATE THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A STATE OTHER THAN NEW YORK. SECTION 13.10 COUNTERPARTS. The Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Indenture by telecopier shall be as effective as delivery of manually executed counterpart of this Indenture. SECTION 13.11 COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application, order or request by the Issuer or the Servicer to the Indenture Trustee to take any action under any provision of this Indenture for which a specific request is required under this Indenture, the Issuer or the Servicer, as applicable, shall furnish to the Indenture Trustee an Officer's Certificate of the Issuer or the Servicer, as applicable, stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, except that in the case of any such application or request as to which the furnishing of a different certificate is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 85 (c) a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 13.12 CONSENT TO JURISDICTION. (a) The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the United States District Court for the Southern District of New York and any court in the State of New York Located in the City and County of New York, and any appellate court from any thereof, in any action, suit or proceeding brought against or by it in connection with this Agreement or for recognition or enforcement of any judgment relating thereto, and the parties hereto hereby irrevocably and unconditionally agree that all claims in respect of any such action or proceeding may be heard or determined in such New York state court or, to the extent permitted by law, in such federal court. The parties agree that a final nonappealable judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. To the extent permitted by applicable law, the parties hereby waive and agree 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 the related documents or the subject matter thereof may not be litigated in or by such courts. (b) To the extent permitted by applicable law, the parties shall not seek and hereby waive the right to any review of the judgment of any such court by any court of any other jurisdiction which may be called upon to grant an enforcement of such judgment. (c) Service on any party hereto may be made by mailing or delivering copies of the summons and complaint and other process which may be served in any suit, action or proceeding to such party at its address listed in herein or in the other Transaction Documents. Such address may be changed by the applicable party or parties by written notice to each of the other parties hereto. (d) Nothing contained in this Agreement shall limit or affect any party's right to serve process in any other manner permitted by law or to start legal proceedings relating to its rights under other agreements or against any other party or its properties in the courts of any jurisdiction. 86 IN WITNESS WHEREOF, the Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer have caused this Indenture to be duly executed by their respective officers thereunto duly authorized as of the date and year first above written. MFI FINANCE CORP. I, as Issuer By: ---- Name: Title: MICROFINANCIAL INCORPORATED, as Servicer By: ---- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee By: ---- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Back-up Servicer Acknowledged and Agreed to: By: AMBAC ASSURANCE CORPORATION ---- Name: Name: Title: By: Title: ---- EX-10.2 3 SUPPLEMENT TO INDENTURE 1 Exhibit 10.2 SUPPLEMENT TO INDENTURE CONTRACT BACKED NOTES, SERIES 2000-1 This SUPPLEMENT TO INDENTURE, dated as of March 1, 2000 (this "Supplement"), is among MFI Finance Corp. I, a Massachusetts corporation, as Issuer (the "Issuer"), MicroFinancial Incorporated (formerly known as Boyle Leasing Technologies, Inc.), a Massachusetts corporation, as Servicer (the "Servicer"), and Norwest Bank Minnesota, National Association, a national banking association, as Indenture Trustee (in such capacity, the "Indenture Trustee") and as Back-up Servicer (in such capacity, the "Back-up Servicer"). This Supplement incorporates by reference all of the provisions (including all defined terms) of the Indenture, dated as of March 1, 2000 (the "Basic Indenture"), among the Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer. Reference is further made to (i) the Servicing Agreement, dated as of March 1, 2000 (the "Servicing Agreement"), among the Servicer, the Issuer, the Indenture Trustee and the Back-up Servicer, and (ii) the Contract Acquisition Agreement, dated as of March 1, 2000 (the "Contract Acquisition Agreement"), between the Issuer and Leasecomm Corporation, as the Company (the "Company"). The Issuer has duly authorized the execution and delivery of this Supplement to provide for the issuance of the Issuer's 7.375% Contract-Backed Notes, Series 2000-1 (the "Series 2000-1 Notes"), in an aggregate principal amount of $50,056,686.48, issuable as provided in the Indenture. Pursuant to Section 2.02 of the Indenture, this Supplement sets forth the following additional terms applicable to the Series 2000-1 Notes. SECTION 1. SUPPLEMENTAL DEFINITIONS. "ACCRUAL DATE" means, with respect to the Series 2000-1 Notes, March 21, 2000. "BACK-UP SERVICER FEE" means, with respect to the Initial Payment Date of the Series 2000-1 Notes, $1,042.85. "BACK-UP SERVICER FEE RATE" means, with respect to the Series 2000-1 Notes, 0.03% per annum. "CASH COLLATERAL ACCOUNT FACTOR" means, with respect to the Series 2000-1 Notes, the sum of (i) one and (ii) the decimal equivalent of a fraction, the numerator of which is the Discount Rate and the denominator of which is twelve. "COLLATERALIZATION PERCENTAGE" means, with respect to the Series 2000-1 Notes, 25.4%. "CUT-OFF DATE" means, with respect to the Series 2000-1 Notes, February 29, 2000. "DELIVERY DATE" means, with respect to the Series 2000-1 Notes, March 21, 2000. "FLOOR PERCENTAGE" means, with respect to the Series 2000-1 Notes, 6.25%. "INITIAL CASH COLLATERAL ACCOUNT DEPOSIT" means, with respect to the Series 2000-1 Notes, $442,478.00. 2 "INITIAL PAYMENT DATE" means, with respect to the Series 2000-1 Notes, April 17, 2000. "INTEREST CALCULATION CONVENTION" means, with respect to the Series 2000-1 Notes, a 360-day year consisting of twelve months of thirty days each. "NOTE INSURER PREMIUM" means, with respect to the Initial Payment Date of the Series 2000-1 Notes, $13,904.64. "NOTE INSURER PREMIUM RATE" means, with respect to the Series 2000-1 Notes, 0.40% per annum. "NOTE INTEREST RATE" means, with respect to the Series 2000-1 Notes, 7.375%. "NOTE PURCHASE AGREEMENT" means, with respect to the Series 2000-1 Notes, the Purchase Agreement, dated March 21, 2000, among the Issuer, the Company, the Servicer and the purchasers named therein. "PLACEMENT AGENT" means, with respect to the Series 2000-1 Notes, Rothschild Inc. "STATED MATURITY DATE" means, with respect to the Series 2000-1 Notes, September 16, 2005. "TARGETED BALANCE" means, with respect to the Series 2000-1 Notes, the amount indicated under the column "Targeted Balance" on Schedule B attached hereto. "TRANSACTION DOCUMENTS DATE" means, with respect to (i) any of the Transaction Documents related to the Series 2000-1 Notes, as of March 1, 2000 and (ii) the Private Placement Memorandum, March 21, 2000. "TRUSTEE FEE" means, with respect to the Initial Payment Date of the Series 2000-1 Notes, $695.23. "TRUSTEE FEE RATE" means, with respect to the Series 2000-1 Notes, 0.02% per annum. SECTION 2. REQUIRED PROVISIONS. (a) The Series of Notes to be issued under this Supplement shall be designated as the Issuer's "7.375% Contract Backed Notes, Series 2000-1." (b) The maximum aggregate principal amount of Series 2000-1 Notes that may be issued is $50,056,686.48. (c) The Note Insurance Policy number is AB0346BE. (d) There are no additional Trigger Events applicable to the Series 2000-1 Notes. SECTION 3. MISCELLANEOUS. 3 (a) As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented shall be read, taken and construed as one and the same instrument. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and conditions of the Supplement shall be controlling. (b) This Supplement shall be construed in accordance with and governed by the internal laws of the State of New York applicable to agreements made and to be performed therein, without regard to the conflict of laws provisions of any State. (c) This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Supplement by telecopier shall be as effective as delivery of a manually executed counterpart of this Supplement. 4 IN WITNESS WHEREOF, the Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the date and year first above written. MFI FINANCE CORP. I, as Issuer By: ---- Name: Title: MICROFINANCIAL INCORPORATED, as Servicer By: ---- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee By: ---- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Back-up Servicer Acknowledged and Agreed to: By: AMBAC ASSURANCE CORPORATION ---- Name: Name: Title: By: Title: ---- 5 SCHEDULE A SERIES 2000-1 NOTES CONTRACT SCHEDULE 6 SCHEDULE B TARGETED BALANCE SCHEDULE SERIES 2000-1 NOTES EX-10.3 4 SPECIMEN 2000-1 NOTE 1 EXHIBIT 10.3 TERM NOTE THIS NOTE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE. NO TRANSFER OF THIS NOTE SHALL BE MADE UNLESS THAT TRANSFER IS MADE IN A TRANSACTION WHICH DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OR UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. IN THE EVENT THAT A TRANSFER IS TO BE MADE, THE PROSPECTIVE TRANSFEREE OF THE HOLDER HEREOF SHALL DELIVER TO THE INDENTURE TRUSTEE (I) AN INVESTMENT LETTER SUBSTANTIALLY IN THE FORM SET FORTH IN AN EXHIBIT TO THE INDENTURE OR (II) AN OPINION OF COUNSEL THAT THE TRANSFER IS EXEMPT FROM SUCH REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT (WHICH OPINION SHALL NOT BE AT THE EXPENSE OF THE ISSUER, THE INDENTURE TRUSTEE, THE SERVICER OR THE TRUST ESTATE). NEITHER THE ISSUER NOR THE INDENTURE TRUSTEE IS OBLIGATED TO REGISTER OR QUALIFY THE NOTES UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES LAW. THE PURCHASER OF THIS NOTE AGREES THAT IT WILL, AND EACH SUBSEQUENT TRANSFEREE IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. DUE TO THE PROVISIONS FOR THE PAYMENT OF PRINCIPAL CONTAINED HEREIN, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANYONE PURCHASING THIS NOTE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE INDENTURE TRUSTEE. No. 1 $ 1,313,000.00 CUSIP NO. 55279@AA4 MFI FINANCE CORP. I 7.375% CONTRACT-BACKED NOTE, SERIES 2000-1 THE FULL AND COMPLETE PAYMENT OF FINAL PRINCIPAL OF, AND INTEREST ON, THIS NOTE IS UNCONDITIONALLY AND IRREVOCABLY INSURED AT THE TIMES SPECIFIED IN, AND SUBJECT TO THE TERMS OF, A FINANCIAL GUARANTY INSURANCE POLICY ISSUED BY AMBAC ASSURANCE CORPORATION. Registered Owner: PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY DELIVERY DATE: March 21, 2000 STATED MATURITY DATE: September 16, 2005 MFI Finance Corp. I, a corporation duly organized and existing under the laws of the Commonwealth of Massachusetts (the "Issuer," which term includes any successor entity under the Indenture referred to below), for value received, hereby promises to pay to the Registered Owner, or its registered assigns, the principal sum of ONE MILLION THREE HUNDRED THIRTEEN THOUSAND DOLLARS ($1,313,000.00) in monthly installments beginning on April 17, 2000, and to pay interest monthly in arrears on the unpaid portion of said principal sum (and, to the extent that the payment of such interest shall be legally enforceable, on any overdue installment of interest on this Note) on the sixteenth day of each calendar month or, if such sixteenth day is not a Business Day, the Business Day immediately 2 following (each, a "Payment Date"), for the period from and including the Delivery Date set forth above through April 15, 2000, and thereafter, monthly from and including the most recent Payment Date through the day immediately preceding the applicable Payment Date, until the last day preceding the Final Payment Date, at the rate of 7.375% per annum (calculated on the basis of a 360-day year consisting of 12 months of 30 days each). The principal of this Note shall be payable in installments ending no later than the Stated Maturity Date hereof unless this Note becomes due and payable at an earlier date by declaration of acceleration, call for redemption or otherwise. All reductions in the principal amount of a Note effected by payments of installments of principal made on any Payment Date shall be binding upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not such payment is noted on this Note. Each installment of principal payable on this Note shall be in an amount equal to this Noteholder's pro-rata share of the Principal Distribution Amount and the Additional Principal Amount, if any, available to be paid to Noteholders of this Series in accordance with the priorities of Section 12.02(d) of the Indenture. The principal payable on this Note shall be paid on each Payment Date beginning on the Initial Payment Date and ending on the applicable Final Payment Date. All payments of principal with respect to all of the Notes shall be made on a pro rata basis based upon the ratio that the Outstanding Principal Amount of a Note bears to the Outstanding Principal Amount of all Notes; provided, however, that if as a result of such proration a portion of such principal would be less than $.01, then such payment shall be decreased to the nearest whole cent, and no subsequent adjustment shall be made in respect thereof. The principal and interest on this Note are payable by wire transfer in accordance with the terms of the Indenture. This Note is one of a duly authorized issue of Notes of the Issuer designated as its 7.375% Contract-Backed Notes, Series 2000-1, Due September 16, 2005 (herein called the "Notes") issued and to be issued under the Indenture, dated as of March 1, 2000, and the Supplement to Indenture, Contract Backed Notes, Series 2000-1 (together, the "Indenture"), among the Issuer, MicroFinancial Incorporated (formerly known as Boyle Leasing Technologies, Inc.), as Servicer, and Norwest Bank Minnesota, National Association, as Indenture Trustee (the "Indenture Trustee," which term includes any successor Indenture Trustee under the Indenture), to which the Indenture, and all indentures supplemental thereto, reference is hereby made for a statement of the respective rights thereunder of the Issuer, the Indenture Trustee and the Holders of the Notes, and the terms upon which the Notes are, and are to be, authenticated and delivered. Each capitalized term used and not otherwise defined herein has the meaning assigned thereto in the Indenture. This Note is issued under and is subject to the terms, provisions and conditions of the Indenture to which the Holder of this Note by virtue of the acceptance hereof assents and by which such Holder is bound. The property of the Trust Estate includes certain Contract Assets and certain other assets described in the Indenture. The Notes are payable out of the Trust Estate pari passu among the Noteholders equally and ratably without prejudice, priority or distinction between any Note by reason of time of issue or otherwise. Unless earlier declared due and payable by reason of an Event of Default, the Notes are payable only at the time and in the manner provided in the Indenture and are not redeemable or prepayable at the option of the Issuer before such time, except that the Notes shall be redeemable at the option of the Issuer, and in the absence of the exercise thereof, by the Note Insurer in whole but not in part at any time after the Outstanding Principal Amount of the Notes declines below 10% of the Outstanding Principal Amount as of the Closing Date at the applicable Redemption Price plus any fees due under the Indenture. If an 2 3 Event of Default as defined in the Indenture shall occur and be continuing, the principal of all the Notes may become or be declared due and payable in the manner and with the effect provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the Note Register of the Issuer upon surrender of this Note for registration of transfer at the office or agency of the Issuer in the United States of America maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Indenture Trustee and duly executed by the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of the same Stated Maturity of authorized denominations and for the same initial aggregate principal amount will be issued to the designated transferees. Prior to due presentment for registration of transfer of this Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee shall treat the Person in whose name this Note is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes whether or not this Note be overdue, and neither the Issuer, the Indenture Trustee, nor any such agent shall be affected by notice to the contrary. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Depositor and the rights of the Holders of the Notes under the Indenture at any time by the Issuer, the Trustee, the Back-up Servicer, the Servicer and the Note Insurer without the consent of the Holders of the Notes. The Indenture also contains provisions permitting the Note Insurer, on behalf of the Holders of all Notes, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon the Holder of this Note and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Notes are issuable only in registered form without coupons in such authorized denominations as provided in the Indenture and subject to certain limitations therein set forth. This Note and the Indenture shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to conflicts of laws principles. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Note, but solely from the assets of the Trust Estate pledged to the Indenture Trustee under the Indenture and the Note Insurance Policy at the times, place and rate, and in the coin or currency, herein prescribed. STATEMENT OF INSURANCE OBLIGATIONS: $50,056,686.48 (aggregate) POLICY NUMBER: AB0346BE MFI Finance Corp. I 7.375% Contract-Backed Notes, Series 2000-1 The Note Insurer, in consideration of the payment of the premium and subject to the terms of a Note Insurance Policy to be issued by the Note Insurer to the Indenture Trustee for the benefit of the holders of the Series 2000-1 Notes (the "Note Insurance Policy"), will unconditionally and irrevocably 3 4 agree, for the benefit of the Holders (as defined below) that an amount equal to each Insured Amount and Preference Amount (each as defined below) will be paid by the Note Insurer to (i) in the case of an Insured Amount, the Indenture Trustee, as trustee for the Holders, on behalf of the Holders, or (ii) in the case of a Preference Amount, the receiver, conservator, debtor-in-possession or trustee in bankruptcy, or the Indenture Trustee, as set forth below, in each case after a claim by the Indenture Trustee for such Insured Payment is made to the Note Insurer pursuant to a Notice (as defined below). The Note Insurer's obligations under the Note Insurance Policy with respect to a particular Insured Amount or Preference Amount shall be discharged to the extent funds equal to the applicable Insured Amount or Preference Amount, as the case may be, are received by the Indenture Trustee or, in the case of a Preference Amount, such other entity described below, whether or not such funds are properly applied by the Indenture Trustee or such other entity. Insured Payments shall be made only at the time set forth in the Note Insurance Policy and no accelerated Insured Payments shall be made regardless of any acceleration or early redemption of the Series 2000-1 Notes, unless such acceleration is at the sole option of the Note Insurer. The Note Insurance Policy does not cover (i) premiums, if any, payable in respect of the Series 2000-1 Notes, (ii) shortfalls, if any, attributable to any payment of withholding taxes (including penalties and interest in respect of any such liability) or (iii) any risk other than nonpayment, including the failure of the Indenture Trustee to make any disbursements of available funds required under the Indenture to the Holders of the Series 2000-1 Notes. The Note Insurer will pay any Insured Amount (other than Preference Amounts) payable under the Note Insurance Policy no later than 11:00 a.m., New York City time, on the second Business Day following receipt in New York, New York on a Business Day by the Note Insurer of a Notice; provided that if such Notice is received after 12:00 noon, New York City time, on such Business Day, it will be deemed to be received on the following Business Day. If any such Notice received by the Note Insurer is not in proper form or is otherwise insufficient for the purpose of making a claim under the Note Insurance Policy, it shall be deemed not to have been received by the Note Insurer for purposes of this paragraph, and the Note Insurer shall promptly so advise the Indenture Trustee in writing and the Indenture Trustee may resubmit an amended or corrected Notice. If such an amended or corrected Notice is in proper form and is otherwise sufficient for the purpose of making a claim under the Note Insurance Policy, it shall be deemed to have been timely received on the Business Day of such resubmission subject to the proviso above. The Note Insurer will pay any Preference Amount, to or on behalf of a Holder as provided below, on the third Business Day following receipt on a Business Day by the Note Insurer of: (i) a certified copy of a final, non-appealable order of a court or other body exercising jurisdiction in the applicable Insolvency Proceeding to the effect that such Holder is required to return such Preference Amount paid during the term of the Note Insurance Policy because the payments of such amounts were avoided as a preferential transfer or otherwise rescinded or required to be restored by such Holder (the "Order"); (ii) an assignment in such form as is reasonably required by the Note Insurer, irrevocably assigning to the Note Insurer all rights and claims of such Holder relating to or arising under the Indenture or otherwise with respect to such Preference Amount; (iii) appropriate instruments to effect the appointment of the Note Insurer as agent for such Holder in any legal proceeding related to such Preference Amount, such instruments being in a form satisfactory to the Note Insurer; and (iv) a Notice appropriately completed and executed by the Indenture Trustee; provided that if such documents are received by the Note Insurer after 12:00 noon New York City time on such Business Day, they will be deemed to be received on the following Business Day. Such payment shall be disbursed to the receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Order, and not to the Indenture Trustee or any Holder directly, unless the Indenture Trustee or such Holder has made a payment of the Preference Amount to the court or such receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Order, in 4 5 which case the Note Insurer will pay the Indenture Trustee, subject to the delivery of (a) the items referred to in clauses (i), (ii), (iii) and (iv) above to the Note Insurer and (b) evidence satisfactory to the Note Insurer that payment has been made to such court or receiver, conservator, debtor-in-possession or trustee in bankruptcy named in the Order. The Note Insurance Policy is noncancellable. The premium on the Note Insurance Policy is not refundable for any reason including payment, or provision being made for payment, prior to the maturity of the Series 2000-1 Notes. Insured Payments payable under the Note Insurance Policy unless otherwise stated therein will be disbursed by the Note Insurer by wire transfer of immediately available funds in the amount of the Insured Amount or Preference Amount, as applicable, less, in the case of Preference Amounts, any amount held by the Indenture Trustee for the payment of such Preference Amount and legally available therefor. Solely the Indenture Trustee on behalf of the Holders shall have the right to make a claim for an Insured Payment under the Note Insurance Policy. Subject to the terms of the Indenture, the Note Insurer shall be subrogated to the rights of each Holder to receive payments under the Series 2000-1 Notes to the extent of any payment by the Note Insurer under the Note Insurance Policy. As used in the Note Insurance Policy, the following terms shall have the following meanings: "Holder" means each holder of a Series 2000-1 Note (other than the Issuer or any other obligor upon the Series 2000-1 Notes or any affiliate of the Issuer or such other obligor) who, on the applicable Payment Date, is entitled under the terms of the applicable Series 2000-1 Note, to payment thereunder. "Insolvency Proceeding" means, with respect to any entity, the commencement of any bankruptcy, insolvency, readjustment of debt, reorganization, marshaling of assets and liabilities or similar proceeding by or against such entity, or the commencement, after the date of the Note Insurance Policy, of any proceeding by or against such entity for the winding up or liquidation of its affairs, or the consent after the date of the Note Insurance Policy to the appointment of a trustee, conservator, receiver or liquidator in any bankruptcy, insolvency, readjustment of debt, reorganization, marshaling of assets and liabilities or similar proceeding relating to such entity. "Insured Amounts" means (i) with respect to any Payment Date, the Interest Deficiency Draw Amount (as defined in the Indenture) with respect to the Series 2000-1 Notes for such Payment Date and (ii) with respect to the Stated Maturity Date for this series, the Note Principal Balance Deficiency (as defined in the Indenture), not to exceed $50,056,686.48, with respect to the Series 2000-1 Notes on the 2000-1 Stated Maturity Date plus any Interest Deficiency Draw Amount with respect to the 2000-1 Notes on such date. "Insured Payments" means (i) with respect to any Payment Date, the aggregate amount actually paid by the Note Insurer to the Indenture Trustee in respect of Insured Amounts for such Payment Date and (ii) Preference Amounts for any given Business Day. "Notice" means the telephonic or telegraphic notice (promptly confirmed in writing by telecopy) substantially in the form of Exhibit A or B, as applicable, to the Note Insurance Policy, the original of which is subsequently delivered by registered or certified mail, from the Indenture 5 6 Trustee specifying the amount of any Insured Payment that shall be due and owing. Such Notice shall be deemed received upon telephonic confirmation to the Indenture Trustee by the Note Insurer of the receipt of the telecopy. "Preference Amount" means any payment of principal of or interest on a Series 2000-1 Note that has become due and payable pursuant to the terms of the Indenture, that was made to a Holder by or on behalf of the Issuer (including any such payment by the Indenture Trustee or any payment agent) and that has been deemed a preferential transfer and recoverable, or theretofore recovered, from such Holder pursuant to an Order. Capitalized terms used in the Note Insurance Policy and not otherwise defined therein will have the respective meanings set forth in the Indenture as of the date of the execution of the Note Insurance Policy, without giving effect to any subsequent amendment or modification to the Indenture unless such amendment or modification has been approved in writing by the Note Insurer. The Note Insurance Policy is being issued under and pursuant to, and shall be construed under, the laws of the State of New York, without giving effect to the conflict of laws principles thereof. THE INSURANCE PROVIDED BY THE NOTE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. Unless the certificate of authentication hereon has been executed by the Indenture Trustee by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. ******** 6 7 IN WITNESS WHEREOF, MFI Finance Corp. I has caused this instrument to be signed, manually, by its Treasurer. By: /s/ Richard F. Latour ----------------------------------- Treasurer 7 8 CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-mentioned Indenture. Dated: March 21, 2000 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ Tara Anderson --------------------------------- Authorized Signatory 8 EX-10.4 5 STANDARD TERMS & CONDITIONS 1 Exhibit 10.4 - -------------------------------------------------------------------------------- SERVICING AGREEMENT among MICROFINANCIAL INCORPORATED, as Servicer, MFI FINANCE CORP. I, as Issuer, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION as Indenture Trustee and as Back-up Servicer - -------------------------------------------------------------------------------- Dated as of March 1, 2000 2 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS.............................................................................................2 Section 1.01 Defined Terms.................................................................2 Section 1.02 Usage of Terms................................................................3 ARTICLE 2 SERVICER REPRESENTATIONS AND WARRANTIES.................................................................4 Section 2.01 Representations and Warranties of the Servicer................................4 (a) Organization and Good Standing................................................4 (b) Authorization and Binding Obligation..........................................4 (c) No Violation..................................................................4 (d) No Proceedings................................................................4 (e) Approvals.....................................................................5 (f) Investment Company............................................................5 (g) Standard of Care..............................................................5 (h) Insurance.....................................................................5 (i) No Default....................................................................5 ARTICLE 3 ADMINISTRATION AND SERVICING OF CONTRACTS...............................................................6 Section 3.01 Responsibilities of Servicer..................................................6 Section 3.02 Servicer Standard of Care.....................................................8 Section 3.03 Servicer Remittances..........................................................9 Section 3.04 Servicer Advances.............................................................9 Section 3.05 Financing Statements.........................................................10 Section 3.06 Maintenance of Insurance Policy; Insurance Proceeds..........................10 Section 3.07 Personal Property and Sales Taxes............................................10 Section 3.08 Servicing Compensation.......................................................10 Section 3.09 Substitution or Purchase of Contracts........................................11 Section 3.10 No Offset....................................................................12 ARTICLE 4 ACCOUNTINGS, STATEMENTS AND REPORTS....................................................................13 Section 4.01 Monthly Servicer's Reports...................................................13 Section 4.02 Financial Statements; Certification as to Compliance; Notice of Default......................................................................13 Section 4.03 Independent Accountants' Reports; Annual Federal Tax Lien Search.......................................................................15 Section 4.04 Access to Certain Documentation and Information..............................15 Section 4.05 Other Necessary Data.........................................................16 Section 4.06 Indenture Trustee to Cooperate...............................................17 ARTICLE 5 THE SERVICER...........................................................................................18 Section 5.01 Servicer Indemnification.....................................................18 Section 5.02 Corporate Existence; Reorganizations.........................................18 Section 5.03 Limitation on Liability of the Servicer and Others...........................19 Section 5.04 The Servicer Not to Resign...................................................19 ARTICLE 6 SERVICING TERMINATION..................................................................................20 Section 6.01 Servicer Events of Default...................................................20
i 3 Section 6.02 Back-up Servicer to Act; Taking of Bids; Appointment of Successor Servicer.....................................................................22 Section 6.03 Notification to Noteholders..................................................23 Section 6.04 Waiver of Past Defaults......................................................23 Section 6.05 Effects of Termination of Servicer...........................................24 Section 6.06 No Effect on Other Parties...................................................24 ARTICLE 7 THE BACK-UP SERVICER...................................................................................25 Section 7.01 Representations of Back-up Servicer..........................................25 Section 7.02 Merger or Consolidation of, or Assumption of the Obligations of, Back-up Servicer.............................................................26 Section 7.03 Back-up Servicer Resignation.................................................26 Section 7.04 Oversight of Servicing.......................................................26 Section 7.05 Back-up Servicer Compensation................................................27 Section 7.06 Duties and Responsibilities..................................................27 ARTICLE 8 MISCELLANEOUS PROVISIONS...............................................................................29 Section 8.01 Termination..................................................................29 Section 8.02 Amendments...................................................................29 Section 8.03 GOVERNING LAW................................................................30 Section 8.04 Notices......................................................................30 Section 8.05 Severability of Provisions...................................................30 Section 8.06 Binding Effect...............................................................30 Section 8.07 Article Headings and Captions................................................30 Section 8.08 Legal Holidays...............................................................30 Section 8.09 Assignment for Security for the Notes........................................31 Section 8.10 No Servicing Assignment......................................................31 Section 8.11 Counterparts.................................................................31 Section 8.12 Acknowledgment of Multiple Roles.............................................31
ii 4 Section 8.13 Consent to Jurisdiction........................................................................31
EXHIBITS Exhibit A Form of Monthly Servicer's Report Exhibit B Form of Agreement Regarding Operating Account Exhibit C Form of Blocked Account Agreement Exhibit D Agreed Upon Procedures iii 5 SERVICING AGREEMENT This SERVICING AGREEMENT, dated as of March 1, 2000 (this "Agreement") is among MicroFinancial Incorporated, a Massachusetts corporation, as Servicer (the "Servicer"), MFI Finance Corp. I, a Massachusetts corporation, as Issuer (the "Issuer"), and Norwest Bank Minnesota, National Association, a national banking association, as Indenture Trustee (in such capacity, the "Trustee") and as Back-up Servicer (in such capacity, the "Back-up Servicer"). PRELIMINARY STATEMENT The Issuer has entered into an Indenture, dated as of March 1, 2000 (the "Basic Indenture"), with the Indenture Trustee, the Back-up Servicer and the Servicer, pursuant to which the Issuer intends to cause the issuance from time to time of the Issuer's Contract-Backed Notes (the "Notes"). The Issuer and Leasecomm Corporation (the "Company") have entered into a Contract Acquisition Agreement dated as of March 1, 2000 (the "Contract Acquisition Agreement"), providing for, among other things, the contribution and sale, from time to time, by the Company to the Issuer of all of its right, title and interest in and to certain Contract Assets which the Issuer is and will be pledging to the Indenture Trustee, and in which the Issuer will be granting to the Indenture Trustee a security interest, as security for the Notes. As a precondition to the effectiveness of such Contract Acquisition Agreement, the Contract Acquisition Agreement requires that the Servicer, the Issuer, the Indenture Trustee and the Back-up Servicer enter into this Agreement to provide for the servicing of the Contract Assets. In order to further secure the Notes, the Issuer is granting to the Indenture Trustee a security interest in, among other things, the Issuer's rights derived under this Servicing Agreement and the Contract Acquisition Agreement, and the Servicer agrees that all covenants and agreements made by the Servicer herein with respect to the Contract Assets shall also be for the benefit and security of the Indenture Trustee, the Note Insurer and all holders from time to time of the Notes. For its services under the Servicing Agreement, the Servicer will receive a Servicer Fee as provided herein and in the Indenture. For its services hereunder the Back-up Servicer will receive a Back-up Servicer Fee as provided herein and in the Indenture. 1 6 ARTICLE 1 DEFINITIONS SECTION 1.01 DEFINED TERMS. Except as otherwise specified or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement. "ACH": The National Automated Clearinghouse System. "ACH Account": Any account maintained by an ACH Bank into which account shall be deposited electronic debit payments related to the Receivables. "ACH Bank": A bank which maintains an ACH Account, if any. "Agreement": This Servicing Agreement, dated as of March 1, 2000, among the Servicer, the Issuer, the Back-up Servicer and the Indenture Trustee. "Back-up Servicer": Norwest Bank Minnesota, National Association. "Blocked Account Agreement": An agreement between the ACH Bank and the Indenture Trustee, substantially in the form attached hereto as Exhibit C, with respect to control over the ACH Account. "Computer Tape": Any computer tape or disk prepared by the Servicer and distributed to various parties as required herein. "Contract Acquisition Agreement": The Contract Acquisition Agreement, dated as of March 1, 2000, between the Company and the Issuer. "Contract Assets": The meaning given in the Contract Acquisition Agreement. "Monthly Servicer's Report": The report prepared by the Servicer pursuant to Section 4.01 hereof. "Nonrecoverable Advance": A Servicer Advance that the Servicer determines in good faith, and in accordance with its customary servicing practices, is unlikely to be eventually repaid from Scheduled Payments made by or on behalf of the related Customer in accordance with Section 3.04 hereof. "Officer's Certificate": A certificate signed by the Chairman of the Board, the Vice-Chairman of the Board, the President, a Vice President, the Treasurer or the Secretary of the Servicer. "Reported Companies": The Servicer and its subsidiaries on a consolidated basis. "Reported Companies' Financial Statements": The Reported Companies' audited consolidated and consolidating balance sheet and income statements, consolidated statement of cashflow, auditors' opinion letters regarding audited financial statements, and all notes to the audited financial statements. "Servicer": MicroFinancial Incorporated. "Servicer Advance": The meaning set forth in Section 3.04 hereof. 2 7 "Servicer Default": Any occurrence or circumstance which with notice or the lapse of time or both would be a Servicer Event of Default under this Agreement. "Servicer Event of Default": The meaning specified in Section 6.01 hereof. "Servicer Termination Notice": The meaning specified in Section 6.01 hereof. "Servicing Officers": Those officers of the Servicer involved in, or responsible for, the administration and servicing of the Contracts, as identified on the list of Servicing Officers furnished by the Servicer to the Indenture Trustee, the Back-up Servicer, and the Controlling Party from time to time. SECTION 1.02 USAGE OF TERMS. (a) Each capitalized term used and not otherwise defined herein has the meaning assigned to such term in the Indenture or, if not defined therein, in the Contract Acquisition Agreement. (b) With respect to all terms in this Agreement, the singular includes the plural and the plural the singular; words importing any gender including the other genders; references to a "writing" include printing, typing, lithography and other means of reproducing words in a visible form; references to agreements and other contractual instruments include all subsequent amendments thereto or changes therein entered into in accordance with their respective terms and not prohibited by this Agreement; references to Persons include their permitted successors and assigns; the term "including" means "including without limitation" and, unless the context requires otherwise, the term "or" means "and/or." 3 8 ARTICLE 2 SERVICER REPRESENTATIONS AND WARRANTIES SECTION 2.01 REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer makes the following representations and warranties as of the Initial Delivery Date, except as otherwise specified below, which shall survive such date: (a) ORGANIZATION AND GOOD STANDING. The Servicer has been duly organized and is validly existing and in good standing as a corporation under the laws of the Commonwealth of Massachusetts or the laws of such other state as permitted by Section 5.02(a), with requisite power and authority to own its properties, perform its obligations under this Agreement and the other Transaction Documents and to transact the business in which it is now engaged or in which it proposes to engage. (b) AUTHORIZATION AND BINDING OBLIGATION. Each of this Agreement, the Indenture, the Supplement, the Note Insurance Agreement and any Note Purchase Agreement to which it is a party for Notes then Outstanding has been duly authorized, executed and delivered by the Servicer and, assuming the due authorization, execution and delivery hereof and thereof by each other party hereto and thereto, constitutes the valid and legally binding obligation of the Servicer enforceable against the Servicer in accordance with its terms, as such enforceability may be subject to or limited by any bankruptcy, insolvency, conservatorship, reorganization and other similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a court of equity or law. (c) NO VIOLATION. The entering into of this Agreement, the Indenture, the Supplement and the Note Insurance Agreement and the performance by the Servicer of its obligations under this Agreement, the Indenture, the Supplement and the Note Insurance Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Servicer pursuant to the terms of, any indenture, mortgage, deed of trust or other agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject, nor will such action result in any violation of the provisions of its articles of organization or bylaws, or any statute or any order, rule or regulation of any court or any regulatory authority or other governmental agency or body having jurisdiction over it or any of its properties; and no consent, approval, authorization, order, registration or qualification of or with any court, or any such regulatory authority or other governmental agency or body is required for the Servicer to enter into and perform this Agreement, the Indenture, the Supplement, any Note Purchase Agreement to which it is a party and the Note Insurance Agreement. (d) NO PROCEEDINGS. There are no proceedings or investigations pending or, to the knowledge of the Servicer, threatened against or affecting the Servicer or any subsidiary in or before any court, governmental authority or agency or arbitration board or tribunal, including but not limited to any such proceeding or investigation with respect to any environmental or other liability resulting from the ownership or use of any of the Equipment, which, individually or in the aggregate, involve the probability of materially and adversely affecting the properties, business, prospects, profits or condition (financial or otherwise) of the Servicer and its subsidiaries, or the ability of the Servicer to perform its obligations under this Agreement, the Indenture, the Supplement, any Note Purchase Agreement to which it is a party or the Note Insurance Agreement. The Servicer is not in default with respect to any order of any court, governmental authority or agency or arbitration board or tribunal. (e) APPROVALS. The Servicer (i) is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject, (ii) has not failed to obtain any licenses, permits, franchises or other 4 9 governmental authorizations necessary to the ownership of its property or to the conduct of its business, and (iii) is not in violation in any material respect of any term of any agreement, charter instrument, bylaw or instrument to which it is a party or by which it may be bound, which violation or failure to obtain materially adversely affects the properties, business, prospects, profits or condition (financial or otherwise) of the Servicer and its subsidiaries. (f) INVESTMENT COMPANY. The Servicer is not an investment company which is required to register under the Investment Company Act of 1940, as amended. (g) STANDARD OF CARE. The Servicer has serviced the Contracts and Equipment in a manner consistent with industry standards for contracts similar to the Contracts and Equipment, and in any event in a prudent and commercially reasonable manner, and conducts its servicing operations in a manner consistent with industry standards for servicing of financial asset portfolios. (h) INSURANCE. The Servicer maintains insurance with respect to its operations and property which is adequate and customary in light of the Servicer's operations. (i) NO DEFAULT. No Servicer Default or Servicer Event of Default has occurred and is continuing. 5 10 ARTICLE 3 ADMINISTRATION AND SERVICING OF CONTRACTS SECTION 3.01 RESPONSIBILITIES OF SERVICER. (a) The Issuer hereby appoints the Servicer, for the benefit of the Issuer, the Note Insurer and the Noteholders, to act as Servicer of the Contract Assets and, as such, the Servicer shall be responsible for, and shall, in accordance with its customary servicing procedures and Section 3.02 hereof, manage, service, administer, enforce and make collections on the Contracts, the Equipment, the Receivables and any Insurance Policies, defend the Indenture Trustee's security interest in the Contracts, Receivables and Equipment and other Collateral Granted pursuant to the Indenture against adverse claims, and sell or re-lease the Equipment upon the expiration or other termination of the related Contract (or repossession thereof without termination), each in accordance with the standards and procedures set forth in this Agreement and any related provisions of the Indenture and Contract Acquisition Agreement. The Servicer's responsibilities shall include monitoring and posting of all payments, responding to inquiries of Customers, investigating delinquencies, accounting for collections and furnishing monthly and annual statements to the Back-up Servicer, the Indenture Trustee, the Note Insurer, the Rating Agencies and the Noteholders with respect to the Receivables, making Servicer Advances, providing appropriate federal income tax information to the Indenture Trustee for use in providing information to the Noteholders or the Note Insurer, collecting and remitting sales and property taxes to taxing authorities, and maintaining the perfected security interest of the Indenture Trustee in the Trust Estate. The Servicer (at its expense) shall have full power and authority, acting at its sole discretion, to do any and all things in connection with such managing, servicing, administration, enforcement and collection and such sale of the Equipment that it may deem necessary or desirable, including the prudent delegation of such responsibilities. Without limiting the generality of the foregoing, the Servicer shall, and is hereby authorized and empowered by the Indenture Trustee, subject to Section 3.02 hereof, to execute and deliver (on behalf of itself, the Noteholders, the Indenture Trustee or any of them) any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Contracts and any files or documentation pertaining to the Contract Assets. The Servicer also may, in its sole discretion, waive any late payment charge or penalty, or any other fees that may be collected in the ordinary course of servicing any Contract. Notwithstanding the foregoing, the Servicer shall not, except pursuant to a judicial order from a court of competent jurisdiction, or as otherwise expressly provided in this Agreement, release or waive the right to collect the Scheduled Payments (including periodic payments accrued under the terms of any Contract during the first 12 months following the Final Due Date of such Contract) or any unpaid balance on any Contract. The Issuer and the Indenture Trustee shall, at the expense of the Servicer, furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties hereunder, and the Issuer and the Indenture Trustee shall not be responsible for the Servicer's application thereof. (b) The Servicer shall conduct any Contract management, servicing, administration, collection or enforcement actions in the following manner: (i) With respect to any Defaulted Contract, the Servicer, as agent for and on behalf of the Issuer, the Indenture Trustee, the Note Insurer and the Noteholders, shall follow such practices and procedures as are normal and consistent with the Servicer's standards and procedures relating to its own contracts, receivables and equipment that are similar to the Contracts, Receivables and the Equipment, and, in any event, consistent with the standard of care described in Section 3.02 hereof to maximize recoveries thereon, including without limitation, the taking of appropriate actions to foreclose or otherwise liquidate any such Defaulted Contract, together with the related Equipment, to collect any Guaranty Amounts, and to enforce the Issuer's rights under the Contract Acquisition Agreement. All Recoveries, Insurance Proceeds, Servicing Charges and other amounts, etc. in respect of any such 6 11 Receivable and the related Equipment received by the Servicer shall be remitted to the Indenture Trustee in accordance with Section 3.03 hereof; (ii) The Servicer may sue to enforce or collect upon Contracts as agent for the Issuer and the Indenture Trustee on behalf of the Noteholders and the Note Insurer. If the Servicer elects to commence a legal proceeding to enforce a Contract, the act of commencement shall be deemed to be an automatic conveyance of the Contract to the Servicer for purposes of collection only. If, however, in any enforcement suit or legal proceeding it is held that the Servicer may not enforce a Contract on the ground that it is not a real party in interest or a holder entitled to enforce the Contract, then the Issuer and/or the Indenture Trustee on behalf of the Noteholders and the Note Insurer shall, at the Servicer's request and expense, take such steps as the Servicer deems necessary and instructs the Issuer and/or the Indenture Trustee in writing to take to enforce the Contract, including bringing suit in its name or the names of the Noteholders or the Note Insurer, and the Issuer and the Indenture Trustee shall be indemnified by the Servicer for any such action taken. Any Contract temporarily released from the custody of the Indenture Trustee to the Servicer or its agents shall have stamped on it prior to its delivery a legend to the effect that the Contract is subject to a security interest in favor of the Indenture Trustee, and the Servicer shall promptly return all Contracts when the need therefore no longer exists; (iii) The Servicer shall exercise any rights of recourse against third parties that exist with respect to any Contract in accordance with the Servicer's usual practice and, in any event, consistent with the standard of care described in Section 3.02 hereof. In exercising recourse rights, the Servicer is authorized on the Issuer's and the Indenture Trustee's behalf to reconvey the Contract to the Person against whom recourse exists to the extent necessary, and at the price set forth in the document creating the recourse. The Servicer will not reduce or diminish such recourse rights, except to the extent that it exercises such right; (iv) The Servicer may not allow substitutions of Substitute Contracts that do not comply with Section 3.09 hereof, Sections 3.03 and 3.04 of the Contract Acquisition Agreement and Section 4.04 of the Indenture. (v) The Servicer may waive, modify or vary any terms of any Contract or consent to the postponement of strict compliance with any such term if in the Servicer's reasonable and prudent determination such waiver, modification or postponement would not materially adversely affect the interests of the Noteholders or the Note Insurer; PROVIDED that (A) the Servicer shall not forgive any payment of rent or required termination payment, (B) the Servicer shall not permit any modification with respect to any Contract that would decrease any Scheduled Payment (including periodic payments accrued under the terms of any Contract during the first 12 months following the Final Due Date of such Contract) or required termination payment, defer the payment of any principal or interest or any Scheduled Payment, reduce the Implicit Principal Balance (except in connection with actual payments attributable to such Implicit Principal Balance), or prevent the complete amortization of the Implicit Principal Balance from occurring by the Calculation Date immediately preceding the Stated Maturity Date, and (C) except as otherwise specifically provided herein, the Servicer shall not waive or modify the requirement that a Customer maintain insurance with respect to the related Equipment unless the related Contract provides for a Loss and Damage Waiver Fee. The Servicer shall provide the Back-up Servicer, the Controlling Party and the Indenture Trustee with an Amended Contract Schedule to the Contract Schedule reflecting any modification of any Scheduled Payment and shall report the same in the Monthly Servicer Report; (vi) The Servicer shall not consent to the termination of any Contract in connection with loss of or damage to the related Equipment unless the Customer has paid an amount not less than the 7 12 Purchase Price for such Contract or, if less, the maximum amount legally collectible under the related Contract; (vii) Upon termination of a Contract after payment of the last Scheduled Payment due thereunder or in the event that the Servicer in the enforcement of any Contract otherwise (A) acquires title to any item of Equipment with respect to which title was held by the Customer or (B) reclaims possession of Equipment from the Customer, the Servicer shall use its best efforts to sell or re-lease such item of Equipment on market value terms promptly and consistent with the standard of care set forth in Section 3.02 hereof. Any Insurance Proceeds, Recoveries or Residual Proceeds related thereto shall be deposited in accordance with Section 3.03 hereof; (viii) Notwithstanding any provision to the contrary contained in this Agreement, the Servicer or any subservicer shall exercise any right under a Contract to accelerate the unpaid Scheduled Payments, due or to become due thereunder in such a manner as to maximize the net proceeds available to the Trust Estate; provided that the Servicer shall not accelerate any Scheduled Payment unless permitted to do so by the terms of the Contract or under applicable law, and provided, further, that the Servicer shall not declare a Customer to be in default under a Contract or exercise any other remedies under such Contract based solely on a default by such Customer under any other obligation of such Customer to the Company if such Customer is not also in default under such Contract unless it concludes that declaring such default is in the best interest of the Note Insurer and the Noteholders, and provided, further, that should the Servicer declare a Customer to be in default under a Contract or exercise any other remedies under such Contract based solely on a default by such Customer under any other obligation of such Customer to the Company whether or not such Customer is also in default under such Contract in accordance with the preceding provision of this sub-paragraph (viii), then the Servicer shall use any proceeds realized pursuant to such declaration of default or other remedy first to satisfy the obligation of the Customer under such Contract and only after such obligation is satisfied in full shall the Servicer apply any of such proceeds to satisfy any other obligation of such Customer to the Company or the Issuer. (ix) The Servicer shall maintain insurance with respect to its operations and property which is adequate and customary in light of the Servicer's operations; and (x) The Servicer shall comply with and not modify its credit and collection policies with respect to the Contracts in any manner that would materially adversely affect the interests of the Note Insurer or the Noteholders. SECTION 3.02 SERVICER STANDARD OF CARE. Except as otherwise specifically provided herein, in managing, administering, servicing, enforcing and making collections on the Contracts and Equipment pursuant to this Agreement, the Servicer will (x) exercise that degree of skill and care that the Servicer customarily exercises with respect to similar contracts and equipment owned or originated by its affiliates, and (y) in any event, act in a prudent and commercially reasonable manner when doing so, consistent with industry standards for servicing of micro to medium ticket equipment leasing portfolios. The Servicer shall punctually perform all of its obligations and agreements under this Agreement and shall comply in all material respects with all applicable federal and state laws and regulations, shall maintain all state and federal licenses and franchises necessary for it to perform its servicing responsibilities hereunder, and shall not materially impair the rights of the Note Insurer or the Noteholders in any Contract or Scheduled Payments thereunder. SECTION 3.03 SERVICER REMITTANCES. 8 13 (a) The Servicer, as agent of the Issuer, shall remit to the Indenture Trustee for deposit in the Collection Account (or as otherwise provided in the Indenture) by 12:00 noon (Central time) on the first Business Day of each week, the amounts described below that have been collected by the Servicer through 4:00 p.m. (Central time) on the preceding Business Day so long as such amounts in the aggregate exceed $1,000; PROVIDED that if such amounts in the aggregate are less than $1,000, the Servicer shall hold all such amounts in trust until they reach an aggregate amount of $1,000, at which time the Servicer shall remit such amounts to the Indenture Trustee in accordance with the provisions of this Section 3.03: (i) all payments made under the Contracts by or on behalf of the Customers relating to the Receivables, including, without limitation, Scheduled Payments, Servicing Charges, prepayments and periodic payments made under the terms of any Contract following the Final Due Date of such Contract , but excluding taxes received by the Servicer and paid by the Servicer directly to the applicable taxing authority prior to the applicable date of deposit for such funds; (ii) all Residual Proceeds and Recoveries; (iii) the Purchase Price of any Contract purchased by the Company or the Issuer, to the extent received by the Servicer; (iv) all Guaranty Amounts; and (v) all Insurance Proceeds. (b) The Servicer (i) shall cause amounts on deposit in the ACH Account that represent ACH debits relating to the Receivables to be transferred to the Operating Account at least weekly and (ii) within 30 days of the Delivery Date, shall cause the ACH Bank to enter into a Blocked Account Agreement with the Indenture Trustee. The Servicer shall hold in trust for the benefit of the Holders of the Notes and the Note Insurer any amounts it receives relating to items (i) through (v) above until such time as the Servicer transfers any such amounts to the Indenture Trustee for application in accordance with the Indenture. (c) Notwithstanding the foregoing, upon termination of the initial Servicer pursuant to Section 6.01(b) hereof, the Indenture Trustee shall (i) establish a lockbox account, (ii) promptly instruct the Customers to send all payments relating to Receivables directly to such lockbox account and (iii) deliver written notice in accordance with the Blocked Account Agreement to the ACH Bank thereunder instructing the ACH Bank to direct all ACH debits relating to Receivables directly to such lockbox account, and the Servicer agrees that daily sweeps of the Operating Account may commence. The Indenture Trustee shall be entitled to reimbursement for (i) any expenses associated with (a) the establishment of such lockbox and (b) the sending of the notices required to be sent under this section 3.03 and (ii) any fees required to be paid under any lockbox agreement relating to such lockbox from Section 12.02(d)(ii) of the Indenture. 9 14 SECTION 3.04 SERVICER ADVANCES. Not later than 10:00 a.m. (Central time) on the Determination Date prior to each Payment Date, the Servicer shall make an advance (a "Servicer Advance") on such date by remitting to the Indenture Trustee for deposit in the Collection Account an amount equal to the Scheduled Payments or portion thereof for each Contract which is a Delinquent Contract and which were due in the prior Due Period but not received and deposited in the Collection Account on or prior to such Determination Date; provided that such deposit shall equal the lesser of (i) the Scheduled Payments or portion thereof for each Contract which is a Delinquent Contract and which were due in the prior Due Period but not received and deposited in the Collection Account on or prior to such Determination Date and (ii) the shortfall, if any, between (a) the amounts on deposit in the Collection Account as of such Determination Date and (b) the amounts required to be paid on the related Payment Date pursuant to clauses (i) through (xi) of Section 12.02(d) of the Indenture; provided, that the Servicer shall not make a Servicer Advance with respect to a Contract once it has become a Defaulted Contract; and provided, further, should Norwest Bank Minnesota, National Association, become the successor Servicer it shall not have any obligation to make Servicer Advances. SECTION 3.05 FINANCING STATEMENTS. The Servicer shall make all UCC filings and recordings as may be required pursuant to the terms of the Contract Acquisition Agreement and the Indenture. The Servicer shall, in accordance with its customary servicing procedures and at its own expense, be responsible for taking such steps as are necessary to maintain perfection of the transfers and security interests provided for pursuant to the terms of the Contract Acquisition Agreement and the Indenture. Each of the Issuer and the Indenture Trustee hereby authorizes the Servicer to re-perfect or to cause the re-perfection of such security interest on its behalf as Indenture Trustee, as necessary. SECTION 3.06 MAINTENANCE OF INSURANCE POLICY; INSURANCE PROCEEDS. The Servicer shall have the obligation to verify, monitor and enforce the acquisition and maintenance of a Customer's Insurance Policies in a manner consistent with its standard practice and consistent with that practiced by other lessors in the industry with similar contracts and equipment owned or serviced by them. In the event that a Customer fails to maintain an Insurance Policy as required by the terms of the related Contract, the Servicer shall procure and maintain such insurance in an amount not less than the amount required by such Contract. The Servicer may satisfy its obligations under this Section 3.06 by (i) providing for a Loss and Damage Waiver Fee, (ii) obtaining "forced placed insurance" and charging the Customer therefor or (iii) maintaining a blanket insurance policy covering all of the Equipment. Any Insurance Proceeds shall be remitted to the Indenture Trustee for deposit in the Collection Account pursuant to Section 3.03. SECTION 3.07 PERSONAL PROPERTY AND SALES TAXES. The Servicer shall, on behalf of the Issuer, pay or cause to be paid all personal property, sales and use taxes on or with respect to the Equipment, or the acquisition or leasing thereof, as and when such taxes become due, to the extent a Customer has paid amounts to the Servicer for such taxes. The Servicer shall also cause to be filed in a timely manner any and all returns and reports required in connection with the payment of such taxes. 10 15 SECTION 3.08 SERVICING COMPENSATION. (a) As compensation for the performance of its obligations under this Agreement, the Servicer shall be entitled to receive the Servicer Fee and the Additional Servicer Fee, if applicable. The Servicer Fee with respect to any Contract shall be paid monthly, commencing on the related Initial Payment Date and terminating on the first to occur of (i) the receipt of the last Scheduled Payment and related Residual Proceeds with respect to the last remaining Contract, (ii) the receipt of Recoveries and Insurance Proceeds with respect to the last remaining Contract, or (iii) the date on which the Issuer obtains a release from the Indenture Trustee for the last remaining Contract or the Note Insurer redeems the Notes pursuant to Article 10 of the Indenture. The Servicer Fee shall be paid to the Servicer at the times and in the priority as set forth in the Indenture. The Servicer shall pay all expenses incurred by it in connection with its servicing activities hereunder, including, without limitation, payment of the fees and disbursements of the Independent Accountants and payment of expenses incurred in connection with distributions and reports to the Indenture Trustee, the Back-up Servicer, the Note Insurer, the Rating Agencies and Noteholders and shall not be entitled to reimbursement for such expenses except as provided elsewhere herein or in the Indenture; provided that the Servicer shall be entitled to withhold its reasonable costs and expenses (including reasonable attorney's fees and out-of-pocket expenses) in connection with the realization, attempted realization or enforcement of rights and remedies upon Defaulted Contracts, in calculating the amounts received as Recoveries related to such Defaulted Contracts. (b) In connection with any transfer of the servicing obligations to a successor Servicer in accordance with Section 6.02 hereof, the Back-up Servicer shall be entitled to reimbursement of Transition Costs as provided therein and in the Indenture. SECTION 3.09 SUBSTITUTION OR PURCHASE OF CONTRACTS. (a) The Servicer shall not allow termination of a Contract prior to the scheduled expiration date or prepayment of any Contract (except as may be specifically required under such Contract in connection with a casualty to the related Equipment), unless (i) the Customer has paid an amount at least equal to the Purchase Price for the Contract, (ii) the Customer has paid an amount less than the Purchase Price for such Contract and such funds have been remitted to the Indenture Trustee and the Issuer has remitted to the Indenture Trustee the related Prepayment Differential, if any, to the Indenture Trustee or (iii) the Issuer has (A) obtained from the Company and Granted to the Indenture Trustee a Substitute Contract, the Receivables under such Substitute Contract and the Issuer's interest in the related Equipment and delivered to the Indenture Trustee the original executed counterpart of the Substitute Contract or (B) removed such prepaid Contract and the related Equipment from the Trust Estate by remittance of the Purchase Price to the Servicer for deposit in the Collection Account in accordance with Section 3.03 hereof; provided that removals and substitutions of Contracts pursuant to this subparagraph (a) shall comply with the requirements of Section 4.04 of the Indenture, with particular reference to Section 4.04(d) thereof, and the criteria set forth in Section 3.04 of the Contract Acquisition Agreement. (b) The Servicer shall permit the Issuer to (i) remove any Defaulted Contract or Delinquent Contract from the Trust Estate by remittance by the Issuer to the Servicer, for deposit in the Collection Account in accordance with Section 3.03 hereof, of the Purchase Price for such Contract or (ii) substitute for any Defaulted Contract or Delinquent Contract, a Substitute Contract and the Receivables under such Substitute Contract and the Issuer's interest in the related Equipment; provided that removals and substitutions of Contracts pursuant to this subparagraph (b) shall comply with the requirements of Section 4.04 of the Indenture, with particular reference to Section 4.04(d) thereof, and the criteria set forth in Section 3.04 of the Contract Acquisition Agreement. (c) Notwithstanding any other provision contained in this Agreement, the Servicer shall not, with respect to a Defaulted Contract, (i) negotiate or enter into a new contract with the Customer relating to the 11 16 Equipment or the Customer's obligations under such Defaulted Contract or (ii) allow the Customer thereunder to resume its rights under such Defaulted Contract, unless the Issuer has removed or made a substitution for such Defaulted Contract in the manner set forth in subsection (b) hereof. (d) In the event that the Company is required to repurchase or substitute a Contract pursuant to Section 3.03 of the Contract Acquisition Agreement, the Servicer shall permit such repurchase or substitution only in accordance with the terms of Sections 3.03 and 3.04 of the Contract Acquisition Agreement and Section 4.04 of the Indenture. SECTION 3.10 NO OFFSET. Prior to the termination of this Agreement, the obligations of the Servicer under this Agreement shall not be subject to any defense, counterclaim or right of offset that the Servicer has or may have against the Issuer, the Indenture Trustee, the Note Insurer or any Noteholder, whether in respect of this Agreement, the other Transaction Documents, any Contract, Receivable, Equipment or otherwise. 12 17 ARTICLE 4 ACCOUNTINGS, STATEMENTS AND REPORTS SECTION 4.01 MONTHLY SERVICER'S REPORTS. No later than 10:00 a.m. (Central time) on each Determination Date, the Servicer shall deliver the Monthly Servicer's Report to the Issuer, the Back-up Servicer and the Indenture Trustee, and, no later than 11:00 a.m. (Central time) on each Payment Date, the Indenture Trustee shall deliver the Monthly Servicer's Report to the Note Insurer, each Noteholder and the Rating Agencies. Each Monthly Servicer's Report shall be substantially in the form attached hereto as Exhibit A, and shall reflect the activity in the immediately preceding Due Period. In the course of preparing the Monthly Servicer's Report, the Servicer shall seek direction from the Issuer as to remittance of any funds to be paid to the Issuer pursuant to Section 12.02(d)(xii) of the Indenture or otherwise. Contracts which have been substituted for or purchased by the Company or the Issuer shall be identified by Customer contract number on the Monthly Servicer's Report. On each Payment Date, the Servicer shall deliver to the Back-up Servicer and the Controlling Party a Computer Tape in a format acceptable to the Back-up Servicer containing the information from which the Servicer prepared the Monthly Servicer's Report, as well as any additional information reasonably requested by the Back-up Servicer prior to such Payment Date. SECTION 4.02 FINANCIAL STATEMENTS; CERTIFICATION AS TO COMPLIANCE; NOTICE OF DEFAULT. (a) The Servicer (or MicroFinancial Incorporated, if the initial Servicer is no longer the Servicer) shall deliver to the Indenture Trustee, the Note Insurer, each Noteholder, the Back-up Servicer and the Rating Agencies (and, upon the request of any Noteholder, to any prospective transferee of any Note that has executed an agreement with the Issuer and the Servicer containing terms substantially similar to those set forth in Section 4.04(f) hereof): (i) within 120 days after the end of each fiscal year of the Reported Companies, a copy of the Reported Companies' Financial Statements, all in reasonable detail and accompanied by an opinion of a firm of Independent Accountants stating that such financial statements present fairly the financial condition of the Reported Companies (or, in the case of a successor Servicer, such successor Servicer's financial condition) and have been prepared in accordance with generally accepted accounting principles consistently applied (except for changes in application in which such Independent Accountants concur), and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances; (ii) within 45 days after the end of each fiscal quarter, unaudited versions of the Reported Companies' consolidated and consolidating balance sheet and income statement; and (iii) accompanying each set of Reported Companies' Financial Statements delivered pursuant to subsection (a)(i) above, an Officer's Certificate stating that such officer has reviewed the relevant terms of the Indenture, the Contract Acquisition Agreement, the Insurance Agreement and this Agreement and has made, or caused to be made, under such officer's supervision, a review of the transactions and conditions of the Reported Companies during the period covered by the Reported Companies Financial Statements then being furnished, that the review has not disclosed the existence of any Servicer Default or Servicer Event of Default or, if a Servicer Default or a Servicer Event of Default exists, describing its nature and what action the Servicer has taken and is taking with respect thereto, and 13 18 that on the basis of such review the officer signing such certificate is of the opinion that during such period the Servicer has serviced the Contracts in compliance with the procedures hereof except as disclosed in such certificate; (iv) immediately upon becoming aware of the existence of any condition or event which constitutes a Servicer Default or a Servicer Event of Default, a written notice describing its nature and period of existence and what action the Servicer has taken or proposes to take with respect thereto; (v) promptly upon the Servicer becoming aware of: (A) any proposed or pending investigation of it or the Issuer by any governmental authority or agency (other than those occurring in the ordinary course of business), or (B) any pending or proposed court or administrative proceeding which involves the probability of materially and adversely affecting the properties, business, prospects, profits or condition (financial or otherwise) of the Servicer or the Issuer or the Trust Estate, a written notice specifying the nature of such investigation or proceeding and what action the Servicer has taken or proposes to take with respect thereto and evaluating its merits; (vi) with reasonable promptness, any other data and information with respect to the Servicer or the Contract Assets which may be reasonably requested from time to time, including without limitation any information required to be made available at any time to any prospective transferee of any Notes in order to satisfy the requirements of Rule 144A under the Securities Act; and (vii) such other information as may be specified in the Indenture. (b) So long as any of the Notes are Outstanding, upon the written request of the Controlling Party or the Indenture Trustee, the Servicer shall furnish to such requesting party an Officer's Certificate, stating either (i) that such action has been taken with respect to the recording, filing, and rerecording and refiling of any financing statements and continuation statements as is necessary to maintain the interest of the Indenture Trustee for the benefit of the Noteholders and the Note Insurer created by the Indenture with respect to the Trust Estate and reciting the details of such action or (ii) that no action is necessary to maintain such interest; provided that the Servicer shall not be required to furnish more than one such Officer's Certificate annually. Such Officer's Certificate shall also describe the recording, filing, rerecording and refiling of any financing statements and continuation statements that will be required to maintain the interest of the Indenture Trustee for the benefit of the Noteholders and the Note Insurer in the Trust Estate until the date such next Officer's Certificate is due. 14 19 SECTION 4.03 INDEPENDENT ACCOUNTANTS' REPORTS; ANNUAL FEDERAL TAX LIEN SEARCH. (a) Promptly at the end of each fiscal year, the Servicer at its expense shall cause the Independent Accountants to prepare a statement to the Back-up Servicer, the Indenture Trustee, the Note Insurer, each Noteholder and the Rating Agencies, dated as of the close of such period, to the effect that the Independent Accountants have examined the servicing procedures, manuals, guides and records of the Servicer, and the accounts and records of the Servicer relating to the Contracts and any files or documentation pertaining to the Contract Assets pursuant to the agreed upon procedures set forth in Exhibit D hereto and that, on the basis of such examination and comparison, nothing has come to the Independent Accountants' attention to indicate that the Servicer has not, during the relevant period, serviced the Contracts in compliance with such servicing procedures, manual and guides and in the same manner required by the Servicer's standards and with the same degree of skill and care consistent with that which the Servicer customarily exercises with respect to similar contracts owned by it and otherwise in compliance with this Agreement, that such accounts and records have not been maintained in accordance with Section 4.04 hereof, that the information contained in the Monthly Servicer's Reports does not reconcile with the information contained in the accounts and records or that such certificates, accounts and records have not been properly prepared and maintained in all material respects or in accordance with the requirements of this Agreement, except in each case for (i) such exceptions as the Independent Accountants shall believe to be immaterial and (ii) such other exceptions as shall be set forth in such statement. The Servicer shall deliver to the Back-up Servicer, the Indenture Trustee, the Rating Agencies, each Noteholder and the Note Insurer a copy of any such statement within 120 days of the close of the relevant period. Notwithstanding the foregoing, if the Outstanding Principal Amount for all Series then Outstanding is less than $10,000,000, the Controlling Party, upon the Servicer's request, may waive the requirements of this Section 4.03(a). The parties hereto acknowledge that neither the Indenture Trustee nor the Back-up Servicer has reviewed the procedures set forth in Exhibit D hereto and the Indenture Trustee and the Back-up Servicer will have no obligation to review the content of any report required to be delivered pursuant to this Section 4.03(a). (b) Promptly after the end of the Servicer's fiscal year, commencing with the fiscal year ending December 31, 2000, the Servicer, at its expense, shall cause a search to be conducted for any and all federal tax liens and any and all state tax liens levied or imposed by the Commonwealth of Massachusetts ("State Tax Liens") against the Company and the Issuer as of the end of such fiscal year and shall deliver to the Back-up Servicer, the Indenture Trustee, each Noteholder and the Note Insurer on or before January 31 of each year, commencing January 31, 2001, an officer's certificate signed by a Servicing Officer (i) stating that there are no outstanding federal tax liens or State Tax Liens filed against any portion of the Trust Estate, the Company or the Issuer or (ii) listing the outstanding federal tax liens and State Tax Liens filed against any portion of the Trust Estate, the Company or the Issuer. In the event any such officer's certificate shall disclose any such federal tax liens or State Tax Liens, the Servicer shall promptly thereafter, satisfy or cause the satisfaction of any such federal tax liens and State Tax Liens; provided that if the initial Servicer is no longer the Servicer, (y) the Company shall provide the above described officer's certificates with respect to the Company and shall be responsible for the satisfaction of any federal tax liens and State Tax Liens against the Company and (z) the Issuer shall provide the above described officer's certificates with respect to the Issuer and shall be responsible for the satisfaction of any federal tax liens and State Tax Liens against the Issuer. SECTION 4.04 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION. (a) The Servicer shall provide to the Back-up Servicer, each Noteholder, the Note Insurer and the Indenture Trustee, or their duly authorized representatives, attorneys or accountants access to any and all documentation regarding the Trust Estate (including the Contract Schedule) that the Servicer may possess, such access being afforded without charge but only upon reasonable request and during normal business hours so as not to interfere unreasonably with the Servicer's normal operations or customer or employee relations, at offices of the Servicer designated by the Servicer. 15 20 (b) At all times during the term hereof, the Servicer shall keep available at its principal executive office for inspection by the Indenture Trustee, the Back-up Servicer, the Note Insurer and each Noteholder a list of all Contracts then held as a part of the Trust Estate, together with a reconciliation of such list to that set forth in the Contract Schedule and each of the Monthly Servicer's Reports, indicating the cumulative addition and removal of Contracts from the Trust Estate. (c) The Servicer shall maintain accounts and records as to each respective Contract serviced by the Servicer that are accurate and sufficiently detailed as to permit (i) the reader thereof to know as of the most recent Calculation Date the status of such Contract, including any payments, Insurance Proceeds, Residual Proceeds and Recoveries received or owing (and the nature of each) thereon and (ii) the reconciliation between payments made, and Insurance Proceeds, Residual Proceeds or Recoveries received on (or with respect to) each Contract and the amounts from time to time deposited in the Collection Account in respect of such Contract. (d) The Servicer shall maintain all of its computerized accounts and records so that, from the Initial Delivery Date and after each Acquisition Date and the Grant of the related Contract, Receivables and Equipment to the Indenture Trustee, the Servicer's accounts and records (including any back-up computer archives) that refer to any such Contracts, Receivables or Equipment indicate clearly that the Contracts, Receivables and Equipment are owned by the Indenture Trustee for the benefit of the Noteholders and the Note Insurer. Indication of the Indenture Trustee's interest in a Contract may be deleted from or modified on the Servicer's accounts and records only after the Contract has been paid in full, replaced with a Substitute Contract or purchased by the Company or the Issuer or conveyed to the Servicer pursuant to this Agreement. (e) Nothing in this Section 4.04 shall affect the obligation of the Servicer to observe any applicable law prohibiting disclosure of information regarding the Customers, and the failure to provide information otherwise required by this Section 4.04 as a result of such observance by the Servicer, shall not constitute a breach of this Section 4.04. (f) All information obtained by the Indenture Trustee, the Back-up Servicer, the Note Insurer or any Noteholder regarding the Customers and the Contracts, whether upon exercise of its rights under this Section 4.04 or otherwise, shall be maintained by the Indenture Trustee, the Back-up Servicer, the Note Insurer or the Noteholder, as applicable, in confidence and shall not be disclosed to any other Person, unless such disclosure shall not violate any applicable law or regulation or any proprietary rights of the Company, the Issuer or the Servicer, unless such party is ordered by a court of applicable jurisdiction to make such disclosure; provided that the Note Insurer may make disclosures with respect to any of the above matters to the Rating Agencies, any reinsurer or any entity having regulatory authority over the Note Insurer; and provided further that a Noteholder may disclose such information to the extent permitted by the applicable Purchase Agreement. SECTION 4.05 OTHER NECESSARY DATA. (a) The Servicer shall, on request of the Back-up Servicer, the Indenture Trustee or the Controlling Party, on reasonable notice, furnish such requesting party such data necessary for the administration of the Trust Estate as can be reasonably generated by the Servicer's existing data processing systems. (b) Within five Business Days after the occurrence of a Servicer Event of Default, the Servicer shall provide the Indenture Trustee and the Back-up Servicer with access to the Servicer's existing data processing systems and any files or records with respect to the Contract Assets that it may have. SECTION 4.06 INDENTURE TRUSTEE TO COOPERATE. If a Contract and the related Contract Assets are permitted to be released from the lien of the Indenture under Section 4.06 of the Indenture, the Servicer shall notify the Indenture Trustee by written certification (which 16 21 certification shall include a statement to the effect that all amounts which are required to be deposited in the Collection Account with respect to such Contract pursuant to Section 3.03 hereof or Section 4.04 of the Indenture have been so deposited) of a Servicing Officer and shall request delivery of the Contract to the Servicer. Upon receipt of such delivery request, the Indenture Trustee shall within seven calendar days of such request by the Servicer release such Contract to the Servicer. Upon release of such Contract, the Servicer may execute an instrument in satisfaction of such Contract and do such other acts and execute such other documents as it deems necessary to discharge the Customer thereunder and, if applicable, to release any security interest in the Equipment related thereto. The Servicer shall determine when a Contract has been paid in full. Upon the written request of a Servicing Officer and subject to the Indenture Trustee's rights to indemnity contained herein and in the Indenture, the Indenture Trustee shall perform such other acts as reasonably requested in writing by the Servicer and otherwise cooperate with the Servicer in enforcement of the rights and remedies of the Noteholders and the Note Insurer with respect to Contracts. 17 22 ARTICLE 5 THE SERVICER SECTION 5.01 SERVICER INDEMNIFICATION. (a) The Servicer shall indemnify and hold harmless the Indenture Trustee, the Issuer, the Back-up Servicer, the Note Insurer and the Noteholders from and against any loss, liability, claim, expense, damage or injury suffered or sustained to the extent that such loss, liability, claim, expense, damage or injury arose out of or was imposed by reason of the failure by the Servicer to perform its duties in accordance with the terms of this Agreement or are attributable to errors or omissions of the Servicer related to such duties or a breach of the representations and warranties made by the Servicer in Section 2.01 hereof; provided that the Servicer shall not indemnify any party to the extent that acts of fraud, gross negligence or breach of fiduciary duty by such party contributed to such loss, liability, claim, expense, damage or injury. (b) The Servicer shall not be liable for any settlement of any action or claim effected without its consent. If the Servicer has made any indemnity payments to the Note Insurer, the Indenture Trustee, the Back-up Servicer or any Noteholder pursuant to this Section and such party thereafter collects any of such amounts from others, such party will promptly repay such amounts collected to the Servicer, without interest. The provisions of this Section 5.01 shall survive any expiration or termination of this Agreement. SECTION 5.02 CORPORATE EXISTENCE; REORGANIZATIONS. (a) The initial Servicer shall keep in full effect its existence and good standing as a corporation in the Commonwealth of Massachusetts, and shall obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to enable the initial Servicer to perform its duties under this Agreement, except where the failure to so qualify would not have a material adverse effect on the Trust Estate or the ability of the initial Servicer to perform its duties hereunder; provided that the initial Servicer may reorganize as a corporation in another state provided that the initial Servicer has provided to the Indenture Trustee and the Controlling Party an Officer's Certificate to the effect that (i) such action will not cause the initial Servicer to breach any obligation under this Agreement and (ii) such action would be in the best interests of the initial Servicer and would not have a material adverse effect on the Noteholders or the Note Insurer. (b) The initial Servicer shall not (i) convey, transfer or lease substantially all of its assets as an entirety to any Person, or (ii) merge or consolidate with another Person, unless (A) either the initial Servicer is the survivor or such Person or the merged or consolidated entity acquires substantially all the assets of the initial Servicer as an entirety, has adequate servicing skills and personnel, is substantially involved in the equipment financing lease business and executes and delivers to the Issuer, the Controlling Party and the Indenture Trustee an agreement, in form and substance reasonably satisfactory to the Issuer, the Controlling Party and the Indenture Trustee, which contains an assumption by such Person of the due and punctual performance and observance of each covenant, condition and obligation to be performed or observed by the initial Servicer under this Agreement, (B) no Servicer Default or Servicer Event of Default has occurred and is continuing, and (C) the Controlling Party shall have given its prior written consent. The initial Servicer shall provide prompt written notice of such event to the Rating Agencies and shall provide to the Indenture Trustee, for the benefit of the Note Insurer and the Noteholders, an Opinion of Counsel confirming the enforceability of such assumption agreement. SECTION 5.03 LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS. Except as provided in Section 5.01 hereof, none of the officers, directors, employees or agents of the Servicer shall have any liability for any action taken or refrained from having been taken in its capacity as Servicer 18 23 pursuant to this Agreement; provided that this provision shall not protect any such person against any liability which would otherwise be imposed by reason of willful misconduct, bad faith or gross negligence (which includes negligence with respect to the duties of the Servicer explicitly set forth in this Agreement) in the performance of its duties hereunder; PROVIDED, HOWEVER, that this provision shall not protect the Servicer against any breach of warranties or representations made herein, or failure to perform its obligations in strict compliance with this Agreement, or any liability which would otherwise be imposed by reason of any breach of the terms and conditions of this Agreement. Any officer, director, employee or agent of the Servicer may rely in good faith on any document of any kind PRIMA FACIE properly executed and submitted by any Person with respect to any matters arising hereunder. No implied covenants or obligations shall be read into this Agreement against the Servicer. In the event the Servicer performs any activities beyond the requirements of this Agreement, the Servicer may but shall not be required to perform such activities in the future. SECTION 5.04 THE SERVICER NOT TO RESIGN. (a) The Servicer shall not resign from the duties and obligations hereby imposed on it except upon a determination by its Board of Directors that by reason of change in applicable legal requirements, with which the Servicer cannot reasonably comply, the continued performance by the Servicer of its duties under this Agreement would cause it to be in violation of such legal requirements, said determination is to be evidenced by a resolution from its Board of Directors to such effect, accompanied by an Opinion of Counsel to such effect and reasonably satisfactory to the Indenture Trustee and the Controlling Party. (b) No such resignation shall become effective until a successor Servicer shall have assumed the responsibilities and obligations of the Servicer hereunder. (c) Except as provided in Sections 5.02 and 6.01 hereof, the duties and obligations of the Servicer under this Agreement shall continue until this Agreement shall have been terminated as provided in Section 8.01 hereof, and shall survive the exercise by the Issuer or the Indenture Trustee of any right or remedy under this Agreement, or the enforcement by the Issuer, the Note Insurer, the Indenture Trustee or any Noteholder of any provision of the Notes or this Agreement. 19 24 ARTICLE 6 SERVICING TERMINATION SECTION 6.01 SERVICER EVENTS OF DEFAULT. (a) Any of the following acts or occurrences shall constitute a Servicer Event of Default: (i) Any failure by the Servicer to deliver to the Indenture Trustee for payment to Noteholders any collections on Receivables or any other proceeds or payments in respect of the Trust Estate and required to be so delivered under the terms of the Indenture and this Agreement that continues unremedied until 10:00 a.m. (Central time) on the Business Day following the date such remittance is required; provided that the Indenture Trustee, upon receiving actual knowledge of such failure, shall give the Servicer prompt written, telecopied or telephonic notice of such failure. Notwithstanding the foregoing, any failure by the Indenture Trustee to deliver such notice to the Servicer shall not prevent the occurrence of a Servicer Event of Default; or (ii) Any failure by the Servicer to deliver a Monthly Servicer's Report pursuant to Section 4.01 hereof that continues unremedied until 10:00 a.m. (Central time) the following Business Day; provided that if the Servicer has not delivered the Monthly Servicer's Report by 12:00 noon (Central time) on the Determination Date, the Indenture Trustee shall give the Servicer notice of such failure. Notwithstanding the foregoing, any failure by the Indenture Trustee to deliver such notice to the Servicer shall not prevent the occurrence of a Servicer Event of Default; or (iii) Any failure by the Servicer to make a Servicer Advance when required pursuant to Section 3.04 hereof or to deposit in the Collection Account when required any Purchase Price received by it that continues unremedied until 10:00 a.m. (Central time) the following Business Day; provided that if the Servicer has not made such Servicer Advance or deposited such Purchase Price in the Collection Account received by it by 12:00 noon (Central time) on related Determination Date and the Indenture Trustee has received written notification from the Servicer by way of the Monthly Servicer's Report or otherwise that such Servicer Advance or Purchase Price is to be paid, the Indenture Trustee shall give the Servicer prompt written, telecopied or telephonic notice of such failure. Notwithstanding the foregoing, any failure by the Indenture Trustee to deliver such notice to the Servicer shall not prevent the occurrence of a Servicer Event of Default; or (iv) Any failure on the part of the Servicer in its capacity as such duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement or the Indenture, as the case may be, or if any representation or warranty of the Servicer set forth in Section 2.01 of this Agreement and in the other Transaction Documents to which the Servicer is a party shall prove to be incorrect, which failure or breach (A) in the case of any such representation or warranty, materially and adversely affects the interest or rights of the Note Insurer, the Indenture Trustee, or the Noteholders and (B) continues unremedied for a period of 30 days after the earlier of (x) the date on which the Servicer becomes aware of such failure or breach and (y) written notice of such failure or breach, requiring the situation giving rise to such breach or non-conformity to be remedied, shall have been given to a Servicing Officer of the Servicer by the Indenture Trustee, the Controlling Party, the Issuer or the Back-up Servicer; or (v) Any assignment by the Servicer to a delegate of its duties or rights under the Indenture or this Agreement, except as specifically permitted thereunder or hereunder, or any attempt to make such an assignment; or 20 25 (vi) The entry of a decree or order for relief by a court having jurisdiction in respect of the Servicer or a petition against the Servicer in an involuntary case under any federal bankruptcy laws, as now or hereafter in effect, or any other present or future federal or state bankruptcy insolvency or similar law, or appointing a conservator, receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official for the Servicer for any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Servicer and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (vii) The commencement by the Servicer of a voluntary case under any federal bankruptcy laws, as now or hereafter in effect, or any other present or future federal or state bankruptcy, insolvency, reorganization or similar law, or the consent by the Servicer to the appointment of or taking possession by a conservator, receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official in any insolvency, readjustment of debt, marshaling of assets and liabilities, bankruptcy or similar proceedings of or relating to the Servicer or relating to a substantial part of its property, or the making by the Servicer of an assignment for the benefit of creditors, or the failure by the Servicer generally to pay its debts as such debts become due or if the Servicer shall admit in writing its inability to pay its debts as they become due, or the taking of corporate action by the Servicer in furtherance of any of the foregoing; or (viii) the occurrence of an event of default under the Credit Agreement that is not cured, remedied or waived in writing, in accordance with the terms of the Credit Agreement, within 30 days of the date of initial occurrence of such event of default; or (ix) the ratio of consolidated indebtedness to consolidated Tangible Net Worth of the Reported Companies is greater than 6.5 to 1.0; or (x) the allowance for bad debt of the Reported Companies is less than 7.0% of the gross lease installments; or (xi) for any fiscal quarter, the fixed charge ratio of the Reported Companies is less than 1.25 to 1.0; or (xii) the occurrence of a Trigger Event. (b) If a Servicer Event of Default occurs, the Indenture Trustee shall, at the direction of the Controlling Party, by notice (the "Servicer Termination Notice") then given in writing to the Servicer and the Back-up Servicer, terminate all, but not less than all, of the rights and obligations of the Servicer under this Agreement. (c) Upon the receipt by the Servicer of a Servicer Termination Notice, all authority and power of the Servicer under this Agreement, whether with respect to the Notes or the Contracts or otherwise, shall pass to and be vested in the successor Servicer appointed pursuant to Section 6.02 hereof, and, without limitation, such successor Servicer is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer of the Contracts and related documents, or otherwise. The Servicer agrees to cooperate with the Indenture Trustee, the Back-up Servicer and the successor Servicer in effecting the termination of the responsibilities and rights of the Servicer hereunder, including, without limitation, the transfer to the successor Servicer for administration by it of all cash amounts that shall at the time be held by the Servicer for deposit, or have been deposited by the Servicer, in the Collection Account or thereafter received with respect to any of the 21 26 Contracts. To assist the successor Servicer in enforcing all rights under the Contracts and the Insurance Polices to the extent they relate to the Contracts, the outgoing Servicer, at its own expense, shall transfer its records (electronic and otherwise) relating to such Contracts to the successor Servicer in such form as the successor Servicer may reasonably request and shall transfer the related Contracts and Contract Files (to the extent not held by the Indenture Trustee) or the servicing copies thereof maintained by the outgoing Servicer, and all other records, correspondence and documents relating to the Contracts that it may possess to the successor Servicer in the manner and at such times as the successor Servicer shall reasonably request. In addition to any other amounts that are then payable to the Servicer under this Agreement, the Servicer shall be entitled to receive reimbursements for any unreimbursed Servicer Advance made during the period prior to the delivery of a Servicer Termination Notice pursuant to this Section 6.01 which terminates the obligations and right of the Servicer under this Agreement. SECTION 6.02 BACK-UP SERVICER TO ACT; TAKING OF BIDS; APPOINTMENT OF SUCCESSOR SERVICER. (a)(i) Except as provided in Section 6.02(d) hereof, on and after the time the Servicer resigns pursuant to Section 5.04 hereof or receives a Servicer Termination Notice pursuant to Section 6.01(b) or (c) hereof, the Back-up Servicer shall, unless prevented by law, automatically and without further action succeed to the rights and obligations of the successor Servicer hereunder. If the Back-up Servicer cannot serve as successor Servicer, the Indenture Trustee shall appoint a successor Servicer acceptable to it and the Controlling Party. (ii) The successor Servicer shall, upon the execution of a written agreement to be bound by all of the provisions of this Agreement, be the successor in all respects to the Servicer in its capacity as Servicer under this Agreement and the transactions set forth or provided for herein and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof; provided that the successor Servicer (x) shall not be required to make any Servicer Advance and (y) shall not be liable for any acts or omissions of the outgoing Servicer or for any breach by the outgoing Servicer of any of its representations and warranties contained herein or in any related document or agreement; and provided, further, that such successor Servicer shall provide financial and other information consistent with the provisions of Section 4.02 hereof. With the prior written consent of the Controlling Party (which consent shall not be unreasonably withheld), the successor Servicer may subcontract with another Person to act as subservicer so long as the successor Servicer remains fully responsible and accountable for performance of all obligations of the Servicer on and after the time the Servicer receives the Servicer Termination Notice. The successor Servicer shall be entitled to the Servicer Fee and any Additional Servicer Fee, subject to the taking of bids as described in subsection (b) below. (b) Solely for purposes of establishing the fee to be paid to the successor Servicer, upon receipt of a Servicer Termination Notice, the Back-up Servicer shall solicit written bids, with a copy to each Noteholder and the Note Insurer (such bids to include a proposed servicer fee and servicing transfer costs) from not less than three Persons experienced in the servicing of contracts similar to the Contracts and that are not affiliates of the Indenture Trustee, the Back-up Servicer, the Servicer or the Issuer and are reasonably acceptable to the Controlling Party. The Issuer may also solicit additional bids from other such entities. Any such written solicitation shall prominently indicate that bids should specify any applicable subservicing fees required to be paid from the Servicer Fee and that any fees and transfer costs in excess of the Servicer Fee shall be paid only pursuant to Section 12.02(d)(viii) of the Indenture as the Additional Servicer Fee. The successor Servicer shall act as Servicer hereunder and shall, subject to the availability of sufficient funds in the Collection Account pursuant to Section 12.02(d)(i) (up to the Servicer Fee) and Section 12.02(d)(iii) (up to any successor Servicer's Transition Costs) and Section 12.02(d)(viii) (up to any Additional Servicer Fee and any additional transition costs in excess of the Transition Costs) of the Indenture, receive as compensation therefor a fee equal to the fee proposed in the bid so solicited which provides for the lowest combination of servicer fee and transition costs, as reasonably determined by the Controlling Party. 22 27 (c) The Servicer, the Back-up Servicer, the Issuer, the Indenture Trustee and such successor Servicer shall take such action, consistent with this Agreement, as shall be necessary to effectuate any such succession. The Back-up Servicer (or any other Person if such Person has previously reimbursed the Back-up Servicer) shall be reimbursed for Transition Costs, if any, incurred in connection with the assumption of responsibilities of the successor Servicer, upon receipt of documentation of such costs and expenses and in accordance with Section 12.02(d)(iii) of the Indenture. The Back-up Servicer shall have no claim against the Issuer, the Trust Estate or the Note Insurer for any costs and expenses incurred in effecting such succession except for amounts specified in the definition of "Transition Costs" incurred by it in becoming the successor Servicer. (d) Upon written notification to the Indenture Trustee that on any Determination Date following the solicitation of bids provided for in Section 6.02(b) hereof, the sum of the aggregate Implicit Principal Balance for all Contracts plus any amount on deposit in the Cash Collateral Account is less than the lesser of (1) $50,000 or (2) the proposed servicing transfer costs set forth in the lowest bid solicited pursuant to Section 6.02(b) hereof, then the Back-up Servicer shall be relieved of its obligation under Section 6.02(a)(i) hereof, and the Issuer shall appoint a successor Servicer. SECTION 6.03 NOTIFICATION TO NOTEHOLDERS. The Servicer shall promptly notify the Back-up Servicer, the Note Insurer, each Noteholder, the Issuer, the Rating Agencies and the Indenture Trustee of any Servicer Event of Default upon actual knowledge thereof by a Servicing Officer. Upon any termination of, or appointment of a successor to, the Servicer pursuant to this Article 6, the Indenture Trustee shall give prompt written notice thereof to the Rating Agencies. SECTION 6.04 WAIVER OF PAST DEFAULTS. The Indenture Trustee shall, at the direction of the Controlling Party, waive any default by the Servicer in the performance of its obligations hereunder and its consequences, other than a default with respect to required deposits and payments in accordance with Article 3 or a default of the type set forth in clause (vi) or (vii) of Section 6.01(a) hereof, which waiver shall require the consent of each Noteholder and the Note Insurer. Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly waived. The Indenture Trustee shall provide to the Rating Agencies notification of any such waiver. Notwithstanding anything contained in this Agreement to the contrary, absent written notice detailing specific Errors (as defined below) or other deficiencies, Norwest Bank, Minnesota, National Association ("Norwest"), as successor Servicer, is authorized to accept and rely on all accounting, records (including computer records) and work product of the prior Servicer relating to the Contracts (collectively, the "Predecessor Servicer Work Product") without any audit or other examination thereof, and Norwest shall have no duty, responsibility, obligation or liability for the acts and omissions of the prior Servicer. If any error, inaccuracy, commission or incorrect or nonstandard practice or procedure (collectively, "Errors") exist in any Predecessor Servicer Work Product and such Errors make it materially more difficult to service or should cause or materially contribute to Norwest making or continuing any Errors (collectively, "Continued Errors"), Norwest shall have no duty, responsibility, obligation or liability to perform servicing or for such Continued Errors; provided, however, that Norwest agrees to use its best efforts to prevent further Continued Errors. In the event that Norwest becomes aware of Errors or Continued Errors, Norwest shall, with the prior consent of the Note Insurer, use its best efforts to reconstruct and reconcile such data as is commercially reasonable to correct such Errors and Continued Errors and to prevent future Continued Errors. Norwest shall be entitled to recover its costs thereby expended in accordance with Sections 6.08, Clause Third, and Section 12.02(d)(viii) of the Indenture, as applicable. 23 28 SECTION 6.05 EFFECTS OF TERMINATION OF SERVICER. (a) Upon the appointment of the successor Servicer, the predecessor Servicer shall remit to the successor Servicer any Scheduled Payments and any other payments, proceeds or other amounts that it may receive pursuant to any Contract or otherwise after such date of appointment. (b) After the delivery of a Servicer Termination Notice, the outgoing Servicer shall have no further obligations with respect to the management, administration, servicing, enforcement, custody or collection of the Contracts and the successor Servicer shall have all of such obligations, except that the outgoing Servicer shall cooperate in effecting the transition of Servicing to the successor Servicer as described in Sections 6.01 and 6.02 hereof and shall transmit or cause to be transmitted directly to the successor Servicer, promptly on receipt and in the same form in which received, any amounts held by the outgoing Servicer (properly endorsed where required for the successor Servicer to collect them) received as payments upon or otherwise in connection with the Contracts, together with any standard pleading forms used in the enforcement of Defaulted Contracts, a list of counsel used by such predecessor Servicer in bringing collection actions and a list of collection actions currently in progress. The outgoing Servicer's indemnification obligations pursuant to Section 5.01 hereof will survive the termination of the Servicer but shall not extend to any acts or omissions of a successor Servicer. SECTION 6.06 NO EFFECT ON OTHER PARTIES. Upon any termination of the rights and powers of the Servicer pursuant to Section 6.01 hereof, or upon any appointment of a successor Servicer, all the rights, powers, duties and obligations of the other parties under this Agreement, the Indenture and the Contract Acquisition Agreement shall remain unaffected by such termination or appointment and shall remain in full force and effect thereafter. 24 29 ARTICLE 7 THE BACK-UP SERVICER SECTION 7.01 REPRESENTATIONS OF BACK-UP SERVICER. The Back-up Servicer makes the following representations and warranties: (a) The Back-up Servicer has been duly organized and is validly existing as a national banking association in good standing under the laws of the United States of America, with power and authority to own its properties and to conduct its business as such properties shall be currently owned and such business is presently conducted. (b) The Back-up Servicer has the power and authority to execute and deliver this Agreement, the Indenture and the Insurance Agreement and to perform its obligations under each of the foregoing, and the execution, delivery, and performance of this Agreement, the Indenture and the Insurance Agreement has been duly authorized by the Back-up Servicer by all necessary corporate action. (c) Assuming the due authorization, execution and delivery by each other party thereto, each of this Agreement, the Indenture and the Insurance Agreement constitutes the legal, valid, and binding obligation of the Back-up Servicer enforceable in accordance with its respective terms, except as enforceability may be subject to or limited by bankruptcy, insolvency, conservatorship, reorganization or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity, regardless of whether such enforceability shall be considered in a proceeding in equity or at law. (d) The consummation of the transactions contemplated by this Agreement, the Indenture and the Insurance Agreement and the fulfillment of the terms hereof and thereof shall not conflict with, result in any breach of any of the terms and provisions of, nor constitute (with or without notice or lapse of time) a default under, the organizational documents of the Back-up Servicer, or any indenture, agreement, or other instrument to which the Back-up Servicer is a party or by which it shall be bound; nor result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, or other instrument; nor violate any law or any order, rule, or regulation applicable to the Back-up Servicer of any court or of any federal or state regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Back-up Servicer or its properties. (e) There are no proceedings or investigations pending or, to the Back-up Servicer's knowledge, threatened before any court, regulatory body, administrative agency, or other governmental instrumentality having jurisdiction over the Back-up Servicer or its properties (i) asserting the invalidity of this Agreement, the Indenture or the Insurance Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, the Indenture or the Insurance Agreement, or (iii) seeking any determination or ruling that might materially adversely affect the performance by the Back-up Servicer of its obligations under, or the validity or enforceability of, this Agreement, the Indenture or the Insurance Agreement. 25 30 SECTION 7.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF, BACK-UP Servicer. Any Person (i) into which the Back-up Servicer may be merged or consolidated, (ii) which may result from any merger or consolidation to which the Back-up Servicer shall be a party, or (iii) which may succeed to the properties and assets of the Back-up Servicer substantially as a whole, which Person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Back-up Servicer hereunder, shall be the successor to the Back-up Servicer under this Agreement without any further act on the part of any of the parties to this Agreement. In the event that the resulting entity does not meet the eligibility requirements for the Indenture Trustee set forth in the Indenture, the Back-up Servicer, upon the written request of the Controlling Party, shall resign from its obligations and duties under this Agreement. SECTION 7.03 BACK-UP SERVICER RESIGNATION. The Back-up Servicer shall not resign from its obligations and duties under this Agreement, the Indenture or the Insurance Agreement except (i) as provided in Section 7.02 above, or (ii) upon a determination that the performance of its duties shall no longer be permissible under applicable law (any such determination permitting the resignation of the Back-up Servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Indenture Trustee, the Issuer and the Controlling Party). Upon the Back-up Servicer's resignation or termination pursuant to Section 7.02 hereof or this Section 7.03, notice thereof shall be provided to the Rating Agencies and the Controlling Party, and the Back-up Servicer shall comply with the provisions of this Agreement until the acceptance of a successor Back-up Servicer. SECTION 7.04 OVERSIGHT OF SERVICING. (a) Prior to each Payment Date, the Back-up Servicer shall review the Monthly Servicer's Report related thereto and shall determine the following: (i) that such Monthly Servicer's Report is complete on its face; and (ii) that the amounts credited to and withdrawn from the Collection Account and the Cash Collateral Account and the balance of such accounts, as set forth in the records of the Back-up Servicer, are the same as the corresponding amounts set forth in the Monthly Servicer's Report. (b) The Back-up Servicer shall, within 30 days of the receipt thereof, load the Computer Tape received from the Servicer pursuant to Section 4.01 hereof, verify such Computer Tape is in readable form and shall recalculate and confirm the following: (i) the Aggregate IPB as of the most recent Calculation Date; (ii) the Principal Distribution Amount for each Outstanding Series of Notes as of the most recent Payment Date; and (iii) the Annualized Default Rate and the Delinquency Rate for the related Due Period as set forth in the most recent Monthly Servicer's Report. In addition, the Back-up Servicer shall confirm that the items set forth in the Monthly Servicer's Report, other than the items listed in the section entitled "Deposits by or on behalf of the Servicer" are accurate based solely on a comparison to the Computer Tape referred to above. 26 31 (c) In the event of any discrepancy between the information set forth in subparagraphs (a) and (b) as reported by the Servicer from that determined or calculated by the Back-up Servicer, the Back-up Servicer shall promptly notify the Servicer, the Indenture Trustee and the Controlling Party of such discrepancy. If within 30 days of such notice being provided to the Servicer, the Back-up Servicer and the Servicer are unable to resolve such discrepancy, the Back-up Servicer shall promptly notify the Rating Agencies and the Noteholders (if the Note Insurer is the Controlling Party) of such discrepancy. (d) Based solely on the information included in the Series Contract Schedule delivered on each Acquisition Date and the Computer Tapes provided each Payment Date thereafter, the Back-up Servicer shall determine that any Additional Contracts satisfy the criterion set forth in Section 3.04(b) of the Contract Acquisition Agreement and that the acquisition of such Additional Contracts does not violate the Concentration Limits set forth therein. (e) The Back-up Servicer shall make a site visit to the offices of the Servicer on an annual basis if the Back-up Servicer in its sole discretion determines that such a site visit is necessary, advisable or convenient for the purpose of reviewing the operations of the Servicer. The reasonable out-of-pocket costs and expenses of the Back-up Servicer incurred in connection with this Agreement, including without limitation the site visit referred to in the preceding sentence, shall be reimbursed to the Back-up Servicer by the Servicer. (f) Other than as specifically set forth in this Agreement, the Back-up Servicer shall have no obligation to supervise, verify, monitor or administer the performance of the Servicer and shall have no liability for any action taken or omitted by the Servicer. (g) The Back-up Servicer shall consult fully with the Servicer as may be necessary from time to time to perform or carry out the Back-up Servicer's obligations hereunder, including the obligation to succeed at any time to the duties and obligations of the Servicer under Section 6.02 hereof. SECTION 7.05 BACK-UP SERVICER COMPENSATION. As compensation for the performance of its obligations as Back-up Servicer under this Agreement, the Back-up Servicer shall be entitled to receive the Back-up Servicer Fee. In connection with any transfer of the servicing obligations to a successor Servicer in accordance with Section 6.02 hereof, the Back-up Servicer shall be entitled to reimbursement of Transition Costs as provided therein and in the Indenture. SECTION 7.06 DUTIES AND RESPONSIBILITIES. (a) The Back-up Servicer shall perform only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Back-up Servicer. (b) In the absence of bad faith or negligence on its part, the Back-up Servicer may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein, upon Officer's Certificates or Opinions of Counsel furnished to the Back-up Servicer and conforming to the requirements of this Agreement and the Indenture; but in the case of any such Officer's Certificates or Opinions of Counsel, which by any provision hereof are specifically required to be furnished to the Back-up Servicer, the Back-up Servicer shall be under a duty to examine the same and to determine whether or not they conform to the requirements of this Agreement. 27 32 ARTICLE 8 MISCELLANEOUS PROVISIONS SECTION 8.01 TERMINATION. (a) Except with respect to a particular party under Sections 5.01, 5.04, 6.01, 7.02 or 7.03 hereof, the respective duties and obligations of the Servicer, the Issuer, the Back-up Servicer and the Indenture Trustee created by this Agreement shall terminate upon the discharge of the Indenture in accordance with its terms. Upon the termination of this Agreement pursuant to this Section 8.01(a), the Servicer shall pay all monies with respect to the Contract Assets held by the Servicer and to which the Servicer is not entitled to or upon the order of the Issuer. (b) This Agreement shall not be automatically terminated as a result of an Event of Default under the Indenture or any action taken by the Indenture Trustee thereafter with respect thereto, and any liquidation or preservation of the Trust Estate by the Indenture Trustee thereafter shall be subject to the rights of the Servicer to service the Contracts and the Receivables and to collect servicing compensation as provided hereunder and under the Indenture. SECTION 8.02 AMENDMENTS. (a) Subject to paragraph (b) of this Section 8.02, this Agreement may be amended from time to time by the Issuer, the Servicer, the Back-up Servicer, and the Indenture Trustee, to cure any ambiguity, or to correct or supplement any provisions herein that may be inconsistent with any other provisions herein, as the case may be. (b) The provisions of this Agreement may be waived from time to time and this Agreement may be amended from time to time by the Issuer, the Servicer and the Back-up Servicer, with the written consent of the Indenture Trustee and the Controlling Party, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement; provided that no such amendment or waiver shall, without the consent of each Noteholder affected thereby, (i) alter the priorities with which any allocation of funds shall be made under this Agreement, (ii) permit the creation of any Lien on the Trust Estate (other than the Lien of the Indenture) or any portion thereof or deprive any such Noteholder of the benefit of this Agreement with respect to the Trust Estate or any portion thereof, (iii) modify this Section 8.02 or (iv) modify any of the items referred to in clauses (i) through (viii) of Section 9.02 (a) of the Indenture. (c) Promptly upon the execution of any amendment, the Servicer shall send to the Indenture Trustee, the Note Insurer, each Holder of Notes and each Rating Agency a conformed copy of each such amendment. (d) Any amendment or modification effected contrary to the provisions of this Section 8.02 shall be void. (e) The manner of obtaining any consents from the Noteholders and of evidencing the authorization of the execution thereof by Noteholders shall be subject to such reasonable regulations as the Indenture Trustee may prescribe. (f) If any party to this Agreement is unable to sign any amendment due to its dissolution, winding up or comparable circumstances, then the consent of the Noteholders representing at least 51% in Outstanding Principal Amount of all Notes of all Series shall be sufficient to effect such amendment without such party's signature; provided, however, that no such amendment shall impose on the party that is unable to provide a 28 33 signature any obligation or liability in excess of what is then currently imposed hereunder prior to such amendment. SECTION 8.03 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED THEREIN, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS OF ANY STATE THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF A STATE OTHER THAN NEW YORK. SECTION 8.04 NOTICES. All demands, notices and communications hereunder shall be in writing and shall be delivered or mailed by registered or certified United States mail, postage prepaid, and addressed, in each case as follows: (a) if to the Issuer, at 950 Winter Street, Suite 4100B, Waltham, Massachusetts 02451; (b) if to Servicer, at 950 Winter Street, Suite 4200, Waltham, Massachusetts 02451; (d) if to the Indenture Trustee or the Back-up Servicer, at Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479; (e) if to the Note Insurer, at One State Street Plaza, New York, New York 10004; or (f) if to the Noteholders, at the respective address set forth on the Note Register. All notices and demands shall be deemed to have been given either at the time of the delivery thereof to any officer of the Person entitled to receive such notices and demands at the address of such Person for notices hereunder, or on the third day after the mailing thereof to such address, as the case may be. SECTION 8.05 SEVERABILITY OF PROVISIONS. If one or more of the provisions of this Agreement shall be for any reason whatever held invalid, such provisions shall be deemed severable from the remaining covenants and provisions of this Agreement, and shall in no way affect the validity or enforceability of such remaining provisions, the rights of any parties hereto, or the rights of the Indenture Trustee, the Note Insurer or any Noteholder. To the extent permitted by law, the parties hereto waive any provision of law which renders any provision of this Agreement prohibited or unenforceable in any respect. SECTION 8.06 BINDING EFFECT. All provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto, and all such provisions shall inure to the benefit of the Noteholders and the Note Insurer. This Agreement may not be modified except in accordance with Section 8.02 hereof. SECTION 8.07 ARTICLE HEADINGS AND CAPTIONS. The article headings and captions in this Agreement are for convenience of reference only, and shall not limit or otherwise affect the meaning hereof. SECTION 8.08 LEGAL HOLIDAYS. In any case in which the date on which any action required to be taken, document required to be delivered or payment required to be made is not a Business Day, then (notwithstanding any other provision of this Agreement) such action, document delivery or payment need not be taken or made on such date, but may be taken or made on the next succeeding Business Day with the same force and effect as if taken or made on the nominal date of any such action, document delivery or payment and, assuming such action, document delivery or payment is actually taken or made on such subsequent Business Day, such action, document delivery or 29 34 payment shall be deemed made on the nominal date and no additional interest shall accrue on any amount so paid for the period from and after any such nominal date. SECTION 8.09 ASSIGNMENT FOR SECURITY FOR THE NOTES. The Servicer and the Back-up Servicer acknowledge and agree that the Issuer will Grant to the Indenture Trustee all of the Issuer's rights under this Agreement. The Servicer and the Back-up Servicer consent to such Grant and further agree that all representations, warranties, covenants and agreements of the Servicer and the Back-up Servicer made herein shall also be for the benefit of and inure to the Indenture Trustee and all Holders from time to time of the Notes and the Note Insurer. SECTION 8.10 NO SERVICING ASSIGNMENT. Except as expressly provided in Sections 5.02, 5.04 and 8.09 hereof, neither this Agreement nor the duties and obligations of any party hereto may not be assigned by the Issuer, the Servicer or the Back-up Servicer without the prior written consent of the Controlling Party. SECTION 8.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Indenture by telecopier shall be as effective as delivery of manually executed counterpart of this Agreement. SECTION 8.12 ACKNOWLEDGMENT OF MULTIPLE ROLES. The parties expressly acknowledge and consent to Norwest Bank Minnesota, National Association, acting in the possible dual capacity of Back-up Servicer or successor Servicer and in the capacity as Indenture Trustee. Norwest Bank Minnesota, National Association, may, in such dual capacity, discharge its separate functions fully, without hindrance or regard to conflict of interest principles, duty of loyalty principles or other breach of fiduciary duties to the extent that any such conflict or breach arises from the performance by Norwest Bank Minnesota, National Association, in any of such capacities, of express duties set forth in this Agreement, all of which defenses, claims or assertions are hereby expressly waived by the other parties hereto except in the case of negligence (other than errors in judgment) and willful misconduct by Norwest Bank Minnesota, National Association. SECTION 8.13 CONSENT TO JURISDICTION. (a) The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the United States District Court for the Southern District of New York and any court in the State of New York Located in the City and County of New York, and any appellate court from any thereof, in any action, suit or proceeding brought against or by it in connection with this Agreement or for recognition or enforcement of any judgment relating thereto, and the parties hereto hereby irrevocably and unconditionally agree that all claims in respect of any such action or proceeding may be heard or determined in such New York state court or, to the extent permitted by law, in such federal court. The parties agree that a final nonappealable judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. To the extent permitted by applicable law, the parties hereby waive and agree 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 the related documents or the subject matter thereof may not be litigated in or by such courts. 30 35 (b) To the extent permitted by applicable law, the parties shall not seek and hereby waive the right to any review of the judgment of any such court by any court of any other jurisdiction which may be called upon to grant an enforcement of such judgment. (c) Service on any party hereto may be made by mailing or delivering copies of the summons and complaint and other process which may be served in any suit, action or proceeding to such party at its address listed in herein or in the other Transaction Documents. Such address may be changed by the applicable party or parties by written notice to each of the other parties hereto. (d) Nothing contained in this Agreement shall limit or affect any party's right to serve process in any other manner permitted by law or to start legal proceedings relating to its rights under other agreements or against any other party or its properties in the courts of any jurisdiction. 31 36 IN WITNESS WHEREOF, the Issuer, the Servicer, the Indenture Trustee and the Back-up Servicer have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the date and year first above written. MFI FINANCE CORP. I, as Issuer By: -------------------------------- Name: Title: MICROFINANCIAL INCORPORATED, as Servicer By: -------------------------------- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee and as Back-up Servicer By: -------------------------------- Name: Title: 37 EXHIBIT A Form of Monthly Servicer's Report [see attached] 38 EXHIBIT B Form of Agreement Regarding Operating Account [see attached] 39 EXHIBIT C Form of Blocked Account Agreement [see attached] 40 EXHIBIT D Agreed Upon Procedures (Can be changed with mutual agreement of Controlling Party and Servicer) 1. The Independent Accountant will determine the aggregate amount of all collections received by the Servicer during three Due Periods selected by Independent Accountant per year (each such Due Period referred to herein as a "REVIEW PERIOD"). Such amounts will be compared against the amounts specified in the Monthly Servicer Reports and to the aggregate amount of collections indicated on the Servicer's or the Issuer's automated lease accounting systems or a "tape" derived from the lease accounting system ("LEASE ACCOUNTING SYSTEMS") noting any exceptions. Independent Accountant will review and recalculate Monthly Servicer Report for accuracy. 2. Independent Accountant will select to perform these procedures on a total of 50 individual cash receipts posted to the Collection Account during the Review Periods (each such cash receipt being a "SELECTED RECEIPT"). Using information contained on a copy of the check and the remittance advice relating to such Selected Receipts, the Independent Accountant will determine the amount of contract payments included in each such Selected Receipt. Such amounts will be compared against the amounts reflected on the Lease Accounting Systems noting any exceptions. 3. For each of the Selected Receipts, the Independent Accountant will compare the amount of the contract payment posted to the Lease Accounting Systems to the amount of the contract payment indicated in the relevant Contract and the Contract Files maintained by the Issuer or the Servicer, noting any exceptions. The Independent Accountant will verify that any related Servicing Charges in respect of sample Contracts are also being posted to the Collection Account. 4. For any of the Selected Receipts which indicate a remittance of sales tax, the Independent Accountant will determine whether such sales tax remittances are included in a schedule prepared by the management of the Issuer or the Servicer (the "MANAGEMENT SCHEDULE") detailing tax payments received by tax jurisdiction, noting any exceptions. Independent Accountant will also determine whether the sales tax remittance is included in the supporting schedules included in the applicable sales tax return, noting any exceptions. Independent Accountant will recalculate the summation amounts on three of the ten largest sales tax returns and additionally determine that the dates on the Issuer's or the Servicer's checks remitting payment to the respective states is within the required filing period. 5. Independent Accountant will recalculate the interest expense by using (i) the outstanding principal balance of each Series of Notes at the beginning of one Review Period, (ii) the amount shown as the interest due for such Series with respect to the Payment Date relating to such Review Period. The amount of interest expenses so recalculated will be compared against the information provided in the Monthly Servicer Reports noting any exceptions. Independent Accountant will compare the stated outstanding principal amounts of each series of Notes as set forth in the related Monthly Servicer Report and confirm with Indenture Trustee's records. 41 6. Independent Accountant will confirm the amount of early pay-offs received during each Review Period using information contained in the relevant Monthly Servicer Reports. 7. Management Schedule will include a list of all early pay-off Contracts during each of the Review Periods. Independent Accountant will select a total of five Contracts listed as "early pay-offs" from the Management Schedule. For each Contract so selected, Independent Accountant will compare the amount deposited into the Collection Account in respect of such Contract with the amount of early pay-off specified in the Management Schedule, noting any exceptions. 8. Using the dates reflected on the copy of the check (or top portion of the check) and remittance advice, Independent Accountant will determine if the respective Selected Receipt posting or effective date related to the underlying contract transaction in the Lease Accounting Systems is the same month as reflected on the copy of the check (or top portion of the check) and the remittance advice noting any exceptions. 9. Independent Accountant will compare the Implicit Principal Balance of each Contract which has become a Defaulted Contract during each Review Period, using information from the related Monthly Servicer Reports, the Management Schedule and/or the Lease Accounting Systems, noting any exceptions. 10. Using information contained in the bank reconciliation for the Collection Account. Independent Accountant will recalculate the amounts listed in the bank reconciliation and compare to Monthly Servicer Report, noting any exceptions. 11. The Independent Accountant will select one monthly bank reconciliation for the ACH Account and the Operating Account. Using information contained in the bank reconciliations, Independent Accountant will recalculate the amounts listed in the bank reconciliations and compare to Monthly Servicer Report, and will verify that required cash sweeps pursuant to the Servicing Agreement are being done on a timely basis as required. 12. Independent Accountant will verify whether the Servicer has procedures in place to monitor and make or cause to be made UCC financing or continuation statements, based on reasonable details provided by the Servicer. 13. The Independent Accountant will determine the Aggregate Implicit Principal Balance of the Contracts as of the close of business on the last day of each Review Period and will compare such amount to the information indicated in the Lease Accounting Systems, noting any exceptions. 14. The Independent Accountant will determine whether the Lease Accounting Systems correctly identifies the ownership interest of the Issuer in the related receivables for the Selected Receipts. 15. The Independent Accountant will verify or recalculate the numeric information used in determining whether a Trigger Event or financial covenant violation exists as set forth in the Servicer's records and the related Monthly Servicer Report. 42 16. Independent Accountant will compare 50 Contracts by delinquency category against the information in the Lease Accounting Systems for accuracy. 17. The Independent Accountant will compare the number of Contracts indicated in the related Monthly Servicer Report against the information indicated in the Lease Accounting Systems. 18. The Independent Accountant will compare the stated balances in the Collection Account and the Cash Collateral Account on the related Monthly Servicer Reports against the information indicated in the related to bank statements and investment statements. 19. The Independent Accountant will check the Monthly Servicer Reports for adherence to the 10% substitution limit. EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 2000 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 16,372 0 288,304 43,455 0 0 16,730 8,812 291,144 0 176,585 0 0 134 81,673 291,144 0 28,641 0 6,329 0 8,529 3,075 8,675 3,705 0 0 0 0 4,970 0.39 0.39
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