-----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, EMRVz3/3iSc55VExCkMSnyhciU07322vixuXdM4n83F1szXi1pdoTlVtxCkR9u6w W9LhhkEArZyncIkAedCxWA== 0000950135-03-003091.txt : 20030515 0000950135-03-003091.hdr.sgml : 20030515 20030515125948 ACCESSION NUMBER: 0000950135-03-003091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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: 1934 Act SEC FILE NUMBER: 001-14771 FILM NUMBER: 03702779 BUSINESS ADDRESS: STREET 1: 10 M COMMERCE WAY CITY: WOBURN STATE: MA ZIP: 01801 BUSINESS PHONE: 7819944800 MAIL ADDRESS: STREET 1: 10 M COMMERCE WAY CITY: WOBURN STATE: MA ZIP: 01801 FORMER COMPANY: FORMER CONFORMED NAME: BOYLE LEASING TECHNOLOGIES INC DATE OF NAME CHANGE: 19980605 10-Q 1 b46554mfe10vq.txt FORM 10-Q DATED 3/31/03 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, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 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) 10 M Commerce Way, Woburn, MA 01801 (Address of Principal Executive Offices) (781) 994-4800 (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 2, 2003, 13,126,416 shares of the registrant's common stock were outstanding. MICROFINANCIAL INCORPORATED TABLE OF CONTENTS
Page Part I FINANCIAL INFORMATION Item 1 Financial Statements (unaudited): Condensed Consolidated Balance Sheets December 31, 2002 and March 31, 2003 3 Condensed Consolidated Statements of Operations Three months ended March 31, 2002 and 2003 4 Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2002 and 2003 5 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3 Quantitative and Qualitative Disclosures about Market Risk 19 Item 4 Controls and Procedures 19 Part II OTHER INFORMATION Item 1 Legal Proceedings 20 Item 3 Recent Sales of Unregistered Securities 22 Item 5 Other Information 22 Item 6 Exhibits and Reports on Form 8-K 23 Signatures 24 Certifications 25
MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
December 31, March 31, ------------ --------- 2002 2003 ---- ---- ASSETS Net investment in leases and loans: Receivables due in installments $ 334,623 $ 299,442 Estimated residual value 30,754 28,404 Initial direct costs 4,891 4,057 Loans receivable 1,796 1,783 Less: Advance lease payments and deposits (96) (77) Unearned income (67,574) (55,666) Allowance for credit losses (69,294) (66,359) ----------- ----------- Net investment in leases and loans $ 235,100 $ 211,584 Investment in service contracts 14,463 12,843 Cash and cash equivalents 5,494 9,803 Restricted cash 18,516 14,419 Property and equipment, net 9,026 8,103 Income taxes receivable 8,652 8,652 Other assets 3,834 4,288 ----------- ----------- Total assets $ 295,085 $ 269,692 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 168,927 $ 145,191 Subordinated notes payable 3,262 3,262 Capitalized lease obligations 471 356 Accounts payable 3,840 3,945 Other liabilities 6,776 6,343 Income taxes payable 1,400 1,392 Deferred income taxes payable 23,806 23,303 ----------- ----------- Total liabilities 208,482 183,792 ----------- ----------- Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued at 12/31/02 and 3/31/03 - - Common stock, $.01 par value; 25,000,000 shares authorized; 13,410,646 and 13,730,500 shares issued at 12/31/02 and 3/31/03, respectively 134 137 Additional paid-in capital 47,723 47,977 Retained earnings 45,089 44,334 Treasury stock (588,700 shares of common stock at 12/31/02 and 3/31/03), at cost (6,343) (6,343) Unearned compensation 0 (205) ----------- ----------- Total stockholders' equity 86,603 85,900 ----------- ----------- Total liabilities and stockholders' equity $ 295,085 $ 269,692 =========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data)
For the three months ended March 31, -------------------------- 2002 2003 ---- ---- Revenues: Income on financing leases and loans $ 15,235 $ 9,821 Income on service contracts 2,395 2,251 Rental income 9,863 8,547 Loss and damage waiver fees 1,526 1,483 Service fees and other 6,266 3,469 ------------------------- Total revenues 35,285 25,571 ------------------------- Expenses: Selling general and administrative 12,574 9,131 Provision for credit losses 10,964 10,799 Depreciation and amortization 3,639 4,270 Interest 2,747 2,629 ------------------------- Total expenses 29,924 26,829 ------------------------- Income/(loss) before provision for income taxes 5,361 (1,258) Provision/(benefit) for income taxes 2,145 (503) ------------------------- Net income/(loss) $ 3,216 ($ 755) ========================= Net income/(loss) per common share - basic $ 0.25 ($ 0.06) ========================= Net income/(loss) per common share - diluted $ 0.25 ($ 0.06) ========================= Weighted-average shares used to compute: Basic net income per share 12,821,946 12,854,642 ------------------------- Fully diluted net income per share 12,853,061 12,854,642 -------------------------
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the three months ended March 31, -------------------------- 2002 2003 ---- ---- Cash flows from operating activities: Cash received from customers $ 46,729 $ 39,652 Cash paid to suppliers and employees (11,642) (10,796) Cash paid for income taxes (988) (8) Interest paid (2,310) (3,181) Interest received 154 44 ------------------------- Net cash provided by operating activities 31,943 25,711 ------------------------- Cash flows from investing activities: Investment in lease contracts (20,027) (1,423) Investment in inventory (1,018) (71) Investment in direct costs (1,296) (125) Investment in service contracts (2,326) 0 Investment in fixed assets (138) (50) Repayment of notes from officers 10 0 ------------------------- Net cash used in investing activities (24,795) (1,669) ------------------------- Cash flows from financing activities: Proceeds from secured debt 9,300 0 Repayment of secured debt (14,218) (23,736) Proceeds from short term demand notes payable (85) 0 (Increase) decrease in restricted cash 98 4,097 Repayment of capital leases (101) (95) Payment of dividends (642) 0 ------------------------- Net cash used in financing activities (5,648) (19,734) ------------------------- Net (decrease) increase in cash and cash equivalents: 1,500 4,309 Cash and cash equivalents, beginning of period 146 5,494 ------------------------- Cash and cash equivalents, end of period $ 1,646 $ 9,803 =========================
(continued on following page) The accompanying notes are an integral part of the condensed consolidated financial statements. 5 MICROFINANCIAL INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Continued)
For the three months ended March 31, -------------------------- 2002 2003 ---- ---- Reconciliation of net income to net cash provided by operating activities: Net income (loss) $ 3,216 ($ 755) Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization 3,639 4,270 Provision for credit losses 10,964 10,799 Recovery of equipment cost and residual value, net of revenue recognized 12,203 12,411 Decrease in current taxes (988) (172) Decrease (increase) in deferred income taxes 2,145 (503) Change in assets and liabilities: Increase (decrease) in other assets 416 (563) Increase (decrease) in accounts payable (16) 105 Increase in accrued liabilities 364 119 ------------------------- Net cash provided by operating activities $ 31,943 $ 25,711 ========================= Supplemental disclosure of noncash activities: Accrual of common stock dividends $ 641 $ 0
The accompanying notes are an integral part of the condensed consolidated financial statements. 6 (A) Nature of Business: MicroFinancial Incorporated (the "Company") which operates primarily through its wholly-owned subsidiary, Leasecomm Corporation, is a specialized commercial finance company that primarily leases and rents "microticket" equipment and provides other financing services in amounts generally ranging from $400 to $15,000 with an average amount financed of approximately $3,500 and an average lease term of 38 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 funded its operations primarily through borrowings under its credit facilities, issuances of subordinated debt and on balance sheet securitizations. MicroFinancial incurred net losses of $22.1 million for the year ended December 31, 2002. The net losses incurred by the Company during the third and fourth quarters caused the Company to be in default of certain debt covenants in its credit facility and securitization agreements. In addition, as of September 30, 2002, the Company's credit facility failed to renew and consequently, the Company was forced to suspend new origination activity as of October 11, 2002. On April 14, 2003, the Company entered into a long-term agreement with its lenders. This long-term agreement waives the defaults described above, and in consideration for this waiver, requires the outstanding balance of the loan to be repaid over a term of 22 months beginning in April 2003 at an interest rate of prime plus 2.0%. The Company received a waiver, which was set to expire on April 15, 2003, for the covenant violations in connection with the securitization agreement. Subsequently, the Company received a permanent waiver of the covenant defaults and the securitization agreement was amended so that going forward, the covenants are the same as those contained in the long-term agreement entered into on April 14, 2003, for the senior credit facility. To date, the Company has fulfilled all of its debt obligations, as agreed to by the bank group, in a timely manner. In an effort to improve its financial position, MicroFinancial has taken certain steps including the engagement of a financial and strategic advisory firm, Triax Capital Advisors, LLC. Management and its advisors are actively considering various financing, restructuring and strategic alternatives. In addition, Management has taken steps to reduce overhead, including a reduction in headcount from 380 at December 31, 2001 to 203 at December 31, 2002. During the three months ended March 31, 2003, the employee headcount was further reduced to 186 in a continued effort to maintain an appropriate cost structure. Leasecomm Corporation periodically finances its lease and service contracts, together with unguaranteed residuals, through securitizations using special purpose vehicles. MFI Finance Corporation I and MFI Finance Corporation II, LLC are special purpose companies. The assets of such special purpose vehicles and cash collateral or other accounts created in connection with the financings in which they participate are not available to pay creditors of Leasecomm Corporation, MicroFinancial Incorporated, or other affiliates. While Leasecomm Corporation generally does not sell its interests in leases, service contracts or loans to third parties after origination, the Company does, from time to time, contribute certain leases, service contracts, or loans to special-purpose entities for purposes of obtaining financing in connection with the related receivables. The contribution of such assets under the terms of such financings are intended to constitute "true sales" of such assets for bankruptcy purposes (meaning that such assets are legally isolated from Leasecomm Corporation). However, the special purpose entities to which such assets are contributed are not "qualifying special purpose entities" within the meaning Statement of Financial Accounting Standards ("SFAS") SFAS No. 140, and are required under generally accepted accounting principles to be consolidated in the financial statements of the Company. As a result, such assets and the related liability remain on the balance sheet and do not receive gain on sale treatment. (B) Summary of Significant Accounting Policies: Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 7 Company's management, the condensed 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, 2002. The results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2003. The balance sheet at December 31, 2002 has been derived from the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Allowance for Credit Losses: The Company maintains an allowance for credit losses on its investment in leases, service contracts and loans at an amount that it believes is sufficient to provide adequate protection 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 lease, service contract or loan, if any, and reflects management's judgment of additional loss potential considering current economic conditions and the nature and characteristics of the underlying lease portfolio. The Company determines the necessary periodic provision for 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, service contracts and loans. The following table sets forth the Company's allowance for credit losses as of December 31, 2002 and March 31, 2003 and the related provision, charge-offs and recoveries for the three months ended March 31, 2003. Balance of allowance for credit losses at December 31, 2002 $ 69,294 ========= Provision for credit losses 10,799 Total provisions for credit losses 10,799 Charge-offs 16,348 Recoveries 2,614 ------ Charge-offs, net of recoveries 13,734 --------- Balance of allowance for credit losses at March 31, 2003 $ 66,359 =========
Earnings Per Share: Basic net income per common share is computed based on 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. The computation of diluted earnings per share does not assume the issuance of common shares that have an antidilutive effect on net income per common share. Options to purchase 1,936,000 shares of common stock were not included in the computation of diluted earnings per share for the three months ended March 31, 2002, because their effects were antidilutive. All stock options and unvested restricted stock were excluded from the computation of dilutive earnings per share for the three months ended March 31, 2003, because their inclusion would have had an antidilutive effect on earnings per share. 8
For three months ended March 31, -------------------------- 2002 2003 Net income (loss) $ 3,216 ($ 755) Shares used in computation: Weighted average common shares outstanding used in computation of net income per common share 12,821,946 12,854,642 Dilutive effect of common stock options 31,115 - -------------------------- Shares used in computation of net income per common share - assuming dilution 12,853,061 12,854,642 -------------------------- Net income (loss) per common share $ 0.25 ($ 0.06) Net income (loss) per common share assuming dilution $ 0.25 ($ 0.06)
Stock-based Employee Compensation All stock options issued to employees have an exercise price not less than the fair market value of the Company's common stock on the date of grant. In accordance with accounting for such options utilizing the intrinsic-value method, there is no related compensation expense recorded in the Company's financial statements. The Company follows the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 requires that compensation under a fair value method be determined using the Black-Scholes option-pricing model and disclosed in a pro forma effect on earnings and earnings per share. The Company accounts for stock-based employee compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The current period amortization of deferred compensation expense relating to the restricted stock awards granted on February 12, 2003 is reflected in net income. No other stock-based employee compensation cost is reflected in net income, as either all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant or options granted that result in a variable compensation costs had an exercise price greater than the fair market value of the underlying common stock on March 31, 2003. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. 9
For the three months ended March 31, -------------------------- 2002 2003 Net income (loss), as reported $3,216 ($ 755) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (353) (218) --------------------- Pro forma net income (loss) $2,863 ($ 973) ===================== Earnings (loss) per share: Basic - as reported $ 0.25 ($ 0.06) ===================== Basic - pro forma $ 0.22 ($ 0.08) ===================== Diluted - as reported $ 0.25 ($ 0.06) ===================== Diluted - pro forma $ 0.22 ($ 0.08) =====================
The fair value of option grants for options granted during the three months ended March 31, 2003 was estimated on the date of grant utilizing the Black-Scholes option-pricing model with the following weighted-average assumptions. Risk-free interest rate 3.34% Expected dividend yield 0.00% Expected life 7 years Volatility 76.00%
The weighted-average fair value at the date of grant for options granted during the three months ended March 31, 2003 approximated $0.62 per option. The Company granted 200,000 options during the three months ended March 31, 2003. 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 either at Prime for Prime Rate loans or the prevailing rate per annum as offered in the interbank Eurodollar market (Eurodollar) plus 1.75% for Eurodollar Loans. If the Eurodollar loans are not renewed upon their maturity they automatically convert into prime rate loans. On August 22, 2000, the revolving line of credit and term loan facility was amended and restated whereby the Company may now borrow a maximum of $192,000,000 based upon qualified lease receivables, loans, rentals and service contracts. Outstanding borrowings with respect to the revolving line of credit bear interest based either at Prime minus 0.25% for Prime Rate Loans or the prevailing rate per annum as offered in the London Interbank Offered Rate (LIBOR) plus 1.75% for LIBOR Loans or the seven-day Money Market rate plus 2.00% for Swing Line Advances. If the LIBOR loans are not renewed upon their maturity they automatically convert into prime rate loans. The Swing Line Advances have a seven-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 $10 million. The prime rate at both December 31, 2002, and March 31, 2003 was 4.25%. The 90-day LIBOR rates at December 31, 2002 and March 31, 2003 were 1.40% and 1.27875% respectively. 10 The Company had borrowings outstanding under this agreement with the following terms:
December 31, 2002 March 31, 2003 ----------------- -------------- Type Rate Amount Rate Amount - ---- ---- ------ ---- ------ (in thousands) (in thousands) Prime 4.7500% $ 31,556 5.2500% $ 65,051 LIBOR 4.1875% 50,000 4.1875% 50,000 LIBOR 4.1875% 45,000 -------- -------- Total Outstanding $126,556 $115,051 ======== ========
Outstanding borrowings are collateralized by leases, loans, rentals, and service contracts pledged specifically to the financial institutions. As of September 30, 2002 the revolving credit line failed to renew and the Company has been paying down the balance on the basis of a 36 month amortization plus interest. Based on the terms of the agreement, interest rates increased from Prime minus 0.25% to Prime plus 0.50% for prime based loans and from LIBOR plus 1.75% to LIBOR plus 2.50% for LIBOR based loans. In addition, based on the covenant defaults described below, the outstanding borrowings on all loans bear an additional 2.00% default interest. On January 3, 2003, the Company entered into a Forbearance and Modification Agreement for the senior credit facility which expired on February 7, 2003. Based on the terms of the Forbearance and Modification Agreement, interest rates increased again on the prime based loans to prime plus 1.00%. At December 31, 2002, the Company was in default of certain of its debt covenants in its senior credit facility. The covenants that were in default with respect to the senior credit facility require that the Company maintain a fixed charge ratio in an amount not less than 130% of consolidated earnings, a consolidated tangible net worth minimum of $77.5 million plus 50% of net income quarterly beginning with September 30, 2000 and compliance with the borrowing base. On April 14, 2003, the Company entered into a long-term agreement with its lenders. This long-term agreement waives the defaults described above, and in consideration for this waiver, requires the outstanding balance of the loan to be repaid over a term of 22 months beginning in April 2003 at an interest rate of prime plus 2.0%. Based on the amortization schedule in the new agreement, the Company is obligated to repay a minimum of $54 million, plus applicable interest, over the next twelve months. MFI I issued three series of notes, the 2000-1 Notes, the 2000-2 Notes, and the 2001-3 Notes. In March 2000, MFI I issued the 2000-1 Notes in aggregate principal amount of $50,056,686. In December 2000, MFI I issued the 2000-2 Notes in aggregate principal amount of $50,561,633. In September 2001, MFI I issued the 2001-3 Notes in aggregate principal amount of $39,397,354. Outstanding borrowings are collateralized by specific pools of lease receivables. In September 2001, MFI II, LLC was formed and issued one series of notes, the 2001-1 Notes in aggregate principal amount of $10,000,000. Outstanding borrowings are collateralized by a specific pool of lease receivables as well as the excess cash flow from the MFI I collateral. These notes are subordinate to the three series of notes issued by MFI I. At December 31, 2002, the Company was in default on two of its debt covenants in its securitization agreements. The covenants that were in default with respect to the securitization agreements require that the Company maintain a fixed charge ratio in an amount not less than 125% of consolidated earnings and a consolidated tangible net worth greater than $90 million plus 50% of net income for each fiscal quarter after June 30, 2001. Additionally per the terms of the securitization agreement, any default with respect to the senior credit facility is considered a default under the terms of the agreement. The Company received a waiver, which was set to expire on April 15, 2003, for the covenant violations in connection with the securitization agreement. Subsequently, the Company received a permanent waiver of the covenant defaults and the securitization agreement was amended so that going forward, the covenants are the same as those contained in the long-term agreement entered into on April 14, 2003, for the senior credit facility. 11 At December 31, 2002 and March 31, 2003, MFI I and MFI II had borrowings outstanding under the series of notes with the following terms:
December 31, 2002 March 31, 2003 ----------------- -------------- Series Rate Amount Rate Amount - ------ ---- ------ ---- ------ (in thousands) (in thousands) MFI I 2000-1 Notes 7.3750% 3,464 7.3750% - 2000-2 Notes 6.9390% 17,983 6.9390% 13,917 2001-3 Notes 5.5800% 17,019 5.5800% 13,593 MFI II LLC 2001-1 Notes 8.0000% 3,625 8.0000% 2,350 --------- -------- Total Outstanding $ 42,091 $ 29,860 ========= ========
On February 18, 2003, the Company repaid $2.4 million in principal plus accrued interest for the MFI Finance I series 2000-1 notes utilizing the clean up call provision under its securitizations. The re-payment was made using cash previously classified as restricted. At December 31, 2002 and March 31, 2003, the Company also had other notes payable which totaled $280,000. Of these notes, at December 2002 and March 31, 2003, $30,000 are notes that are due on demand and bear interest at a rate of prime less 1.00%. As of December 31, 2002 and March 31, 2003, $250,000 are two-year term notes that carry an interest rate of 7.5%. Stock Options: Under the 1998 Equity Incentive Plan (the "1998 Plan") which was adopted on July 9, 1998 the Company had reserved 4,120,380 shares of the Company's common stock for issuance pursuant to the 1998 Plan. The Company granted a total of 200,000 options and a total of 135,000 options were surrendered during the three months ended March 31, 2003. A total of 1,735,000 options were outstanding at March 31, 2003 of which 813,000 were vested. On February 7, 2003, the Company offered non-director employees and executives who had been granted stock options in the past the opportunity to cancel any of the original option agreements in exchange for a grant of shares of restricted stock. All option awards subject to the offer were converted to restricted stock. In connection with this offer, on February 12, 2003, 1,325,000 options converted to 319,854 shares of common stock. The restricted stock vested 20% upon grant, and vests 5% on the first day of each quarter after the grant date, with accelerated vesting if the price of the Corporation's common stock exceeds certain thresholds during the vesting period. As of March 31, 2003, 63,971 of these shares were fully vested and $51,000 had been amortized from deferred compensation expense to compensation expense. Dividends: During the fourth quarter of 2002, the Board of Directors suspended the future payment of dividends to comply with the Company's banking agreements. Provisions in certain of the Company's credit facilities and agreements governing its subordinated debt contain, and the terms of any indebtedness issued by the Company in the future are likely to contain, certain restrictions on the payment of dividends on the Common Stock. The decision as to the amount and timing of future dividends paid by the Company, if any, will be made at the discretion of the Company's Board of Directors in light of the financial condition, capital requirements, earnings and prospects of the Company and any restrictions under the Company's credit facilities or subordinated debt agreements, as well as other factors the Board of Directors may deem relevant, and there can be no assurance as to the amount and timing of payment of future dividends. 12 Reclassification of Prior Year Balances: Certain reclassifications have been made to prior years' consolidated financial Statements to conform to the current presentation. Commitments and Contingencies: Please refer to Part II Other Information, Item 1 Legal Proceedings for information about pending litigation of the Company. Subsequent Events: The Company entered into a long-term agreement with its lenders on April 14, 2003. This long-term agreement waives the covenant defaults, and in consideration for this waiver, requires the outstanding balance of the loan to be repaid over a term of 22 months beginning in April 2003 at an interest rate of prime plus 2.0%. Based on the amortization schedule in the new agreement, the Company is obligated to repay a minimum of $54 million, plus applicable interest, over the next twelve months. The Company received a waiver, which was set to expire on April 15, 2003, for the covenant violations in connection with the securitization agreement. Subsequently, the Company received a permanent waiver of the covenant defaults and the securitization agreement was amended so that going forward, the covenants are the same as those contained in the long-term agreement entered into on April 14, 2003, for the senior credit facility. 13 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 2003 as compared to the three months ended March 31, 2002. Net income for the three months ended March 31, 2003 was a loss of approximately $755,000, a decrease of $4.0 million or 124% from the three months ended March 31, 2002. This represents diluted earnings per share for the three months ended March 31, 2003 of ($0.06) per share on weighted-average outstanding shares of 12,854,642 as compared to $0.25 per share on weighted-average outstanding shares of 12,821,946 for the three months ended March 31, 2002. Total revenues for the three months ended March 31, 2003 were $25.6 million, a decrease of $9.7 million, or 28%, from the three months ended March 31, 2002. The decrease was primarily due to a decrease of $5.4 million, or 36%, in financing leases and loans, $2.8 million or 45% in fee and other income, and $1.3 million or 13% in rental income. The decrease in income on financing leases and loans was due to the decreased number of leases originated primarily resulting from the Company's decision during the third quarter of 2002 to suspend the funding of new contracts. The decrease in fee income and other income is the result of decreased fees from the lessees related to the collection and legal process employed by the Company. The decrease in rental income is the result of a decrease in originations of rental contracts. Selling, general and administrative expenses decreased by $3.4 million, or 27%, for the three months ended March 31, 2003, as compared to the three months ended March 31, 2002. Compensation expenses decreased by $1.8 million or 34% primarily due to staff reductions. Collections expense decreased by $873,000 or 49%. Cost of goods sold expenses decreased $556,000 or 71%. Inventory services expense decreased by $199,000 or 86%. Depreciation and amortization increased by $631,000 or 17%, due to an increase in the number of early terminations of monthly rental and service contracts. The Company's provision for credit losses decreased by $165,000 or 2%, for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002, while net charge-offs increased 22% to $13.7 million. This provision was based on 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 reflects management's judgement of loss potential considering current economic conditions and the nature of the underlying receivables. Interest expense decreased by $118,000, or 4%, for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. This decrease resulted primarily from an overall decrease in the level of borrowings. Dealer fundings were $1.2 million for the three months ended March 31, 2003, down $21.4 million, or 95% as compared to the three months ended March 31, 2002. This decrease is a result of the Company's decision during the third quarter of 2002 to suspend new contract originations until a new line of credit is obtained. Total cash from customers decreased by $7.1 million or 15% to a total of $39.7 million. This decrease is primarily the result of a decrease in the size of the overall portfolio. Investment in lease and loan receivables due in installments, estimated residuals, rental and service contracts were down from $396.5 million in December of 2002 to $357.4 million in March of 2003. 14 Critical Accounting Policies In response to the SEC's release No. 33-8040, "Cautionary Advice regarding Disclosure About Critical Accounting Policies," Management identified the most critical accounting principles upon which our financial status depends. The Company determined the critical principles by considering accounting policies that involve the most complex or subjective decisions or assessments. We identified our most critical accounting policies to be those related to revenue recognition and maintaining the allowance for credit losses. These accounting policies are discussed below as well as within the notes to the consolidated financial statements. The Company's investments in cancelable service contracts are recorded at cost and amortized over the expected life of the service period. Income on service contracts from monthly billings is recognized as the related services are provided. The Company periodically evaluates whether events or circumstances have occurred that may affect the estimated useful life or recoverability of the investment in service contracts. Rental equipment is either recorded at estimated residual value and depreciated using the straight-line method over a period of 12 months or at the acquisition cost and depreciated using the straight line method over a period of 36 months. Loans are reported at their outstanding principal balance. Interest income on loans is recognized as it is earned. The Company's lease contracts are accounted for as financing leases. At origination, the Company records the gross lease receivable, the estimated residual value of the leased equipment, initial direct costs incurred and the unearned lease income. Unearned lease income is the amount by which the gross lease receivable plus the estimated residual value exceeds the cost of the equipment. Unearned lease income and initial direct costs incurred are amortized over the related lease term using the interest method. Amortization of unearned lease income and initial direct costs is suspended if, in the opinion of management, full payment of the contractual amount due under the lease agreement is doubtful. In conjunction with the origination of leases, the Company may retain a residual interest in the underlying equipment upon termination of the lease. The value of such interests is estimated at inception of the lease and evaluated periodically for impairment. Other revenues such as loss and damage waiver fees, service fees relating to the leases, contracts and loans, and rental revenues are recognized as they are earned. The Company maintains an allowance for credit losses on its investment in leases, service contracts, rental contracts and loans at an amount that it believes is sufficient to provide adequate protection 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 lease, service contract, rental contract or loan, if any, and reflects management's judgment of additional loss potential considering current economic conditions and the nature and characteristics of the underlying lease portfolio. The Company determines the necessary periodic provision for 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, service contracts, rental contracts and loans. Such provisions generally represent a percentage of funded amounts of leases, contracts and loans. The resulting charge is included in the provision for credit losses. Leases, service contracts, rental contracts and loans are charged against the allowance for credit losses and are put on non-accrual when they are deemed to be uncollectable. Generally, the Company deems leases, service contracts, rental contracts and loans to be uncollectable when one of the following occurs: (i) the obligor files for bankruptcy; (ii) the obligor dies, and the equipment is returned; or (iii) when an account has become 360 days delinquent without contact with the lessee. The typical monthly payment under the Company's leases is between $30 and $50 per month. As a result of these small monthly payments, the Company's experience is that lessees will pay past due amounts later in the process because of the small amount necessary to bring an account current (at 360 days past due, a lessee will typically only owe lease payments of between $360 and $600). The Company has developed and regularly updates proprietary credit scoring systems designed to improve its risk-based pricing. The Company uses credit scoring in most, but not all, of its extensions of credit. In addition, the Company aggressively employs collection procedures and a legal process to resolve any credit problems. 15 Exposure to Credit Losses The following table sets forth certain information as of December 31, 2001 and 2002 and March 31, 2003 with respect to delinquent leases, service contracts and loans. The percentages in the table below represent the aggregate on such date of the actual amounts not paid on each invoice by the number of days past due, rather than the entire balance of a delinquent receivable, over the cumulative amount billed at such date from the date of origination on all leases, service contracts, and loans in the Company's portfolio. For example, if a receivable is 90 days past due, the portion of the receivable that is over 30 days past due will be placed in the 31-60 days past due category, the portion of the receivable which is over 60 days past due will be placed in the 61-90 days past due category and the portion of the receivable which is over 90 days past due will be placed in the over 90 days past due category. The Company historically used this methodology of calculating its delinquencies because of its experience that lessees who miss a payment do not necessarily default on the entire lease. Accordingly, the Company includes only the amount past due rather than the entire lease receivable in each category.
As of As of December 31 March ----------- ----- 2001 2002 2003 ---- ---- ---- Cumulative amounts billed (in thousands) $ 602,649 $ 600,637 $ 584,774 31-60 days past due 1.8% 1.0% 0.8% 61-90 days past due 1.7% 1.0% 0.8% Over 90 days past due 13.4% 22.9% 22.7% ----------- ----------- ----------- Total past due 16.9% 24.9% 24.3% =========== =========== ===========
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, contracts and loans. Since inception, the Company has funded its operations primarily through borrowings under its credit facilities, its on-balance sheet securitizations, the issuance of subordinated debt and an initial public offering completed in February of 1999. The Company will continue to require significant additional capital to maintain and expand its volume of leases, contracts and loans funded, as well as to fund any future acquisitions of leasing companies or portfolios. The Company's uses of cash include the origination and acquisition of leases, contracts and loans, payment of interest expenses, repayment of borrowings under its credit facilities, subordinated debt and securitizations, payment of selling, general and administrative expenses, income taxes and capital expenditures. The Company utilizes its credit facilities to fund the origination and acquisition of leases that satisfy the eligibility requirements established pursuant to each facility. On August 22, 2000, the Company entered into a new $192 million credit facility with nine banks, expiring on September 30, 2002. As of September 30, 2002 the credit facility failed to renew and the Company has been paying down the balance on the basis of a 36-month amortization plus interest. Based on the terms of the agreement, interest rates increased from Prime minus 0.25% to Prime plus 0.50% for prime based loans and from LIBOR plus 1.75% to LIBOR plus 2.50% for LIBOR based loans. In addition, based on the covenant defaults described below, the outstanding borrowings on all loans bear an additional 2.00% default interest. On January 3, 2003, the Company entered into a Forbearance and Modification Agreement from the senior credit facility which expired on February 7, 2003. Based on the terms of the Forbearance and Modification Agreement, interest rates increased again on the prime based loans to prime plus 1.00%. At March 31, 2003, the Company had approximately $115.1 million outstanding under the facility. The Company also may use its subordinated debt program as a source of funding for potential acquisitions of portfolios and leases which otherwise are not eligible for funding under the credit facilities and for potential portfolio purchases. To date, cash flows from its portfolio and other fees have been sufficient to repay amounts borrowed under the senior credit facility and 16 subordinated debt, however, in October 2002, the Company suspended new contract originations until a new source of funding is obtained. At December 31, 2002, the Company was in default of certain of its debt covenants in its senior credit facility and securitization agreements. The covenants that were in default with respect to the senior credit facility, require that the Company maintain a fixed charge ratio in an amount not less than 130% of consolidated earnings, a consolidated tangible net worth minimum of $77.5 million plus 50% of net income quarterly beginning with September 30, 2000, and compliance with the borrowing base. On April 14, 2003, the Company entered into a long-term agreement with its lenders. This long-term agreement waives the defaults described above, and in consideration for this waiver, requires the outstanding balance of the loan to be repaid over a term of 22 months beginning in April 2003 at an interest rate of prime plus 2.0%. Based on the amortization schedule in the new agreement, the Company is obligated to repay a minimum of $54 million, plus applicable interest, over the next twelve months. The covenants that were in default with respect to the securitization agreements, require that the Company maintain a fixed charge ratio in an amount not less than 125% of consolidated earnings and a consolidated tangible net worth greater than $90 million plus 50% of net income for each fiscal quarter after June 30, 2001. The Company received a waiver, which was set to expire on April 15, 2003, for the covenant violations in connection with the securitization agreement. Subsequently, the Company received a permanent waiver of the covenant defaults and the securitization agreement was amended so that going forward, the covenants are the same as those contained in the long-term agreement entered into on April 14, 2003, for the senior credit facility. The Company believes that cash flows from its portfolio will be sufficient to fund the Company's operations for the foreseeable future, given the satisfactory resolution of the Company's discussions with the lenders involved in the senior credit facility and the securitized notes. Contractual Obligations and Commercial Commitments The Company has entered into various agreements, such as long term debt agreements, capital lease agreements and operating lease agreements that require future payments be made. Long term debt agreements include all debt outstanding under the senior credit facility, securitizations, subordinated notes, demand notes and other notes payable. At March 31, 2003 the repayment schedules for outstanding long term debt, minimum lease payments under non-cancelable operating leases and future minimum lease payments under capital leases were as follows:
For the year ended Long-Term Operating Capital December 31, Debt Leases Leases Total - ------------------ ---- ------ ------ ----- 2003 $ 67,924 $ 1,321 $ 132 $ 69,377 2004 60,776 867 169 61,812 2005 17,151 227 55 17,433 2006 2,600 - - 2,600 Thereafter 2 - - 2 ----------- ----------- ----------- ----------- Total $ 148,453 $ 2,415 $ 356 $ 151,224 =========== =========== =========== ===========
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 17 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. 18 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. 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 The implicit yield to the Company on all of its leases, contracts and loans is on a fixed interest rate basis due to the leases, contracts and loans having scheduled payments that are fixed at the time of origination of the lease. When the Company originates or acquires leases, contracts, and loans it bases its pricing in part on the spread it expects to achieve between the implicit yield rate to the Company on each lease and the effective interest cost it will pay when it finances such leases, contracts and loans through its credit facility. Increases in interest rates during the term of each lease, contract or loan 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, contract or loan. Given the relatively short average life of the Company's leases, contracts and loans, the Company's goal is to maintain a blend of fixed and variable interest rate obligations. As of March 31, 2003, the Company's outstanding fixed-rate indebtedness outstanding under the Company's securitizations and subordinated debt represented 20.2% of the Company's total outstanding indebtedness. ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure controls and procedures. Within 90 days before filing this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Richard F. Latour, our President and Chief Executive Officer, and James R. Jackson Jr., our Vice President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Richard F. Latour and James R. Jackson Jr. concluded that, as of the date of their evaluation, our disclosure controls were effective. (b) Internal controls. Since the date of the evaluation described above, there have not been any significant changes in our internal accounting controls or in other factors that could significantly affect those controls. 19 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 subject to substantial legal defenses, 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. A. The Company filed an action in the United States District Court for the District of Massachusetts against Sentinel Insurance Company, Ltd., ("Sentinel"), Premier Holidays International, Inc., ("Premier") and Daniel DelPiano ("DelPiano") arising from Premier's October, 1999, default on its repayment obligations to the Company under a Twelve Million Dollar ($12,000,000) loan. Judgment has been entered in this case against Sentinel, which had issued a business performance insurance policy guaranteeing repayment of the loan, in the amount of Fourteen Million Dollars ($14,000,000). This judgment has not been satisfied. Sentinel is currently undergoing liquidation proceedings, and a claim in this amount has been filed with the bankruptcy court. Premier has asserted a counterclaim against the Company for Seven Hundred Sixty Nine Million Three Hundred Fifty Thousand dollars ($769,350,000) in actual and consequential damages, and for Five Hundred Million Dollars ($500,000,000) in punitive damages, plus interest, cost and attorney's fees. The counterclaim is based upon an alleged representation by the Company that it would lend Premier an additional Forty-Five Million Dollars ($45,000,000), when all documents evidencing the Premier loan refer only to the Twelve Million ($12,000,000) amount actually loaned and not repaid. The Company denies any liability on the counterclaim, which the Company is vigorously contesting. The Company's motion for summary judgment seeking dismissal of the counterclaim and the award of full damages on the Company's claims was denied by Court Order, without a written decision. The Company's motion for the appointment of a special master was also denied without a written decision. Because of the uncertainties inherent in litigation, we cannot predict whether the outcome will have a material adverse effect. B. On January 29, 2002, Leasecomm was served with an Amended Complaint ("Complaint") in an action entitled People v. Roma Computer Solutions, Inc., et al., Ventura County Superior Court Case No. CIV207490. The Complaint asserts two claims, one for violation of the California Business Professions Code Section 17500 (false advertising), and the other for violation of the California Business and Professions Code Section 17200 (unfair or unlawful acts or practices). The claims arise from the marketing and selling activities of other defendants, including Roma Computer Solutions, Inc., and/or Maro Securities, Inc. The Complaint seeks to have Leasecomm held liable for the acts of other defendants, alleging that Leasecomm directly participated in those acts and received proceeds and the assignment of lease contracts as a result of those acts. The Complaint requests injunctive relief, rescission, restitution, and a civil penalty. The Company has filed an Answer denying the claims. Because of the uncertainties inherent in litigation, we cannot predict whether the outcome will have a material adverse affect. C. In October, 2002, the Company was served with a Complaint in an action in the United States District Court for the Southern District of New York filed by approximately 170 present and former lessees asserting individual claims. The Complaint contains claims for violation of RICO (18 U.S.C. Section 1964), fraud, unfair and deceptive acts and practices, unlawful franchise offerings, and intentional infliction of mental anguish. The claims purportedly arise from Leasecomm's dealer relationships with Themeware, E-Commerce Exchange, Cardservice International, Inc., and Online Exchange for the leasing of websites and virtual terminals. The Complaint asserts that the Company is responsible for the conduct of its dealers in trade shows, infomercials and web page advertisements, seminars, direct mail, telemarketing, all which are alleged to constitute unfair and deceptive acts and practices. Further, the Complaint asserts that Leasecomm's lease contracts as well as its collection practices and late fees are unconscionable. The Complaint seeks restitution, compensatory and treble damages, and injunctive relief. The Company filed a Motion to Dismiss the Complaint on January 31, 2003, and expects that the Motion will be argued sometime after June 30, 2003. Because of the uncertainties inherent in litigation, we cannot predict whether the outcome will have a material adverse effect. D. On March 31, 2002, plaintiffs Robert Hayden and Renono Wesley filed a Complaint against Leasecomm Corporation alleging a violation of California Business & Professions Code Section 17200. The Complaint was filed on behalf of Hayden and Wesley individually, on behalf of a class of people similarly situated, and on behalf of 20 the general public. The case is venued in San Francisco Superior Court. Specifically, plaintiffs allege that Leasecomm's practice of filing suits against lessees in Massachusetts courts constitutes an unfair business practice under California law. On March 12, 2003, the San Francisco County Superior Court granted Leasecomm's Motion to dismiss this action. E. On August 22, 2002 plaintiff Aaron Cobb filed a Complaint against Leasecomm Corporation and MicroFinancial, Inc. and another Entity known as Galaxy Mall, Inc. alleging breach of contract; Fraud, Suppression and Deceit; Unjust Enrichment; Conspiracy; Conversion; Theft by Deception; and violation of Alabama Usury Laws. The Complaint was filed on behalf of Aaron Cobb individually, and on behalf of a class of persons and entities similarly situated in the State of Alabama. More specifically, the Plaintiff purports to represent a class of persons and small business in the State of Alabama who allegedly were induced to purchase services and/or goods from any of the Defendants named in the Complaint. The case is venued in Bullock County, Alabama. On March 31, 2003 the trial court entered an Order denying the Company's Motion to Dismiss. An appeal of the Order was filed with the Alabama Supreme Court on May 12, 2003. The Company continues to deny any wrongdoing and plans to vigorously defend this claim. Because of the uncertainties inherent in litigation, the company cannot predict whether the outcome will have a material adverse affect. F. In March, 2003, an action was filed by a shareholder against the Company in United States District Court asserting a single count of common law fraud and constructive fraud. The complaint alleges that the shareholder was defrauded by untrue statements made to him by management, upon which he relied in the purchase of Company stock for himself and for others. The complaint seeks damages in an unspecified amount. Because of the uncertainties inherent in litigation, we cannot predict whether the outcome will have a material adverse effect. G. In March, 2003, a purported class action was filed in Superior Court in Massachusetts against Leasecomm and one of its dealers. The class sought to be certified is a nationwide class (excluding certain residents of the State of Texas) who signed identical or substantially similar lease agreements with Leasecomm covering the same product. The complaint asserts claims for declaratory relief, rescission, civil conspiracy, usury, breach of fiduciary duty, and violation of Massachusetts General Laws Chapter 93A, Section 11 ("Chapter 93A"). The claims concern the validity, enforceability, and alleged unconscionability of agreements provided through the dealer, including a Leasecomm lease, to acquire on line credit card processing services. The complaint seeks rescission of the lease agreements with Leasecomm, restitution, multiple damages and attorneys fees under Chapter 93A, and injunctive relief. Because of the uncertainties inherent in litigation we cannot predict whether the outcome will have a material adverse effect. H. On April 29, 2003, Leasecomm was served with a Complaint filed in the Orange County Superior Court for the State of California. In that Complaint, Maria J. Smith purports to bring a claim against Leasecomm and two other defendants (Galaxy Mall, Inc. and Electronic Commerce International, Inc.) for unfair business practices and competition under California Business and Professions Code section 17200 et seq. The essence of the claim is that Smith and others who are similarly situated were defrauded in connection with their acquisition of certain licenses that were financed by Leasecomm. Leasecomm currently is expected to respond to the complaint by May 29, 2003. Management expects to defend the action vigorously. Leasecomm has been served with Civil Investigative Demands and subpoenas by the Offices of the Attorney General for the states of Kansas, Illinois, Florida, and Texas, and for the Commonwealth of Massachusetts. Those Offices of the Attorney General, in conjunction with the Northwest Region Office of the Federal Trade Commission, the Offices of the Attorney General for North Carolina and North Dakota, and the Ventura County, California, District Attorney's Office, have informed Leasecomm that they are seeking to coordinate their investigations (collectively, the "Government Investigators"). At this time, the principal focus of the investigations appears to be software license leases (principally virtual terminals) and leases from certain vendor/dealers whose activities included business opportunity seminars. Leasecomm has further been informed that the investigations cover certain lease provisions, including the forum selection clause and language concerning the non-cancellability of the lease. In addition, the investigations include, among other things, whether Leasecomm's lease termination, or rollover, provisions, are legally sufficient; whether a Leasecomm lease is an enforceable lease; whether there were potential problems with its leases of which Leasecomm had knowledge; whether the leases are enforceable in accordance with their terms; whether three day right of rescission notices were required and, if required, whether proper notices were given; whether any lease prices were unconscionable; whether the lease of a software license is the lease of a 21 service, not a good; whether any lease of satellites or computers are leases to consumers which must comply with certain consumer statutes; whether electronic fund transfer payments pursuant to a lease violate Reg. E; whether any Leasecomm billing and collection practices or charges are unreasonable, or constitute unfair or deceptive trade practices; whether Leasecomm's course of dealings with its vendors/dealers makes Leasecomm liable for any of the activities of its vendors/dealers. In April, 2002, Leasecomm and the Government Investigators entered into provisional relief and tolling agreements which provide for Leasecomm to take certain interim actions, toll the running of the statute of limitations as of January 29, 2002, and require advance notice by Leasecomm of its withdrawal from the provisional relief agreement and advance notice by each of the Government Investigators of its intention to commence legal action. The tolling agreement has been extended several times, and is currently to expire in June, 2003. The parties have reached an agreement in principle, subject to final approval by the Government Investigators, which would conclude the investigations through the entry of consent judgments. Additionally, from time-to-time Leasecomm receives complaints, requests or directives from various state enforcement agencies with respect to individual lessees or groups of lessees which are fewer than 100 in number. While these requests or directives can occur regularly, they concern relatively few leases and, therefore, are not likely to have a material adverse effect on the Company. Since the investigations have not been concluded, and no legal action has been commenced against Leasecomm, there can be no assurance as to the eventual outcome. ITEM 3. RECENT SALES OF UNREGISTERED SECURITIES On April 14, 2003, the Company issued warrants to purchase an aggregate of 268,199 shares of the Company's common stock at an exercise price of $.825 per share. The warrants were issued to the nine lenders in the Company's lending syndicate in connection with a waiver of defaults and an extension of the Company's term loan, and are only exercisable if the debt remains outstanding as of June 30, 2004. The exemption from registration relied on by the Company was Section 4(2) of the Securities Act of 1933. All investors were accredited investors and the offering otherwise met the requirements of Regulation D under the Securities Act. ITEM 5. OTHER INFORMATION The Company's chief executive officer and chief financial officer have furnished to the SEC the certification with respect to this Form 10-Q that is required by Section 906 of the Sarbanes-Oxley Act of 2002. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith: 10.1 Second Amendment to Fourth Amended and Restated Revolving Credit Agreement dated April 14, 2003 among Leasecomm Corporation, Fleet National Bank, as agent, and the other Lenders named therein 10.2 Warrant Purchase Agreement dated April 14, 2003 among the Company, Fleet National Bank, as agent, and the other Lenders named therein 10.3 Form of Warrants to purchase Common Stock of the Company issued April 14, 2003, together with schedule of warrant holders 10.4 Co-Sale Agreement dated April 14, 2003 among the Company, Peter R. Bleyleben, Torrence C. Harder, Brian E. Boyle, Richard F. Latour, Alan J. Zakon, and James R. Jackson, Jr., and the Lenders named therein 10.5 Registration Rights Agreement dated April 14, 2003 among the Company and the Lenders named therein 10.6 Direction and Permanent Waiver of Trigger Events and Servicer Events of Default dated April 15, 2003 among Ambac Assurance Corporation, Wells Fargo Bank Minnesota, National Association ("Wells Fargo"), as indenture trustee, MFI Finance Corp. I and Leasecomm Corporation waiving certain covenants under the Amended and Restated Indenture dated as of September 1, 2001 and related documents thereto, all with respect to MFI Finance Corp. I 10.7 MFI Finance II, LLC 8.00% Asset-Backed Notes, Series 2001-1: MFI II Permanent Waiver dated April 15, 2003 between N M Rothschild & Sons Limited and the Company waiving certain covenants under the Amended and Restated Indenture dated as of September 1, 2001 and related documents thereto, all with respect to MFI Finance Corp. II 10.8 First Amendment to Amended and Restated Indenture dated April 15, 2003 among the Company, MFI Finance Corp I, Wells Fargo, as back-up servicer and Wells Fargo, as indenture trustee 10.9 Third Amendment to Servicing Agreement dated April 15, 2003 among the Company, MFI Finance Corp I, Wells Fargo, as back-up servicer and Wells Fargo, as indenture trustee 10.10 First Amendment to Fourth Amended and Restated Revolving Credit Agreement dated September 21, 2001 among Leasecomm Corporation, Fleet National Bank, as agent, and the other Lenders named therein 10.11 Forbearance and Modification Agreement dated January 3, 2003 among Leasecomm Corporation, Fleet National Bank, as agent, and the other Lenders named therein 10.12 Forbearance and Modification Agreement dated January 24, 2003 among Leasecomm Corporation, Fleet National Bank, as agent, and the other Lenders named therein 10.13 Second Amendment to Servicing Agreement dated October 14, 2002 among the Company, MFI Finance Corp I, Wells Fargo, as back-up servicer and Wells Fargo, as indenture trustee 10.14 Letter Agreement dated April 14, 2003 among Fleet National Bank, as Agent, the Company, and the holders of the Company's 7.5% Term Notes 10.15 Letter Agreement dated April 14, 2003 among Fleet National Bank, as Agent, the Company, and the holders of the Company's Subordinated Capital Notes 99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) A form 8-K was filed on March 11, 2003, to announce the results for the year ended December 31, 2002. A second report on Form 8-K was filed on March 19, 2003 disclosing other events. A third report on Form 8-K was filed on April 16, 2003 to announce the results for the quarter and year ended December 31, 2002 and that the Company has secured an amendment to its Credit Agreement and received permanent waivers under its securitization facility. 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/ Richard F. Latour ------------------------------------------ President and Chief Executive Officer By: /s/ James R. Jackson Jr. ------------------------------------------ Vice President and Chief Financial Officer Date: May 15, 2003 24 CERTIFICATION I, Richard F. Latour, certify that: 1. I have reviewed this quarterly report on Form 10-Q of MicroFinancial Incorporated; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ RICHARD F. LATOUR ------------------------------------------ Richard F. Latour President and Chief Executive Officer Date: May 15, 2003 25 CERTIFICATION I, James R. Jackson Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of MicroFinancial Incorporated; 3. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 7. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ JAMES R. JACKSON JR. ------------------------------------------ James R. Jackson Jr. Vice President and Chief Financial Officer Date: May 15, 2003 26 EX-10.1 3 b46554mfexv10w1.txt AMEMDED REVOLVING CREDIT AGREEMENT EXHIBIT 10.1 SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Second Amendment dated as of April 14, 2003 to the Fourth Amended and Restated Revolving Credit and Term Loan Agreement (the "Second Amendment"), by and among LEASECOMM CORPORATION, a Massachusetts corporation (the "Borrower"), FLEET NATIONAL BANK, a national banking association ("Fleet"), the other financial institutions from time to time party thereto (together with Fleet, the "Lenders") and FLEET NATIONAL BANK, as agent for the Lenders (the "Agent") made as of August 22, 2000 (as amended and in effect from time to time, the "Credit Agreement"). Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, the Borrower and the Lenders have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Second Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. WAIVER. Subject to the satisfaction of the conditions specified in Section 4 herein, but with effect retroactive to the date on which the Defaults or Events of Default described on Annex A hereto (solely for the periods described on such Annex A, the "Specified Defaults") occurred, the Agent and the Lenders hereby (a) permanently waive such Specified Defaults and (b) rescind that certain notice of demand, dated March 5, 2003 from the Agent to the Borrower. SECTION 2. RATIFICATION OF EXISTING AGREEMENTS. The Borrower agrees that the Obligations, as evidenced by or otherwise arising under the Credit Agreement and the other Loan Documents, except as otherwise expressly modified in this Second Amendment upon the terms set forth herein, are, by the Borrower's execution of this Second Amendment, ratified and confirmed in all respects. In addition, by the execution of this Second Amendment, the Borrower represents and warrants that no counterclaim, right of set-off or defense of any kind exists or is outstanding as of the date hereof with respect to such Obligations. As of April 15, 2003, the aggregate principal amount of the Conversion Term Loan is $110,450,587.80 and the aggregate accrued and unpaid interest on the Conversion Term Loan is $250,992.64. SECTION 3. AMENDMENTS. Subject to the satisfaction of the conditions specified in Section 4, but with effect on and after the Effective Date (as defined in Section 4), the Credit Agreement shall be amended as follows: 3.1. DEFINITIONS. (a) Section 1.1 of the Credit Agreement is hereby amended by adding the following new definitions thereto in the appropriate alphabetical order: -2- Asta Transaction. See Section 5.5 of the Second Amendment to this Agreement. Attorneys General Settlements. Means collectively: (i) the Stipulated Final Judgment and Order to be entered by consent in the matter of Federal Trade Commission v. Leasecomm Corporation and MicroFinancial Incorporated, in the United States District Court for the District of Massachusetts; and (ii) a final judgment or order by consent to be entered in various civil actions to be filed against Leasecomm Corporation and MicroFinancial Incorporated by the Commonwealth of Massachusetts and the States of Florida, Texas, Illinois, North Carolina, Kansas and North Dakota, and in The People of the State of California v. Roma Computer Solutions, Inc., et al., Ventura County Superior Court Case No. CIV 207490. Blocked Account. Account number 657607472 at National City Bank or any successor account serving as a blocked account into which receipts related to the Contract Assets (as defined in the MFI I Indenture) or Series Assets are deposited under the Securitization Documents. Budget. See Section 5.20. Co-Sale Agreement. The Co-Sale Agreement, dated as of April 14, 2003 by and among the Parent, each of the parties listed as Lenders on Exhibit A thereto and each of the parties listed as Inside Investors on Exhibit B thereto. Excess Cash Flows. As at the end of each month, the amount by which the amount in the line item "Cash and Cash Equivalents end of period", as set forth in the Excess Cash Flow reconciliation reports required to be delivered monthly pursuant to Section 5.19 hereof, exceeds the sum of (i) $6,000,000 plus (ii) the amount of Restricted Cash plus (iii) if approved by the Majority Lenders, the amount of the Redemption Deposit, in each case, as set forth in the Excess Cash Flow reconciliation report. Iron Mountain Agreement. See Section 5.21. MFI I. MFI Finance Corp. I. MFI I Indenture. The Amended and Restated Indenture, dated as of September 1, 2001, among the Parent, MFI Finance Corp. I and Wells Fargo Bank Minnesota, National Association ("Wells Fargo"), as supplemented by (a) the Supplement to Indenture Contract Backed Notes, Series 2000-2, dated as of December 1, 2000, (b) the Supplement to Indenture, Contract-Backed Notes, Class A, Series 2001-3, dated as of September 1, 2001, and (c) the Supplement to Indenture Contract-Backed Notes, Class B, Series 2001-4, dated as of September 1, 2001. MFI II. MFI Finance II, LLC. -3- MFI II Indenture. The Indenture, dated as of September 1, 2001, among the Parent, MFI II and Wells Fargo, as supplemented by the Supplement to Indenture Asset-Backed Notes, Series 2001-1, dated as of September 1, 2001. New Entities. See Section 5.5 of the Second Amendment to the Credit Agreement. New Subordinated Debt. Those certain subordinated capital notes issued by the Parent and/or the Borrower and/or a New Entity, in form and substance satisfactory to the Agent, issued to any persons, entity or entities providing funds to make a prepayment of the Conversion Term Loan in connection with the Asta Transaction and pursuant to Section 5.5 of the Second Amendment to the Credit Agreement, on terms and conditions satisfactory to the Agent and the Lenders, including but not limited to, those terms and conditions listed on Schedule 1.1 hereto. Operating Account. Account number 52265235 at Fleet National Bank, or any successor operating account consented to by Fleet and contemplated by the Agreement Regarding Operating Account, dated as of September 1, 2001 among Wells Fargo, the Agent, Fleet National Bank in its capacity as the depository bank, the Borrower, the Parent, MFI I and MFI II. Parent Security Agreement. The Security Agreement, dated as of April 14, 2003, granted to the Agent by the Parent as security for the Parent's obligations in respect of the Parent Guarantee. Parent Stock Pledge Agreement. The Stock Pledge Agreement, dated as of April 14, 2003, granted to the Agent by the Parent as security for the Parent's obligations in respect of the Parent Guarantee. Redemption Deposit. Cash contributed to MFI I or MFI II by either of the Companies and deposited to a redemption account to accomplish a redemption of notes under the MFI I Indenture or the MFI II Indenture, provided that (i) such deposit shall only be made with the prior written consent of the Majority Lenders and (ii) such amounts shall not be on deposit in such redemption account for more than thirty (30) days. Registration Rights Agreement. The Registration Rights Agreement, dated as of April 14, 2003 by and among the Parent and the Holders (as defined therein). Restricted Cash. Cash collected in respect of any of the Series Assets or Contract Assets (as defined in the Securitization Documents) and held (a) in the Operating Account, (b) in the Blocked Account or (c) by the Parent, pending deposit to the Blocked Account, in the ordinary course of performing its servicing duties under the Securitization Documents. Securitization Documents. Each of (i) with respect to MFI I, a Special Purpose Subsidiary of the Borrower, (a) the MFI I Indenture, (b) the Servicing Agreement, dated as of March 1, 2000 among the Parent, MFI I and Wells Fargo -4- (successor to Norwest Bank Minnesota National Association), (c) the Contract Acquisition Agreement, dated as of March 1, 2000 among the Borrower and MFI I, (d) the Series 2000-2, 2001-3 and 2001-4 Contract Backed Notes, dated December 18, 2000, September 21, 2001 and September 21, 2001 respectively and related Purchase Agreements, dated December 18, 2000, September 21, 2001 and September 21, 2001 respectively, (e) the Insurance and Indemnity Agreement, dated December 18, 2000, among Ambac Assurance Corporation, MFI I, the Borrower, the Parent and Wells Fargo and related Note Insurance Policy dated December 18, 2000 and (f) Insurance and Indemnity Agreement, dated September 21, 2001 among Ambac Assurance Corporation, MFI I, the Borrower, the Parent and Wells Fargo and related Note Insurance Policy, dated September 21, 2001; (ii) with respect to MFI II, a Special Purpose Subsidiary of the Borrower, (a) the MFI II Indenture, (b) the Series 2001-1 Asset Backed Notes, dated September 21, 2001 and related Purchase Agreement, dated September 21, 2001, (c) the Contract Acquisition Agreement, dated as of September 21, 2001, between the Borrower and MFI II and (d) the Servicing Agreement, dated as of September 1, 2001, among the Parent, MFI II and Wells Fargo; (iii) the Agreement Regarding Operating Account, dated as of September 1, 2001 among Wells Fargo, the Agent, Fleet National Bank in its capacity as the depository bank, the Borrower, the Parent, MFI I and MFI II and (iv) all other agreements and modifications entered into by the parties with respect to the foregoing agreements. Series Assets. With respect to each series of notes issued under the MFI II Indenture, the Series Contracts, the related Contract Assets, and the Series Underlying Notes (as such terms are defined in the MFI II Indenture Tax Refund Assignment. Fully-executed copies of United States Internal Revenue Service forms 2848 and 8821 and U.S. Treasury Department form 234, each in form and substance reasonably satisfactory to the Agent. Warrant Purchase Agreement. The Warrant Purchase Agreement, dated as of April 14, 2003 by and among the Parent and the parties listed as Investors on the signature pages thereto. Warrants. The Warrants to purchase shares of Common Stock of the Parent, issued to the Lenders pursuant to Section 5.8 of the Second Amendment to the Credit Agreement. Wells Fargo. Wells Fargo Bank, National Association. (b) The definition of "Conversion Term Loan Maturity Date" contained in Section 1.1 of the Credit Agreement is hereby amended to read, in its entirety, as follows: "Conversion Term Loan Maturity Date. January 31, 2005." (c) The definition of "Loan Documents" set forth in Section 1.1 of the Credit Agreement is hereby amended to add the following text after the phrase "Subsidiary Guarantees" contained therein: -5- ", the Warrants, the Registration Rights Agreement and the Co-Sale Agreement". (d) The definition of "Lease" set forth in Section 1.1 of the Credit Agreement is hereby amended to read, in its entirety, as follows: "Any lease agreement, installment sales contract or other agreement (including any and all schedules, supplements and amendments thereon and modifications thereof) entered into by the Borrower or the Parent as lessor or seller". (e) The definition of "Security Documents" set forth in Section 1.1 of the Credit Agreement is hereby amended to add the following text after the phrase "Security Agreement" contained therein: ", the Parent Security Agreement, the Parent Stock Pledge Agreement". (f) The definition of "Subordinated Debt" set forth in Section 1.1 of the Credit Agreement is hereby amended to read, in its entirety, as follows: "Indebtedness of the Parent or any of its Subsidiaries, including the Borrower, which is expressly subordinated and made junior to the payment and performance in full of the Obligations and the Guaranteed Obligations (as defined in the Parent Guaranty) on terms and conditions satisfactory to the Agent and the Majority Lenders including, without limitation, (a) those certain subordinated capital notes of the Parent issued to Andrew G. Mills, Dkfm. Fritz Froehlich, Judith B. Keyes Trust, Jonathan M. Keyes Trust, Henry M. Keyes Irrevocable Trust, Henry M. Keyes Trust, Richard F. Latour, Bay Resource Corporation Money Purchase Pension Plan FBO PGR Lloyd IRA R/O, John Bryan Mims, Susan A. Mims, Peter R. and Christa R. Bleyleben, Salomon Smith Barney Custodian FBO Brian E. Boyle IRA (676- 65812) and Torrence C. Harder and (b) the New Subordinated Debt". 3.2. LIBOR LOANS. Section 2.6(b) of the Credit Agreement is hereby amended to read, in its entirety, as follows: "(b) LIBOR Loans. Notwithstanding anything contained herein to the contrary, LIBOR Loans shall not be available after the Borrowing Base Maturity Date." 3.3. INTEREST ON CONVERSION TERM LOAN. Section 2.6(d) of the Credit Agreement is hereby amended to read, in its entirety, as follows: "(d) Conversion Term Loan. Any Conversion Term Loan shall bear interest on the outstanding principal amount at a rate per annum equal to the Alternate Base Rate, plus 2.00%" 3.4. DEFAULT INTEREST. Section 2.6(e) of the Credit Agreement is hereby amended to read, in its entirety, as follows: "(e) Default Interest. If an Event of Default shall occur as result of (i) the occurrence of any of the events listed in, or the Companies' failure to comply with any of the -6- following Sections of the Credit Agreement: 5.14, 5.20, 7.1, through 7.8, 7.10, 7.13, 8.l(a), 8.l(e) (provided that the Borrower may pay any Indebtedness within the scope of Section 7.l(d) hereof, within the time period specified in such Section 7.l(d)), 8.l(f), 8.l(g), 8.l(h), 8.1(j) or 8.1(o) or with any of the following Sections of the Second Amendment to the Credit Agreement: 5.1, 5.2, 5.4, 5.6, 5.7 (only as it applies to Sections 7.1 through 7.8, 7.10 and 7.13 of the Credit Agreement), 5.8, or 5.9 or (ii) for a continuous period of fourteen (14) days, the Companies' failure to comply with any other term, covenant or agreement contained in the Credit Agreement or any other Loan Document, then, at the option of the Agent, or at the direction of the Majority Lenders, the unpaid balance of the Loans shall bear interest, to the extent permitted by law, compounded daily at an interest rate equal to 3% per annum above the interest rate applicable to each such Loan in effect on the day such Event of Default occurs, until such Event of Default is cured or waived.". 3.5. AMORTIZATION OF CONVERSION TERM LOAN. Section 2.8(a) of the Credit Agreement is hereby amended to read, in its entirety, as follows: "(a) The Revolving Credit Loans have been converted into a term loan (the "Conversion Term Loan"). The principal of the Conversion Term Loan shall be payable in accordance with the amortization schedule set forth in Schedule 2.8(a), or, if any payment date set forth on Schedule 2.8(a) is not a Business Day, such payment shall be due on the next Business Day thereafter. In addition to the payments set forth on Schedule 2.8(a), the remaining unpaid principal balance of the Conversion Term Loan, together with all unpaid interest thereon and all fees and other amounts due with respect thereto, shall be due and payable on the Conversion Term Loan Maturity Date." 3.6. TAXES. Section 5.4 of the Credit Agreement is hereby amended to read, in its entirety, as follows: "5.4 Taxes. The Borrower shall pay or cause to be paid all taxes, assessments or governmental charges on or against it or any of its Subsidiaries or its or their properties on or prior to the time when they become due, except for any tax, assessment or charge that is being contested in good faith by appropriate proceedings, and so long as no Encumbrance securing such tax, assessment or charge shall be enforced." 3.7. LENDERS' CONSULTANT. Section 5.15(e) of the Credit Agreement is hereby amended to read, in its entirety, as follows: "(e) (i) a review of (A) the Budget, (B) tax refund issues, (C) Collateral monitoring procedures with respect to the maintenance of Leases at the offices of Iron Mountain Incorporated and (ii) the performance of quarterly field examinations, monthly validation of Excess Cash Flows, monitoring payroll and review and verification of all executed offers, executed term sheets and executed letters of intent provided in connection with a refinancing of either of the Companies." 3.8. BORROWER'S CONSULTANT. Section 5.16 of the Credit Agreement is hereby amended by adding the following text to the end of existing Section 5.16: -7- "Additionally, the Borrower's Consultant shall, immediately upon receipt, provide the Agent, counsel to the Agent and the Lenders' Consultant with copies of any and all executed offers, executed term sheets and executed letters of intent, along with all material subsequent or related documents, in connection with a refinancing of either of the Companies." 3.9. TAX REFUND; PREPAYMENT. Section 5 of the Credit Agreement is hereby amended by adding the following Section 5.18 thereto: "5.18 Tax Refund. The Companies shall prepay the Conversion Term Loan in an amount equal to 100% of all tax refund proceeds received by the Companies (including, without limitation, tax refunds in respect of United States federal income taxes and all state taxes), minus $1,500,000 (the "Reserve Amount") to be held in reserve for the payment of state taxes owed in respect of fiscal years 1998 and 1999. Such prepayments shall be (a) made in accordance with Section 2.9, (b) made contemporaneously with the receipt of any such tax refund and (c) applied to the remaining scheduled principal repayments of the Conversion Term Loan in the inverse order of maturity. The Companies further agree that they shall file all tax returns in a timely manner and that they, in consultation with their outside professionals, will diligently and expeditiously pursue the tax refunds contemplated by this Section 5.18. To the extent that the Agent receives any tax refund proceeds from the Internal Revenue Service, the Agent agrees that it shall deliver to the Companies such Reserve Amount". 3.10. EXCESS CASH FLOW; PREPAYMENT. Section 5 of the Credit Agreement is hereby amended by adding the following new Section 5.19 thereto: "5.19 Excess Cash Flow. Within five (5) days of the end of each month, commencing with the month ending on March 31, 2003, the Borrower shall (i) deliver to the Agent an Excess Cash Flow reconciliation report, in form of Exhibit G hereto and (ii) apply all Excess Cash Flows, as determined on a monthly basis and tested on the last day of such month, to prepay the Conversion Term Loan in accordance with Section 2.9, with such prepayments being applied to the remaining scheduled principal repayments of the Conversion Term Loan in the inverse order of maturity, provided that, with respect to the month ending March 31, 2003, such report and such payment shall be due not later than April 21, 2003 and shall not include those payments which are (a) acceptable to the Agent and listed on the Excess Cash Flow reconciliation report delivered on the Effective Date (as defined in the Second Amendment to the Credit Agreement) as payments to be made in connection with the closing of the Second Amendment to the Credit Agreement and (b) made on or about the Effective Date.". 3.11. BUDGET. Section 5 of the Credit Agreement is hereby amended by adding the following new Section 5.20 thereto: "5.20 Budget. The 2003-2004 budget, attached hereto as Exhibit H, and which includes, among other things, line items for payroll disbursements and for payments, disbursements, fees and other amounts paid or to be paid in connection -8- with the Attorneys General Settlements (the "Budget") shall be the Budget of the Companies until the Conversion Term Loan Maturity Date." 3.12. COLLATERAL. Section 5 of the Credit Agreement is hereby amended by adding the following new Section 5.21 thereto: "5.21 Maintenance of Leases. The Borrower shall maintain all original Leases that constitute Collateral of the Lenders at the offices of Iron Mountain Incorporated located at 96 High Street, Billerica, MA 01862, or at the offices of another document management company reasonably acceptable to the Agent ("Iron"). The process to move such Leases to Iron shall be completed by May 31, 2003. The maintenance procedures with respect to such Leases, shall be set forth in an agreement between the Agent, the Borrower, the Parent and Iron, in form and substance reasonably satisfactory to the Agent (the "Iron Mountain Agreement") and shall include, among other things, provisions stating that (i) the Companies, the Agent, counsel to the Agent and the Lenders' Consultant shall have access to the Leases, on terms and conditions satisfactory to the Agent, (ii) on a quarterly basis, from and after April 14, 2003, a digital image of all such Leases (together with all related documentation and correspondence which is imaged by the Borrower in the ordinary course of its business, but exclusive of those Leases reasonably identified to the Agent and as to which the Agent shall have agreed) will be provided to the Agent, (iii) the Agent, counsel to the Agent or the Lenders' Consultant may retain an information technologies consultant to establish procedures through which the Agent and the Lenders may access such digital images and (iv) the Companies may not remove any original Leases from Iron, provided that the Borrower may temporarily remove an original Lease from Iron if (a) the Borrower's possession of the original Lease is required in order for the Borrower to enforce its rights and remedies in respect of the Lease and (b) the Borrower has obtained the prior written consent of the Agent to remove such original Leases from Iron, such consent not to be unreasonably withheld. The Companies shall provide to the Agent a fully-executed copy of the Iron Mountain Agreement, in form and substance reasonably acceptable to the Agent, no later than April 30, 2003." 3.13. FINANCIAL COVENANTS. Section 6 of the Credit Agreement is hereby amended by deleting Section 6 in its entirety and replacing it with the following: "Intentionally Omitted" 3.14. INDEBTEDNESS. Section 7.1 of the Credit Agreement is hereby amended by: (a) adding the following new text to subsection (d) immediately following the text reading "in conformity with customary trade terms and practices": "(the parties hereto agree that, for the purposes of this subsection (d), so long as such liabilities are paid and discharged within 90 days of the date that they become due and payable, such payment and discharge shall be deemed to be in conformity with customary trade terms and practices)"; and (b) adding the following new subsection (i) thereto: -9- "(i) Indebtedness in respect of pending litigation and /or in respect of judgment liens that would not otherwise constitute a Default hereunder". 3.15. RESTRICTED PAYMENTS. Section 7.6 of the Credit Agreement is hereby amended by deleting subsections (b), (c) and (d) of Section 7.6 in their entirety. 3.16. PAYMENTS ON SUBORDINATED DEBT. Section 7.7 of the Credit Agreement is hereby amended to read, in its entirety, as follows: "7.7 Payments on Subordinated Debt. The Borrower shall not make any payment or prepayment of principal of or interest on, or any other payment in respect of Subordinated Debt, except regularly scheduled payments of cash interest on the New Subordinated Debt, until the Obligations have been paid in full, in cash." 3.17. DISBURSEMENTS IN ACCORDANCE WITH BUDGET. Section 7 of the Credit Agreement is hereby amended by adding the following new Section 7.13 thereto: "7.13 The Companies may not make disbursements that, on a monthly and cumulative basis, exceed (i) on an aggregate basis, by more than l0%, those disbursements set forth in the Budget or (ii) with respect to any of the following line items: "Payroll Related"; "Net Cash Used in Investing Activities"; and "Subtotal SG&A" by more than l0%, the amounts set forth in the Budget for such line items, in each case, without the express written consent of the Agent and the Majority Lenders, provided that notwithstanding anything to the contrary in this paragraph the Companies may, (a) make disbursements in excess of such amounts (on a monthly and cumulative basis) in an amount not in excess of the amount by which the actual amount of the line item "Debt Balance After Principal, Tax, Additional and Excess Payments" is less than the amount set forth in the Budget for such line item, as tested on a monthly or cumulative basis, as applicable; (b) make payments in connection with the termination of its leases or leasehold interests in real property in Waltham, Massachusetts, Newark California and Herndon, Virginia up to the maximum amount of $800,000; (c) make payments of fees, expenses and other charges to the Agent and the Lenders, including without limitation, fees and expenses specified in Section 10 of this Second Amendment (except with respect to Agent fees and fees paid pursuant to Section 5.1 of this Second Amendment); (d) make payments to federal, state and local taxing authorities with respect to taxes and estimated taxes owed for its fiscal years 2003 and 2004; (e) make any disbursements necessary to discharge their obligations in respect of the Securitization Documents and (f) with the prior written consent of the Majority Lenders, make Redemption Deposits and apply such Redemption Deposits to accomplish a redemption of notes under the MFI I Indenture or the MFI II Indenture." 3.18. EVENTS OF DEFAULT. Section 8 of the Credit Agreement is hereby amended by (a) adding the text "or the Parent" immediately following the text "the Borrower" and (b) as applicable, amending the text "its Subsidiaries" to read "their Subsidiaries" in each of the following subsections: Section 8.l(b), 8.l(c), 8.l(d), 8.l(h) and 8.l(k). -10- 3.19. DISBURSEMENTS TO ATTORNEYS GENERAL. Section 8 of the Credit Agreement is hereby amended by adding the following new Section 8.1(o) thereto: "(o) the aggregate payments, disbursements, fees and other amounts paid by either of the Companies in connection with the Attorneys General Settlements, prior to the Conversion Term Loan Maturity Date, exceeds $1,000,000.". 3.20. EVENTS OF DEFAULT. Section 8.l(b) of the Credit Agreement is hereby amended to read, in its entirety as follows: "(b) the Borrower shall fail to perform or comply with any term, covenant or agreement applicable to it contained in Sections 5.1, 5.2(b), 5.5, 5.6, 5.7, 5.9, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19, 5.20, 5.21 or 7 of this Agreement or in Sections 5.1, 5.2, 5.3, 5.4, 5.6, 5.7, 5.8 or 5.11 of the Second Amendment to the Credit Agreement; or" 3.21. NOTICES. Section 11.1 of the Credit Agreement is hereby amended by replacing the existing notice addresses with the following: If to the Borrower, at: Leasecomm Corporation 10-M Commerce Way, Suite 102 Woburn, MA 01801 Attention: President and Chief Financial Office with a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, MA 02111 Attention: Richard Mikels If to the Parent, at: MicroFinancial Incorporated, Suite 101 10-M Commerce Way Woburn, MA 01801 Attention: President and Chief Financial Office with a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, MA 02111 Attention: Richard Mikels -11- If to the Agent or Fleet, at: Fleet National Bank 111 Westminster Street Providence, RI 02903-0368 Attention: Daniel Butler with a copy to: Bingham McCutchen LLP 150 Federal Street Boston, MA 02110 Attention: Jonathan K. Bernstein 3.22. SCHEDULES AND EXHIBITS. The Credit Agreement is hereby further amended by: (i) adding new Schedule 1.1 (Terms and Conditions of New Subordinated Debt) Schedule 2.8(a) (Amortization of Conversion Term Loan), Exhibit G (Excess Cash Flow Certificate) and Exhibit H (Budget) thereto and (ii) amending Exhibit C thereto to include the indebtedness of the Parent listed on Schedule 6 to this Second Amendment. SECTION 4. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall become effective as of the date hereof upon receipt by the Agent of each of the following, in form and substance satisfactory to the Agent (with the date on which the Agent receives the following being hereinafter referred to as the "Effective Date"): (a) A counterpart of this Second Amendment, executed by the Companies and the Lenders; (b) Payment by the Borrower to the Agent of the portion of the Amendment Fee (defined in Section 5.1 below) due on the Effective Date; (c) Payment by the Borrower of $250,992.64, consisting of the accrued Default Spread (defined in Section 7.2 of that certain Forbearance and Modification Agreement, dated as of January 3, 2003 by and among the Companies and the Lenders) and any other accrued and unpaid interest on the Loans; (d) The Warrants, the Warrant Purchase Agreement, the Registration Rights Agreement, and the Co-Sale Agreement, in each case, in form and substance acceptable to the Agent and the Majority Lenders; (e) There shall have occurred no Default or Event of Default (other than the Specified Defaults); (f) The Agent shall have received evidence that all corporate action necessary for the valid execution and delivery by the Companies of this Second Amendment and the other documents referenced herein shall have been taken; (g) The Agent shall have received opinions of counsel to the Companies; -12- (h) The Agent and the Lenders shall have received payment for all fees and expenses including, without limitation, reasonable legal fees and expenses, for which invoices or reasonable estimates therefor have been provided to the Borrower on or prior to the Effective Date; (i) The Agent's receipt of evidence satisfactory to it as to the perfection and priority of all security interests, mortgages and deeds of trust of the Lenders with respect to the Companies; (j) The Agent shall have received a fully executed security agreement from the Parent, providing the Lenders with a first priority lien on all assets of the Parent as collateral for the Parent's obligations in respect of the Parent Guaranty; (k) The Agent shall have received a fully executed security agreement from the Borrower, providing the Lenders with a first priority lien on all assets of the Borrower as collateral for the Obligations, provided that with respect to the pledge of common stock of the MFI I and equity interest of MFI II, such pledge shall be subject to the provisions of Section 4.01(r) of the Contract Acquisition Agreement related to MFI I and Section 4.01(r) of the Contract Acquisition Agreement related to MFI II; (1) The Agent shall have received fully executed employment and non-competition agreements of all key employees of the Companies, in form and substance satisfactory to the Agent; (m) The representations and warranties of the Borrower in each of the Loan Documents shall be true and correct as of the Effective Date, except with respect to the occurrence of the Specified Defaults waived herein and to the extent that any of such representations and warranties relate by their terms to a prior date they shall be true and correct as of such prior date; (n) Amendments to the notes and Subordinated Debt documents of the Parent, in form and substance satisfactory to the Agent, with such amendments to include, among other things, revisions to interest rates, maturity and subordination provisions, executed by the Parent and the following holders of such Subordinated Debt; (a) Richard F. Latour, (b) Peter R. and Christa R. Bleyleben, (c) Salomon Smith Barney Custodian FBO Brian E. Boyle IRA (676-65812) and (d) Torrence C. Harder. (o) Waiver documents, in form and substance reasonably satisfactory to the Agent, in its sole discretion, from (i) Ambac Assurance Corporation ("Ambac") permanently waiving any and all identified defaults, events of default and servicer events of default under the Securitization Documents and (ii) NM Rothschild & Sons Limited ("Rothschild") permanently waiving any and all identified defaults, events of default and servicer events of default under the Securitization Documents; (p) The Lenders shall be satisfied, in their sole discretion, that there have been no further material adverse changes to either of the Companies' business, assets, operations or condition, financial or otherwise; -13- (q) The Agent shall have received a fully-executed stock pledge agreement from the Parent, providing the Lenders with a pledge of 100% of the capital stock of the Borrower as collateral for the Obligations; (r) The Agent shall have received the Tax Refund Assignment; (s) The Agent shall have received a prepayment of the Conversion Term Loan in the amount of $1,500,000, in accordance with Section 2.9 of the Credit Agreement, with such prepayment to be applied to the remaining scheduled principal repayments of the Conversion Term Loan in the inverse order of maturity; (t) An updated perfection certificate, in form and substance acceptable to the Agent, executed by the Borrower and, evidence that, among other things, there exists no liens or security interests on the assets of the Borrower other than Permitted Encumbrances; (u) A perfection certificate, in form and substance acceptable to the Agent, executed by the Parent and, evidence that, among other things, there exists no liens or security interests on the assets of the Parent other than Permitted Encumbrances; (v) The Agent shall have received a fully-executed trademark security agreement from the Borrower, providing the Lenders with a first priority security interest in all of the trademarks of the Borrower as collateral for the Obligations; and (w) Amendments to the 7.5% term notes of the Parent issued to (a) Torrence C. Harder, (b) Peter R. Bleyleben and (c) Salomon Smith Barney Custodian FBO Brian E. Boyle IRA (676-65812) in form and substance reasonably satisfactory to the Agent. SECTION 5. ADDITIONAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees with and for the benefit of the Agent and the Lenders that, notwithstanding anything to the contrary contained in the Credit Agreement or any of the other Loan Documents, it shall comply with the following covenants and further agrees that failure to comply with any of the covenants contained in this Section 5 shall constitute an Event of Default under the Loan Agreement: 5.1. AMENDMENT FEE. The Borrower shall pay to the Agent, for the pro rata account of the Lenders, a fee equal to $2,000,000 (the "Amendment Fee"). The Amendment Fee shall be fully-earned as of the date hereof and shall be paid by the Borrower to the Agent as follows: $500,000 on the Effective Date; $500,000 on June 27, 2003; $250,000 on September 29, 2003; $250,000 on December 30, 2003; $250,000 on June 29, 2004 and $250,000 on the December 30, 2004 or, in each case, on the earlier acceleration of the Obligations, provided however that in the event that the Obligations have been repaid in full (other than as a result of a repayment following an Event of Default) on or before any installment of Amendment Fee is due to be paid, the payment of such installment shall be waived. 5.2. BORROWING BASE. Notwithstanding anything in the Credit Agreement or the other Loan Documents to the contrary, if at any time the outstanding balance of the Conversion Term Loan exceeds the Borrowing Base by more than that contemplated by -14- Annex B hereto, the Borrower shall prepay the Loans such that it is in compliance with Annex B. 5.3. TRANSFER OF SECURITIZATION RENTS. The Borrower shall use its best efforts to cause, not later than April 30, 2003 and on a quarterly basis thereafter, each of its Special Purpose Subsidiaries to (a) exercise its rights pursuant to Section 4.06(a)(iii) of each of the MFI I Indenture and the MFI II Indenture (together, the "Indentures" and each an "Indenture"), to obtain releases of any individual Contract (as defined in the Indentures) and the related Contract Assets (as defined in the Indentures) to the extent permitted by Section 4.06(a)(iii) of either of the Indentures, from the lien created by (i) the MFI I Indenture or (ii) the MFI II Indenture, as applicable and (b) provide the officer's certificate required by Section 4.06(a) of the Indentures and any other documents required for the release of such liens. Further, to the extent and in the amount it is directed to do so by the Lenders' Consultant, the Borrower shall use its best efforts to cause each of its Special Purpose Subsidiaries, to the extent permitted by the Securitization Documents (and at a price not in excess of that reasonably acceptable to the Lenders' Consultant), to obtain releases of individual Contracts less than twelve months past their final due date and the related Contract Assets from the liens created the Indentures. Once the liens on any Contracts and related Contract Assets have been released, (i) the Borrower shall use its best efforts to cause (a) MFI I to sell such Contracts and related Contract Assets to the Borrower for fair value and declare a dividend so that any available cash resulting from such sale in excess of that required for reasonable reserves or otherwise to be retained by MFI I under applicable law or MFI I's Articles of Incorporation or Bylaws can be transferred to the Borrower, and (b) MFI II to distribute such Contracts and related Contract Assets to the Borrower (to the extent retention of such Contracts and related Contract Assets is not required to maintain adequate capital or other wise under applicable law or MFI II's Limited Liability Company Agreement) and (ii) the Borrower shall pledge any Contracts and Contract Assets so acquired to the Lenders as Collateral for the Obligations. Such transfer and pledge shall take place within thirty (30) days of the release of the liens. 5.4. RELEASE OF SECURITIZATION/RESTRICTED CASH. When a series of notes issued by a Special Purpose Subsidiary is redeemed, retired or paid in full, the Borrower shall use its best efforts to cause the applicable Special Purpose Subsidiary to, within five (5) days of the date or dates on which the applicable Special Purpose Subsidiary is entitled to obtain such release (i) pursuant to its rights under Section 4.06(b) of the applicable Indenture (following redemption or retirement of a single series of notes when other series of notes remain outstanding), obtain a release from the lien of the applicable Indenture for the Series Contracts and related Contract Assets (as defined in the MFI I Indenture) or the Series Assets, as applicable and (ii) pursuant to its rights under Section 5.01(b) of the applicable Indenture (upon payment in full of the last series of notes outstanding under such Indenture and release of the applicable portion of the Trust Estate), provide the officer's certificate(s) and opinion(s) of counsel required by Section 5.01(b) of the applicable Indenture (unless such obligation is waived by the Controlling Party (as defined in the MFI I Indenture) or Majority Holders (as defined in the MFI II Indenture) in accordance with the provisions of the applicable Indenture) to obtain (a) a release of the Withdrawn Collateral (as defined in each Indenture, as applicable) from the lien created by the Indenture and (b) the delivery of the Withdrawn Collateral to the applicable Special Purpose Subsidiary, or its designee. The Borrower shall use its best efforts to cause the -15- Special Purpose Subsidiary to designate the Borrower as its designee to receive the Withdrawn Collateral (other than the underlying note payable to MFI I, which may instead be cancelled). The Borrower shall then, within five (5) days of receipt of such Withdrawn Collateral, apply such Withdrawn Collateral to prepay the Conversion Term Loan in accordance with Section 2.9 of the Credit Agreement, with such prepayments to be applied to the remaining scheduled principal repayments of the Conversion Term Loan in the inverse order of maturity. Further, once the liens on any such Contract Assets or Series Assets have been released, (i) the Borrower shall use its best efforts to cause (a) MFI I to sell such Contract Assets to the Borrower for fair value and declare a dividend so that any available cash resulting from such sale in excess of that required for reasonable reserves or otherwise to be retained by MFI I under applicable law or MFI I's Articles of Incorporation or Bylaws can be transferred to the Borrower, and (b) MFI II to distribute such Series Assets (other than the underlying note) to the Borrower (to the extent retention of such Series Assets is not required to maintain adequate capital or otherwise under applicable law or MFI II's Limited Liability Company Agreement, and (ii) the Borrower shall pledge any Contract Assets or Series Assets so acquired to the Lenders as Collateral for the Obligations. Such transfer and pledge shall take place within thirty (30) days of the release of the liens. 5.5. ASTA TRANSACTION: PREPAYMENTS. (a) CONSENT OF LENDERS IN CONNECTION WITH ASTA TRANSACTION. The Parent has advised the Lenders that it may desire to enter into the transaction described on Annex C hereto (the "Asta Transaction"), which would, absent the consent of the requisite Lenders, violate certain terms of the Loan Documents. Provided that the terms and conditions set forth in Section 5.5 and on Annex C are met, the Lenders hereby consent to the following: (i) THE ASTA TRANSACTION; (ii) To the extent that the Asta Transaction requires the creation of any new parent, subsidiary or affiliated company of either the Borrower or the Parent (the "New Entity or the New Entities"), the Lenders approve the creation of such New Entities and consent to the incurrence of debt by such New Entities, provided that (a) the collateral for any such debt may be only collateral generated by such New Entity; (b) each New Entity that utilizes any of the personnel, software or other assets of either of the Companies enters into an agreement with the applicable Company, pursuant to Section 5.6 hereof and (c) such New Entities shall be capitalized solely from outside sources and that the Companies shall not make any contributions of cash or other assets to such New Entities other than de minimus amounts in connection with corporate formation and maintenance; (iii) The payment to the shareholders of the Parent (other than the Insiders) of cash consideration received in connection with the Asta Transaction in excess of the amount of cash consideration required to prepay the Conversion Term Loan pursuant to Section 5.5(b); -16- (iv) The payment of a fee of up to 5% of the total purchase price of the Asta Transaction to BCA One, LLC as set forth in the agreement dated October 15, 2002, between BCA One, LLC, and the Parent; and (v) The sale by the Insiders (as defined in Section 5.5(b)) of any non-cash consideration received as part of the Asta Transaction on terms and conditions set forth in Section 5.5(b) but otherwise determined by the Insiders in their sole discretion. (b) TERMS AND CONDITIONS OF CONSENT TO ASTA TRANSACTION. The Lenders consent to the Asta Transaction is subject to the following terms and conditions along with those terms and conditions set forth on Annex C: (i) a prepayment of the Conversion Term Loan is made in an amount equal to the greater of (a) $3,800,000 and (b) the amount equal to the amount that would otherwise constitute the total cash consideration provided to any and all officers and directors of either of the Companies, (together with those persons listed on Annex D hereto, the "Insiders") as part of the Asta Transaction, either directly or indirectly, including cash consideration provided after the closing date of the Asta Transaction from funds that are released from escrow, with such prepayment to be made contemporaneously with the closing of the Asta Transaction, or, in the case of a prepayment from funds that were initially held in escrow, contemporaneously with the release of such funds from escrow and with the total amount of the cash consideration provided as a prepayment of the Conversion Term Loan in accordance with this subsection (i) comprising New Subordinated Debt and (ii) the Insiders pledge all non-cash consideration received as part of the Asta Transaction, including, without limitation, all of their shares of Asta Funding, Inc., any other equity or rights to obtain equity received as part of the Asta Transaction and any and all rights associated with such shares, other equity or rights to obtain equity, including without limitation, rights under any registration rights, co-sale, stockholders and voting agreements to the Lenders as additional Collateral for the Obligations and further agree that if any such non-cash consideration is sold or redeemed the proceeds of such sale or redemption, net of taxes paid in connection with such sale or redemption, shall be used to prepay the Conversion Term Loan and the selling Insider shall then hold New Subordinated Debt in the amount of such prepayment. All prepayments of the Conversion Term Loan contemplated hereby shall be made in accordance with Section 2.9 of the Credit Agreement, with such prepayments applied to the remaining scheduled principal repayments of the Conversion Term Loan in the inverse order of maturity 5.6. SERVICER FEE. The Companies shall require that any entity that commences utilizing either the personnel, software or other assets of either of the Companies for collection of amounts due to it under any lease, contract or agreement after the Effective Date of this Second Amendment enter into a servicer agreement with the applicable Company, in form and substance satisfactory to the Agent. Such agreement shall be on arm's length terms on an ongoing basis, and shall require such entity to, among other things, pay to the applicable Company a fair market value servicing fee, in cash, which shall not be less than a monthly fee of $3 per lease, contract or agreement being serviced by the personnel, software or assets of either of the Companies. Further, the Companies shall provide evidence of the fair market value of each such servicing fee to the Agent and the Lenders. -17- 5.7. NEGATIVE COVENANTS OF PARENT. The Parent covenants and agrees to be bound by the negative covenants contained in Sections 7.1 through 7.12 of the Credit Agreement to the same extent and with the same effect, as if it were the Borrower thereunder, provided that (a) the Parent shall be permitted to make cash payments of principal, interest or other amounts on or in respect of the Subordinated Debt and all other indebtedness of the Parent, other than the New Subordinated Debt, in an aggregate amount of not more than $35,000 per month; (b) the Parent shall be permitted to make regularly scheduled payments to the holders of the New Subordinated Debt and (c) the Parent shall be permitted to make any payments required to be made by it under the Securitization Documents. In addition, the Parent covenants and agrees that it will not make payments in respect of any indebtedness of the Parent in excess of the $35,000 per month payments contemplated by subsection (a) above other than (w) payments in respect of the Credit Agreement, (x) payments in respect of the other Loan Documents, (y) payments of regularly scheduled interest in respect of the New Subordinated Debt and (z) a principal payment in respect of that certain demand note of the Parent, dated May 28, 1999 and issued to Colleen Burke, in an amount not in excess of $30,000, 5.8. WARRANTS. The Parent shall provide the Lenders with warrants (the "Warrants") to purchase 2.00% of the capital stock the Parent (the "Warrant Shares"), on a fully-diluted basis (exclusive of 1,675,000 shares of Common Stock of the Parent issuable upon exercise of options to purchase shares of the Parent with a strike price above the fair market value of the stock of the Parent on the date hereof) at an exercise price of equal to $.82 1/2 per share of common stock; provided that, in the event that if the Asta Transaction has closed on or before August 31, 2003 and the Company has complied with the provisions set forth in Section 5.5 of this Second Amendment the Warrants shall automatically terminate and shall be of no further force or effect. The Warrants shall be exercisable as follows: (i) if all of the Obligations shall not have been repaid in full (other than as a result of a repayment following an Event of Default), on or before June 30, 2004, the Warrants shall be exercisable for up to 50% of the Warrant Shares and (ii) if all of the Obligations shall not have been repaid in full (other than as a result of a repayment following an Event of Default), on or before September 30, 2004, the Warrants shall be exercisable for up to 100% of the Warrant Shares. 5.9. NEW SUBSIDIARY. The Lenders shall permit, to the extent requested, the Parent to create a new Subsidiary and shall allow such Subsidiary to incur debt provided that (i) the collateral for any such debt may be only collateral generated by such new Subsidiary; (ii) to the extent that such new Subsidiary utilizes any of the personnel, software or other assets of either of the Companies, it shall enter into an agreement with the applicable Company, pursuant to Section 5.6 hereof and (iii) such Subsidiary shall be capitalized solely from outside sources and the Companies shall not make any contributions of cash or other assets to such Subsidiary other than de minimis amounts in connection with corporate formation and maintenance. 5.10. AUTHORIZATION TO FILE FINANCING STATEMENTS. The Companies hereby irrevocably authorize the Agent at any time and from time to time during which any Loans are outstanding, to file, in any filing office in any Uniform Commercial Code jurisdiction where the filing of an initial financing statement is necessary or desirable to perfect the interests of the Agent or the Lenders in the collateral for the Obligations and for the obligations of the Parent in respect of the Parent Guarantee, any initial financing -18- statements and amendments thereto that (a) indicate the collateral (i) as all assets of the Companies or words of similar effect, regardless of whether any particular asset comprised in the collateral falls within the scope of Article 9 of the Uniform Commercial Code of the state or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the state or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including whether each of the Companies is an organization, the type of organization and any organization identification numbers issued to either of the Companies. Each of the Companies agree to furnish any such information to the Agent as soon as reasonably practicable upon the Agent's request. Each of the Companies also ratifies its authorization for the Agent to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof. 5.11. AMENDMENT TO SUBORDINATED DEBT DOCUMENTS OF PARENT. The Companies shall deliver to the Agent. no later than July 14, 2003, amendments to notes issued to each of the holders of Subordinated Debt of the Parent, in form and substance satisfactory to the Agent, with such amendments to include, among other things, revisions to interest rates, maturity and subordination provisions, executed by each of the holders of Subordinated Debt of the Parent, other than those noteholders identified in Section 4(n). SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in Section 4 of the Credit Agreement, provided, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby. In addition, each of the Companies hereby represent and warrant (a) that the execution and delivery by the Companies of this Second Amendment and the performance by the Companies of all of their agreements and obligations under the Credit Agreement, as amended hereby, are within the corporate authority of the Companies and have been duly authorized by all necessary corporate or other similar action on the part of the Companies; (b) that the investigations brought by the attorneys general in connection with the Attorneys General Settlements are the only virtual-terminal-related suits or investigations pending or threatened against either of the Companies by any attorneys general; (c) that the Insiders listed on Annex D hereto represent all of the officers and directors of the Companies who hold shares or options to purchase shares of either of the Companies as of the date hereof; (d) that the Companies do not own, and have not applied for, any patents, trademarks or copyrights other than those disclosed on the perfection certificates of the Companies delivered to the Agent pursuant to Sections 4(u) and 4(v) and (e) that the Parent has no indebtedness for borrowed money other than that disclosed on Schedule 6 hereto. SECTION 7. NO PRESENT CLAIMS. The Companies acknowledge and agree that, as of the date hereof: (a) none of the Companies or, to the knowledge of any of the Companies, any of their affiliates has any claim or cause of action against any of the Lenders or the Agent (or any of their directors, officers, employees, attorneys or agents); (b) none of the Companies, or to the knowledge of any of the Companies, any of their affiliates has offset rights, counterclaims or defenses of any kind against any of their obligations, indebtedness or liabilities to any of the Lenders or the Agent; and (c) each of the Lenders and the Agent has heretofore properly performed and satisfied in a timely manner all of its obligations to the Companies and, to the knowledge of each of the Companies, each of their affiliates. The -19- Lenders and the Agent wish (and the Companies agree) to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the rights, interests, contracts, collateral security or remedies of the Lenders or the Agent. Therefore, Companies, each on its own behalf and on behalf of each of its respective successors and assigns, hereby waives, releases and discharges the Lenders and the Agent and all of their directors, officers, employees, attorneys and agents, from any and all claims, demands, actions or causes of action on or before the date hereof and arising out of or in any way relating to the Loan Documents and any documents, instruments, agreements (including this Second Amendment), dealings or other matters connected with the Loan Documents, including, without limitation, all known and unknown matters, claims, transactions or things occurring on or prior to the date of this Second Amendment related to the Loan Documents. The waivers, releases, and discharges in this paragraph shall be effective regardless of any other event that may occur or not occur prior to, or on or after the date hereof. SECTION 8. MARSHALLING. Neither the Agent nor the Lenders shall be required to marshal any present or future collateral security for the Companies' obligations to the Agent or such Bank under the Loan Documents or to resort to such collateral security or other assurances of payment in any particular order, and all of their rights in respect of such collateral security shall be cumulative and in addition to all other rights, however existing or arising. To the extent that they lawfully may, the Companies hereby agree that they will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the Agent's or such Bank's rights under any document, agreement or instrument evidencing or securing the Borrower's obligations to the Agent and the Lenders under the Loan Documents and, to the extent that it lawfully may, the Borrower hereby irrevocably waives the benefits of all such laws. SECTION 9. NO WAIVER. Except as otherwise expressly provided for in this Second Amendment, nothing in this Second Amendment shall extend to or affect in any way any of the rights or obligations of the Borrower or any of the Agent's or the Lenders' obligations, rights and remedies arising under the Loan Documents. Neither the Agent nor any Lender shall be deemed to have waived any or all of its rights or remedies with respect to any Default or Event of Default, other than the Specified Defaults, existing on the date hereof or arising hereafter. SECTION 10. EXPENSES. The Borrower agrees to pay to the Agent and the Lenders upon written demand therefor (i) an amount equal to any and all reasonable out-of-pocket costs, expenses, and liabilities (including, without limitation, fees, disbursements, expenses and liabilities of or relating to, commercial finance examinations, collateral audits, appraisals, the Lender's Consultant, collateral examinations referred to in Section 5.15 of the Credit Agreement, the information technologies consultant referred to in Section 5.2l(iii) of the Credit Agreement, Uniform Commercial Code and other lien searches and filing fees, and legal counsel) incurred or sustained by the Agent or any of the Lenders in connection with the preparation of this Second Amendment, the documents and instruments contemplated hereby, the administration or interpretation of the Loan Documents, and (ii) from time to time any and all reasonable out-of-pocket costs or expenses, legal fees, disbursements and other expenses hereafter incurred or sustained by the Agent or any of the Lenders in connection with the administration of credit extended by the Agent to the Borrower, the preservation of or enforcement of their rights under the Loan Documents, in respect of the -20- collateral, and/or in respect of any of the Borrower's other obligations to the Agent. The Lenders and the Borrower authorize the Agent and the Lenders to, with prior written notice to the Borrower, to debit any accounts maintained by the Borrower with such any such Lender for any fees, expenses, or other amounts due and payable by the Borrower hereunder, under the Credit Agreement or any of the other Loan Documents. SECTION 11. MISCELLANEOUS. (a) This Second Amendment shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. (b) This Second Amendment shall constitute a Loan Document under the Credit Agreement; the failure to comply with the covenants contained herein shall constitute an Event of Default under the Credit Agreement; and all obligations included in this Second Amendment (including, without limitation, all obligations for the payment of principal, interest, fees, and other amounts and expenses) shall constitute obligations under the Loan Documents and secured by the collateral security for the Obligations. SECTION 12. ACKNOWLEDGEMENT. Each of the Companies hereby acknowledges that it was advised by counsel before executing this Second Amendment. Further, each of the Companies, the Agent and the Lenders acknowledges and agrees that this Second Amendment shall not be construed against any of the Companies, the Agent or the Lenders as the drafter of this Second Amendment. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as a document under seal as of the date first above written. FLEET NATIONAL BANK, individually and as Agent By: /s/ DAVID D. BUTLER ----------------------------- Name: DAVID D. BUTLER Title: AUTHORIZED OFFICER BANKNORTH, N.A. By: /s/ DANA P. WEDGE ----------------------------- Name: Dana P. Wedge Title: SVP BROWN BROTHERS HARRIMAN & CO. By: /s/ Jared S. Keyes ----------------------------- Name: Jared S. Keyes Title: Managing Director CITIBANK By: /s/ George V. Milbury ----------------------------- Name: George V. Milbury Title: Vice President CITIZENS BANK OF MASSACHUSETTS By: /s/ ROBERT D. MACE ----------------------------- Name: ROBERT D. MACE Title: Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ PETER A. LANDAUER ----------------------------- Name: PETER A. LANDAUER Title: VICE PRESIDENT -21- NATIONAL CITY BANK By: /s/ Michael J. Labrum --------------------------- Name: Michael J. Labrum Title: Senior Vice President U.S. BANK By: /s/ Joseph P. Howard ---------------------------- Name: Joseph P. Howard Title: Vice President UNION BANK OF CALIFORNIA By: /s/ CECILIA M. VALENTE ---------------------------- Name: CECILIA M. VALENTE Title: SENIOR VICE PRESIDENT ACCEPTED and AGREED as of April 14, 2003: Borrower: LEASECOMM CORPORATION By : /s/ PETER BLEYLEBEN ------------------------------ Name: PETER BLEYLEBEN Title: President Parent: MICROFINANCIAL INCORPORATED By: /s/ RICHARD F. LATOUR ------------------------------- Name: RICHARD F. LATOUR Title: President and CEO EX-10.2 4 b46554mfexv10w2.txt WARRENT PURCHASE AGREEMENT EXHIBIT 10.2 MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, MA 01801 WARRANT PURCHASE AGREEMENT Fleet National Bank, as Agent 111 Westminster Street Providence, Rhode Massachusetts 02110 The Lenders on the signature page attached hereto April 14, 2003 Ladies and Gentlemen: The undersigned, MicroFinancial Incorporated, a Massachusetts corporation (the "Company"), agrees to issue and sell to Fleet National Bank, a national banking association ("Fleet"), Banknorth, N.A., ("Banknorth"), Brown Brothers Harriman & Co. ("Brown Bros."), Citibank ("Citibank"), Citizens Bank of Massachusetts ("Citizens"), Keybank National Association ("Key"), National City Bank ("National City"), U.S. Bank ("U.S. Bank") and Union Bank of California, N.A. ("UBOC" and together with Fleet, Banknorth, Brown Bros., Citibank, Citizens, Key, National City and U.S. Bank, the "Lenders") the Common Stock Purchase Warrants of the Company in the form of Exhibit A hereto, all being on the terms and subject to the conditions contained in this Agreement. Accordingly, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINED TERMS As used herein, the following terms shall have the respective meanings assigned to them in this Article I: "Articles of Organization" shall have the meaning ascribed to that term in Section 2.1(a) hereof. "Closing" shall have the meaning ascribed to that term in Article IV hereof. "Closing Date" means the date of the Closing. "Commission" means the Securities and Exchange Commission. "Common Stock" shall have the meaning ascribed to that term in Section 2.1(a) hereof. "Company" shall have the meaning ascribed to that term in the preamble hereto. "GAAP" shall have the meaning ascribed to that term in the Loan Agreement. "Investor Consent" means, at any particular date, the consent, approval or vote of the Majority Investors. "Investors" means, collectively, (i) each Lender so long as such Lender shall continue to own and hold of record any of the Securities, (ii) each Permitted Transferee of a Lender so long as such Permitted Transferee shall continue to own and hold of record any of the Securities, and (iii) each Permitted Transferee of any other Investor so long as such Permitted Transferee shall continue to own and hold of record any of the Securities. "Lenders" shall have the meaning ascribed to that term in the preamble hereto. "Loan Agreement" means that certain Fourth Amended and Restated Loan Agreement, as amended or modified from time to time, dated as of August 22, 2000, by and among Leasecomm Corporation (the "Borrower"), the Lenders, the other lending institutions party thereto and the Agent (as defined therein). "Majority Investors" means those Investors holding at least 50.1% of the Common Stock issued or issuable upon exercise of the Warrants. "NASDAQ" means the National Association of Securities Dealers automated quotation system. "Permitted Transferee" means any Person. "Person" means an individual, corporation, partnership, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "Registration Rights Agreement" means that certain Registration Rights Agreement dated April __, 2003 among the Company and the Lenders. "Securities" means the Warrants and the Warrant Shares. "Securities Act" means the Securities Act of 1933, as amended, or any federal statute or code which is a successor thereto. "Subsidiary" means, in relation to the Company at any particular time, any other corporation more than fifty percent (50%) of the outstanding voting shares in the capital of which shall be owned or controlled (whether directly or indirectly) by the Company and/or by any one or more of the Company's other Subsidiaries. "Warrants" shall have the meaning ascribed to that term in Section 2.2(a) hereof and shall in any event include all other warrants delivered in exchange or in substitution therefor. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. - 2 - ARTICLE II REPRESENTATIONS OF THE COMPANY The Company represents and warrants to the Lenders as follows: SECTION 2.1. CAPITALIZATION OF COMPANY. (a) The authorized capital stock of the Company will, on and as of the Closing Date, consist of (i) 25,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of which 13,141,800 shares were outstanding as of April 14, 2003, and (ii) 5,000,000 shares of preferred stock, of which no shares are outstanding as of April 14, 2003. A description of the capital stock and of the voting powers, rights, and privileges thereof is stated in the Company's Articles of Organization (herein, the "Articles of Organization") (b) Except as set forth in Schedule 2.1(b) hereto, there are no existing options, warrants, calls, preemptive (or similar) rights, subscriptions or other rights, agreements, arrangements or commitments of any character obligating the Company to issue, transfer or sell, or cause to be issued, transferred or sold, any shares of the capital stock of the Company or other equity interests in the Company or any securities convertible into or exchangeable for such shares of capital stock or other equity interests, and there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock or other equity interests. SECTION 2.2. AUTHORIZATION OF WARRANTS. (a) The Company will, prior to the Closing Date, duly and properly authorize the issuance to each of the Lenders (i) a Warrant evidencing rights to purchase shares of the Company's Common Stock (each a "Warrant" and collectively, the "Warrants") and (ii) the shares of Common Stock issuable by the Company upon exercise of the Warrants. (b) The Warrants will be exercisable commencing as of June 30, 2004 in accordance with the terms thereof at a price, subject to adjustment as therein provided,of eighty-two and one-half cents ($.82 1/2 ) per Warrant Share. The Warrants will be in substantially the form of Exhibit A annexed to this Agreement. SECTION 2.3 ADDITIONAL REPRESENTATIONS. (a) Incorporation. The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and is qualified to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect upon the Company. The Company has all requisite corporate power and authority to carry on its business as now conducted and to carry out the transactions contemplated hereby. (b) Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution, delivery and performance of the Warrants, this Agreement and the Registration Rights Agreement and the consummation of the transactions contemplated herein and therein has been taken. When executed and delivered by the Company, each of this Agreement, the Warrants and the Registration Rights Agreement shall - 3 - constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors' rights generally and by general equitable principles, and except as the same may be limited by the indemnification obligations of the Company under the Registration Rights Agreement. The Company has all requisite corporate power to enter into this Agreement, the Warrants and the Registration Rights Agreement and to carry out and perform its obligations under the terms of this Agreement, the Warrants and the Registration Rights Agreement. (c) Valid Issuance of the Shares. The Warrant Shares will, upon issuance pursuant to the terms hereof, be duly authorized and validly issued, fully paid and nonassessable and not subject to any encumbrances, preemptive rights or any other similar contractual rights of the stockholders of the Company or others. (d) Financial Statements. The Company shall, by April 14, 2003, furnish to each Investor its audited Statements of Income, Stockholders' Equity and Cash Flows for the fiscal year ended December 31, 2002 and its audited Consolidated Balance Sheet as of December 31, 2002. All such financial statements are hereinafter referred to collectively as the "Financial Statements". The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, and fairly present, in all material respects, the financial position of the Company and the results of its operations as of the date and for the period indicated thereon. Since December 31, 2002, there has been no material adverse change (actual or threatened) in the assets, liabilities (contingent or other), affairs, operations, prospects or condition (financial or other) of the Company. (e) SEC Documents. The Company shall, by April 14, 2003, furnish to each Investor, a true and complete copy of the Company's Annual Report on Form 10-K for the year ended December 31, 2002 (the "Annual Report") and any other statement, report, registration statement (other than registration statements on Form S-8) or definitive proxy statement filed by the Company with the SEC during the period commencing December 31, 2002 and ending on the date hereof (the "SEC Documents"). As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as applicable, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, as of their respective filing dates. (f) Consents. Except for (i) the filing and effectiveness of any registration required to be filed by the Company under the Securities Act in connection with the exercise by any Investor of its rights under the Registration Rights Agreement and (ii) any required state "blue sky" law filings in connection with the transactions contemplated under such registration statement, all consents, approvals, orders and authorizations required on the part of the Company in connection with the execution, delivery or performance of this Agreement, the Warrants and the Registration Rights Agreement and the consummation of the transactions contemplated herein and therein have been obtained and will be effective as of the Effective Date of Amendment No. 2 to the Loan Agreement. (g) No Conflict. The execution and delivery of this Agreement, the Warrants and the Registration Rights Agreement by the Company and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to a loss of a material benefit under (i) any provision of the - 4 - Articles of Organization or By-laws of the Company or (ii) any material or instrument, permit, franchise, license, judgment, order, statute, law, ordinance, rule or regulation, applicable to the Company or its properties or assets. (h) Brokers or Finders. Except as set forth on Schedule 2.3(h), the Company has not dealt with any broker or finder in connection with the transactions contemplated by this Agreement, and the Company has not incurred, and shall not incur, directly or indirectly, any liability for any brokerage or finders' fees or agents commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. (i) New York Stock Exchange. The Common Stock is listed on the New York Stock Exchange. (j) Absence of Litigation. There is no pending (or to the best of the Company's knowledge, threatened) action, suit, proceeding or investigation against the Company or any of its direct or indirect subsidiaries, other than that described on Schedule 2.3(j) hereto. (k) No Undisclosed Liabilities. Other than as disclosed on the Financial Statements delivered to Purchaser, since December 31, 2002, the Company has incurred no material liabilities or obligations, fixed or contingent, matured or unmatured or otherwise, except for liabilities or obligations that, individually or in the aggregate, do not or would not have a material adverse effect on the financial condition or business of the Company and its subsidiaries other than (a) liabilities and obligations arising in the ordinary course of business and (b) other liabilities disclosed in the schedules to this Agreement. (l) Contracts. All contracts, agreements and instruments required to be filed as an exhibit to the annual report of the Company are legal, valid, binding and in full force and effect and, to the knowledge of the Company, are enforceable by the Company in accordance with their respective terms, subject to (a) laws of general application relating to bankruptcy, insolvency and the relief of debtors, (b) rules of law governing specific performance, injunctive relief or other equitable remedies, and (c) actions or omissions of Persons other than the Company, provided, however, that the Company has no actual knowledge of any material actions or omissions by such other Persons. Except as disclosed in the Annual Report and other than contracts or agreements relating exclusively to the Company's pre-clinical and clinical development and manufacturing activities, the Company has not granted rights to manufacture, produce, assemble, license, market or sell its products to any other person and is not bound by any contract or agreement that materially restricts the Company's exclusive right to develop, manufacture, assemble, distribute or sell its products. (m) Subsidiaries; Joint Ventures. The Company has no subsidiaries other than Leasecomm Corporation, a company organized under the laws of the Commonwealth of Massachusetts and a wholly-owned Subsidiary of the Company, and does not otherwise own or control, directly or indirectly, any other Person, other than MFI Finance Corp. I, a corporation organzied under the laws of the Commonwealth of Massachusetts and a wholly-owned Subsidiary of Leasecomm Corporation and MFI Finance II, LLC, a limited liability company organized under the laws of the Commonwealth of Massachusetts and a wholly-owned Subsidiary of Leasecomm Corporation. The Company is not a participant in any joint venture, partnership, or similar arrangement material to its business. - 5 - (n) Taxes. Each of the Company and any Subsidiary of the Company has filed (or has had filed on its behalf) or will timely file or will cause to be timely filed, all material Tax Returns (as defined below) required by applicable law to be filed by it prior to or as of the date of the Effective Date of Amendment No. 2 to the Loan Agreement, and such Tax Returns are, or will be at the time of filing, true, correct and complete in all material respects. Each of the Company and any Subsidiary of the Company has paid (or has had paid on its behalf) or, where payment is not yet due, has established (or has had established on its behalf and for its sole benefit and recourse) or will establish or cause to be established in accordance with GAAP on or before the Effective Date of Amendment No. 2 to the Loan Agreement, an adequate accrual for the payment of, all material Taxes (as defined below) due with respect to any period ending prior to or as of the Effective Date of Amendment No. 2 to the Loan Agreement. "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including income, gross receipts, excise, real or personal property, sales, withholding, social security, retirement, unemployment, occupation, use, goods and services, license, value added, capital, net worth, payroll, profits, franchise, transfer and recording taxes, fees and charges, and any other taxes, assessment or similar charges imposed by the Internal Revenue Service or any taxing authority (whether state, county, local or foreign) (each, a "Taxing Authority"), including any interest, fines, penalties or additional amounts attributable to or imposed upon any such taxes or other assessments. "Tax Return" shall mean any report, return, document, declaration or other information or filing required to be supplied to any Taxing Authority, including information returns, any documents with respect to accompanying payments of estimated Taxes, or with respect to or accompanying requests for extensions of time in which to file any such return, report, document, declaration or other information. There are no claims or assessments pending against the Company or any subsidiary of the Company for any material alleged deficiency in any Tax, and neither the Company nor any Subsidiary of the Company has been notified in writing of any material proposed Tax claims or assessments against the Company or any Subsidiary of the Company. Each of the Company and any Subsidiary of the Company has withheld from each payment made to any of its past or present employees, officers and directors, and any other person, the amount of all material Taxes and other deductions required to be withheld therefrom and paid the same to the proper Taxing Authority within the time required by law. (o) Percentage. The Warrant Shares represent in the aggregate two percent (2%) of the issued and outstanding capital stock of the Company as of the date hereof calculated on a fully diluted basis, after giving effect to all options and warrants (whether issued and outstanding or reserved for issuance for the purchase of capital stock of the Company but exclusive of 1,675,000 shares of Common Stock of the Company issuable upon exercise of options to purchase shares of the Company, outstanding on the date hereof, with a strike price above the fair market value of the stock of the Company on the date hereof). ARTICLE III SALE AND PURCHASE OF WARRANTS AT CLOSING At the Closing hereunder, the Company will issue and sell to each of the Lenders, subject to the terms and conditions hereof and in reliance upon the written representations and warranties of the Company, in consideration for each of the Lenders entering into Amendment No. 2 to the Loan Agreement, a Warrant to subscribe for and purchase the number of share of Common Stock indicated next to such Lender's name on Exhibit B hereto and the Company hereby acknowledges receipt of such consideration. - 6 - ARTICLE IV THE CLOSING The closing under this Agreement (the "Closing") will take place at 9:00 a.m., local time, on April 14, 2003, or at such other time and on such other date as may be mutually agreed upon in writing by the Lenders and the Company. At the Closing, the Company will (among other things) deliver to the Lenders the Warrants purchased by the Lenders hereunder, and each Lender will deliver to the Company the total consideration payable by such Lender for the Warrant. ARTICLE V REPRESENTATIONS OF THE LENDERS Each Lender severally represents and warrants to the Company that: (a) Such Lender is purchasing the Warrant from the Company in accordance with the terms hereof for such Lender's own account without a view to any distribution thereof in violation of the Securities Act, but, subject, nevertheless, to any requirement of law that the disposition of such Lender's property shall at all times be within such Lender's control. Each Lender has been informed and understands that the Securities have not been registered pursuant to the provisions of Section 5 of the Securities Act and therefore cannot be offered, sold or transferred unless such Securities are registered under the provisions of the Securities Act or an exemption from such registration is available. (b) Each Lender represents that it is an "accredited investor" within the meaning of Rule 501(a) promulgated under the Securities Act. Each Lender has sufficient knowledge and experience in investing in companies similar to the Company so as to be able to evaluate the risks and merits of such an investment and is able financially to bear the risks thereof. (c) It agrees that each stock certificate or instrument representing or evidencing any Securities shall bear a legend in or substantially in the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER, AND ARE SUBJECT TO, THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE 1933 ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933 ACT." ARTICLE VI COVENANTS OF COMPANY The Company hereby covenants with each of the Investors that, except as otherwise expressly permitted or provided, in any particular instance, by a written Investor Consent: - 7 - SECTION 6.1. RECORDS AND ACCOUNTS. The Company will (i) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP and (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves. SECTION 6.2. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Company will deliver to each of the Investors at their request: (a) as soon as practicable after the end of each Company fiscal year and in any event within 90 days after the end of each such fiscal year, a consolidated balance sheet of the Company and Subsidiaries as at the end of such year, and the related statements of income and cash flows or shareholders' equity of the Company and Subsidiaries setting forth in each case the corresponding figures for the preceding fiscal year, such statements to be certified by a firm of independent certified public accountants selected by the Company; (b) as soon as is practicable after the end of each fiscal quarter of each Company fiscal year and in any event within 45 days thereafter, consolidated balance sheet of the Company and Subsidiaries as of the end of such period and the related statements of income and cash flows and shareholders' equity of the Company and Subsidiaries, subject to changes resulting from year-end adjustments, such balance sheet and statements to be prepared and certified by an authorized representative of the company in an officer's certificate as having been prepared in accordance with GAAP except for footnotes and year-end adjustments; and (c) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Company. ARTICLE VII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION. SECTION 7.1. SURVIVAL OF REPRESENTATIONS. The representations and warranties of the Company and of the Lenders and the Investors contained in this Agreement, or any agreement, instrument or document delivered pursuant to any of the provisions of this Agreement, shall survive the execution and delivery of this Agreement, any examination or investigation conducted by or on behalf of the Company or the Lender, and the Closing hereunder. SECTION 7.2. INDEMNIFICATION FOR MISREPRESENTATIONS. The Company agrees to indemnify and hold the Lenders harmless from and against, and to pay to the Lenders, on demand by the Lenders from time to time, the full amount of any loss, claim, damage, liability, cost or expense (including reasonable attorneys' fees) resulting to the Lenders from any false, incorrect or misleading representation or warranty of the Company contained in this Agreement, or any agreement, instrument or document delivered by the Company to the Lenders pursuant to any of the provisions of this Agreement. SECTION 7.3. EXPENSES. Whether or not all or any of the arrangements or transactions contemplated by this Agreement or by any of the Warrants shall be consummated, the Company agrees to pay to the Investors, on demand by the Investors at any time and as often as the occasion - 8 - therefor may require: (a) all of the reasonable legal fees, plus all reasonable out-of-pocket expenses and disbursements, of one set of counsel to the Investors, which have been or shall be incurred or sustained at any time in connection with the preparation, negotiation, execution or delivery of this Agreement, any of the Warrants, the Co-Sale Agreement, the Registration Rights Agreement or any other agreements, instruments or documents relating thereto; and (b) all reasonable out-of-pocket costs and expenses which shall be incurred or sustained by any Investor at any time in connection with any modifications or amendments to or consents, approvals or waivers under this Agreement, any of the Warrants, the Co-Sale Agreement or the Registration Rights Agreement or in connection with any litigation, proceeding or dispute arising out of or relating to this Agreement, any of the Warrants, the Co-Sale Agreement, the Registration Rights Agreement or relationships created thereby, or in connection with any action or proceeding taken by any Investor to protect or preserve all or any of the rights, remedies, powers or privileges of such Investor under any of such documents or to enforce any of the covenants, agreements or obligations of the Company under any of such documents (including, without limitation, all of the reasonable fees and disbursements of legal counsel for each Investor). ARTICLE VIII PREEMPTIVE RIGHTS (a) The Company shall not issue or sell any of its equity securities (including securities convertible into equity securities) (collectively, the "Future Shares") to any Person without first providing each Investor the right to subscribe for its Proportionate Percentage (as defined in Section 8(f)) of such Future Shares at the same price and on the same terms (including the method of purchase; provided, however, that the Investors shall have the option of purchasing Future Shares with cash, regardless of the method of purchase offered to such Person) as shall be offered to such third party and which shall have been specified by the Company in a writing delivered to each Investor (the "Proposal"). The Proposal by its terms shall remain open and irrevocable for a period of 20 days from the date it is delivered by the Company to each Investor (the "Future Shares Exercise Period"). The Proposal shall also certify that the Company has either (i) received a firm offer from a prospective purchaser, who shall be identified in such certification, so that the Company in good faith believes a binding agreement of sale is obtainable for consideration having a fair market, cash equivalent or present value set forth in such certification; or (ii) intends in good faith to make an offering of its securities at the price and on the terms set forth in such certification. (b) Notice of each Investor's acceptance, in whole or in part, of the Proposal made pursuant to Article 8(a) hereof shall be evidenced by a writing signed by such Investor delivered to the Company prior to the end of the Future Shares Exercise Period setting forth that portion of the Future Shares, as the case may be, which the Investor elects to purchase (the "Notice of Purchase"). If an Investor does not deliver such written notice within the Future Shares Exercise Period, such Investor shall be deemed to have elected not to purchase all or any part of such Future Shares. (c) The Company shall promptly, in writing, inform each Investor which purchases all the shares available to it ("Fully-Exercising Investor") of any other Investor's failure to do likewise. During the ten-day period commencing after the delivery by the Company of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Future Shares for which Investors were entitled to subscribe but which were not subscribed for by the Investors which is equal to the proportion that the number of shares of Common Stock, and other securities, issued and - 9 - held, or issuable (whether directly or indirectly) upon exercise of the Warrant, or other derivative securities, held by such Fully-Exercising Investor, as the case may be, then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock, and other securities, issued and held, or issuable (whether directly or indirectly) upon exercise of the Warrant, or other derivative securities, held by such Fully-Exercising Investor, as the case may be, then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares. (d) In the event that the Investors do not purchase all of the remaining Future Shares pursuant to Article 8(c) above, the Company shall have 120 days from the expiration of the Future Shares Exercise Period to offer and sell any part of such Future Shares not elected to be purchased by the Investors (the "Refused Future Shares") to any other Person(s), but only upon terms and conditions in all respects (including, without limitation, price, seniority, dividends and liquidation, redemption and conversion rights) which are no more favorable to such other Person(s) or less favorable to the Company than those set forth in the Proposal; provided, however, that such sale be to the same Person(s) or their affiliates identified in the Proposal, if so identified pursuant to Article 8(a). In the event that the Company so sells the Refused Future Shares to such identified Person(s), the sale to each Investor of the Future Shares in respect of which a Notice of Purchase was delivered to the Company by such Investor shall occur upon the closing of the sale to such other Person(s) of Refused Future Shares (which closing shall include full payment to the Company). If there are no Refused Future Shares, the sale to such Investor of such Future Shares shall occur within 20 days of the expiration of the Future Shares Exercise Period. In any event, the sale to such Investor of such Future Shares shall be on the terms specified in the Proposal. Any Refused Future Shares not purchased by such other Person(s) within such 120-day period shall remain subject to this Article 8. (e) The term "Proportionate Percentage" in Article 8(a) shall mean, as to any Investor, that percentage figure which expresses the ratio which (i) the aggregate number of shares of Common Stock, and other securities, then (a) outstanding and owned by such Investor and (b) issuable (whether directly or indirectly) upon exercise of such Investor's Warrant bears to (ii) the aggregate number of shares of Common Stock, and other securities, (a) outstanding and owned by all Investors and (b) issuable (whether directly or indirectly) upon conversion of the Warrants of all Investors. An Investor shall be entitled to apportion the preemptive rights hereby granted it among its partners, members and affiliates in such proportion as it deems appropriate. (f) Notwithstanding anything in this Article 8 to the contrary, a Investor shall not be entitled to any preemptive rights in connection with any issuance of shares of Common Stock (i) upon exercise of any of the Warrants (and other convertible securities outstanding as of the date hereof); (ii) upon exercise of options or warrants to purchase Common Stock of the Company that are outstanding on the date of this Agreement; (iii) issued pursuant to, or upon exercise of options granted under, the Company's existing stock plan entitled MicroFinancial Incorporated 1998 Equity Incentive Plan; (iv) issued as a stock dividend to accomplish a stock spilt or subdivision of shares or upon any subdivision of shares; (v) issued in connection with the acquisition of another corporation or other business entity by the Company by merger, purchase of substantially all assets or other reorganization whereby the Company owns, upon consummation of such acquisition, greater than fifty percent (50%) of the voting power to elect the directors of such corporation or other business entity; (vi) to underwriters and/or the public pursuant to a qualified public offering and (vii) issued in any merger or consolidation of the Company, provided that such merger or consolidation is approved by the Majority Investors; provided, however, that notwithstanding anything in this Article 8(f) to the contrary, to the extent legally permissible, the Investors (excluding any individuals) shall have the preemptive rights described in Article 8(a) hereof to purchase a number - 10 - of shares equal, in the aggregate, to 5% of the shares of the Company (other than underwriters' warrants) sold in the qualified public offering (excluding the over-allotment option), such shares to be allocated by the Investors on a pro rata basis determined in accordance with the number of shares of Common Stock issuable upon exercise of the Warrants; and provided further, that (i) such shares are purchased at the price at which such securities are sold by the underwriters to the public, (ii) the Investors shall purchase such shares directly from the Company in a transaction that is exempt from registration under the 1933 Act and that will close prior to or concurrently with the qualified public offering, (iii) such offering shall occur on or after that date which is one year from the date hereof; (iv) Investors who purchase such shares shall be qualified institutional buyers (as such term is defined in Rule 144A promulgated under the Securities Act); and (v) Investors shall comply with all federal and state securities laws in connection with such purchase. ARTICLE IX MISCELLANEOUS SECTION 9.1. NOTICES. (a) All notices and other communications pursuant to this Agreement shall be in writing, either delivered in hand, mailed by United States registered or certified first-class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or postal service, addressed as follows: (i) if to the Company, at the address of the Company set forth on the first page hereof, or at such other address as shall have been furnished to each of the Investors in writing by the Company and a copy thereof shall in any event be simultaneously transmitted to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111, Attention: Richard Mikels; (ii) if to any Investor, at such addresses (in each case) as shall have been furnished to the Company and to the other Investors by such Investor in writing, and a copy thereof shall in any event be simultaneously transmitted to Jonathan K. Bernstein, Esq., Bingham McCutchen LLP, 150 Federal Street, Boston, MA 02110. (b) Any notice or other communication pursuant to this Agreement shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of receipt thereof by such officer or the sending of such facsimile or (ii) if sent by registered or certified first-class mail, postage prepaid, on the third business day following the mailing thereof. SECTION 9.2. GOVERNING LAW. THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. SECTION 9.3. AMENDMENTS AND WAIVERS. (a) Except as otherwise provided by paragraph (b) of this Section 9.3, and except as otherwise expressly required by any other provisions of this Agreement, none of the terms or provisions contained in this Agreement, and none of the agreements, obligations or covenants of the Company - 11 - contained in this Agreement, may be amended, modified, supplemented, waived or terminated unless (i) the Company shall execute an instrument in writing agreeing or consenting to such amendment, modification, supplement, waiver or termination, and (ii) the Company shall receive a prior written Investor Consent therefor. (b) Each of the terms and provisions contained in this Section 9.3 or in the definitions of Permitted Transferee, Investor Consent or Majority Investors contained in Article I hereof may be amended, modified, supplemented, waived or terminated only by a written instrument or consent signed by the Company and by each of the Investors holding of record any Securities at the effective date thereof. (c) In connection with any action taken or to be taken pursuant to paragraph (a) of this Section 9.3, there shall be no obligation or requirement on the part of the Company, any of the Investors or any other Persons (i) to solicit or to attempt to solicit from all of the Investors the consent or approval of all of the Investors for such action, or (ii) to submit any notices of any kind to all of the Investors in advance of any action proposed to be taken pursuant to paragraph (a) of this Section 9.3. However, copies of all written consents or approvals given by Investors in connection with any action taken or to be taken pursuant to and in compliance with paragraph (a) of this Section 9.3 shall be sent by the Company, promptly after the receipt thereof by the Company, to each Investor who shall have failed or refused to give a written consent or approval for such action. (d) Any action taken pursuant to and in compliance with paragraph (a) of this Section 9.3 shall be binding upon the Company and upon all of the Investors, including all of the Investors who shall have failed or refused to give a written consent or approval for such action. SECTION 9.4. RIGHTS AND OBLIGATIONS SEVERAL. The rights and obligations of each of the parties hereto shall be several (and not joint), except as otherwise expressly provided by this Agreement. SECTION 9.5. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of any Investor in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.6. ASSIGNMENT. This Agreement shall inure to the benefit and be binding upon each Lender and its heirs, successors and assigns. The Company's obligations under this Agreement shall not be assigned, and its duties under this Agreement shall not be delegated. SECTION 9.7. ENTIRE AGREEMENT. This Agreement, including Exhibit A hereto, and the Warrants constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersede any prior understandings or agreements concerning the subject matter hereof. SECTION 9.8. SEVERABILITY. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. SECTION 9.9. BINDING EFFECT. All of the covenants and agreements of the Company contained in, and all of the rights granted by the Company pursuant to, this Agreement, shall inure to the benefit of each Investor, including each of the Permitted Transferees of such Investor. None of such - 12 - covenants, agreements or rights shall be assignable or transferable by any Investor to any Person except to a Person who is a Permitted Transferee of such Investor. SECTION 9.10. COUNTERPARTS. This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart signed by each of the parties hereto. - 13 - If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this Agreement and return such counterpart to the undersigned, whereupon this Agreement, as so accepted by you, shall become a binding agreement under seal between you and the undersigned. Very truly yours, MICROFINANCIAL INCORPORATED By: /s/ Authorized Signatory -------------------------- Name: Title: Dated as of: April 14, 2003 The foregoing Warrant Purchase Agreement with MicroFinancial Incorporated is hereby accepted by the undersigned on and as of the date thereof. INVESTORS: FLEET NATIONAL BANK, individually and as Agent By: /s/ Authorized Signatory ---------------------------------- Name: Title: BANKNORTH, N.A. By: /s/ Authorized Signatory ---------------------------------- Name: Title: BROWN BROTHERS HARRIMAN & CO. By: /s/ Authorized Signatory ---------------------------------- Name: Title: CITIBANK By: /s/ Authorized Signatory ---------------------------------- Name: Title: CITIZENS BANK OF MASSACHUSETTS By: /s/ Authorized Signatory ---------------------------------- Name: Title: - 2 - KEYBANK NATIONAL ASSOCIATION By: /s/ Authorized Signatory ---------------------------------- Name: Title: NATIONAL CITY BANK By: /s/ Authorized Signatory ---------------------------------- Name: Title: By: /s/ Authorized Signatory ---------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: /s/ Authorized Signatory ---------------------------------- Name: Title: - 3 - EX-10.3 5 b46554mfexv10w3.txt FORMS OF WARRANT EXHIBIT 10.3 THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. MICROFINANCIAL INCORPORATED (Incorporated under the laws of The Commonwealth of Massachusetts) WARRANT No. ___ To Purchase _______ Shares of Common Stock This is to certify that, for value received, _________, having an office at __________________________, or any subsequent holder hereof (the "HOLDER"), is entitled to purchase from MICROFINANCIAL INCORPORATED a Massachusetts corporation (the "COMPANY"), in whole or in part, at an exercise price of $.82 1/2 per share, subject to adjustment as hereinafter provided (the "EXERCISE PRICE"), at any time during the Exercise Period, as defined below, ________ shares of fully paid and non-assessable shares of the Common Stock $0.01 par value, of the Company (the "COMMON STOCK"). This Warrant, any other warrants issued as provided herein and any other warrants issued to the Investors as provided in the Warrant Purchase Agreement, are hereinafter collectively referred to as the "WARRANTS" and all shares of Common Stock and other securities purchased or purchasable upon exercise of this Warrant are hereinafter collectively referred to as "WARRANT SHARES." The number of shares of Common Stock and the Exercise Price are subject to adjustment as hereinafter set forth. Capitalized terms used herein and not expressly defined herein shall have the meanings assigned thereto in that certain Warrant Purchase Agreement dated as of April 14, 2003 by and among the Holder, the other Investors (as defined therein) and the Company, as amended, modified or restated from time to time (as amended, modified or restated, the "WARRANT PURCHASE Agreement"). This Warrant has been issued pursuant to, and is entitled to the benefits of the Warrant Purchase Agreement. SECTION 1. EXERCISE OF WARRANT. 1.1. Time and Manner of Exercise. This Warrant may be exercised by the Holder hereof, in whole or in part, during the Exercise Period (defined below) by surrender of this Warrant, with the form of subscription attached hereto (the "SUBSCRIPTION") completed and duly executed by such Holder, to the Company at its principal office at 10-M Commerce Way, Woburn, Massachusetts 01801, or at such other address as the Company may designate by notice in writing to the Holder hereof at the address of such Holder on the books of the Company. This Warrant shall be exercisable as follows: if all of the Obligations owed by the Borrower to the Lenders pursuant to the Loan Agreement shall not have been paid in full, in cash (other than as a result of a repayment following an Event of Default (as defined in the Loan Agreement)) and all lending commitments thereunder terminated, in each case: (i) prior to June 30, 2004, this Warrant shall be exercisable for up to 50% of the Warrant Shares at a purchase price equal to the Exercise Price and (ii) after June 30, 2004, but prior to September 30, 2004, the this Warrant shall be exercisable for up to 100% of the Warrant Shares at a purchase price equal to the Exercise Price, provided that if the Asta Transaction has (as defined in the Loan Agreement) has closed on or before August 31, 2003 and the Company has complied with the provisions set forth in Section 5.5 and on Annex C of the Second Amendment to the Loan Agreement, this Warrant shall automatically terminate and shall be of no further force or effect. As used herein, the term "EXERCISE PERIOD" shall mean the period commencing on June 30, 2004 and ending at 6:00 p.m. (Boston Time) on September 30, 2014, unless this Warrant is automatically terminated earlier pursuant to this paragraph. If the last day for the exercise of this Warrant shall not be a Business Day, then this Warrant may be exercised on the next succeeding day which is a Business Day. All Warrants surrendered for exercise shall be canceled. 1.2. Payment. Payment in an amount equal to the product of (a) the number of shares of Common Stock designated in the Subscription, times (b) the Exercise Price shall be due to the Company, in cash or by certified or official bank check payable to the Company within five (5) Business Days after the date of exercise. 1.3 Net Issue Election. The Holder hereof may elect to receive, without the payment by such Holder of any additional consideration, shares of Common Stock equal to the value of this Warrant or any portion hereof by the surrender of this Warrant or such portion to the Company, with the form of net issue subscription attached hereto duly executed by such Holder, at the office of the Company. Thereupon, the Company shall issue to such Holder such number of fully paid and nonassessable shares of Common Stock as is computed using the following formula: X = Y (A-B) ------- A where: - 2 - X = the number of shares to be issued to such Holder pursuant to this Section. Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Section. A = the fair market value of one share of Company Common Stock, as determined in accordance with the following provisions, as at the time the net issue election is made pursuant to this Section. B = the Exercise Price in effect under this Warrant at the time the net issue election is made pursuant to this Section. (a) "FAIR MARKET VALUE" means, with respect to one share of Common Stock, the average of the daily closing prices for a share of Common Stock on the five (5) consecutive trading days commencing immediately before the date of determination of such fair market value. The closing price for each day shall be: (i) if the Common Stock shall be listed or admitted to trading on any national securities exchange, the average of the last reported sales prices on the specified days (or if there is no reported sale on any such trading date, the average of the closing bid and asked prices on such trading date); (ii) if the Common Stock is not traded or admitted to trading on any national securities exchange, the closing price, if reported, or if the closing price is not reported, the average of the closing bid and asked prices, as reported by the New York Stock Exchange or similar source or, if no such source exists, as furnished by two members of the National Association of Securities Dealers, Inc., selected by the Company for that purpose, on the specified dates; (iii) if the Common Stock is not traded or admitted to trading on any national securities exchange or New York Stock Exchange, the Fair Market Value of such shares on such dates as determined in good faith by the Company's Board of Directors; (iv) if the date upon which a determination of the price is made is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's Articles of Organization, then all amounts to be payable per share to holders of the Common Stock pursuant to the Company's Articles of Organization in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the Articles of Organization, assuming for the purposes of this clause (iv) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding on such date. In the event that clause (iii) in the immediately preceding sentence is applicable, the Board of Directors of the Company shall promptly respond in writing to an inquiry by the Holder hereof as to the fair market value of one share of Common Stock. 1.4 When Exercise Effective. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall have been surrendered to the Company as provided in subsection 1.1, and at such time the person or persons in whose name or names any certificate or certificates for shares of Common Stock (or of the other securities or property to which such Holder is entitled upon such exercise in accordance with the terms hereof) shall be issuable upon such exercise as provided in subsection 1.2 or 1.3, as the case may be, shall be deemed to have become the Holder or Holders of record thereof. - 3 - 1.5 Delivery of Stock Certificates, etc. As soon as practicable after the exercise of this Warrant, in whole or in part, and in any event within 10 days thereafter, the Company at its expense will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder may direct: (a) a certificate or certificates for the number of full shares of Common Stock to which such Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Holder would otherwise be entitled, cash in an amount equal to the same fraction of the Exercise Price of one full share of Common Stock, which shall be paid to the Holders thereof on the Business Day next preceding the date of such exercise; (b) in case such exercise is in part only, a new Warrant or Warrants of like tenor, for the number of shares of Common Stock in respect of which this Warrant shall not have been exercised; (c) each certificate representing shares of Common Stock issued upon exercise of this Warrant shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to, or in combination with, any other legend required under applicable state securities law and agreements or by-law provisions relating to the transfer of the Company's securities): THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. SECTION 2. INVESTMENT REPRESENTATIONS. The Holder hereof understands that this Warrant (and the Common Stock issuable upon exercise of this Warrant) to be purchased by such Holder have not been registered under the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act of 1933, as amended (the "SECURITIES ACT") by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. The - 4 - Holder further understands that neither this Warrant nor the Common Stock issuable upon the exercise of this Warrant may be offered, sold or otherwise transferred, pledged or hypothecated unless or until this Warrant or the Common Stock issuable upon the exercise of this Warrant, as the case may be, is registered under the Securities Act or an exemption form such registration is available. The Holder hereof has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and to obtain any additional information necessary to verify the accuracy of the information given to such Holder. The Holder hereof represents that such Holder is an accredited investor under Rule 501(a) of Regulation D of the Securities Act and that such Holder is able to bear the economic risk of such Holder's investment in the Company contemplated hereby. The Holder is acquiring this Warrant for its own account without a view to any distribution thereof in violation of the Securities Act. SECTION 3. MAINTENANCE OF WARRANT REGISTER; ASSIGNMENT AND TRANSFER AND REPLACEMENT. 3.1 Registered Holders. The Company will maintain a register containing the name and address of the Holder of this Warrant. The "REGISTERED HOLDER" of this Warrant shall be the person in whose name such Warrant is registered in said warrant register. Any registered Holder of this Warrant may change such Holder's address as shown on the warrant register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the registered Holder of this Warrant shall be mailed, by certified or registered mail, return receipt requested, postage prepaid, or delivered to such registered Holder at its address as shown on the warrant register. 3.2 Assignment and Transfer of the Warrant. Subject to Section 9 and on the basis of the foregoing representations set forth in Section 2 above, this Warrant has not been registered under the Securities Act, and neither this Warrant nor the rights evidenced hereby shall be assigned, pledged, transferred or otherwise disposed of unless either (a) this Warrant first shall have been registered under the Securities Act, or (b) the Company first shall have been furnished with an opinion of legal counsel reasonably satisfactory to the Company stating that such sale or transfer is an exempted transaction under the Securities Act and, unless such opinion states that such Warrant may be transferred by the transferee immediately after acquisition without registration under the Securities Act, a written agreement by the transferee thereof not to sell or transfer such Warrant without complying with the requirements provided for in this subsection 3.2. Upon surrender of this Warrant to the Company for transfer as an entirety by the registered Holder (as permitted by this Section) at the offices of the Company referred to in Section 1.1 hereof, with the form of assignment attached hereto completed and duly executed by the registered Holder, the Company shall, at the Company's expense, issue a new Warrant of the same denomination to the assignee. 3.3 Replacement. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue a new Warrant of like tenor and denomination and deliver the same at the holder's expense (a) in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or (b) in lieu of the Warrant lost, stolen or destroyed, upon receipt of (i) a reasonably detailed affidavit with respect to the circumstances of any loss, theft or destruction, and (ii) an indemnity reasonably satisfactory to the Company. - 5 - SECTION 4. ADJUSTMENT OF STOCK ISSUABLE UPON EXERCISE. 4.1 Sale of Shares Below Fair Market Value. (a) If at any time or from time to time the Company issues or sells, or is deemed by the provisions of this Section 4.1 to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as a dividend or other distribution on any class of stock as provided in Section 4.2 and other than upon a subdivision or combination of shares of Common Stock as provided in Section 4.3, for an Effective Price (as hereinafter defined) less than the Fair Market Value then and in each such case: (i) the number of shares of Common Stock to be received by the Holder hereunder shall be adjusted to that number determined by multiplying (a) the number of shares purchasable hereunder immediately prior to such issuance by (b) a fraction, (i) the numerator of which shall be equal to the number of shares of Common Stock outstanding on a fully-diluted basis (but exclusive of 1,675,000 shares of Common Stock of the Company issuable upon exercise of options to purchase shares of the Company, outstanding on the date hereof, with a strike price above the fair market value of the stock of the Company on the date hereof) immediately after the issuance of such Additional Shares of Common Stock, and (ii) the denominator of which shall be equal to the number of shares of Common Stock outstanding on a fully-diluted basis (but exclusive of 1,675,000 shares of Common Stock of the Company issuable upon exercise of options to purchase shares of the Company, outstanding on the date hereof, with a strike price above the fair market value of the stock of the Company on the date hereof) immediately prior to the issuance of the Additional Shares of Common Stock; and (ii) the Exercise Price shall be correspondingly reduced so that the aggregate Exercise Price for all shares of Common Stock covered hereby shall remain unchanged. (b) For the purpose of making any adjustment required under this Section 4.1, the consideration received by the Company for any issue or sale of securities shall (i) to the extent it consists of cash, be computed at the amount of cash received by the Company, (ii) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors of the Company (the "BOARD") or, at the request of Majority Investors, by an independent appraiser reasonably acceptable to the Company and the Majority Investors, at the Company's expense, and (iii) if Additional Shares of Common Stock, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options or, at the request of the Majority Investors, by an independent appraiser reasonably acceptable to the Company and the Majority Investors at the Company's expense. - 6 - (c) For the purpose of the adjustment required under this Section 4.1, if the Company issues or sells, or is deemed to have issued or sold, any rights or options for the purchase of, or stock or other securities convertible into or exchangeable for, whether directly or indirectly, Additional Shares of Common Stock (such convertible or exchangeable stock or securities being hereinafter referred to as "CONVERTIBLE SECURITIES") and if the Effective Price (as hereinafter defined) of such Additional Shares of Common Stock is less than Fair Market Value, then in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise, conversion or exchange thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities, plus, in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof. No further adjustment of the Exercise Price or new number of Warrant Shares, adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion or exchange of any such Convertible Securities. If any such rights or options or the conversion or exchange privilege represented by any such Convertible Securities shall expire without having been exercised, the Exercise Price or the new number of Warrant Shares adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Exercise Price or, as applicable, the new number of Warrant Shares which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion or exchange of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, if any, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, or, if applicable, the consideration actually received by the Company for issuing or selling the Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities. (d) For the purpose of the adjustment required under this Section 4.1, if the Company issues or sells, or is deemed by the provisions of this subsection to have issued or sold, any rights or options for the purchase of Convertible Securities and if the Effective Price of the Additional Shares of Common Stock underlying such Convertible Securities is less than Fair Market Value, then in each such case the Company shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion or exchange of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Company for the issuance of such rights or options, plus the minimum amounts - 7 - of consideration, if any, payable to the Company upon the exercise of such rights or options and plus the minimum amount of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange of such Convertible Securities. No further adjustment of the Exercise Price or new number of Warrant Shares, adjusted upon the issuance of such rights or options, shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion or exchange of such Convertible Securities. The provisions of paragraph (c) above for the readjustment of the Exercise Price or new number of Warrant Shares upon the expiration of rights or options or the rights of conversion or exchange of Convertible Securities shall apply mutatis mutandis to the rights, options and Convertible Securities referred to in this paragraph (d). (e) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock issued by the Company on or after the date of this Warrant, including without limitation any and all shares of Common Stock issued to holders of options granted under, the Company's existing stock plan entitled MicroFinancial Incorporated 1998 Equity Incentive Plan (the "PLAN") or the holders of any other options to purchase Common Stock of the Company, whether or not subsequently reacquired or retired by the Company, whether such options are outstanding on the date hereof or issued hereafter, other than shares of Common Stock issued upon exercise of the Warrants. (f) The "EFFECTIVE PRICE" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 4.1, into the aggregate consideration received, or deemed to have been received (including any consideration receivable or payable upon exercise or conversion of such rights or option for the purchase of Additional Shares of Common Stock), by the Company for such issue under this Section 4.1, for such Additional Shares of Common Stock. (g) Any reduction in the conversion price of any Convertible Security, whether outstanding on the date of this Warrant or thereafter, or the subscription price of any option, warrant or right to purchase Common Stock or any Convertible Security (whether such option, warrant or right is outstanding on the Issue Date or thereafter), to an Effective Price less than Fair Market Value shall be deemed to be an issuance of such Convertible Security and the issuance of all such options, warrants or subscription rights, and the provisions of this Section 4.1 shall apply thereto mutatis mutandis. (h) Record Date Deemed Date of Issuance. In case the Company shall take a record of the Holders of shares of its stock of any class for the purpose of entitling them (i) to receive a dividend or a distribution payable in Common Stock or in Convertible Securities, or (ii) to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the Additional Shares of Common Stock issued or sold or deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution, or the date of the granting of such rights of subscription, purchase or other acquisition, as the case may be. - 8 - 4.2 Adjustment for Certain Dividends and Distributions. In case at any time or from time to time, the holders of Common Stock shall have received, or (on or after the record date fixed for the determination of shareholders eligible to receive) shall have become entitled to receive, without payment therefor other or additional stock, other securities, cash or property by way of dividend; other than additional shares of Common Stock issued as a stock dividend or in a stock-split (adjustments in respect of which are provided for in Section 4.3 hereof), then and in each such case the holder of this Warrant, on the date such payment is received by such holders of Common Stock or upon the exercise hereof as provided in Section 1 hereof, shall be entitled to receive the amount of other or additional stock, other securities, cash or property which such holder would have received prior to or would have held on the date of such exercise if on the date hereof it had been the holder of record of the number of shares of Common Stock then exercisable pursuant to this Warrant and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and all such other or additional stock, other securities, cash or property receivable by such holder as aforesaid during such period, without interest, giving effect to all further adjustments called for during such period by Section 4 hereof. 4.3. Stock Split and Reverse Stock Split. If at any time there shall occur any stock split, stock dividend, reverse stock split or other subdivision or combination of the Company's Common Stock ("STOCK EVENT"), then the number of shares of Common Stock to be received by the holder of this Warrant shall be appropriately adjusted such that the proportion of (a) the number of shares of Common Stock issuable hereunder to (b) the total number of shares of Common Stock of the Company (on a fully diluted basis, but exclusive of 1,675,000 shares of Common Stock of the Company issuable upon exercise of options to purchase shares of the Company, outstanding on the date hereof, with a strike price above the fair market value of the stock of the Company on the date hereof) prior to such Stock Event is equal to the proportion of (x) the number of shares of Common Stock issuable hereunder to (y) the total number of shares of Common Stock of the Company (on a fully-diluted basis but exclusive of 1,675,000 shares of Common Stock of the Company issuable upon exercise of options to purchase shares of the Company, outstanding on the date hereof, with a strike price above the fair market value of the stock of the Company on the date hereof) after such Stock Event. No adjustment to the Exercise Price shall be made in connection with any adjustment of the number of shares of Common Stock receivable upon exercise of this Warrant, except that the Exercise Price shall be proportionately decreased upon the occurrence of any stock split or other subdivision of the Common Stock and shall be proportionately increased upon the occurrence of any reverse stock split or other combination of Common Stock 4.4. No Dilution or Impairment. The Company will not, by amendment of its certificate of incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any share of stock receivable upon the exercise of the Warrants - 9 - above the amount payable therefor upon such exercise, and (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares upon the exercise of all Warrants at the time outstanding. 4.5. Certificate as to Adjustment. In each case of an adjustment in the number of shares of Common Stock or the number or type of other stock, securities or property receivable on the exercise of the Warrants, the Company at its expense shall cause its chief financial officer (who may be the independent public accountants then auditing the books of the Company) to compute such adjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price. The Company will forthwith mail a copy of each such certificate to each Holder of a Warrant at the time outstanding. 4.6. Notices of Record Date: In case: (a) the Company shall take a record of the Holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of the Warrants) for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another person, or any conveyance of all or substantially all of the assets of the Company to another person, or (c) of any voluntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to each Holder of a Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is expected to take place, and the time, if any is to be fixed, as of which the Holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of the Warrants) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed at least 30 days prior to the date specified in the notice on which any such action is to be taken. 4.7. Stock Purchase Rights. If at any time or from time to time, the Company grants or issues to the record holders of the Common Stock any options, warrants or subscription rights other than pursuant to the Plan (collectively, the "STOCK PURCHASE RIGHTS") entitling any such - 10 - holder to purchase Common Stock or any security convertible into or exchangeable for Common Stock or to purchase any other stock or securities of the Company, upon exercise hereof the Holder shall be entitled to acquire, upon the terms applicable to such Stock Purchase Rights, the aggregate Stock Purchase Rights which the Holder could have acquired if the Holder had been the record Holder of the maximum number of shares of Common Stock issuable upon exercise of this Warrant on the record date for such grant or issuance of such Stock Purchase Rights. 4.8. Adjustments For Consolidation, Merger, Sale of Assets, Reorganization, Etc. If the Company effects a capital reorganization or reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the Common Stock), or sells or otherwise disposes of all or substantially all the properties and assets of the Company as an entirety to any other person, the Holder of this Warrant, upon the exercise hereof at any time after the consummation of such reorganization, reclassification, consolidation, merger, sale or other disposition, shall be entitled to receive, in lieu of the Common Stock issuable upon such exercise prior to such consummation, the kind and number of shares of stock or other securities or property of the Company or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such Holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition such Holder had exercised this Warrant. The provisions of this subsection 4.8 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. The Company shall not effect any such merger, consolidation, or similar reorganization in which the Company does not survive or in which its Common Stock changes, unless prior to or simultaneously with the consummation thereof the successor corporation shall assume by written instrument executed and mailed or delivered to the Holder of this Warrant at the last address of such Holder appearing on the books of the Company, the obligations to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. Notwithstanding anything to the contrary set forth herein, in the event that the Asta Transaction is consummated by August 31, 2003, the adjustments set forth herein shall not apply and the Warrant shall terminate automatically in accordance with Section 1.1 above. 4.10 Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of this Warrant after the effective date of such dissolution pursuant to this Section 4 to a bank or trust company as a trustee for the holders of this Warrant. 4.11 Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 4, (excluding the Asta Transaction, if consummated by August 31, 2003, which shall then be governed by Section 1.1) this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant - 11 - after the consummation of such reorganization, consolidation, or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any stock or other securities, including in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. 4.12 Calculations Made to Nearest Cent or Full Share. All calculations under this Section 4 shall be made to the nearest cent or to the nearest full share, as the case may be (with one-half of a cent or a share being rounded to the next highest full cent or share). 4.13 No Duplicate Adjustments. Notwithstanding any provision in this Section 4 to the contrary, no adjustment in the number of shares of Common Stock which the Holder of this Warrant shall be entitled to receive upon the exercise hereof shall be made if, as a result of the antidilution provisions contained in the Company's Articles of Organization, if any, the Holder of this Warrant shall have obtained substantially the same protections against dilution resulting from the sale of the Company's capital stock at a price below the exercise price of this Warrant which are intended to be provided by the provisions of this Section 4. SECTION 5. OTHER NOTICES. In case at any time: (a) the Company shall declare any dividend or other distribution upon its Common Stock payable in stock; or make any special dividend or other distribution (other than regular cash dividends) to the Holders of its Common Stock; or (b) the Company shall propose a subdivision of its outstanding Common Stock into a greater number of shares of Common Stock or propose a combination of its outstanding Common Stock into a smaller number of shares of Common Stock; or (c) the Company shall offer for subscription pro rata to the Holders of its Common Stock or Common Stock any additional shares of stock of any class or other rights; or (d) the Company shall propose any capital reorganization or any reclassification of capital stock of the Company or any consolidation, merger or sale of all or substantially all of its properties and assets; or (e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, and in each of said cases, the Company shall cause notice thereof to be mailed to the Holder of this Warrant at the last address appearing on the books of the Company or given by such Holder to the Company for the purpose of notice. Such notices shall be mailed at least thirty (30) days prior to the date on which the books of the Company shall close, or a record date shall be taken for such dividend, distribution, stock split or combination or issue of rights or to vote upon such capital reorganization, reclassification, consolidation, merger or sale of properties and assets, as the case may be, and shall specify such record date or date for the closing of the transfer books. - 12 - SECTION 6. RESERVATION OF STOCK ISSUABLE UPON EXERCISE. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for issuance and delivery upon the exercise of this Warrant, such number of its shares of Common Stock as shall from time to time be issuable upon the exercise of this Warrant; and if at any time the number of authorized but unissued shares of its Common Stock shall not be sufficient for such purpose, the Company will take such corporate actions as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of its Common Stock to such number of shares as shall be sufficient for such purpose. SECTION 7. RIGHTS AS STOCKHOLDER. The registered Holder of this Warrant, as such, shall not be entitled to vote or receive dividends or be deemed the Holder of shares of Common Stock for any purpose, nor shall anything contained in this Warrant be construed to confer upon the registered Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any action by the Company (whether upon any recapitalization, issue of shares, reclassification of shares, consolidation, merger, conveyance or otherwise), receive notice of meetings or other action affecting stockholders (except for notices provided for in this Warrant), receive dividends or subscription rights, or otherwise until this Warrant shall have been exercised and the shares of Common Stock purchasable upon the exercise hereof shall have become deliverable as provided in Section 1 hereof, at which time the person or persons in whose name or names the certificate or certificates for the shares of Common Stock being purchased are to be issued shall be deemed the holder or holders of record of shares of Common Stock for all purposes. SECTION 8. REMEDIES. The Company stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. SECTION 9. TRANSFERABILITY. This Warrant may be transferred or assigned in whole or in part by the Holder either to an affiliate (as that term is defined in the Securities Act) of the Holder or to anyone else except for a competitor if the Holder has complied with the terms and conditions of (i) this Warrant and (ii) all applicable federal and state securities laws; provided however that (other than in the case of a transfer or assignment of this Warrant to an affiliate of the Holder), such compliance shall include, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company. Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Form of Assignment annexed hereto) and delivery in the same manner - 13 - as a negotiable instrument transferable by endorsement and delivery. For purposes of this Agreement, "competitor" shall mean any company that is primarily engaged in the business of manufacturing, selling, licensing or developing products that are competitive with products being manufactured, sold, leased, developed or licensed by the Company on the date hereof. SECTION 10. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by recognized overnight courier first class registered or certified air mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. SECTION 11. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in The Commonwealth of Massachusetts and shall be construed and enforced in accordance with and governed by the laws of such commonwealth. All section headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or unenforceability of any other provision. IN WITNESS WHEREOF, MICROFINANCIAL INCORPORATED has caused this instrument to be duly executed by its duly authorized officer this 14th day of April, 2003. Attest: MICROFINANCIAL INCORPORATED ___________________________________ By: __________________________ Assistant Clerk __________________________ Print Name Title: _______________________ - 14 - ELECTION TO PURCHASE MICROFINANCIAL INCORPORATED 10-M Commerce Way Woburn, Massachusetts 01801 Ladies and Gentlemen: The undersigned hereby subscribes for _______ shares of the Common Stock of MICROFINANCIAL INCORPORATED covered by the within Warrant and tenders payment herewith in the amount of $________________ in accordance with the terms thereof. Such payment is hereby tendered in the form of $ in cash or certified or bank check. You are instructed as follows: 1. To issue certificate(s) for said shares to Name: Address: 2. To deliver said certificate(s) by registered mail, return receipt requested, to Name: Address: Very truly yours, [INSERT HOLDER] ______________________ Name: Title: Address: NET ISSUE ELECTION SUBSCRIPTION FORM (TO BE EXECUTED UPON EXERCISE OF WARRANT PURSUANT TO SECTION 1.3) The undersigned hereby irrevocably elects to exchange its Warrant for such shares of Common Stock pursuant to the Net Issue Election provisions of the within Warrant, as provided for in Section 1.3 of such Warrant. Please issue a certificate or certificates for such Common Stock in the name of: Name: ________________________________ Address: ________________________________ ________________________________ SSN: __________________________ (Please PRINT name, address and social security number in the spaces provided above). Signature: _______________________________ Note: the above signature should correspond exactly with the name on the first page of the Warrant or with the name of the Assignee appearing on the assignment form attached to such Warrant. And if said number of shares shall not be all the shares exchangeable or purchasable under the within Warrant, a new Warrant is to be issued in the name of the above for the balance remaining of the shares purchasable rounded up to the next higher number of shares. FORM OF ASSIGNMENT [To be signed only upon transfer of Warrant] For value received, the undersigned hereby sells, assigns and transfers unto ____________ _______________________________ the right represented by the within Warrant to purchase ___________ shares of Common Stock of MICROFINANCIAL INCORPORATED to which the within Warrant relates, and appoints _____________________ Attorney to transfer such right on the books of MICROFINANCIAL INCORPORATED with full power of substitution in the premises. Dated: ____________________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) (Address) Signed in the presence of: ______________________________ 2 MicroFinancial Incorporated List of Warrantholders and Number of Warrant Shares April 14, 2003
LENDER NUMBER OF WARRANT SHARES - ------------------------------------------------------------------------------- Fleet National Bank 48,891 - ------------------------------------------------------------------------------- Banknorth, N.A. 27,937 - ------------------------------------------------------------------------------- Brown Brothers Harriman & Co. 13,969 - ------------------------------------------------------------------------------- Citibank 16,762 - ------------------------------------------------------------------------------- Citizens Bank of Massachusetts 34,922 - ------------------------------------------------------------------------------- Keybank National Association 34,922 - ------------------------------------------------------------------------------- National City Bank 27,937 - ------------------------------------------------------------------------------- U.S. Bank 41,906 - ------------------------------------------------------------------------------- Union Bank of California, N.A. 20,953 - -------------------------------------------------------------------------------
3 EX-10.4 6 b46554mfexv10w4.txt CO-SALE AGREEMENT DATED 4/14/03 EXHIBIT 10.4 MICROFINANCIAL INCORPORATED CO-SALE AGREEMENT THIS CO-SALE AGREEMENT (the "Agreement") is made and entered into as of this 14th day of April, 2003, by and among MicroFinancial Incorporated, a MASSACHUSETTS corporation (the "Company"), each of the persons and entities listed on Exhibit A hereto (the "Lenders"), and each of the persons listed on Exhibit B hereto (the "Inside Investors"). RECITALS WHEREAS, the Inside Investors are the beneficial owners in the aggregate of the number of shares of Common Stock of the Company set forth opposite their names on Exhibit B (giving effect to exercise of all options and warrants held by the Inside Investors as of the date of this Agreement); WHEREAS, Lenders are purchasing warrants to purchase shares of the Company's Common Stock (the "Warrants") pursuant to a Warrant Purchase Agreement dated as of the date hereof (the "Purchase Agreement"); WHEREAS, in connection with the purchase and delivery of the Warrants, the parties desire to enter into this Agreement in order to grant rights of co-sale to each Lender. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree hereto as follows: 1. DEFINITIONS. (a) "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or legal holiday on which the banks in Boston, Massachusetts are open for the conduct of a substantial part of their commercial banking business. (b) "CO-SALE STOCK" shall mean shares of the Company's Common Stock now owned or subsequently acquired by any of the Inside Investors, directly or indirectly, or by any person related to such Inside Investor by gift, purchase, dividend, option exercise or any other means whether or not such securities are only registered in such Inside Investors's name or beneficially or legally owned by such Inside Investor, including any interest of a spouse in any of the Co-Sale Stock, and any stock held for the benefit of any minors related to such Inside Investor, whether that interest is asserted pursuant to marital property laws or otherwise. The number of shares of Co-Sale Stock collectively owned by the Inside Investors as of the date hereof are set forth in Exhibit B, which Exhibit B may be amended from time to time by the Company to reflect changes in the number of shares owned by the Inside Investors, but failure to so amend shall have no effect on such Co-Sale Stock being subject to this Agreement. (c) "COMMON STOCK" shall mean the Company's Common Stock and shares of Common Stock, or other convertible securities, issued or issuable upon conversion of the Company's outstanding preferred stock if any or exercise of any option, warrant or other security or right of any kind convertible into or exchangeable for Common Stock. (d) "COMPANY" shall have the meaning assigned to it in the introductory paragraph. (e) "INSIDE INVESTORS" shall have the meaning assigned to it in the introductory paragraph. (g) "LENDERS" shall have the meaning assigned to it in the introductory paragraph. (g) "MAJORITY LENDERS" shall mean the Lenders, or any of their successors or assigns, who hold, in the aggregate, at least 50.1% of the Common Stock issued or issuable upon exercise of the Warrants. (h) "NOTICE" shall have the meaning assigned to it in the Section 2(a). (i) "PARTICIPANT" shall have the meaning assigned to it in the Section 2(d). (j) "PROHIBITED TRANSFER" shall have the meaning assigned to it in the Section 4(a). (k) "PURCHASE AGREEMENT" shall have the meaning assigned to it in the recitals. (l) For the purpose of this Agreement, the term "TRANSFER" shall include any sale, assignment, encumbrance, hypothecation or pledge of any of the Co-Sale Stock. (m) "WARRANTS" shall have the meaning assigned to it in the recitals. 2. TRANSFERS BY INSIDE INVESTORS. (a) If any of the Inside Investors proposes to Transfer any shares of Co-Sale Stock then such Inside Investor shall promptly give written notice (the "Notice") simultaneously to the Company and to each of the Lenders, such notice to be received by the Company and each Lender not less than seven (7) Business Days prior to the closing of such Transfer. The Notice shall describe in reasonable detail the proposed Transfer including, without limitation, the number of shares of Co-Sale Stock to be transferred, the nature of such Transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee. In the event that the Transfer is being made pursuant to the provisions of Section, the Notice shall state under which section the Transfer is being made. - 2 - (b) Each Lender shall have the right, exercisable upon written notice to the applicable Inside Investor within five (5) Business Days after receipt of the Notice, to participate in such Transfer of Co-Sale Stock on the same terms and conditions. Such notice shall indicate the number of shares of Common Stock such Lender wishes to sell under his or her right to participate. To the extent one or more of the Lenders exercise such right of participation in accordance with the terms and conditions set forth below, the number of shares of Co-Sale Stock that the Inside Investors may sell in the transaction shall be correspondingly reduced. (c) Each Lender may sell all or any part of that number of shares equal to the product obtained by multiplying (i) the aggregate number of shares of Co-Sale Stock covered by the Notice by (ii) a fraction the numerator of which is the number of shares of Common Stock held by such Lender plus all shares of Common Stock which would be received upon exercise of all Warrants owned by such Lender at the time of the Transfer plus all shares of Common Stock which would be received upon exercise of all other warrants or options owned by such Lender at the time of the Transfer and the denominator of which is the sum of all shares of Common Stock owned by persons who have co-sale rights pursuant to this Agreement or any other co-sale agreement, other than the Inside Investors (whether or not exercising their co-sale rights as part of such sale) plus all shares of Common Stock held by the Inside Investor who is Transferring his or her shares of Co-Sale Stock (determined on a fully diluted basis but exclusive of 1,675,000 shares of Common Stock of the Company issuable upon exercise of options to purchase shares of the Company, outstanding on the date hereof, with a strike price above the fair market value of the stock of the Company on the date hereof) plus all shares of Common Stock which would be receivable upon exercise of the Warrants. If not all of the Lenders elect to sell their share of the Co-Sale Stock proposed to be transferred within said five (5) Business Day period, then the applicable Inside Investor shall promptly notify in writing the Lenders who do so elect and shall offer such Lenders the additional right to participate in the sale of additional shares of Co-Sale Stock proposed to be transferred on the same percentage basis as set forth above in this Section 2(c). Each Lender shall have two (2) Business Days after receipt of such notice to notify such Inside Investor of its election to sell all or a portion thereof of the unsubscribed shares. (d) Each Lender who elects to participate in the Transfer pursuant to this Section 2 (a "Participant") shall effect its participation in the Transfer by promptly delivering to the applicable Inside Investor for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent: (i) the type and number of shares of Common Stock which such Participant elects to sell; or (ii) that number of Warrants which is at such time exercisable for the number of shares of Common Stock which such Participant elects to sell; provided, however, that if the prospective purchaser objects to the delivery of Warrants, such Participant shall exercise the Warrants for Common Stock and deliver Common Stock as provided in Section 2(d)(i) above. The Company agrees to make any such exercise concurrent with the actual transfer of such shares to the purchaser. Each Participant must demonstrate to the reasonable satisfaction of the Company that its participation in the Transfer complies with applicable securities laws and shall execute and deliver any forms of agreements or transfer documents which the applicable Inside Investor executes and delivers in connection with the Transfer. - 3 - (e) The stock certificate or Warrants that the Participant delivers to the applicable Inside Investor pursuant to Section 2(d) shall be transferred by the applicable Inside Investor to the prospective purchaser in consummation of the sale of the Common Stock pursuant to the terms and conditions specified in the Notice, and such Inside Investor shall concurrently therewith remit to such Participant that portion of the sale proceeds to which such Participant is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from a Participant exercising its rights of co-sale hereunder, the applicable Inside Investor shall not sell to such prospective purchaser or purchasers any Co-Sale Stock unless and until, simultaneously with such sale, the applicable Inside Investor shall purchase, from the Participant, such shares or other securities from such Participant on the same terms and conditions specified in the Notice. (f) The exercise or non-exercise of the rights of the Lenders hereunder to participate in one or more Transfers of Co-Sale Stock made by the applicable Inside Investor shall not adversely affect their rights to participate in subsequent Transfers of Co-Sale Stock subject to Section 2(a). (g) If none of the Lenders elect to participate in the sale of the Co-Sale Stock subject to the Notice, the applicable Inside Investor may, not later than one hundred and twenty (120) days following delivery to the Company and the Lenders of the Notice, enter into an agreement providing for the closing of the Transfer of the Co-Sale Stock covered by the Notice within thirty (30) days of such agreement on the terms and conditions described in the Notice. Any proposed transfer on terms and conditions materially more favorable than those described in the Notice, as well as any subsequent proposed transfer of any of the Co-Sale Stock by the applicable Inside Investor, shall again be subject to the co-sale rights of the Lenders and shall require compliance by such Inside Investor with the procedures described in this Section 2. (h) Any Co-Sale Stock sold by an Inside Investor pursuant to this Section 2 (other than pursuant to Section 3) shall no longer be subject to the restrictions imposed by this agreement. 3. EXEMPT TRANSFERS. Notwithstanding the foregoing, the co-sale rights of the Lenders shall not apply to (i) any Transfer or Transfers by the Inside Investors which, over the term of a calendar year, amount to no more than (a) 250,000 shares (as adjusted for any stock split, stock dividend, reverse stock split or other subdivision of the Company) of Co-Sale Stock held collectively by the Inside Investors or (b) 75,000 shares (as adjusted for any stock split, stock dividend, reverse stock split or other subdivision of the Company) of Co-Sale Stock held by any one Inside Investor, (ii) any sale by the Inside Investors of Co-Sale Stock through a broker on the open market to the public in an arms length transaction, (iii) any transfer by any Inside Investors to the ancestors, descendants, nieces, nephews, siblings or spouse or to trusts, family limited liability companies, family limited partnerships, or the like, of such Inside Investor for the benefit of such persons or such Inside Investor, (iv) any pledge of Co-Sale Stock made pursuant to a bona fide loan transaction that creates a mere security interest, (v) any bona fide gift or (vi) a transfer upon the death of any Inside Investor; provided that in the event of any transfer made pursuant to one of - 4 - the exemptions provided by clauses (iii), (iv) and (v), (a) the Inside Investors shall inform the Lenders of such pledge, transfer or gift prior to effecting it and (B) the pledgee, transferee or donee shall furnish the Lenders with a written agreement to be bound by and comply with all provisions of this Agreement in favor of the Lenders or (vi) the right which the Company may have to repurchase securities from the Inside Investors pursuant to a stock restriction agreement or other agreement between the Company and the Inside Investors. Any Inside Investor shall notify the Lenders seven (7) days prior to a sale made pursuant to clause (ii) above. Except with respect to Co-Sale Stock transferred under clauses (i) and (ii) above (which Co-Sale Stock shall no longer be subject to the co-sale rights of the Lenders), such transferred Co-Sale Stock shall remain "Co-Sale Stock" hereunder, and such pledgee, transferee or donee shall be treated as an "Inside Investor" for purposes of this Agreement. 4. PROHIBITED TRANSFERS. (a) In the event that any Inside Investor should Transfer any Co-Sale Stock in contravention of the co-sale rights of each Lender under this Agreement (a "Prohibited Transfer") transfer shall be null and void and neither the Company nor any transfer agent shall give effect to any such attempted Transfer in the stock records. (b) Notwithstanding anything to the contrary contained herein, the Company agrees that it will not effect a transfer, nor will it treat any alleged transferee as the holder of such shares, if such transfer is in violation of this Agreement unless the Majority Lenders have provided their consent to such transfer. 5. MISCELLANEOUS. (a) CONDITIONS TO EXERCISE OF RIGHTS. Exercise of the Lenders' rights under this Agreement shall be subject to and conditioned upon, and the Inside Investors and the Company shall use their best efforts to assist each Lender in, compliance with applicable laws. (b) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the Commonwealth of Massachusetts. (c) AMENDMENT. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by the written consent of (i) as to the Company, only the Company, (ii) as to the Lenders, the Majority Lenders, and (iii) as to the Inside Investors, persons holding at least 50.1% in interest of the Common Stock held by the Inside Investors and their assignees, pursuant to Section 3(a) hereof. Any amendment or waiver effected in accordance with clauses (i), (ii), and (iii) of this Section 5(c) shall be binding upon each Lender, its successors and assigns, the Company, each Inside Investor and its successors and assigns. (d) ASSIGNMENT OF RIGHTS. This Agreement constitutes the entire agreement between the parties relative to the specific subject matter hereof. Any previous agreement among the parties relative to the specific subject matter hereof is superseded by this Agreement. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives. - 5 - (e) TERM. This Agreement shall continue in full force and effect from the date hereof through the earliest of the following dates, on which date it shall terminate in its entirety: (i) the date of the closing of a sale, lease, or other disposition of all or substantially all of the Company's assets or the business or the Company's merger into or consolidation with any other corporation or other entity, or any other corporate reorganization, in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction, provided that this Section 5(e)(ii) shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company; (ii) the date as of which the parties hereto terminate this Agreement by written consent of the Majority Lenders; or (iii) With respect to an individual or particular Inside Investor, the date on which such Inside Investor is no longer an employee of the Company or no longer owns any Co-Sale Stock. (f) OWNERSHIP. Each of the Inside Investors represents and warrants (i) that he or she is the sole legal and beneficial owner of those shares of Co-Sale Stock that he or she currently holds subject to this Agreement and that no other person has any interest (other than a joint interest) in such shares and (ii) that, as of the date of this Agreement, he or she is the sole legal and beneficial owner of the number of shares of Co-Sale Stock indicated to be owned by him or her on Exhibit B hereto. (g) NOTICES. Any notice or other communication pursuant to this Agreement shall be deemed to have been duly given or made and to have become effective (i) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of receipt thereof by such officer or the sending of such facsimile or (ii) if sent by registered or certified first-class mail, postage prepaid, on the third business day following the mailing thereof. All communications shall be sent to the party to be notified at the address as set forth on the signature page hereof or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. (h) SEVERABILITY. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. (i) ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, along with the Purchase Agreement, the Warrants and the Registration Rights Agreement between the Lenders and the Company and each of the Exhibits thereto, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof - 6 - and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. (j) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. - 7 - The foregoing CO-SALE AGREEMENT is hereby executed as of the date first above written. COMPANY: MICROFINANCIAL INCORPORATED By: /s/ Authorized Signatory ---------------------------------- Name: Title: Address: _________________ _________________ /s/ Alan J. Zakon - -------------------------------------- Alan J. Zakon Address:________________________ ________________________ /s/ Richard F. Latour - -------------------------------------- Richard F. Latour Address:________________________ ________________________ /s/ Brian E. Boyle - -------------------------------- Brian E. Boyle Address:________________________ ________________________ /s/ James R. Jackson, Jr. - -------------------------------- James R. Jackson, Jr. Address:________________________ ________________________ /s/ Peter R. Bleyleben - -------------------------------- Peter R. Bleyleben Address:________________________ ________________________ /s/ Torrence C. Harder - -------------------------------- Torrence C. Harder Address:________________________ ________________________ LENDER(S): FLEET NATIONAL BANK Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ BANKNORTH, N.A. Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ BROWN BROTHERS HARRIMAN & CO. Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ CITIBANK Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ CITIZENS BANK OF MASSACHUSETTS Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ KEYBANK NATIONAL ASSOCIATION Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ NATIONAL CITY BANK Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ U.S. BANK Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ UNION BANK OF CALIFORNIA, N.A. Signature: /s/ Authorized Signatory --------------------------- Print Name:___________________________ Title:________________________________ Address:______________________________ ______________________________ EXHIBIT A LENDERS Fleet National Bank Banknorth, N.A. Brown Brothers Harriman & Co. Citibank Citizens Bank of Massachusetts Keybank National Association National City Bank U.S. Bank Union Bank of California, N.A. EXHIBIT B INSIDE INVESTORS
INSIDE INVESTOR NUMBER OF CO-SALE SHARES LEGALLY AND BENEFICIALLY OWNED Peter R. Bleyleben 1,380,410 Torrence C. Harder 1,591,729 Brian E. Boyle 1,355,400 Richard F. Latour 265,550 Alan J. Zakon 90,000 James R. Jackson, Jr. 85,558 TOTAL SHARES 4,768,647
EX-10.5 7 b46554mfexv10w5.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.5 MICROFINANCIAL INCORPORATED REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "AGREEMENT") is made as of this 14th day of April, 2003 by and among MicroFinancial Incorporated (the "COMPANY"), and each of the Lenders set forth on Schedule A attached hereto, along with their successors and assigns (the "HOLDERS"). Capitalized terms used herein and not otherwise defined shall have the meaning ascribed to them in the Loan Agreement (as defined below). W I T N E S S E T H: WHEREAS, the Leasecomm Corporation (the "BORROWER"), a wholly-owned Subsidiary of Company, and the Holders are parties to that certain Fourth Amended and Restated Revolving Credit Agreement dated as of August 22, 2000 by and among Fleet National Bank, as agent (the "AGENT") for the lenders party thereto (the "LENDERS) and the Borrower (as amended, modified or restated, the "LOAN AGREEMENT"); WHEREAS, in connection with the closing of the Second Amendment to the Loan Agreement, the Company has issued to the Holders as of the date hereof certain Warrants to purchase shares of Common Stock (the "WARRANTS"); WHEREAS, the Company and the Holders wish to enter into a Registration Rights Agreement as set forth herein; NOW THEREFORE, in consideration of the Holders agreement to the Second Amendment to the Loan Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Incidental Registration. 1.1. If the Company at any time proposes to register any of its equity securities under the Securities Act (other than a Registration (i) relating to shares of Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or (ii) in connection with an acquisition by the Company of another company), whether as a result of a primary or secondary offering or pursuant to registration rights granted to holders of other securities of the Company, the Company shall, each such time, subject to the provisions of Section 1.2, give prompt written notice to the Holders of its intention to do so and of such Holders' rights under this Section 1, at least 20 days prior to the anticipated filing date of the Registration Statement relating to such Registration. Such notice shall offer all of the Holders the opportunity to include in such Registration Statement such number of Registrable Securities as each such Holder may request. Upon the written request of any such Holder made within 10 days after the receipt of the Company's notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder), the Company shall use its best efforts to effect the Registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof; provided, that (x) if such Registration involves an underwritten offering, all Holders requesting to be included in the Company's Registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company; and (y) if, at any time after giving written notice of its intention to register any securities pursuant to this Section 1.1 and prior to the Effective Date of the Registration Statement filed in connection with such Registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all Holders and shall thereupon be relieved of its obligation to register any Registrable Securities in connection with such Registration. If a Registration pursuant to this Section 1.1 involves an underwritten public offering, any Holder requesting to be included in such Registration may elect, in writing prior to the effective date of the Registration Statement filed in connection with such Registration, not to register such Registrable Securities in connection with such Registration. The Company shall pay all Registration Expenses in connection with each Registration of Registrable Securities requested pursuant to this Section 1. 1.2. Priority in Incidental Registrations. If a Registration pursuant to this Section 1 involves an underwritten offering and the managing underwriter advises the Company that, in its good faith opinion, the number of equity securities (including all Registrable Securities) which the Company, the Holders and any other persons intend to include in such Registration exceeds the largest number of securities which can be sold without having an adverse effect on such offering, including the price at which such Registrable Securities can be sold, the Company will include in such Registration (i) first, Registrable Securities and all other securities proposed to be registered by the Holders thereof, pro rata based on the number of Registrable Securities and other securities proposed to be registered by each such Holder and (ii) second, securities that the Company proposes to issue and sell for its own account. 2. Registration Procedures. In connection with any offering of Registrable Securities registered pursuant to this Agreement, the Company shall: 2.1. Prepare and file with the Commission as soon as practicable, and in any event within 120 days after receipt of a request for Registration, a Registration Statement on any form for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the sale of the Registrable Securities in accordance with the intended methods of distribution thereof, and use commercially reasonable efforts to cause such Registration Statement to become and remain Effective as provided herein, provided that at least fifteen (15) days prior to filing with the Commission a Registration Statement or disclosure document constituting part of a Registration Statement or any amendments or supplements thereto, the Company will (x) furnish to one counsel selected by the Holders of a majority of the Registrable Securities covered by such Registration Statement copies of all such documents proposed to be filed for said counsel's review and comment and (y) - 2 - notify each Holder covered by such Registration Statement of any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. 2.2. Prepare and file with the Commission such amendments and supplements to such Registration Statement and any disclosure document constituting part of such Registration Statement used in connection therewith as may be necessary to keep Effective such Registration Statement for a period of not less than 180 days or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold (but not before the expiration of the 90 day period, if applicable, referred to in Section 4(3) of the Securities Act and Rule 174 under the Securities Act, or any successor thereto, if applicable), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement. 2.3. Furnish to each Holder and each underwriter, if any, of Registrable Securities covered by such Registration Statement such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the disclosure document included in such Registration Statement (including each preliminary disclosure document), in conformity with the requirements of the Securities Act, and such other documents as any Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. 2.4. Use commercially reasonable efforts to register or qualify such Registrable Securities under such other state securities or "blue sky" laws of such jurisdictions as any Holder, and underwriter, if any, of Registrable Securities covered by such Registration Statement reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder and each underwriter, if any, to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided that the Company will not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2, (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction. 2.5. Immediately notify each Holder of such Registrable Securities at any time when a disclosure document relating thereto is required to be delivered under the Securities Act of the happening of any event which comes to the Company's attention if as a result of such event the disclosure document included in such Registration Statement contains an untrue statement of material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly prepare and furnish to such Holder a Supplement or amendment to such disclosure document so that, as thereafter delivered to the Holders of such Registrable Securities, such disclosure document will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. - 3 - 2.6. Use commercially reasonable efforts to cause all such Registrable Securities to be listed on a national securities exchange or the NASDAQ national market and on each securities exchange upon which similar securities issued by the Company may then be listed, and enter into such customary agreements including a listing application and indemnification agreement in customary form, and to provide a transfer agent and registrar for such Registrable Securities covered by such Registration Statement no later than the effective date of such Registration Statement. 2.7. Enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as the Holders of a majority of the Registrable Securities being covered by such Registration Statement or the underwriters retained by such Holders, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including customary representations, warranties, indemnities and agreements. 2.8. Make available for inspection by any Holder covered by such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, "RECORDS"), and cause the Company's and its Affiliates' officers, directors and employees to supply all information and respond to all inquiries reasonably requested by any such Inspector in connection with such Registration Statement. 2.9. Use commercially reasonable efforts to obtain (a) a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the Holders of a majority in interest of the Registrable Securities being sold reasonably request and (b) at the time of any underwritten sale pursuant to a Registration Statement, a "bring-down comfort letter", dated as of the date of such sale, from the Company's independent certified public accountants covering such matters of the type customarily covered by comfort letters as the Holders of a majority in interest of the Registrable Securities covered by such Registration Statement and the underwriters reasonably request. 2.10. Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to the Holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve months, beginning with the first month after the Effective Date of the Registration Statement, which earnings statement shall satisfy the provisions of the Securities Act and Rule 158 thereunder. 2.11. In the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such Registration Statement for sale in any jurisdiction, the Company will use its best efforts promptly to obtain the withdrawal of such order. - 4 - It shall be a condition precedent to the obligation of the Company to take any action with respect to securities of a Holder that such Holder shall furnish to the Company such information regarding the securities held by such Holder and the intended method of disposition thereof as the Company shall reasonably request and as shall be required in connection with the action taken by the Company. Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.5, such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended disclosure document contemplated by Section 2.5 hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies (including, without limitation, any and all drafts), other than permanent file copies, then in such Holder's possession, of the disclosure document covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in Section 2.2 shall be extended by the greater of (x) three months or (y) the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.5 hereof to and including the date when each Holder covered by such Registration Statement shall have received the copies of the supplemented or amended disclosure document contemplated by Section 5.6. 3. Indemnification. 3.1. Indemnification by the Company. In the event of any Registration of any securities of the Company under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless, to the full extent permitted by law, each of the Holders of any Registrable Securities covered by such Registration Statement, their respective directors and officers, general partners, limited partners and managing directors, each person who participates as an underwriter in the offering or sale of such securities and each other person, if any, who controls, is controlled by or is under common control with any such Holder or any such underwriter within the meaning of the Securities Act (and directors, officers, controlling persons, partners and managing directors of any of the foregoing), against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent, which consent will not be unreasonably withheld) to which such Holder, any such director or officer or general or limited partner or managing director or any such underwriter or controlling person may become subject under the Securities Act, state securities or "blue sky" laws, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary, final or summary disclosure document contained therein, or any amendment or supplement thereto, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such Registration. The Company shall reimburse each such Holder and each such director, - 5 - officer, general partner, limited partner, managing director or underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending such loss, claim, liability, action or proceeding, provided, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement or amendment or supplement thereto or in any such preliminary, final or summary disclosure document in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder in its capacity as a Holder in the Company or any such director, officer, general or limited partner, managing director or underwriter specifically stating that it is for use in the preparation thereof. The indemnity provided for herein shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any such director, officer, general partner, limited partner, managing director, underwriter or controlling person and shall survive the transfer of such securities by such Holder. 3.2. Indemnification by the Holders and Underwriters. Any Holder the Registrable Securities of which are included in any Registration Statement shall, severally (and not jointly with any other Holder), indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) above) the Company and its directors, officers, controlling persons from such Registration Statement, any preliminary, final or summary disclosure document contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives through an instrument duly executed by or on behalf of such Holder specifically stating that it is for use in the preparation of such Registration Statement, preliminary, final or summary disclosure document or amendment or supplement, or a document incorporated by reference into any of the foregoing. No Holders shall be liable in the aggregate for any amounts exceeding the product of the sale price per Registrable Security (after deduction of applicable underwriting discounts and commissions and transfer taxes) and the number of Registrable Securities sold pursuant to such Registration Statement or disclosure document by such Holder. 3.3. Notices of Claims, etc. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be, made pursuant to this Section 3, such indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, promptly give written notice to the indemnifying party of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and, jointly with any other indemnifying party similarly notified, to assume the defense thereof, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such - 6 - indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and parties arises in respect of such claim after the assumption of the defense thereof, and the indemnifying party will not be subject to any liability for any settlement made without its consent (which consent shall not be unreasonably withheld). No indemnifying party will consent of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel in any single jurisdiction for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels as may be reasonably necessary. Notwithstanding anything to the contrary set forth herein, and without limiting any of the rights set forth above, in any event any party will have the right to retain, at its own expense, counsel with respect to the defense of a claim. 3.4. Other Indemnification. Indemnification similar to that specified in the preceding subsections of this Section 3 (with appropriate modifications) shall be given by the Company and each Holder with respect to any required Registration or other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. 3.5. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section is for any reason held to be unenforceable although applicable in accordance with its terms, the Company, the Holders and the underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, the Holders and the underwriters, in such proportions that the underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing in the disclosure document bears to the public offering price appearing therein and the Company and the Holders are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. As between the Company and the Holders, such parties shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect (x) the relative benefits received by the Company, on the one hand, and the Holders of the Registrable Securities included in the offering on the other hand, from the offering of the Registrable Securities and any other securities included such offering, and (y) the relative fault of the Company, on the one hand, and the Holders of the Registrable Securities included in the offering, on the other, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Holders of the Registrable Securities on the other, with respect to such offering shall be deemed to be in the same - 7 - proportion as the sum of the total purchase price paid to the Company in respect of the Registrable Securities plus the total net proceeds from the offering of any securities included in such offering (before deducting expenses) received by the Company bears to the amount by which the total net proceeds from the offering of Registrable Securities (before deducting expenses but after deducting applicable underwriting discounts and commissions and transfer taxes) received by the Holders of the Registrable Securities with respect to such offering exceeds the purchase price paid to the Company in respect of the Registrable Securities, and in each case the net proceeds received from such offering shall be determined as set forth in the disclosure document. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Holders of the Registrable Securities, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. Notwithstanding anything to the contrary contained herein, the Company and the Holders agree that any contribution required to be made by such Holder pursuant to this Section 3.5 shall not exceed the net proceeds from the offering of Registrable Securities (before deducting expenses but after deducting applicable underwriting discounts and commissions and transfer taxes) received by such Holder with respect to such offering. For purposes of this Section, each Person, if any, who controls a Holder or an underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Holder or Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company. 3.6. Rule 144. The Company will furnish to any Holder, upon request made by such Holder at any time, a written statement signed by the Company, addressed to such Holder, describing briefly the action the Company has taken or proposes to take to comply with the current public information requirements of Rule 144 or Rule 144A. The Company will, at the request of any Holder, remove from the stock certificates representing such Registrable Securities that portion of any restrictive legend which relates to the registration provisions of the Securities Act on the second anniversary date of this Agreement, provided that the Holder is not at this time (or within the previous 90 days) and affiliate of the Company. 4. DEFERRAL; BLACK-OUT. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the Holders named in any registration statement filed hereunder a certificate signed by the President or Chief Executive Officer of the Company stating that the Board of Directors of the Company has made the good faith determination (after consultation with counsel) (i) that continued use by the Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, premature disclosure in such registration statement (or the prospectus relating thereto) of material, nonpublic information (the "NON-PUBLIC - 8 - INFORMATION")concerning the Company, its business or prospects or any proposed material transaction involving the Company, (ii) that such premature disclosure would be materially adverse to the Company or any such proposed material transaction or would make the successful consummation by the Company of any such material transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such registration statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the Holders to use the registration statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Shares pursuant thereto shall be suspended for a period (the "SUSPENSION PERIOD") of not more than 120 days after delivery by the Company of the certificate referred to above in this Section 4. During the Suspension Period, none of the Holders shall offer or sell any Registrable Securities pursuant to or in reliance upon the registration statement (or the prospectus relating thereto). Notwithstanding the foregoing (a) if disclosure of the Non-Public Information is made during a Suspension Period, then the Company shall promptly terminate the Suspension Period and immediately notify the Holders of such termination and (b) the Company may not implement the right to initiate a Suspension Period more than twice in any twelve month period. To the extent that the Company initiates one or more Suspension Periods hereunder, the Company shall maintain the effectiveness of the Registration Statement for an additional number of days equal to the aggregate amount of days that the Company implemented such Suspension Periods. 5. Miscellaneous. 5.1 No Waiver; Cumulative Remedies. No failure or delay on the part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other further exercise thereof or the exercise of any other right, power or remedy hereunder. 5.2 Notices. All notices and other communications from the Company to the Holders shall be mailed by recognized overnight courier first class registered or certified air mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holders who has so furnished an address to the Company. 5.3 Modification, etc. This Agreement and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Holders of a majority of the Registrable Securities and the Company. This Agreement is being delivered in The Commonwealth of Massachusetts and shall be construed and enforced in accordance with and governed by the laws of such commonwealth without regard to its conflict of laws principles. All section headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 5.4 No Inconsistent Agreements. The Company will not, at any time after the effective date of this Agreement, enter into any agreement or contract (whether written or oral) with respect to any of its securities which is inconsistent in any respect with the registration - 9 - rights granted by the Company to the Holders of the Warrants pursuant to this Agreement or otherwise conflicts with the provisions hereof. 5.5 Assignment. This Agreement shall inure to the benefit and be binding upon each Holder and its heirs, successors and assigns. The Company's obligations under this Agreement shall not be assigned, and its duties under this Agreement shall not be delegated. 5.6 Legend. Any shares issued in connection with the exercise of the Warrants shall bear the following legend: THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT. 6. Certain Definitions. "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act of the Exchange Act. "EFFECTIVE" shall mean that all requirements under the Securities Act with respect to a Registration Statement have been satisfied and that the Commission has declared the Registration Statement effective. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "REGISTRABLE SECURITIES" shall mean (i) all shares of Common Stock and other securities issued or issuable upon exercise of the Warrants, and (ii) all shares of Common Stock and other securities directly or indirectly issued or issuable with respect to such Common Stock or other securities by way of stock dividend, or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act. - 10 - "REGISTRATION" shall mean registration of the Company's Common Stock pursuant to an Effective Registration Statement. "REGISTRATION STATEMENT" shall mean any disclosure document that the Company is required to file under the Securities Act in connection with a public offering of Registrable Securities. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time or any other federal act, rule or regulation requiring Registration with any federal agency in connection with a public offering of Registrable Securities. - 11 - IN WITNESS WHEREOF, MICROFINANCIAL INCORPORATED has caused this Registration Rights Agreement to be duly executed as a document under seal by its duly authorized officer this 14th day of April, 2003. MICROFINANCIAL INCORPORATED By: /s/ Authorized Signatory ---------------------------- Name: Title: FLEET NATIONAL BANK By: /s/ Authorized Signatory ---------------------------- Name: Title: BANKNORTH, N.A. By: /s/ Authorized Signatory ---------------------------- Name: Title: BROWN BROTHERS HARRIMAN & CO. By: /s/ Authorized Signatory ---------------------------- Name: Title: CITIBANK By: /s/ Authorized Signatory ---------------------------- Name: Title: CITIZENS BANK OF MASSACHUSETTS By: /s/ Authorized Signatory ---------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By: /s/ Authorized Signatory ---------------------------- Name: Title: NATIONAL CITY BANK By: /s/ Authorized Signatory ---------------------------- Name: Title: U.S. BANK By: /s/ Authorized Signatory ---------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A. By: /s/ Authorized Signatory ---------------------------- Name: Title: - 13 - SCHEDULE A HOLDERS Fleet National Bank Banknorth, N.A. Brown Brothers Harriman & Co. Citibank Citizens Bank of Massachusetts Keybank National Association National City Bank U.S. Bank Union Bank of California, N.A. EX-10.6 8 b46554mfexv10w6.txt DIRECTION AND PERMANENT WAIVER EXHIBIT 10.6 April 15, 2003 Ambac Assurance Corporation One State Street Plaza New York, NY 10004 Wells Fargo Bank Minnesota, National Association, as indenture trustee under the Indenture described below Attention: Corporate Trust Services/Asset-Backed Administration Sixth Street and Marquette Avenue MAC N9311-161 Minneapolis, MN 55479 Fax: (612) 667-3464 MFI Finance Corp. I 950 Winter Street, Suite 4100B Waltham, MA 02451 Leasecomm Corporation 950 Winter Street, Suite 4200 Waltham, MA 02451 Re: Direction and Permanent Waiver of Trigger Events and Servicer Events of Default Ladies and Gentlemen: Reference is made to the (i) Amended and Restated Indenture, dated as of September 1, 2001, among MicroFinancial Incorporated, MFI Finance Corp. I, and Wells Fargo Bank Minnesota, National Association ("Wells Fargo"), as amended and supplemented from time to time (the "Indenture"), pursuant to which Wells Fargo is appointed to serve as indenture trustee (in such capacity, the "Indenture Trustee") on behalf of the noteholders and Ambac Assurance Corporation ("Ambac"), (ii) Servicing Agreement, dated as of March 1, 2000, as amended from time to time (the "Servicing Agreement"), among MicroFinancial Incorporated, MFI Finance Corp. I, Wells Fargo, and the Indenture Trustee, pursuant to which, among other things, Wells Fargo is appointed to serve as back-up servicer (the "Back-up Servicer"), (iii) Insurance and Indemnity Agreement, dated December 18, 2000 (the "Series 2000-2 Insurance Agreement"), among Ambac, MFI Finance Corp. I, Leasecomm Corporation, MicroFinancial Incorporated, the Indenture Trustee, and the Back-up Servicer, (iv) Insurance and Indemnity Agreement, dated September 21, 2001 (the "Series 2001-3 Insurance Agreement" and, together with the Series 2000-2 Insurance Agreement, the "Insurance Agreements"), among Ambac, MFI Finance Corp. I, Leasecomm Corporation, MicroFinancial Incorporated, the Indenture Trustee, and the Back-up Servicer, (v) Amended and Restated Direction and Waiver of Trigger Event and Servicer Event of Default, dated January 14, 2003 (the "January 14 Waiver"), among Ambac Assurance Corporation, MicroFinancial Incorporated, and MFI Finance Corp. I, and acknowledged and agreed to by the Indenture Trustee. Capitalized terms not otherwise defined herein have the meanings ascribed thereto in the Indenture. Please execute this Direction and Permanent Waiver in the space provided below for your signature and return it to the undersigned to evidence your agreement to the following: REPRESENTATIONS AND WARRANTIES REGARDING COVERED EVENTS. 1. MicroFinancial Incorporated hereby represents and warrants to Ambac that (a) no Events of Default under the Indenture exist on the date hereof and (b) the only Events of Default (as defined in the Insurance Agreements), Servicer Events of Default and Trigger Events existing on the date hereof (or that would exist absent the January 14 Waiver or this Permanent Waiver) are those that arise directly or indirectly out of the following (collectively, the "Covered Events"): a. The occurrence of an event of default under the Credit Agreement arising out of any of the following (and terms in this paragraph a related to financial covenants have the meanings ascribed thereto in the Credit Agreement, as applicable) : i. for the fiscal quarter ended September 30, 2002, or any fiscal quarter thereafter, the Fixed Charge Ratio of MicroFinancial Incorporated and its subsidiaries being less than 1.30 to 1.00, ii. at any time on or after December 31, 2002, Consolidated Tangible Net Worth of the Borrower being less than the sum of (x) $77,500,000 and (y) 50% of the aggregate amount of Consolidated Net Income of the Parent and its Subsidiaries, including the Borrower, for each of the fiscal quarters ending after June 30, 2000, but without deducting therefrom any amount of Consolidated Net Deficit for any of such fiscal quarters, iii. at any time on or after September 30, 2002 and before the effective date of the Credit Agreement Amendment (described under "Documentation" below), the Total Outstandings under the Credit Agreement exceeding the Borrowing Base, or iv. Leasecomm Corporation's failure to repay the Loans on the Borrowing Base Maturity Date; and in each case such event of default, if any, not being 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 (which could otherwise constitute a Servicer Event of Default under Section 6.01(viii) of the Servicing Agreement, leading to a Trigger Event under the Indenture unless waived by the Controlling Party); b. For the fiscal quarter ended September 30, 2002 or any fiscal quarter thereafter, the fixed charge ratio of the Reported Companies being less than 1.25 to 1.0 (which could otherwise constitute a Servicer Event of Default under Section 6.01(xi) of the Servicing Agreement, leading to a Trigger Event under the Indenture if not waived by the Controlling Party); c. At any time on or after December 31, 2002, the Net Worth Requirement not being met and such failure to meet the Net Worth Requirement remaining 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 2 required to have been delivered (which failure, if it remained uncured, could otherwise constitute a Trigger Event under the Indenture unless waived by the Controlling Party). 2. MFI Finance Corp. I hereby represents and warrants to Ambac that (a) no Events of Default under the Indenture exist on the date hereof, (b) to the best of MFI Finance Corp. I's knowledge, the only Events of Default (as defined in the Insurance Agreements), Servicer Defaults, and Trigger Events existing on the date hereof (or that would exist absent the January 14 Waiver or this Direction and Permanent Waiver) are those that arise directly or indirectly out of the Covered Events. 3. Leasecomm Corporation hereby represents and warrants to Ambac that, to the best of Leasecomm Corporation's knowledge, the only Events of Default (as defined in the Insurance Agreements), Servicer Defaults, and Trigger Events existing on the date hereof (or that would exist absent the January 14 Waiver or this Direction and Permanent Waiver) are those that arise directly or indirectly out of the Covered Events. PERMANENT WAIVER; DIRECTION TO INDENTURE TRUSTEE In consideration of (a) the representations and warranties described above, and (b) receipt of the documentation described under "Documentation" below (receipt of which shall be conclusively evidenced by Ambac's execution and delivery of a counterpart of this Direction and Permanent Waiver), pursuant to Section 6.15 of the Indenture and Section 6.04 of the Servicing Agreement, Ambac, as the Controlling Party, hereby waives, and directs Wells Fargo Bank Minnesota, National Association, as Indenture Trustee, to waive, permanently: a. each existing Event of Default (as defined in the Insurance Agreements), Servicer Default, and Trigger Event that arises directly or indirectly out of any Covered Event, effective retroactively to the date on which such Event of Default, Servicer Default or Trigger Event occurred; and b. any present or future Events of Default (as defined in the Insurance Agreements), Servicer Defaults, or Trigger Events that would exist pursuant to the provisions that are being removed from the Servicing Agreement and the Indenture pursuant to the Amendments (the "Removed Provisions"). DOCUMENTATION The "Documentation" referred to above consists of the following: 1. Fully executed counterpart of the Third Amendment to Servicing Agreement, to be dated on or about the date hereof, among the parties to the Servicing Agreement, in substantially the form of Exhibit A hereto (as executed and delivered by the parties thereto, the "Servicing Agreement Amendment"); 2. Fully executed counterpart of the First Amendment to Amended and Restated Indenture, to be dated on or about the date hereof, among the parties to the Indenture, in substantially the form of Exhibit B hereto (as executed and delivered by the parties thereto, the "Indenture Amendment" and, together with the Servicing Agreement Amendment, the "Amendments"); 3 3. Fully executed counterpart of Second Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated on or about March 31, 2003 (the "Credit Agreement Amendment"), among Leasecomm Corporation, Fleet National Bank and the other financial institutions from time to time party to the Fourth Amended and Restated Revolving Credit Agreement, and Fleet National Bank, as agent; 4. Fully executed counterpart of this Direction and Permanent Waiver, acknowledged and agreed to by the Indenture Trustee; 5. Waiver fee of $50,000; and 6. Permanent waiver by N M Rothschild & Sons Limited of any "servicer events of default" and any consequent "trigger events" under the indenture and servicing agreement related to MFI Finance II, LLC in any way related to the Covered Events or the Removed Provisions. WAIVER LIMITED TO DESCRIBED EVENTS. We expressly acknowledge and agree that the foregoing waivers do not apply to any Trigger Event, Servicer Event of Default, Event of Default, Event of Default (as defined in the Insurance Agreements) or other default or similar event not described under "Permanent Waiver" above (whether occurring before or after the date hereof). AGREEMENT TO PAY REASONABLE FEES AND EXPENSES. MicroFinancial Incorporated agrees to pay to Jones Day, promptly upon receipt of an invoice therefor, the reasonable fees and expenses of such firm in connection with its representation of Ambac in connection with the negotiation of this Direction and Permanent Waiver and related matters. 4 COUNTERPARTS This Direction and Permanent Waiver may be executed and delivered in any number of counterparts, each of which when so executed and delivered 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 Direction and Permanent Waiver by telecopier shall be as effective as delivery of a manually executed counterpart of this Direction and Permanent Waiver. Very truly yours, MICROFINANCIAL, INCORPORATED By: /S/ Richard F. Latour -------------------------- Name: Richard F. Latour Title: President and CFO CONSENTED & AGREED TO BY: MFI FINANCE CORP. I By: /S/ Peter R. von Bleyleben --------------------------------- Name: Peter R. von Bleyleben Title: President LEASECOMM CORPORATION By: /S/ Peter R. von Bleyleben --------------------------------- Name: Peter R. von Bleyleben Title: President AMBAC ASSURANCE CORPORATION By: /S/ Harris C. Mehos --------------------------- Name: Harris C. Mehos Title: First Vice President INDENTURE TRUSTEE ACKNOWLEDGMENT The Indenture Trustee hereby acknowledges and agrees to the foregoing, and pursuant to Section 6.15 of the Indenture and Section 6.04 of the Servicing Agreement hereby permanently waives the within mentioned Servicer Events of Default and Trigger Events. WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee By: /s/ Cheryl Zimmerman ------------------------------- Name: Cheryl Zimmerman Title: Corporate Trust Officer Date: 4/14/03 EX-10.7 9 b46554mfexv10w7.txt MFI FINANCE II,LLC 80% ASSET BACKED NOTES EXHIBIT 10.7 April 15, 2003 To: N M ROTHSCHILD & SONS LIMITED Re: MFI Finance II, LLC 8.00% Asset-Backed Notes, Series 2001-1: MFI II Permanent Waiver Ladies and Gentlemen: BACKGROUND. Reference is made to the (1) form of Direction and Permanent Waiver of Trigger Events and Servicer Events of Default ( "Ambac's Permanent Waiver"), to be executed and delivered by Ambac Assurance Corporation ("Ambac") and the other parties thereto, attached hereto as Schedule A, (2) Indenture, dated as of September 1, 2001 (as supplemented, the "MFI II Indenture"), among MicroFinancial Incorporated, MFI Finance II, LLC, and Wells Fargo Bank Minnesota, National Association ("Wells Fargo" or the "Back-up Servicer"), pursuant to which Wells Fargo is appointed to serve as indenture trustee (in such capacity, the "Indenture Trustee"), as supplemented by the Supplement to Indenture, Asset-Backed Notes, Series 2001, dated as of September 1, 2001, among the parties to the MFI II Indenture, and (3) Servicing Agreement, dated as of September 1, 2001, among MicroFinancial Incorporated, MFI Finance II, LLC, the Back-up Servicer, and the Indenture Trustee. Capitalized terms not otherwise defined herein have the meanings set forth in the Permanent Ambac Waiver. DESCRIPTION OF AMBAC'S PERMANENT WAIVER. Pursuant to Ambac's Permanent Waiver, Ambac will permanently waive the existing or future events described therein under "Permanent Waiver; Direction to Indenture Trustee" (collectively, the "Ambac Waiver Events") effective, with respect to past Ambac Waiver Events, retroactively to the date on which such Ambac Waiver Events occurred. It is a condition to Ambac's willingness to enter into Ambac's Permanent Waiver that you execute and deliver this MFI II Permanent Waiver. YOUR WAIVER. Please execute this MFI II Permanent Waiver in the space provided below to evidence your acknowledgement and agreement that, upon (1) payment to you of a fee pro rata to any fee paid to Ambac in connection with Ambac's Permanent Waiver, and (2) execution and delivery of the Permanent Ambac Waiver by all parties thereto, N M Rothschild & Sons Limited: 1. permanently waives any and all existing or future "Trigger Events" or "Servicer Events of Default" under the MFI II Indenture and MFI II Servicing Agreement that arise or have arisen, directly or indirectly, out of any Ambac Waiver Events; and 1 2. consent to the execution and delivery by the parties thereto of the Amendments (as defined therein), including without limitation, the changes to the Trigger Events and Servicer Events of Default described therein. MICROFINANCIAL INCORPORATED By: /S/ James R. Jackson ------------------------- James R. Jackson Chief Financial Officer ACCEPTED AND AGREED TO BY: N M ROTHSCHILD & SONS LIMITED By: /S/ Glenn Beatham -------------------------------------- Name: Glenn Beatham Title: Executive Director By: /S/ Leigh Enevoldson -------------------------------------- Name: Leigh Enevoldson Title: Assistant Director EX-10.8 10 b46554mfexv10w8.txt FIRST AMENDMENT TO AMEND RESTATED INDENTURE EXHIBIT 10.8 FIRST AMENDMENT TO AMENDED AND RESTATED INDENTURE This First Amendment to Amended and Restated Indenture, dated as of April 15, 2003 (this "Amendment"), is among MicroFinancial Incorporated, a Massachusetts corporation (the "Servicer"), MFI Finance Corp. I, a Massachusetts corporation (the "Issuer"), Wells Fargo Bank Minnesota, National Association ("Wells Fargo" or the "Back-up Servicer"), and Wells Fargo, as indenture trustee (in such capacity, the "Indenture Trustee"). WHEREAS, the parties hereto are parties to the Amended and Restated Indenture, dated as of March September 1, 2001 (as amended, restated, or supplemented from time to time, the "Indenture"), which is currently supplemented by the (a) Supplement to Indenture, Contract Backed Notes, Series 2000-2, dated as of December 1, 2000, among the parties to the Indenture, (b) Supplement to Indenture, Contract-Backed Notes, Class A, Series 2001-3, dated as of September 1, 2001, among the parties to the Indenture, and (c) Supplement to Indenture, Contract-Backed Notes, Class B, Series 2001-4, dated as of September 1, 2001, among the parties to the Indenture; WHEREAS, Ambac Assurance Corporation (the "Note Insurer") is currently the "Controlling Party" as defined in the Indenture; WHEREAS, Section 9.01(i) of the Indenture permits the parties to the Servicing Agreement to amend the definition of "Trigger Event" contained in the Indenture, with the consent of the Controlling Party, but without requiring the consent of the noteholders under the Indenture, so long as (a) such amendment will not have a material adverse effect on any Noteholder, (b) no Note Insurer Default has occurred and is continuing with respect to any Series of Class A Notes then Outstanding, and (c) the Rating Agency Condition has been met with respect to all Series then Outstanding; WHEREAS, "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; WHEREAS, the agent and lenders party to the Credit Agreement have negotiated an amendment thereto in which the agent and lenders permanently waive certain defaults or events of default thereunder, and the Credit Agreement is amended (a) to contain a modified payment schedule, (b) to eliminate the financial covenants previously contained therein, and (c) adds certain reporting and other covenants; and WHEREAS, the agents and lenders have, as a condition to effectiveness of such amendment, required that the Note Insurer, as the Controlling Party under the Transaction Documents, waive and instruct the Indenture Trustee to waive, certain existing or future Events of Default (as defined in the Insurance Agreements referred to therein), Servicer Events of Default and Trigger Events described therein, and pursuant to a letter agreement dated as of April __, 2003 (the "Ambac Waiver"), the Note Insurer has done so; WHEREAS, the Note Insurer has requested that the Indenture be amended as provided for herein to document fully the effect of such waivers; and 1 WHEREAS, (a) the Note Insurer has issued Note Insurance Policies with respect to the Issuer's (i) Contract Backed Notes, Series 2000-2, and (ii) Contract-Backed Notes, Class A, Series 2001-3, which are the only Series of Class A Notes currently Outstanding; and (b) no Note Insurer Default has occurred and is continuing with respect to either of such Series; and WHEREAS, the only remaining Series of Notes currently Outstanding is the Issuer's Contract- Backed Notes, Class B, Series 2001-4 (the "Class B Notes"); WHEREAS, pursuant to Section 12.02(d) of the Indenture, absent the Controlling Party's waiver, no payment would be made on the Class B Notes on or after the first payment date following initial occurrence of the aforementioned Trigger Events until such time as all Outstanding Class A Notes had been paid in full; and WHEREAS, the parties hereto have determined that the amendments provided for herein are of a type permitted by Section 9.01(i) of the Indenture without requiring the consent of the Noteholders under the Indenture. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Each capitalized term used and not otherwise defined herein has the meaning ascribed thereto in the Indenture. SECTION 2. AMENDMENTS TO INDENTURE. Effective as of the date hereof, Section 1.01 of the Indenture is amended so that: (a) the definition of "Net Worth Requirement" is removed therefrom; and (b) clause (d) of the definition of "Trigger Event" shall read in its entirety as follows: "(d) [Intentionally omitted];". SECTION 3. REPRESENTATIONS AND WARRANTIES. Each party by executing and delivering this Amendment represents and warrants that the person executing and delivering this Amendment on behalf of such party is duly authorized to do so, such party has full right and authority to enter into this Amendment and to consummate the transaction described in this Amendment, and this Amendment constitutes the valid and legally binding obligation of such party and is enforceable against such party in accordance with its terms. SECTION 4. MISCELLANEOUS. (a) Ratification of Indenture. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Indenture and, except as expressly modified and superseded by this Amendment, the Indenture is ratified and confirmed in all 2 respects and shall continue in full force and effect. (b) References. The Indenture and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Indenture as amended hereby, are hereby amended so that any reference in such agreements to the Indenture shall mean a reference to the Indenture as amended hereby. (c) Counterparts. This Amendment may be executed in multiple counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. (d) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without regard to the application of choice of law principles of any jurisdiction. (e) Binding Agreement. This Amendment shall be binding upon and inure to the benefit of the Issuer, the Servicer, the Indenture Trustee, the Back-up Servicer, the Note Insurer, and the Noteholders and their respective successors and permitted assigns. (f) Effectiveness; Notice to Rating Agencies and Others. Upon satisfaction of the Rating Agency Condition, this Amendment shall be effective, retroactive to the date first above written. The Servicer shall cause a conformed copy of this executed Amendment to be: (a) delivered to the Rating Agencies via facsimile transmission, promptly upon its execution and delivery, and (b) sent to the Indenture Trustee, the Note Insurer, and each Noteholder via facsimile transmission and first class U.S. mail promptly upon satisfaction of the Rating Agency Condition. * * * * * 3 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Indenture to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. ISSUER MFI FINANCE CORP. I By: /S/ Peter R. von Bleyleben --------------------------------- Name: Peter R. von Bleyleben Title: President SERVICER MICROFINANCIAL INCORPORATED By: /S/ James R. Jackson --------------------------------- Name: James R. Jackson Title: CFO INDENTURE TRUSTEE WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as indenture trustee By: /S/ Cheryl Zimmerman --------------------------------- Name: Cheryl Zimmerman Title: Corporate Trust Officer BACK-UP SERVICER WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By: /S/ Cheryl Zimmerman --------------------------------- Name: Cheryl Zimmerman Title: Corporate Trust Officer 4 CONSENTED TO BY: AMBAC ASSURANCE CORPORATION By: /S/ Harris C. Mehos --------------------------------- Name: Harris C. Mehos Title: First Vice President 5 EX-10.9 11 b46554mfexv10w9.txt THIRD AMENDMENT TO SERVICE AGREEMENT EXHIBIT 10.9 THIRD AMENDMENT TO SERVICING AGREEMENT This Third Amendment to Servicing Agreement, dated as of April 15, 2003 (this "Amendment"), is among MicroFinancial Incorporated, a Massachusetts corporation (the "Servicer"), MFI Finance Corp. I, a Massachusetts corporation (the "Issuer"), Wells Fargo Bank Minnesota, National Association ("Wells Fargo" or the "Back-up Servicer"), and Wells Fargo, as indenture trustee (in such capacity, the "Indenture Trustee"). WHEREAS, the parties hereto are parties to the Servicing Agreement, dated as of March 1, 2000 (as amended, restated, or supplemented from time to time, the "Servicing Agreement"), which has previously been amended by the First Amendment to Servicing Agreement, dated as of September 1, 2001, and the Second Amendment to Servicing Agreement, dated as of October 14, 2002, each among the parties to the Servicing Agreement; WHEREAS, Ambac Assurance Corporation (the "Note Insurer") is currently the "Controlling Party" as defined in the Amended and Restated Indenture, dated as of September 1, 2001 (as amended, restated, or supplemented from time to time, the "Indenture"), among the Servicer, the Issuer, the Back-up Servicer, and the Indenture Trustee; WHEREAS, Section 8.02(b) of the Servicing Agreement permits the parties to the Servicing Agreement to amend the Servicing Agreement to add any provisions to or change in any manner or eliminate any of the provisions of the Servicing Agreement, with the consent of the Controlling Party, but without requiring the consent of the noteholders under the Indenture, so long as such amendment does not modify the provisions of the Servicing Agreement or the Indenture specified in such Section; WHEREAS, pursuant to a letter agreement dated as of April 15, 2003, the Note Insurer, as the Controlling Party under the Transaction Documents, has waived and instructed the Indenture Trustee to waive, certain Events of Default (as defined in the Insurance Agreements referred to therein), Servicer Events of Default and Trigger Events described therein; WHEREAS, the Note Insurer has requested that the Servicing Agreement be amended as provided for herein to document fully the effect of such waivers; and WHEREAS, the parties hereto have determined that the amendments provided for herein are of a type permitted by Section 8.02(b) of the Servicing Agreement without requiring the consent of the noteholders under the Indenture. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Each capitalized term used and not otherwise defined herein has the meaning ascribed thereto in the Servicing Agreement. SECTION 2. AMENDMENTS TO SERVICING AGREEMENT. Effective as of the date hereof: 1 (a) Section 6.01(a)(viii) of the Servicing Agreement is amended to read in its entirety as follows: "(viii) the occurrence of an "event of default" under the Credit Agreement resulting from or consisting of: (A) failure to make an amortization payment pursuant to Section 2.8(a) thereof (or any successor section), unless such event of default is cured, remedied, or temporarily waived in writing, in accordance with the terms of the Credit Agreement, within five Business Days thereafter, and, to the extent there has been a temporary waiver, permanently waived in writing, in accordance with the terms of the Credit Agreement, within 30 days; provided that any such exception resulting from a temporary waiver shall extend only to the earlier of the date on which such temporary waiver expires or 12:00 midnight on the 30th day after the date of the original event of default, if a permanent written waiver has not been obtained by such time; (B) any "event of default" under the Credit Agreement, the occurrence of which results in the immediate and automatic or actually declared (to the extent authorized under the Credit Agreement) acceleration of the unpaid principal amount of the Loans and all other Obligations thereunder; (C) any "event of default" under the Credit Agreement not encompassed by clauses (A) through (B), unless such event of default is cured, remedied, or temporarily waived in writing, in accordance with the terms of the Credit Agreement, within 15 Business Days thereafter and, to the extent there has been a temporary waiver, permanently waived in writing, in accordance with the terms of the Credit Agreement, within 30 days; provided that any such exception resulting from a temporary waiver shall extend only to the earlier of the date on which such temporary waiver expires or 12:00 midnight on the 30th day after the date of the original event of default, if a permanent written waiver has not been obtained by such time; or"; (b) Section 6.01(a)(ix) of the Servicing Agreement is amended to read in its entirety as follows: "(ix) [Intentionally omitted]; or"; (c) Section 6.01(a)(x) of the Servicing Agreement is amended to read in its entirety as follows: "(x) [Intentionally omitted]; or"; (d) Section 6.01(a)(xi) of the Servicing Agreement is amended to read in its entirety as follows: "(xi) [Intentionally omitted]; or". SECTION 3. REPRESENTATIONS AND WARRANTIES. Each party by executing and delivering this Amendment represents and warrants that the person 2 executing and delivering this Amendment on behalf of such party is duly authorized to do so, such party has full right and authority to enter into this Amendment and to consummate the transaction described in this Amendment, and this Amendment constitutes the valid and legally binding obligation of such party and is enforceable against such party in accordance with its terms. SECTION 4. MISCELLANEOUS. (a) Ratification of Servicing Agreement. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Servicing Agreement and, except as expressly modified and superseded by this Amendment, the Servicing Agreement is ratified and confirmed in all respects and shall continue in full force and effect. (b) References. The Servicing Agreement and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Servicing Agreement as amended hereby, are hereby amended so that any reference in such agreements to the Servicing Agreement shall mean a reference to the Servicing Agreement as amended hereby. (c) Counterparts. This Amendment may be executed in multiple counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. (d) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without regard to the application of choice of law principles of any jurisdiction. (e) Binding Agreement. This Amendment shall be binding upon and inure to the benefit of the Issuer, the Servicer, the Indenture Trustee, the Back-up Servicer, the Note Insurer, and the Noteholders and their respective successors and permitted assigns. (f) Effectiveness; Notice to Rating Agencies and Others. Upon satisfaction of the Rating Agency Condition, this Amendment shall be effective, retroactive to the date first above written. The Servicer shall cause a conformed copy of this executed Amendment to be: (a) delivered to the Rating Agencies via facsimile transmission, promptly upon its execution and delivery, and (b) sent to the Indenture Trustee, the Note Insurer, and each Noteholder via facsimile transmission and first class U.S. mail promptly upon satisfaction of the Rating Agency Condition. * * * * * 3 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Servicing Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. ISSUER MFI FINANCE CORP. I By: /S/ Peter R. von Bleyleben -------------------------------- Name: Peter R. von Bleyleben Title: President SERVICER MICROFINANCIAL INCORPORATED By: /S/ Richard F. Latour -------------------------------- Name: Richard F. Latour Title: President INDENTURE TRUSTEE WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as indenture trustee By: /S/ Cheryl Zimmerman -------------------------------- Name: Cheryl Zimmerman Title: Corporate Trust Officer BACK-UP SERVICER WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By: /S/ Cheryl Zimmerman -------------------------------- Name: Cheryl Zimmerman Title: Corporate Trust Officer 4 CONSENTED TO BY: AMBAC ASSURANCE CORPORATION By: /S/ Harris C. Mehos -------------------------------- Name: Harris C. Mehos Title: First Vice President 5 EX-10.10 12 b46554mfexv10w10.txt AMEND AND RESTATED REVOLVING CREDIT AGREEMENT AGREEMENT AND AMENDMENT NO. 1 THIS AGREEMENT AND AMENDMENT NO. 1 is made as of September 21, 2001, by and among LEASECOMM CORPORATION (the "Borrower"), FLEET NATIONAL BANK, as Agent and the LENDERS whose signatures appear at the end of this Agreement. WHEREAS, the parties hereto are parties to a certain Fourth Amended and Restated Credit Agreement, dated as of August 22, 2000 (the "Credit Agreement"; terms defined in the Credit Agreement are used herein with the same meanings); and WHEREAS, the Borrower has requested certain consents under and changes to the Credit Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment to Credit Agreement. The definition of the term "Special Purpose Subsidiary" set forth in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "Special Purpose Subsidiary. A Subsidiary which is a special purpose corporation or limited liability company for the securitization and financing of lease receivables, none of the assets of which constitutes any part of the Collateral." 2. Consents. (a) The Lenders hereby waive the requirements of Section 7.4 with respect to the proposed liquidation of the Borrower's Special Purpose Subsidiary, BLT Finance Corp. III. (b) The Lenders hereby waive the requirements of Section 7.8 with respect to the proposed formation of and Investment in MFI Finance II, LLC, a Special Purpose Subsidiary, by the Borrower. 3. Representations. The Borrower hereby represents and warrants to the Agent and the Lenders as follows: (a) No Default has occurred and is continuing on the date hereof; (b) The representations and warranties contained in Section 4 of the Credit Agreement are true and correct in all material respects on and as of the date hereof (except to the extent that such representations and warranties expressly relate to an earlier date); and (c) The resolutions referred to in Section 3.1 of the Credit Agreement remain in full force and effect. 4. General. The foregoing amendment and consents are limited as provided herein and do not extend to any other provisions of the Credit Agreement not specified herein or to any other matter. The Credit Agreement is ratified and confirmed and shall continue in full force and effect as amended hereby. This Agreement and Amendment No. 1 may be executed in any number of counterparts with the same effect as if the signatures hereto and thereto were upon the same instrument. [Intentionally Left Blank] 2 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: /s/ Authorized Signatory By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: /s/ Thomas Engels --------------------------- ---------------------------- Name: Name: Thomas Engels Title: Title: Senior Vice President UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: /s/ Robert C. Nagel By: --------------------------- ---------------------------- Name: Robert C. Nagel Name: Title: Vice President Title: CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: /s/ Jeff R Westling --------------------------- ---------------------------- Name: Name: Jeff Westling Title: Title: SVP CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITICORP KEY BANK By: By: /s/ Mitchell B. Feldman --------------------------- ---------------------------- Name: Name: Mitchell B. Feldman Title: Title: SVP NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: /s/ Michael J. Labruin By: --------------------------- ---------------------------- Name: Michael J. Labruin Name: Title: Senior Vice President Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: /s/ Christopher Delsignare By: --------------------------- ---------------------------- Name: Christopher Delsignare Name: Title: Vice President Title: 3 IN WITNESS WHEREOF, this Agreement and Amendment No. 1 has been executed as a sealed instrument as of the date first set forth above. LEASECOMM CORPORATION FLEET NATIONAL BANK Individually and as Agent By: By: --------------------------- ---------------------------- Name: Name: Title: Title: UNION BANK OF CALIFORNIA BANKNORTH GROUP, INC. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITICORP KEY BANK By: By: --------------------------- ---------------------------- Name: Name: Title: Title: NATIONAL CITY BANK FIRSTAR BANK, N.A. By: By: --------------------------- ---------------------------- Name: Name: Title: Title: CITIZENS BANK OF MASSACHUSETTS BROWN BROTHERS HARRIMAN & CO. By: By: /s/ Jared S. Keyes --------------------------- ---------------------------- Name: Name: Jared S. Keyes Title: Title: SVP 3 EX-10.11 13 b46554mfexv10w11.txt FOREBEARENCE AGREEMENT Exhibit 10.11 As of January 3, 2003 Leasecomm Corporation 950 Winter Street Waltham, MA 02451 Attention: Richard F. Latour, President & Chief Executive Officer RE: FORBEARANCE AND MODIFICATION AGREEMENT Ladies and Gentlemen: Reference is hereby made to those certain loans (the "Loans") made pursuant to and as evidenced by, inter alia, (i) that certain Fourth Amended and Restated Credit Agreement made as of August 22, 2000 by and among Leasecomm Corporation, a Massachusetts corporation (the "Borrower"),Fleet National Bank, a national banking association ("Fleet"), the other financial institutions from time to time party thereto (together with Fleet, the "Lenders") and Fleet National Bank, as agent for the Lenders (the "Agent") (hereinafter, as amended, the "Credit Agreement") and (ii) the other Loan Documents (as that term is defined in the Credit Agreement). Capitalized terms used herein without definition shall have the meanings assigned to them in the Credit Agreement. The Borrower acknowledges and agrees that (a) as a result of (i) the failure of the Borrower to comply with the financial covenant set forth in Section 6.4 of the Credit Agreement for the period ending September 30, 2002, (ii) the failure of the Borrower to comply with the borrowing base requirements set forth in Section 2.8(c) of the Credit Agreement from September 30, 2002 to December 31, 2002 and (iii) the Borrower's failure to repay the Loans on the Borrowing Base Maturity Date, as required by Section 2.8(a) of the Credit Agreement, certain Events of Default (the "Specific Defaults") exist under the Loan Documents and (b) it will likely fail to comply with the borrowing base requirements set forth in Section 2.8(c) of the Credit Agreement during the Forbearance Period (as defined in Section 3 below) (the "Prospective Default" together with the Specific Default, the "Specified Defaults"). The Borrower agrees that, but for the terms of this Forbearance Agreement, the Agent and the Lenders may, if they so elect, proceed to further enforce their rights and remedies under the Loan Documents to collect the Borrower's indebtedness to the Agent and the Lenders under the Loan Documents. In addition, the Borrower acknowledges and agrees that, the Lenders are under no obligation to advance additional funds to, or otherwise extend credit to or for the benefit of, the Borrower pursuant to the Credit Agreement. Notwithstanding the foregoing, the Borrower has now requested that the Agent and the Lenders forbear from enforcing their rights and remedies under the Loan Documents (the "Forbearance") on the terms and conditions set forth herein. In response to such request, the Agent and the Lenders agree to refrain from enforcing such rights and remedies until the Forbearance Termination Date (as hereinafter defined), upon the following terms and conditions: -2- SECTION 1. RATIFICATION OF EXISTING AGREEMENTS; TERMINATION OF COMMITMENT. The Borrower agrees that the Obligations, as evidenced by or otherwise arising under the Credit Agreement and the other Loan Documents, except as otherwise expressly modified in this Forbearance Agreement upon the terms set forth herein, are, by the Borrower's execution of this Forbearance Agreement, ratified and confirmed in all respects. In addition, by the execution of this Forbearance Agreement, the Borrower represents and warrants that no counterclaim, right of set-off or defense of any kind exists or is outstanding as of the date with respect to such Obligations. As of December 31, 2002, the aggregate principal amount of the Loans is $126,555,646.60. Further, the parties agree that, effective as of the date hereof, the Commitment shall be terminated and reduced to $0. SECTION 2. REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by the Borrower in the Credit Agreement and the other Loan Documents are true and correct on the date hereof as if made on and as of the date hereof, except with respect to the occurrence of the Specified Defaults and to the extent that any of such representations and warranties relate by their terms to a prior date they shall be true and correct as of such prior date. Additionally, the Borrower represents and warrants that it does not have any Subsidiaries other than MFI Finance Corp. I and MFI Finance II LLC. SECTION 3. FORBEARANCE OBLIGATIONS. Subject to all of the other terms and conditions set forth herein, the Agent and the Lenders agree to forbear from exercising their rights and remedies under the Credit Agreement and the other Loan Documents to collect the indebtedness of the Borrower to the Agent and the Lenders under the Credit Agreement and the other Loan Documents until that date (the "Forbearance Termination Date") which is the earliest to occur of (i) January 24, 2003, (ii) the failure after the date hereof of any of the Companies to comply with any of the terms or undertakings of this Forbearance Agreement, (iii) the occurrence after the date hereof of any Default or Event of Default other than the Specified Defaults, (iv) the occurrence of any further material adverse change to the business, assets, financial condition or prospects of the any of the Companies (the parties agree that reorganization, restructuring or any charges associated with settlements (including, without limitation, tolling agreements) with any Attorneys General shall not constitute a material adverse change) and (v) the date that any of the Companies or any affiliate of any of the Companies or any person or entity claiming by or through any of the Companies joins in, assists, cooperates or participates as an adverse party or adverse witness in any suit or other proceeding against the any Lender or any affiliate of any Lender relating to the indebtedness referred to as the Obligations or any amounts owing hereunder in connection with or related to any of the transactions contemplated by the Credit Agreement, the other Loan Documents, this Forbearance Agreement or any documents, agreements or instruments executed in connection with this Forbearance Agreement) (each of the foregoing conditions set forth in the immediately preceding items (i)-(v) being referred to as a "Forbearance Termination Event"). On and after the Forbearance Termination Date, the forbearance obligations of the Agent and the Lenders set forth herein shall automatically, without the requirement of any notice, terminate and the Agent and -3- the Lenders shall be free in their sole and absolute discretion to proceed to enforce any or all of their rights and remedies set forth in this Forbearance Agreement, the Credit Agreement, the other Loan Documents and applicable law, including, without limitation, the right to demand the immediate repayment of the Loans and all other Obligations in full. (The time period between the Forbearance Closing Date and the Forbearance Termination Date is referred to herein as the "Forbearance Period") SECTION 4. CONDITIONS TO FORBEARANCE OBLIGATIONS. The Agent, the Lenders and the Borrower agree that the forbearance obligations of the Lenders herein shall be effective upon the satisfaction of the following conditions precedent, each in form and substance satisfactory to the Agent, on or prior to January 3, 2003 (the date of the satisfaction of such conditions precedent referred to herein as the "Forbearance Closing Date"): (a) The Borrower and the Majority Lenders shall have executed and delivered to the Agent this Forbearance Agreement. (b) The Borrower shall have executed and delivered to the Agent a fee letter (the "Agent's Fee Letter"). (c) The Agent shall have received the first monthly installment of the fee described in the Agent's Fee Letter. (d) The Agent shall have received the Modification Fee (defined in Section 6.5 below). (e) The Agent shall have received evidence that all corporate action necessary for the valid execution and delivery by the Companies of this Forbearance Agreement and the performance of the transactions contemplated hereby and thereby shall have been taken. (f) The Agent and the Lenders shall have received payment for all fees and expenses including, without limitation, reasonable legal fees and expenses, for which invoices or reasonable estimates therefor have been provided to the Borrower on or prior to the Forbearance Closing Date. (g) The representations and warranties of the Borrower in each of the Loan Documents shall be true and correct as of the Forbearance Closing Date, except with respect to the occurrence of the Specified Defaults waived herein and to the extent that any of such representations and warranties relate by their terms to a prior date they shall be true and correct as of such prior date. (h) There shall have occurred no Default or Event of Default other than the Specified Defaults. SECTION 5. AMENDMENTS TO CREDIT AGREEMENT. Without any prejudice or impairment whatsoever to any of the rights and remedies of the Agent or any Lender contained in the Credit Agreement or in any other Loan Documents (except -4- as provided for herein), the Borrower, the Lenders and the Agent agree that, effective as of the date hereof, the Credit Agreement shall be amended as follows: SECTION 5.1 DEFINITIONS. Section 1.1 of the Credit Agreement is hereby amended as follows: (a) by adding the following definition in the appropriate alphabetical location: "Companies. The Borrower and the Parent." (b) by amending the definition of Obligations contained therein to replace the phrase "and the Conversion Term Loan" with the following phrase: ", the Conversion Term Loan and the indemnity described in Section 5.14 hereof" SECTION 5.2 CERTAIN ADDITIONAL COVENANTS. Section 5 of the Credit Agreement is hereby further amended by adding the following new Sections 5.12, 5.13, 5.14, 5.15, 5.16 and 5.17 thereto in the correct numerical sequence: SECTION 5.12 CASH FLOW FORECAST AND BORROWING BASE PROJECTION. The Borrower shall deliver to the Agent and the Lenders, weekly, commencing on or before December 20, 2002, a 13 week forecast of cash flows, detailing all sources and uses of cash on a weekly basis, reasonably acceptable to the Agent and the Lenders, together with a bi-weekly Borrowing Base report. SECTION 5.13 2003 BUSINESS PLAN. The Borrower shall deliver to the Agent and the Lenders, by January 10, 2003, a business plan for 2003 (the "2003 Business Plan"), prepared by management and the Borrower's Consultant (as defined in Section 5.17 hereof), for the future operation and conduct of the business, including a plan to deal with the indebtedness owed to the Lenders. The 2003 Business Plan shall include monthly forecasts as to cash flow and collateral levels, as well as proforma profit and loss statements and balance sheets for the next twelve months. The Business Plan shall also: (i) list in detail all sources of revenue and expenses, including intended executive compensation, (ii) elaborate on the nature of all proposed capital expenditures and (iii) itemize all human resources actions, including impacts on staffing levels and severance costs. SECTION 5.14 BANK ACCOUNTS; INDEMNITY. As of the Forbearance Termination Date, and at all times thereafter, the Borrower shall insure that all of its bank accounts are under the control of one of the Lenders. Additionally, the Borrower shall indemnify the Agent and the Lenders and hold the Agent and the Lenders harmless against any loss, cost or expense incurred by the Agent and/or the Lenders in providing any payroll, funds transfer and other cash management services to the Borrower. -5- SECTION 5.15 LENDERS' CONSULTANT. The Lenders shall have the right to engage, either directly or through the Agent's counsel, Argus Management Corporation or such other firm as the Lenders may determine in their sole discretion (the "Lenders' Consultant") in order to conduct an audit of the Companies' business and operations and the satisfaction of the Loans. . The Companies agree to cooperate with the Lenders' Consultant and to pay the reasonable fees and expenses of such Lenders' Consultant. The scope of the Lenders' Consultant's audit shall include an examination of the Companies' enterprise valuation, testing of the Companies' 2002 and 2003 business plans and 13-week cash flow forecasts, and such other analysis as the Lenders shall reasonably request, including but not limited to: (a) a review of (i) the location of the Lenders' collateral; (ii) security and perfection issues, including but not limited to, stamps on the Lenders' leases; (iii) a test of delinquency rates; (iv) whether adequate collateral monitoring systems have been put in place; (v) the Agent receiving electronic copies of the Lenders' leases; (vi) the components of the current borrowing base; (vii) the assets of the Companies; (viii) the services provided by the servicer; (ix) the securitization collateral; (x) the dealer network, specifically with a view toward the manner and feasibility of put-back of leases (provided, however, that the Lenders' Consultant shall not contact any dealers or any customers of dealers) and (xi) subordinated debt payments (b) a review of cash flows of the Companies, including but not limited to (i) vet assumptions; (ii) operating expenses and (c) cash flows in connection with securitizations. (c) a review of cash management of the Companies, including but not limited to (i) segregation of Lender and securitization cash and (ii) the cost and impact of instituting lockboxes (d) a review of financial reports of the Companies, including but not limited to (i) the 13 week rolling cash flow forecast described in Section 5.12 herein; (ii)the 2003 business plan described in Section 5.13 herein and (iii) taxes (e) after reviewing the report of the Lenders' Consultant, the Lenders will consider amending the definition of "Borrowing Base" in the Credit Agreement with a view towards reassessing the Borrower's availability thereunder to the extent that it would be prudent to do so based upon the Lenders' Consultant's report and after applying each Lender's customary underwriting criteria. SECTION 5.16 BORROWER'S CONSULTANT. The Borrower shall retain, at its sole cost and expense, the services of a financial consultant (the "Borrower's Consultant") acceptable to the Agent and the Lenders and on terms acceptable to the Agent and the Lenders (it being acknowledged that the Borrower's present arrangement is with Evan Blum of Balfour Capital Advisors). The duties of the Borrower's Consultant shall include, but are not limited to (i) conducting a review of the Borrower's business in connection -6- with preparation of the reports delivered pursuant to Sections 5.12 and 5.13 hereof and (ii) identify, contact and solicit interest from potential sources of a refinancing of the Borrower, contemplating a repayment of the Obligations in full. Such Borrower's Consultant shall prepare, and provide to the Lenders, copies of all marketing materials to be used in soliciting potential financing sources of the Borrower (including, without limitation, any so-called confidential information memorandum, or other "books" describing the Borrower to potential financing sources) and shall identify, contact and solicit interest from potential financing sources, contemplating a refinancing of the Borrower in an amount sufficient to repay the Obligations in full. The Borrower shall provide, and shall cause such Borrower's Consultant to provide, the Agent with information as to the progress of such refinancing efforts. The Borrower's Consultant shall furnish the Lenders with weekly written progress reports, commencing on Friday, January 10, 2003 and continuing on the first Friday of each week until the Obligations are paid in full. Semi-monthly verbal reports shall be incorporated into a regularly scheduled semi-monthly Leasecomm conference call to be held a 1:30 p.m., eastern standard time, on each Thursday during the Forbearance Period. All information made available to the Financial Consultant shall also be made available to the Agent and the Lenders." SECTION 5.17 PLEDGE OF COLLATERAL. The Borrower covenants that, as of Forbearance Closing Date, and at all times thereafter until the Obligations are repaid in full, the Borrower shall pledge all of its assets (both existing and after-acquired), including, without limitation, all leases (including previously unpledged leases), services contracts, rental contracts, equipment, accounts receivable and cash to the Agent, on behalf of the Lenders. SECTION 5.3 MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Section 7.4(ii) of the Credit Agreement is hereby amended to read, in its entirety, as follows: "(ii) the sale, transfer, assignment or disposition of any Eligible Equipment, in the ordinary course of business, provided that the net proceeds thereof are used to prepay the Loans in accordance with Section 2.9 hereof; and" SECTION 5.4 EVENTS OF DEFAULT. Section 8.l(b) of the Credit Agreement is hereby amended by adding references to Sections 5.12, 5.13, 5.14, 5.15, 5.16 and 5.17 in the correct numerical sequence. SECTION 6. ADDITIONAL COVENANTS OF THE BORROWER, PARENT AND THE SUBSIDIARIES. The Borrower covenants and agrees with and for the benefit of the Agent and the Lenders that, notwithstanding anything to the contrary contained in the Credit Agreement or any of the other Loan Documents: SECTION 6.1 SEGREGATION OF CASH. The Borrower shall work diligently and use its best efforts to ensure that on or before the Forbearance Termination Date, and at all times thereafter, all cash collateral of the Lenders is segregated from all other cash and is clearly designated as cash collateral belonging to the Lenders. -7- SECTION 6.2 STAMPING OF LEASES. The Borrower shall work diligently and use its best efforts to cause, within a reasonable period of time, and at all times thereafter, the first page of each lease entered into by the Borrower (both before and after the date hereof) as lessor, that constitutes part of the Lenders' collateral is stamped with the legend set forth on Schedule A attached hereto, stating that such lease is subject to a security interest in favor of the Agent, provided however that the stamping process will begin on the Forbearance Closing Date. SECTION 6.3 NEGATIVE PLEDGE: The Companies shall not create, incur, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge or encumbrance upon or with respect to any of its property or assets, or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse during the Forbearance Period. SECTION 6.4 SUBORDINATED DEBT. Notwithstanding anything to the contrary contained in the Subordinated Debt Documents, the Borrower and the Parent agree that they will not make any cash payment of principal, interest or other amounts on or in respect of the Subordinated Debt, in the aggregate, in excess of $35,000 after the date hereof, provided that no payments in respect of the Subordinated Debt shall be made after the date hereof until such time as the Borrower has provided the Agent with fully executed copies of the Subordinated Debt Documents. SECTION 6.5 MODIFICATION FEE. The Borrower shall pay to the Agent a fee equal to $175,000 (the "Modification Fee") for the pro rata account of the Lenders. The Modification Fee will be fully-earned as of the date hereof and will be paid on or before the Forbearance Closing Date. SECTION 6.6 PAYMENTS DURING FORBEARANCE PERIOD. During the Forbearance Period principal payments on the Loans shall be made as follows: PERIOD ENDING AMOUNT OF EACH PAYMENT --------------- ---------------------- January 2, 2003 $3,835,019.59 SECTION 6.7 SECURITIZATION WAIVERS. The Borrower shall deliver to the Agent, not later than January 10, 2003 (provided that the Agent may agree to extend such time period if it has been provided with evidence that the Borrowers are diligently pursuing their obligations hereunder) fully executed copies of (i) waiver documents, in form and substance satisfactory to the Agent, in its sole discretion, from Ambac Assurance Corporation ("Ambac")waiving any and all defaults, events of default and servicer events of default under any documents to which Ambac and any of the Companies or the Subsidiaries are party and (ii) waiver documents, in form and substance satisfactory to the Agent, in its sole discretion, from NM Rothschild & Sons Limited ("Rothschild") waiving any and all defaults, events of default and -8- servicer events of default under any documents to which Rothschild and any of the Companies or the Subsidiaries are party. SECTION 6.8 SECURITY DOCUMENTS. The Borrower shall deliver to the Agent, not later than January 10, 2003 (provided that the Agent may agree to extend such time period if it has been provided with evidence that the Borrowers are diligently pursuing their obligations hereunder) fully executed copies of all necessary modifications to the Security Documents, in form and substance acceptable to the Agent, in its sole discretion, to reflect that the Agent, on behalf of the Lenders, has a valid first priority security interest in all assets of the Borrower including, without limitation, all leases (including previously unpledged leases), service contracts, rental contracts, accounts receivable and cash of the Borrower. SECTION 6.9 PERFECTION CERTIFICATE. The Borrower shall deliver to the Agent, not later than January 10, 2003 (provided that the Agent may agree to extend such time period if it has been provided with evidence that the Borrowers are diligently pursuing their obligations hereunder) an updated perfection certificate, in form and substance acceptable to the Agent, executed by the Borrower and, evidence that, among other things, there exists no liens or security interests on the assets of the Borrower other than Permitted Encumbrances. SECTION 6.10 AUTHORIZATION FILE STATEMENTS. The Borrower hereby irrevocably authorizes the Agent at any time and from time to time during which any Loans are outstanding, to file, in any filing office in any Uniform Commercial Code jurisdiction where the filing of an initial financing statement is necessary or desirable to perfect the interests of the Agent or the Lenders in the collateral for the Obligations, any initial financing statements and amendments thereto that (a) indicate the collateral (i) as all assets of the Borrower or words of similar effect, regardless of whether any particular asset comprised in the collateral falls within the scope of Article 9 of the Uniform Commercial Code of the state or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the state or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including whether the Borrower is an organization, the type of organization and any organization identification numbers issued to the Borrower. The Borrower agrees to furnish any such information to the Agent as soon as reasonably practicable upon the Agent's request. The Borrower also ratifies its authorization for the Agent to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof. SECTION 7. INTEREST RATES AND DEFAULT INTEREST. SECTION 7.1 INTEREST RATES. Notwithstanding the provisions of the Credit Agreement, interest on the Loans shall accrue at a rate of the Alternate Base Rate plus 1.00% per annum until the Obligations are paid in full. Further, no new LIBOR Loans shall be permitted or made available during the Forbearance Period. -9- SECTION 7.2 DEFAULT INTEREST. Pursuant to Section 2.6(e) of the Credit Agreement, due to the occurrence of the Specified Defaults the Loans currently bear interest at a rate per annum equal to two percent (2.0%) (the "Default Spread") above the rate of interest otherwise applicable to such Loans (the "Default Rate"). Interest on the Loans shall continue to accrue at the Default Rate through the Forbearance Termination Date; provided that, notwithstanding the provisions of the Credit Agreement, the Default Spread shall be paid in full on the Forbearance Termination Date. SECTION 8. COVENANT CALCULATION DURING FORBEARANCE PERIOD. The calculation of any financial covenants set forth in Section 6 of the Credit Agreement for the quarter ending December 31, 2002 shall not include reorganization, restructuring or any charges associated with settlements (including, without limitation, tolling agreements) with any Attorneys General. SECTION 9. NO PRESENT CLAIMS. The Companies acknowledge and agree that, as of the date hereof: (a) none of the Companies or, to the knowledge of any of the Companies, any of their affiliates has any claim or cause of action against any of the Lenders or the Agent (or any of their directors, officers, employees, attorneys or agents); (b) none of the Companies, or to the knowledge of any of the Companies, any of their affiliates has offset rights, counterclaims or defenses of any kind against any of their obligations, indebtedness or liabilities to any of the Lenders or the Agent; and (c) each of the Lenders and the Agent has heretofore properly performed and satisfied in a timely manner all of its obligations to the Companies and, to the knowledge of each of the Companies, each of their affiliates. The Lenders and the Agent wish (and the Companies agree) to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the rights, interests, contracts, collateral security or remedies of the Lenders or the Agent. Therefore, Companies, each on its own behalf and on behalf of each of its respective successors and assigns, hereby waives, releases and discharges the Lenders and the Agent and all of their directors, officers, employees, attorneys and agents, from any and all claims, demands, actions or causes of action on or before the date hereof and arising out of or in any way relating to the Loan Documents and any documents, instruments, agreements (including this Forbearance Agreement), dealings or other matters connected with the Loan Documents, including, without limitation, all known and unknown matters, claims, transactions or things occurring on or prior to the date of this Forbearance Agreement related to the Loan Documents. The waivers, releases, and discharges in this paragraph shall be effective regardless of any other event that may occur or not occur prior to, or on or after the date hereof. SECTION 10. MARSHALLING. Neither the Agent nor the Lenders shall be required to marshal any present or future collateral security for the Companies' obligations to the Agent or such Bank under the Loan Documents or to resort to such collateral security or other assurances of payment in any particular order, and all of their rights in respect of such collateral security shall be cumulative and in addition to all other rights, however existing or arising. To the extent that they lawfully may, the Companies hereby agree that they will not invoke any law relating to the -10- marshalling of collateral which might cause delay in or impede the Agent's or such Bank's rights under any document, agreement or instrument evidencing or securing the Borrower's obligations to the Agent and the Lenders under the Loan Documents and, to the extent that it lawfully may, the Borrower hereby irrevocably waives the benefits of all such laws. SECTION 11. NO WAIVER. Except as otherwise expressly provided for in this Forbearance Agreement, nothing in this Forbearance Agreement shall extend to or affect in any way any of the rights or obligations of the Borrower or any of the Agent's or the Lenders' obligations, rights and remedies arising under the Loan Documents. Neither the Agent nor any Bank shall be deemed to have waived any or all of its rights or remedies with respect to any Default or Event of Default existing on the date hereof or arising hereafter. SECTION 12. EXPENSES. The Borrower agrees to pay to the Agent and the Lenders upon written demand therefor (i) an amount equal to any and all reasonable out-of-pocket costs, expenses, and liabilities (including, without limitation, fees, disbursements, expenses and liabilities of or relating to, commercial finance examinations, collateral audits, appraisals, the Lender's Consultant and collateral examinations referred to in Section 5.2 hereof, Uniform Commercial Code and other lien searches and filing fees, and legal counsel) incurred or sustained by the Agent or any of the Lenders in connection with the preparation of this Forbearance Agreement, the documents and instruments contemplated hereby, the administration or interpretation of the Loan Documents, and (ii) from time to time any and all reasonable out-of-pocket costs or expenses, legal fees, disbursements and other expenses hereafter incurred or sustained by the Agent or any of the Lenders in connection with the administration of credit extended by the Agent to the Borrower, the preservation of or enforcement of their rights under the Loan Documents, in respect of the collateral, and/or in respect of any of the Borrower's other obligations to the Agent. The Lenders and the Borrower authorize the Agent and the Lenders to, with prior written notice to the Borrower, to debit any accounts maintained by the Borrower with such any such Lender for any fees, expenses, or other amounts due and payable by the Borrower hereunder, under the Credit Agreement or any of the other Loan Documents, provided that should the Agent or the Lenders debit any such accounts during the Forbearance Period, they shall provide two Business Days prior written notice of such debit to the Borrower. SECTION 13. MISCELLANEOUS. (a) This Forbearance Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts. (b) This Forbearance Agreement shall constitute a Loan Document under the Credit Agreement; the failure to comply with the covenants contained herein shall constitute an Event of Default under the Credit Agreement; and all obligations included in this Forbearance Agreement (including, without limitation, all obligations for the payment of principal, interest, fees, and other amounts and -11- expenses) shall constitute obligations under the Loan Documents and secured by the collateral security for the Obligations. If the foregoing terms are acceptable to you, we would request that you indicate your agreement thereto by signing the counterpart of this letter enclosed herewith and returning such counterpart to us. Yours sincerely, FLEET NATIONAL BANK, individually and as Agent By: /s/ Daniel D. Butler ------------------------------------ Name: DANIEL D. BUTLER Title: AUTHORIZED OFFICER BANKGROUP NORTH, INC. By: ------------------------------------ Name: Title: BROWN BROTHERS HARRIMAN & CO. By: ------------------------------------ Name: Title: CITIBANK By: ------------------------------------ Name: Title: CITIZENS BANK OF MASSACHUSETTS By: ------------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION If the foregoing terms are acceptable to you, we would request that you indicate your agreement thereto by signing the counterpart of this letter enclosed herewith and returning such counterpart to us. Yours sincerely, FLEET NATIONAL BANK, individually and as Agent By: ------------------------------------ Name: Title: BANKNORTH, NA By: /s/ Mark H. Lawley ------------------------------------ Name: Mark H. Lawley Title: V.P. BROWN BROTHERS HARRIMAN & CO. By: ------------------------------------ Name: Title: CITIBANK By: ------------------------------------ Name: Title: CITIZENS BANK OF MASSACHUSETTS By: ------------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION If the foregoing terms are acceptable to you, we would request that you indicate your agreement thereto by signing the counterpart of this letter enclosed herewith and returning such counterpart to us. Yours sincerely, FLEET NATIONAL BANK, individually and as Agent By: ------------------------------------ Name: Title: BANKGROUP NORTH, INC. By: ------------------------------------ Name: Title: BROWN BROTHERS HARRIMAN & CO. By: /s/ Jared S. Keyes ------------------------------------ Name: Jared S. Keyes Title: Managing Director CITIBANK By: ------------------------------------ Name: Title: CITIZENS BANK OF MASSACHUSETTS By: ------------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION If the foregoing terms are acceptable to you, we would request that you indicate your agreement thereto by signing the counterpart of this letter enclosed herewith and returning such counterpart to us. Yours sincerely, FLEET NATIONAL BANK, individually and as Agent By: ------------------------------------ Name: Title: BANKGROUP NORTH, INC. By: ------------------------------------ Name: Title: BROWN BROTHERS HARRIMAN & CO. By: ------------------------------------ Name: Title: CITIBANK By: /s/ George V. Milbury ------------------------------------ Name: George V. Milbury Title: Vice President CITIZENS BANK OF MASSACHUSETTS By: ------------------------------------ Name: Title: KEYBANK NATIONAL ASSOCIATION By: ------------------------------------ Name: Title: NATIONAL CITY BANK By: /s/ Michael J. Labrum ------------------------------------ Name: Michael J. Labrum Title: Senior Vice President U.S. BANK NATIONAL ASSOCIATION By: ------------------------------------ Name: Title: UNION BANK OF CALIFORNIA By: ------------------------------------ Name: Title: ACCEPTED and AGREED as of December , 2002: Borrower: LEASECOMM CORPORATION By: ------------------------------------ Name: Title: Parent: MICROFINANCIAL INCORPORATED, as guarantor under the Parent Guarantee (the undersigned acknowledges the above agreement and agrees that this Forbearance Agreement shall not impair or limit the undersigned's obligations in respect of the Parent Guarantee) By: ------------------------------------ Name: Title: NATIONAL CITY BANK By: ------------------------------------ Name: Title: U.S. BANK NATIONAL ASSOCIATION By: /s/ Joseph P. Howard ------------------------------------ Name: Joseph P. Howard Title: Vice President UNION BANK OF CALIFORNIA By: ------------------------------------ Name: Title: ACCEPTED and AGREED as of December , 2002: Borrower: LEASECOMM CORPORATION By: ------------------------------------ Name: Title: Parent: MICROFINANCIAL INCORPORATED, as guarantor under the Parent Guarantee (the undersigned acknowledges the above agreement and agrees that this Forbearance Agreement shall not impair or limit the undersigned's obligations in respect of the Parent Guarantee) By: ------------------------------------ Name: Title: NATIONAL CITY BANK By: ------------------------------------ Name: Title: U.S. BANK By: ------------------------------------ Name: Title: UNION BANK OF CALIFORNIA By: /s/ Cecilia M. Valente ------------------------------------ Name: CECILIA M. VALENTE Title: SENIOR VICE PRESIDENT ACCEPTED and AGREED as of December , 2002: Borrower: LEASECOMM CORPORATION By: ------------------------------------ Name: Title: Parent: MICROFINANCIAL INCORPORATED, as guarantor under the Parent Guarantee (the undersigned acknowledges the above agreement and agrees that this By: ------------------------------------ Name: Title: NATIONAL CITY BANK By: ------------------------------------ Name: Title: U.S. BANK By: ------------------------------------ Name: Title: UNION BANK OF CALIFORNIA By: ------------------------------------ Name: Title: ACCEPTED and AGREED as of December , 2002: Borrower: LEASECOMM CORPORATION By: /s/ Peter Bleyleben ------------------------------------ Name: Peter Bleyleben Title: President Parent: MICROFINANCIAL INCORPORATED, as guarantor under the Parent Guarantee (the undersigned acknowledges the above agreement and agrees that this Forbearance Agreement shall not impair or limit the undersigned's obligations in respect of the Parent Guarantee) By: /s/ James R. Jackson ------------------------------------ Name: James R. Jackson Title: CFO SCHEDULE A LEGEND THIS LEASE, THE UNDERLYING EQUIPMENT RELATING TO THIS LEASE AND THE PROCEEDS OF THIS LEASE ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF FLEET NATIONAL BANK, AS AGENT, FOR THE BENEFIT OF FLEET NATIONAL BANK AND THE FINANCIAL INSTITUTIONS PARTY TO THAT CERTAIN FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, MADE AS OF AUGUST 22, 2000, AS AMENDED. EX-10.12 14 b46554mfexv10w12.txt FOREBEARENCE AGREEMENT EXHIBIT 10.12 January 24, 2003 Leasecomm Corporation 950 Winter Street Waltham, MA 02451 Attention: Richard F. Latour, President & Chief Executive Officer Re: Forbearance and Modification Agreement Ladies and Gentlemen: Reference is hereby made to that certain letter agreement captioned Forbearance and Modification Agreement (the "Forbearance Agreement"), dated as of January 3, 2003, by and among Leasecomm Corporation, a Massachusetts corporation (the "Borrower"), Fleet National Bank, a national banking association ("Fleet"), the other financial institutions from time to time party thereto (together with Fleet, the "Lenders") and Fleet National Bank, as agent for the Lenders (the "Agent") (the "Forbearance Agreement"). Capitalized terms used and not defined herein shall have the meanings ascribed thereto in the Forbearance Agreement. Effective as of the date hereof: (i) Section 3(i) of the Forbearance Agreement is amended by deleting the date "January 24, 2003" and substituting in lieu thereof the date "February 7, 2003." (ii) The Forbearance Agreement is hereby amended by deleting Section 7.2 and substituting in lieu thereof the following: "Pursuant to Section 2.6(e) of the Credit Agreement, due to the occurrence of the Specified Defaults the Loans currently bear interest at a rate per annum equal to two percent (2.0%) (the "Default Spread") above the rate of interest otherwise applicable to such Loans (the "Default Rate"). Interest on the Loans shall continue to accrue at the Default Rate through the Forbearance Termination Date; provided that, notwithstanding the provisions of the Credit Agreement, an amount equal to the Default Spread which has accrued as of January 24, 2003 shall be paid on January 24, 2003 and an amount equal to the Default Spread which accrues from and after January 24, 2003 until the Forbearance Termination Date shall be paid in full on the Forbearance Termination Date." (iii) Section 6.6 of the Forbearance Agreement is hereby amended by deleting the table and substituting in lieu thereof the following table:
PERIOD ENDING AMOUNT OF PAYMENT - ----------------------------------- January 2, 2003 $ 3,835,019.59 - ----------------------------------- February 1, 2003 $ 3,835,019.59 - -----------------------------------
Except as set forth herein, all of the terms and conditions of the Forbearance Agreement and the Credit Agreement and the other Loan Documents (in each case, as amended by the Forbearance Agreement) shall remain in full force and effect. As consideration for the Lenders entering into this letter agreement, each of the Companies renews and affirms, effective as of the date hereof, their acknowledgments and agreements contained in the Forbearance Agreement. 2 If the foregoing terms are acceptable to you, we would request that you indicate your agreement thereto by signing the counterpart of this letter enclosed herewith and returning such counterpart to us. Yours sincerely, FLEET NATIONAL BANK, individually and as Agent By: /s/ Daniel D. Butler ---------------------------------- Name: Daniel D. Butler Title: Authorized Officer BANKNORTH, N.A. By: /s/ Mark H. Lawley ---------------------------------- Name: Mark H. Lawley Title: V.P. BROWN BROTHERS HARRIMAN & CO. By: /s/ Jared S. Keyes ---------------------------------- Name: Jared S. Keyes Title: Managing Director CITIBANK By: /s/ George V. Milbury ---------------------------------- Name: George V. Milbury Title: Vice President CITIZENS BANK OF MASSACHUSETTS By: /s/ Authorized Signatory ---------------------------------- Name: Title: KEYBANK NATIONAL ASSOCIATION By: /s/ Authorized Signatory ---------------------------------- Name: Title: NATIONAL CITY BANK By: /s/ Michael J. Labrum ---------------------------------- Name: Michael J. Labrum Title: Senior Vice President U.S. BANK By: /s/ Joseph P. Howard ---------------------------------- Name: Joseph P. Howard Title: Vice President UNION BANK OF CALIFORNIA By: /s/ Cecilia M. Valente ---------------------------------- Name: Cecilia M. Valente Title: Senior Vice President ACCEPTED and AGREED as of January 24, 2003: Borrower: LEASECOMM CORPORATION By: /s/ Peter Bleyleben -------------------------------- Name: Peter Bleyleben Title: President Parent: MICROFINANCIAL INCORPORATED By: /s/ James R. Jackson -------------------------------- Name: James R. Jackson Title: CFO EX-10.13 15 b46554mfexv10w13.txt SECOND AMENDMENT TO SERVICING AGREEMENT EXHIBIT 10.13 SECOND AMENDMENT TO SERVICING AGREEMENT This Second Amendment to Servicing Agreement, dated as of October 14, 2002 (this "Amendment"), is among MicroFinancial Incorporated, a Massachusetts corporation, as Servicer (the "Servicer"), MFI Finance Corp. I, a Massachusetts corporation, as Issuer (the "Issuer"), and Wells Fargo Bank Minnesota, National Association, a national banking association (successor to Norwest Bank Minnesota, National Association, "Wells Fargo"), as Indenture Trustee (in such capacity, the "Indenture Trustee") and as Back-up Servicer (in such capacity, the "Back-up Servicer"). WHEREAS, the parties hereto are parties to the Servicing Agreement, dated as of March 1, 2000 (as amended, restated, or supplemented from time to time, the "Servicing Agreement"), which has previously been amended by the First Amendment to Servicing Agreement, dated as of September 1, 2001, among the parties to the Servicing Agreement; WHEREAS, Ambac Assurance Corporation (the "Note Insurer") is currently the "Controlling Party" as defined in the Amended and Restated Indenture, dated as of September 1, 2001 (as amended, restated, or supplemented from time to time, the "Indenture"); WHEREAS, Section 8.02(b) of the Servicing Agreement permits the parties to the Servicing Agreement to amend the Servicing Agreement to add any provisions to or change in any manner or eliminate any of the provisions of the Servicing Agreement, with the consent of the Controlling Party, but without requiring the consent of the noteholders under the Indenture, so long as such amendment does not modify the provisions of the Servicing Agreement or the Indenture specified in such Section; WHEREAS, pursuant to a letter agreement dated as of October 14, 2002, the Note Insurer, as the Controlling Party under the Transaction Documents, has waived and instructed the Indenture Trustee to waive, certain Servicer Events of Default and Trigger Events described therein; WHEREAS, the Note Insurer has requested that the Servicing Agreement be amended as provided for herein as a condition to making permanent such waivers; and WHEREAS, the parties hereto have determined that the amendments provided for herein are of a type permitted by Section 8.02(b) of the Servicing Agreement without requiring the consent of the Noteholders. NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. Each capitalized term used and not otherwise defined herein has the meaning ascribed thereto in the Servicing Agreement. 1 SECTION 2. AMENDMENTS TO SERVICING AGREEMENT. (a) Effective as of the date hereof, the remittance procedure contained in the Servicing Agreement is amended as follows: (1) Section 1.01 of the Servicing Agreement is amended to contain the following additional definitions, in appropriate alphabetical order: "ACH Effective Date": December 13, 2002. "Lockbox": A post office box or other box capable of receiving payments with respect to the Contracts that have been mailed in by the applicable Customers. "Lockbox Effective Date": November 22, 2002. (2) Section 3.03(a) of the Servicing Agreement is amended to contain the following phrase immediately before the first words thereof, and the word "The" that previously existed at the beginning of the sentence is changed to "the": "Except as otherwise provided in Section 3.03(b) and Section 3.03(c) below," (3) Section 3.03(b) of the Servicing Agreement is amended to read in its entirety as follows: "(b) (i) On or before the ACH Effective Date, the Servicer shall open an ACH Account in the name of the Issuer and cause the ACH Bank to enter into a Blocked Account Agreement with the Indenture Trustee substantially in the form attached hereto as Exhibit C. Thereafter, the Servicer shall cause all ACH debits that are made with respect to the Contracts to be made to the ACH Account and shall cause all amounts on deposit in the ACH Account with respect to the Receivables (less a reasonable reserve to cover checks and ACHs that do not clear and fees and expenses of the ACH Bank for maintaining the ACH Account) to be transferred to the Indenture Trustee for deposit to the Collection Account (or as otherwise provided in the Indenture) at least once per week. (ii) On or before the Lockbox Effective Date, the Servicer shall arrange for a Lockbox to be opened in the name of Wells Fargo Bank Minnesota, National Association, as indenture trustee for MFI I (or a similar designation acceptable to the Indenture Trustee) and shall keep one key thereto for itself and shall give one key thereto to the Indenture Trustee. By no later than the Lockbox Effective Date, all invoices that the Servicer provides to Customers not making payments via ACH shall specify the Lockbox as the address for remittances by such Customers. Thereafter, on each Business Day, the Servicer shall remove the contents of the Lockbox and inventory and process the payments so received in the Electronic Ledger and keep such checks and money orders segregated from other checks and money orders it receives. All such checks and money orders removed from the Lockbox shall be deposited into the ACH Account within three Business Days of such removal." 2 (4) Section 3.03(c) of the Servicing Agreement is amended to read in its entirety as follows: "(c) Upon termination of the initial Servicer pursuant to Section 6.01(b): (i) the initial Servicer shall immediately return its key for the Lockbox to the Indenture Trustee or its designee; (ii) the Indenture Trustee shall (A) terminate the outgoing Servicer's access to the Lockbox, (B) deliver or cause to be delivered to the successor Servicer such key, (C) direct the successor Servicer to deposit all checks removed from the Lockbox to the ACH Account described above or to another ACH Account designated by the Indenture Trustee, and (D) deliver written notice in accordance with the Blocked Account Agreement to the ACH Bank instructing the ACH Bank of the replacement of the Servicer under such agreement and termination of all authority of the initial Servicer with respect thereto. In addition, the initial Servicer agrees that upon any such termination, it shall cooperate in arranging, at the request of the Controlling Party, for daily sweeps of any collections on the Receivables that are or become deposited into the Operating Account; and (iii) the successor Servicer may, but shall not be required to, open a new Lockbox and a new ACH Account, and the Indenture Trustee and the successor Servicer may make arrangements for forwarding all mail received in the original Lockbox to the new Lockbox and deposit of any funds received in the new Lockbox to the new ACH Account using procedures similar to those described in Section 3.03(b)(ii)." (5) The Servicing Agreement is amended so that Exhibit C to the Servicing Agreement is replaced by Exhibit A to this Amendment. (b) Additional Reporting Requirements. Article 4 of the Servicing Agreement is hereby amended to contain a new Section which shall follow Section 4.06, which shall read in its entirety as follows: "SECTION 4.07 ADDITIONAL REPORTS TO NOTE INSURER. For so long as MicroFinancial Incorporated is Servicer, until such time as the Note Insurer may otherwise direct the Servicer in writing (and the Servicer shall provide a copy of any such notice of termination of such obligations to the Indenture Trustee and the Issuer), the Servicer shall deliver to the Note Insurer (with a copy to the Indenture Trustee and the Issuer): (a) on each Tuesday (or if such day is not a Business Day, the next succeeding Business Day), commencing on December 3, 2002, a report indicating: (i) the amount of cash deposited to the Operating Account or the ACH Account, as 3 applicable, during the previous week, and separately identifying cash in such account that is (A) associated with collections on Contract Assets constituting Collateral under the Indenture, and (B) not associated with such collections; and (ii) the amounts that were actually swept into the Collection Account from each of the ACH Account (which may indicate that a specified reasonable reserve has been retained in the ACH Account as referenced in Section 3.03(b)), the Operating Account, and any direct deposits directly made to the Collection Account; (b) within five Business Days after each Payment Date: (i) an updated projection for the next and subsequent Payment Dates of the amount of principal and interest payments on the Class A Notes to be made until and including the date on which Class A Notes are projected to be paid in full; and (ii) an overview of variances between actual vs. previously projected payments on the Class A Notes; and (c) within 20 days after the end of each calendar month: (i) unaudited consolidated financial statements of MicroFinancial Incorporated and its subsidiaries as at the end of and for the calendar month then most recently ended, consisting of a balance sheet, income statement, and statement of cash flow; and (ii) cash flow projections for the next calendar month, showing projected (A) payments on the Class A Notes, the Class B Notes, and the notes issued by MFI Finance II, LLC, (B) other scheduled debt expense, and (C) operating expense; and (iii) an aging of accounts receivable that are Collateral under the Indenture." SECTION 3. REPRESENTATIONS AND WARRANTIES. Each party by executing this Amendment hereby represents and warrants that the person executing this Amendment on behalf of such party is duly authorized to do so, such party has full right and authority to enter into this Amendment and to consummate the transaction described in this Amendment, and this Amendment constitutes the valid and legally binding obligation of such party and is enforceable against such party in accordance with its terms. SECTION 4. MISCELLANEOUS. (a) Ratification of Servicing Agreement. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Servicing Agreement and, except as expressly modified and superseded by this Amendment, the Servicing Agreement is ratified and confirmed in all respects and shall continue in full force and effect. (b) References. The Servicing Agreement and any and all other agreements, documents or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms 4 of the Servicing Agreement as amended hereby, are hereby amended so that any reference in such agreements to the Servicing Agreement shall mean a reference to the Servicing Agreement as amended hereby, mutatis mutandis. (c) Counterparts. This Amendment may be executed in two or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall by as effective as delivery of a manually executed counterpart of this Agreement. (d) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without regard to the application of choice of law principles of any jurisdiction. (e) Binding Agreement. This Amendment shall be binding upon and inure to the benefit of the Issuer, the Servicer, the Indenture Trustee, the Back-up Servicer, the Note Insurer, and the Noteholders and their respective successors and permitted assigns. (f) Notice to Rating Agencies. Promptly after the execution of this Amendment, the Servicer shall mail a copy of this executed Amendment to the Rating Agencies, the Indenture Trustee, the Note Insurer and each Noteholder. * * * * * 5 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Servicing Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. MFI FINANCE CORP. I, as Issuer By: /S/ Richard F. Latour --------------------------- Name: Richard F. Latour Title: Treasurer MICROFINANCIAL INCORPORATED, as Servicer By: /S/ James R. Jackson ------------------------------- Name: James R. Jackson Title: CFO WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture Trustee and as Back-up Servicer By: /S/ Cheryl Zimmerman ------------------------------- Name: Cheryl Zimmerman Title: Corporate Trust Officer CONSENTED TO BY: AMBAC ASSURANCE CORPORATION By: /S/ Harris C. Mehos --------------------- Name: Harris C. Mehos Title: First Vice President EX-10.14 16 b46554mfexv10w14.txt FLEET LETTER RE:TERM NOTES EXHIBIT 10.14 April 14, 2003 Fleet National Bank 111 Westminster Street Providence, RI 02903-0368 MicroFinancial Incorporated 10-M Commerce Way, Suite 101 Woburn, MA 01801 Attention: Peter R. Bleyleben, President Re: MicroFinancial Term Notes Ladies and Gentlemen: 1. Reference is hereby made to (i) those term notes of MicroFinancial, Inc. (the "Company") issued to (a) Peter R. Bleyleben, (b) Salomon Smith Barney Custodian FBO Brian E. Boyle IRA (676-65812) and (c) Torrence C. Harder, more fully described on Annex A hereto (collectively, the "Notes") and (ii) the Fourth Amended and Restated Credit Agreement (as amended, the "Credit Agreement"), made as of August 22, 2000, by and among Leasecomm Corporation, a Massachusetts corporation (the "Borrower"), Fleet National Bank, a national banking association ("Fleet"), the other financial institutions from time to time party thereto (together with Fleet, the "Lenders") and Fleet, as agent for the Lenders (the "Agent"). Each capitalized term used herein without definition and defined in the Notes shall have the same meaning herein as set forth in the Notes. 2. Pursuant to that certain Fourth Amended and Restated Guaranty, dated as of August 22, 2000 (the "Guaranty"), the Company has guaranteed all of the Obligations (as defined in the Credit Agreement) of the Borrower under the Credit Agreement and other Loan Documents (as defined in the Credit Agreement) (the obligations of the Company under the Guaranty referred to herein as the "Guaranteed Obligations"). 3. In order to induce the Lenders to enter into the Second Amendment to the Credit Agreement, the Company and each of the undersigned holders of the Notes hereby confirms, acknowledges and agrees as follows: (a) Notwithstanding anything to the contrary contained in the Notes, the maturity date of each of the Notes is hereby extended to February 1, 2005. (b) The Note held by each holder as indicated on Annex A hereto has not been amended or modified since the date of the issuance thereof. Each holder of a Note will not consent to any amendment or modification of its Note, will not sell or transfer such Note and will not consent to or accept any prepayment, redemption or purchase of such Note by the Company, in each case, without the prior written consent of the Agent. IN WITNESS WHEREOF, the parties hereto have executed this Agreement of the date first written above. FLEET NATIONAL BANK, individually and as Agent By: /s/ Authorized Signatory -------------------------------- Name: Title: Company: MICROFINANCIAL INCORPORATED By: /s/ Authorized Signatory -------------------------------- Name: Title: Holders of the Notes: PETER R. BLEYLEBEN By: /s/ Peter R. Bleyleben -------------------------------- Name: Peter R. Bleyleben Title: N/A SALOMON SMITH BARNEY CUSTODIAN FBO BRIAN E. BOYLE IRA (676-65812) By: /s/ Brian E. Boyle -------------------------------- Name: BRIAN E. BOYLE Title: TORRENCE C. HARDER By: /s/ Torrence Harder -------------------------------- Name: TORRENCE HARDER Title: DIRECTOR ANNEX A NOTES
- --------------------------------------------------------------------------------------------------- NOTEHOLDER TYPE OF DEBT AMOUNT DATE - --------------------------------------------------------------------------------------------------- Peter R. Bleyleben 7.5% note $100,000 11/6/02 - 11/6/04 - --------------------------------------------------------------------------------------------------- Salomon Smith Barney Custodian FBO Brian E. Boyle IRA (676-65812) 7.5% note $100,000 11/26/02 - 11/26/04 - --------------------------------------------------------------------------------------------------- Torrence C. Harder 7.5% note $ 50,000 11/13/02 - 11/13/04 - ---------------------------------------------------------------------------------------------------
EX-10.15 17 b46554mfexv10w15.txt FLEET LETTER RE: SUBORDINATED CAPITAL NOTES Exhibit 10.15 April 14, 2003 Fleet National Bank 111 Westminster Street Providence, RI 02903-0368 MicroFinancial Incorporated 10-M Commerce Way Woburn, MA 01801 Attention: Peter R. Bleyleben, President Re: Subordinated Capital Notes -------------------------- Ladies and Gentlemen: 1. Reference is hereby made to (i) those certain subordinated capital notes of MicroFinancial, Inc. (the "Company") issued to (a) Andrew G. Mills, (b) Dkfm. Fritz Froehlich, (c) Judith B. Keyes Trust, (d) Jonathan M. Keyes Trust, (e) Henry M. Keyes Irrevocable Trust, (f) Henry M. Keyes Trust, (g) Richard F. Latour, (h) Bay Resource Corporation Money Purchase Pension Plan FBO PGR Lloyd IRA R/O, (i) John Bryan Mims, (j) Susan A. Mims, (k) Peter R. and Christa R. Bleyleben, (1) Salomon Smith Barney Custodian FBO Brian E. Boyle IRA (67665812) and (m) Torrence C. Harder, more fully described on Annex A hereto (collectively, the "Notes") and (ii) the Fourth Amended and Restated Credit Agreement (as amended, the "Credit Agreement"), made as of August 22, 2000, by and among Leasecomm Corporation, a Massachusetts corporation (the "Borrower"), Fleet National Bank, a national banking association ("Fleet"), the other financial institutions from time to time party thereto (together with Fleet, the "Lenders") and Fleet, as agent for the Lenders (the "Agent"). Each capitalized term used herein without definition and defined in the Notes shall have the same meaning herein as set forth in the Notes. 2. Pursuant to that certain Fourth Amended and Restated Guaranty, dated as of August 22, 2000 (the "Guaranty"), the Company has guaranteed all of the Obligations (as defined in the Credit Agreement) of the Borrower under the Credit Agreement and other Loan Documents (as defined in the Credit Agreement) (the obligations of the Company under the Guaranty referred to herein as the "Guaranteed Obligations"). 3. In order to induce the Lenders to enter into the Second Amendment to the Credit Agreement, the Company and each of the undersigned holders of the Notes hereby confirms, acknowledges and agrees as follows (it being understood that each holder is so confirming, acknowledging and agreeing only as to itself and the Note(s) held by such holder): (a) The Guaranteed Obligations, whether contingent or liquidated, constitute "Senior Indebtedness" under the Notes and the Agent and the Lenders shall be entitled to the benefit of the subordination provisions contained in the Notes. (b) Notwithstanding anything to the contrary contained in the Notes, no payment of principal shall be made with respect to any of the Notes until all of the Obligations (as defined in the Credit Agreement) have been paid in full, in cash. (c) In addition to and without limiting the Section in each of the Notes entitled "Permitted Payments of Note", if prior to the time of any regularly scheduled payment under any of the Notes, the Agent has delivered to the Company written notice of any Event of Default (as defined the Credit Agreement) under the Credit Agreement or any of the other Loan Documents (as defined in the Credit Agreement), other than with respect to a payment default referred to in the Section in each of the Notes entitled "Permitted Payments of Note", no regularly scheduled payments under the Notes shall be made commencing on the date of such notice and ending 180 days thereafter. (d) The Note held by each holder as indicated on Annex A hereto has not been amended or modified since the date of the issuance thereof. Each holder of a Note will not consent to any amendment or modification of its Note, will not sell or transfer such Note and will not consent to or accept any prepayment, redemption or purchase of such Note by the Company, in each case, without the prior written consent of the Agent. Remainder of page intentionally left blank IN WITNESS WHEREOF, the parties hereto have executed this Agreement of the date first written above. FLEET NATIONAL BANK, individual and as Agent By: /s/ Daniel Butler ---------------------------------------- Name: Daniel Butler Title: Authorized Officer Company: -------- MICROFINANCIAL INCORPORATED By: /s/ Authorized Signatory ----------------------------------------- Name: Title: Holders of the Notes: --------------------- ANDREWS G. MILLS By: /s/ Andrews G. Mills ----------------------------------------- Name: Title: DKFM. FRITZ FROEHLICH By: /s/ Fritz Froehlich ----------------------------------------- Name: Title: JUDITH B. KEYES TRUST By: /s/ Authorized Signatory ----------------------------------------- Name: Title: JONATHAN M. KEYES TRUST By: /s/ Authorized Signatory ----------------------------------------- Name: Title: HENRY M. KEYES IRREVOCABLE TRUST By: /s/ Authorized Signatory ----------------------------------------- Name: Title: HENRY M. KEYES TRUST By: /s/ Authorized Signatory ----------------------------------------- Name: Title: RICHARD F. LATOUR By: /s/ Richard F. Latour ----------------------------------------- Name: Richard F. Latour Title: BAY RESOURCES CORPORATIION MONEY PURCHASE PENSION PLAN FBO PGR LLOYD IRA R/0 By: /s/ Authorized Signatory ----------------------------------------- Name: Title: JOHN BRYAN MIMS By: /s/ John Bryan Mims ----------------------------------------- Name: Title: SUSAN A. MIMS By: /s/ Susan A. Mims ----------------------------------------- Name: Title: PETER R. AND CHRISTA R. BLEYLEBEN By: /s/ Peter R. and Christa R. Bleyleben ----------------------------------------- Name: Title: SALOMON SMITH BARNEY CUSTODIAN FBO BRIAN E. BOYLE IRA (676-65812) By: /s/ Authorized Signatory ----------------------------------------- Name: Title: TORRENCE C. HARDER By: /s/ Torrence C. Harder ----------------------------------------- Name: Torrence C. Harder Title: ANNEX A NOTES
- ---------------------------------------------------------------------------------------------- NOTEHOLDER TYPE OF DEBT AMOUNT DATE - ---------------------------------------------------------------------------------------------- Andrew G. Mills 11.25% capital note $ 500,000 4/10/01 - 5/1/04 - ---------------------------------------------------------------------------------------------- Dkfm. Fritz Froehlich 8% capital note $ 35,000 12/1/98- 12/1/03 - ---------------------------------------------------------------------------------------------- Judith B. Keyes Trust 12% capital note $ 150,000 10/22/01 - 11/1/06 Type of Debt: - ---------------------------------------------------------------------------------------------- Jonathan M. Keyes 12% capital note $ 150,000 10/22/01 - 11/1/06 Trust - ---------------------------------------------------------------------------------------------- Henry M. Keyes 11% capital note $ 25,000 10/22/01 - 11/1/04 Irrevocable Trust - ---------------------------------------------------------------------------------------------- Henry M. Keyes Trust 11% capital note $ 25,000 10/22/01 - 11/1/04 - ---------------------------------------------------------------------------------------------- Note to Richard F. Latour 9% capital note $ 75,000 5/1/01 - 5/1/03 - ---------------------------------------------------------------------------------------------- Bay Resource 12.5% capital note $1,300,000 2/20/01 - 3/1/06 Corporation Money Purchase Pension Plan FBO PGR Lloyd IRA R/O - ---------------------------------------------------------------------------------------------- John Bryan Mims 12.25% capital note $ 250,000 3/30/01 - 3/29/06 - ---------------------------------------------------------------------------------------------- Susan A. Mims 12.25% capital note $ 250,000 3/30/01 - 3/29/06 - ---------------------------------------------------------------------------------------------- Peter R. and Christa 12% capital note $ 200,000 5/1/01 - 5/1/06 R. Bleyleben - ---------------------------------------------------------------------------------------------- Salomon Smith 12% capital note $ 200,000 5/10/01 - 5/1/06 Barney Custodian FBO Brian E. Boyle IRA (676-65812) - ---------------------------------------------------------------------------------------------- Torrence C. Harder 12% capital note $ 100,000 5/22/01 - 5/1/06 - ----------------------------------------------------------------------------------------------
EX-99.1 18 b46554mfexv99w1.txt SECTION 906 CERTIFICATION Exhibit 99.1 MICROFINANCIAL, INCORPORATED CERTIFICATION OF CHIEF EXECUTIVE OFFICER REGARDING QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003 Richard F. Latour, President and Chief Executive Officer of MicroFinancial, Incorporated, (the "Company"), hereby certifies that, to the best of his knowledge, based upon a review of the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2003 (the "Covered Report") and, except as corrected or supplemented in a subsequent covered report: - - the Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and - - the information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. In Witness Whereof, the undersigned has signed this Certification as of this May 15, 2003. /s/ RICHARD F. LATOUR -------------------- President and Chief Executive Officer EX-99.2 19 b46554mfexv99w2.txt SECTION 906 CERTIFICATION Exhibit 99.2 MICROFINANCIAL, INCORPORATED CERTIFICATION OF CHIEF FINANCIAL OFFICER REGARDING QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003 James R. Jackson Jr., Vice President and Chief Financial Officer of MicroFinancial, Incorporated, (the "Company"), hereby certifies that, to the best of his knowledge, based upon a review of the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2003 (the "Covered Report") and, except as corrected or supplemented in a subsequent covered report: - - the Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and - - the information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company. In Witness Whereof, the undersigned has signed this Certification as of this May 15, 2003. /s/ JAMES R. JACKSON JR. ----------------------- Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----