MICROFINANCIAL INC
EXHIBIT 10.7
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>exh_10-7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
                                                                    Exhibit 10.7

THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER  CONTAINED IN THAT CERTAIN NOTE
PURCHASE AREEMENT DATED AS OF JUNE 10, 2004 BETWEEN  TIMEPAYMENT  CORP., LLC AND
AMPAC  CAPITAL  SOLUTIONS,  LLC, AS SUCH  AGREEMENT  MAY BE  AMENDED,  RESTATED,
SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME.

THE  SECURITIES  REPRESENTED  BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933 OR ANY STATE LAWS.
THESE SECURITIES MAY NOT BE SOLD,  TRANSFERRED,  PLEDGED OR HYPOTHECATED  UNLESS
THE  REGISTRATION  PROVISIONS  OF SAID ACT AND LAWS HAVE BEEN  COMPLIED  WITH OR
UNLESS SUCH REGISTRATION IS NOT REQUIRED.

                          SUBORDINATED PROMISSORY NOTE
                          ----------------------------

                                                           Boston, Massachusetts
$2,000,000                                             Dated as of June 10, 2004


         FOR VALUE RECEIVED, the undersigned, TIMEPAYMENT CORP., LLC, a Delaware
limited liability company (the "Borrower"),  hereby unconditionally  promises to
pay AMPAC  CAPITAL  SOLUTIONS,  LLC, a Nevada  limited  liability  company  (the
"Subordinated  Lender"), or to its order, having its principal place of business
at 7380 S. Eastern Avenue,  Suite 150, Las Vegas,  Nevada 89123, in lawful money
of the United States of America and in immediately available funds, on the Final
Maturity Date, the principal amount of Two Million Dollars  ($2,000,000),  or so
much thereof as is then  outstanding  under this  Subordinated  Promissory  Note
(this  "Note"),  in accordance  with and pursuant to Section 2.2 of that certain
Note Purchase  Agreement between the Borrower and the Subordinated  Lender dated
as of June 10,  2004,  as may be amended,  restated,  supplemented  or otherwise
modified  from time to time (the  "Subordinated  Note  Agreement").  Capitalized
terms used herein without  definition have the meanings  assigned to them in the
Subordinated  Note  Agreement.  The Borrower  further  agrees to pay interest in
arrears in like money on the unpaid  principal  amount  hereof from time to time
outstanding,  whether  before or after  maturity,  at the rates and on the dates
specified in the Subordinated Note Agreement.

         A. Payment of Principal and Interest.

         1.  The  aggregate  principal  amount  outstanding  hereunder  shall be
payable as provided in the Subordinated Note Agreement. This Note may be prepaid
in accordance with the terms and provisions of the Subordinated  Note Agreement.
This Note is also subject to mandatory  prepayment in certain  circumstances  as
provided in the Subordinated Note Agreement.

         2. Except as otherwise provided in Section A.3 below, all principal and
interest  hereunder  are payable in lawful money of the United States of America
to the  Subordinated  Lender  at its  address  specified  above  in  immediately
available funds as provided in the  Subordinated  Note Agreement on the dates on
which such payments shall become due.

         3.   Notwithstanding   any  other   provision  of  this  Note,  at  the
Subordinated  Lender's election at any time following the Commitment  Expiration
Date and at any time prior to payment of the Note in full, pursuant to the terms
and  conditions  of  the  respective  Warrant  Certificates  (including  without
limitation   certain   vesting,   exercise  and  transfer   restrictions),   the
Subordinated  Lender may exercise any option,  warrant or other right it may own
or possess from time to time to acquire Common Stock of the Parent in compliance
with such option, warrant or other right (any such exercise, an "Exercise"). The
Subordinated Lender shall be entitled,  but not required,  to pay for any Parent
Common Stock  acquired  pursuant to any Exercise by notifying the Parent and the
Borrower  in writing  of its  decision  to forgive an amount  then due and owing
under this Note equal to the price  payable by the  Subordinated  Lender for the
Parent Common Stock upon such Exercise ("Exercise Amount").  Any Exercise Amount
shall be credited for purposes of this Note first to interest  accrued and owing
and then to principal.  By its  acknowledgement  and agreement  attached to this
Note, the Parent agrees that forgiveness by the Subordinated Lender from amounts
owing  pursuant  to this  Note of the  Exercise  Amount in  connection  with any
Exercise shall be good and valid consideration and payment for the Parent Common
Stock issuable to the Subordinated  Lender upon such Exercise.  To the extent of
any actual or perceived  conflict  between the terms of this Section A.3 and any
other term of this Note or between  this  Section  A.3 and any term of any other
agreement between or among the Subordinated  Lender, the Borrower or the Parent,
the terms of this Section A 3 shall control and be binding. Without limiting the
foregoing,  no Exercise  pursuant  to which the  Subordinated  Lender  elects to
forgive the Exercise  Amount from amounts  owing  hereunder  shall  constitute a
breach of or default under Section B of this Note.

         B.  Subordination.  This Note shall at all times be wholly  subordinate
and junior in right of payment  to all Senior  Obligations  to the extent and in
the manner provided in this Part B.

         1. Definitions.  The following terms shall have the following meanings.
All other  capitalized  terms  used  herein  without  definition  shall have the
meanings assigned to them in the Subordinated Note Agreement.

            1.1 Agent. Any  administrative  or collateral agent acting on behalf
        of any one or more Senior  Lenders and as indicated in a written  notice
        provided  to the  Subordinated  Lender by the  Borrower  and such Senior
        Lender(s)  stating that such agent has been  requested and authorized to
        act as agent for such Senior Lender(s)  hereunder  pursuant to the terms
        of the applicable  Senior Credit Agreement (s). The Borrower agrees that
        any Agent, to the extent it may so act hereunder,  shall exercise all of
        the rights  and  remedies  hereunder  on behalf of, and as agent for the
        benefit of, each of such Senior Lenders. Without limiting the generality
        of the foregoing,  such Agent is authorized to execute and deliver, from
        time to time, on behalf of the applicable Senior Lender(s),  any and all
        amendments and modifications to this Note and any and all waivers to any
        conditions herein or any default hereunder.

            1.2 Bankruptcy or Liquidation Event. (a) Any dissolution, winding-up
        or  liquidation  of a  Debtor,  partial  or  complete,  whether  or  not
        involving  insolvency or  bankruptcy  proceedings,  (b) any  bankruptcy,
        insolvency, receivership or other statutory or common law proceedings or
        assignment  for the  benefit  of  creditors  involving  a Debtor  or any
        marshalling of the assets or liabilities of a Debtor, (c) any proceeding
        by or against a Debtor for  relief of any kind under any  bankruptcy  or
        insolvency  law(s)  relating to the relief of debtors or  readjustments,
        reorganizations,  compositions or extensions of indebtedness, or (d) any
        other marshalling of the assets of any Debtor.

            1.3  Debtor.  The  Borrower,  the Parent or any of their  respective
        Affiliates.

            1.4  Liabilities.  When used with  respect to any  Debtor,  the term
        "Liabilities"  shall mean  indebtedness,  obligations and liabilities of
        such  Debtor  to the  designated  Person(s),  whether  the  same  is now
        existing  or  hereafter  arising,   direct  or  indirect,   absolute  or
        contingent, secured or unsecured, liquidated or unliquidated, matured or
        unmatured,  disputed or undisputed, legal or equitable, and however made
        or evidenced.

            1.5 Maximum Senior Debt Amount.  The sum of (a) $75,000,000 plus (b)
        any additional  Indebtedness  incurred as permitted under Section 6.1 of
        the Subordinated Note Agreement.

            1.6  Payment  in Full.  The  expressions  "prior  payment  in full",
        "payment in full",  "paid or satisfied in full",  "paid in full" and any
        other  similar  phrases,  when used  herein  with  respect to the Senior
        Obligations,  shall  mean the  indefeasible,  full and final  payment in
        cash, in immediately  available  funds,  of all the Senior  Obligations,
        whether or not any of the  Senior  Obligations  shall have been  voided,
        disallowed  or  subordinated  pursuant to any  provisions  of the United
        States  Bankruptcy Code or any applicable  state  fraudulent  conveyance
        laws, in any case whether asserted directly or indirectly.

            1.7 Required Senior Lenders. For purposes of Sections 2.7 and 2.8 of
        this  Part B,  those  Senior  Lenders  having  the right to  consent  to
        amendments  of the  Subordinated  Documents  and to  approve  agreements
        effecting any transfer of the  Subordinated  Obligations,  respectively,
        pursuant to the terms of their respective Senior Credit Agreements.

            1.8 Senior Covenant Default.  Any "Event of Default",  as defined in
        any  agreement  pertaining  to Senior  Obligations,  other than a Senior
        Payment Default.

            1.9 Senior Credit  Agreements.  Any and all loan agreements,  credit
        agreements,  indentures,  reimbursement  agreements and other agreements
        providing  for the  extension  of credit to the  Borrower by one or more
        Senior  Lenders  (including  but not  limited  to the  Credit  Agreement
        entered into by the Borrower with Acorn Capital  Group,  LLC, a Delaware
        limited liability  company,  dated as of June 10, 2004), in each case as
        the same may be amended, extended,  renewed,  restated,  supplemented or
        otherwise modified from time to time in accordance with their respective
        terms, and any additional agreement or agreements entered into from time
        to  time  governing   Indebtedness   incurred  to  refinance,   replace,
        restructure  or refund in whole or in part the  extensions of credit and
        the   maximum   commitments   thereunder   and  under  such   additional
        agreement(s)  (whether, in any case, with the original Senior Lender and
        its successors and assigns or otherwise,  and whether provided under the
        original  Senior  Credit   Agreement  or  other  credit   agreements  or
        otherwise).

            1.10 Senior  Credit  Documents.  The Senior Credit  Agreements,  the
        Senior  Notes,  the  Senior  Security  Documents  and any and all  other
        documents pertaining to Senior Obligations.

            1.11 Senior  Default.  A Senior Payment Default or a Senior Covenant
        Default.

            1.12 Senior Lender.  Any holder of any Senior Obligation  (including
        any Affiliate of such Senior Lender and their respective  successors and
        assigns).

            1.13 Senior Notes.  Any and all promissory  notes issued pursuant to
        any and all of the Senior Credit Agreements.

            1.14  Senior  Obligations.  All  Liabilities  of  any  or all of the
        Debtors  designated from time to time as Senior Obligations by a written
        notice to the Subordinated  Lender from the Borrower  (including without
        limitation  interest accruing after the maturity of such Liabilities and
        interest  accruing after the filing of any petition in bankruptcy or the
        commencement of any  insolvency,  reorganization  or similar  proceeding
        relating to any Debtor, whether or not such post-filing or post-petition
        interest is allowed in such proceeding and whether the applicable Senior
        Lender(s)  is (or are)  oversecured  or  undersecured)  and other  fees,
        charges and other amounts due on or under the  applicable  Senior Credit
        Agreements, Senior Notes and Senior Security Documents.  Notwithstanding
        the foregoing,  in no event shall the aggregate  principal amount of all
        Senior  Obligations exceed the Maximum Senior Debt Amount (as defined in
        Section 1.5). The term "Senior  Obligations" shall include any renewals,
        extensions, refinancings, modifications or refundings of the Liabilities
        described above in this Section 1.14.

            1.15  Senior  Payment  Default.   Any  default  in  the  payment  of
        principal,  interest  or fees  under any Senior  Obligation  when due in
        accordance with the terms and conditions thereof.

            1.16 Senior Security  Documents.  Any and all  guaranties,  security
        agreements,  pledge agreements and other documents pursuant to which any
        of the Senior Obligations are secured.

            1.17 Subordinated Default. Any "Event of Default", as defined in the
        Subordinated Note Agreement.

            1.18 Subordinated  Documents.  The Subordinated Note Agreement,  the
        Notes, the Subordinated  Conditional Guaranty, the Warrant Certificates,
        the  Registration  Rights  Agreement  and any and  all  other  documents
        pertaining to Subordinated Obligations.

            1.19 Subordinated Obligations. All Liabilities owed by any or all of
        the Debtors to the Subordinated Lender, including without limitation all
        such Liabilities (a) in respect of subrogation rights under any guaranty
        or any other rights to be subrogated to the rights of the holders of the
        Senior Obligations in respect of payments or distributions of assets of,
        or ownership  interests in, the Debtors made on the Senior  Obligations,
        (b) under the Subordinated  Note Agreement and the  Subordinated  Notes,
        (c) under the Subordinated  Conditional Guaranty and (d) as compensation
        or in respect of any ownership interests (or warrants,  options or other
        rights for the  purchase  thereof)  in any Debtor  issued or sold to the
        Subordinated   Lender,   including   without   limitation   the  Warrant
        Certificates  and the Warrant Shares,  whether by dividend,  redemption,
        repurchase or otherwise.

         2. Terms of Subordination.

            2.1 Subordination.  The Subordinated Lender hereby (a) covenants and
agrees  that the  Subordinated  Obligations  are and  shall be  subordinate  and
subject in right of  payment  to the prior  payment in full of all of the Senior
Obligations,  whether or not any  portion of the Senior  Obligations  shall have
been voided,  disallowed or  subordinated  pursuant to Section 548 of the United
States  Bankruptcy  Code or any applicable  state  fraudulent  conveyance  laws,
whether asserted  directly or under Section 544 of the United States  Bankruptcy
Code, and (b) irrevocably directs the Borrower to make such payment in full, and
all other  payments in respect of the Senior  Obligations  contemplated  by this
Note and  referred  to below,  to the  Senior  Lenders  (or their  Agent(s),  as
applicable)  before making any payments or  distributions of any kind in respect
of  the  Subordinated  Obligations,  except  as  provided  in  Section  2.4.  In
furtherance  of the  foregoing,  except as provided in Sections 2.3 and 2.4, the
Subordinated Lender will not demand, accept or receive, any payment of interest,
principal or any other amount on account of the Subordinated Obligations or as a
sinking fund for any Subordinated Obligations,  or in respect of any redemption,
retirement,  prepayment,  purchase  or  other  acquisition  of any  Subordinated
Obligations,  including without limitation any dividends or other distributions,
or  exercise  any  right  of  set-off  or  recoupment  until  all of the  Senior
Obligations shall have been paid in full.

            2.2 Distributions in Bankruptcy or Liquidation Events.

            (a)  Distributions.  Anything in the  Subordinated  Documents to the
contrary  notwithstanding,  in  the  event  of  any  distribution,  division  or
application,  in whole or in part, voluntary or involuntary, by operation of law
or otherwise, of the assets of any Debtor or the proceeds thereof, to or for the
benefit of any of the Debtors'  creditors  arising by reason of a Bankruptcy  or
Liquidation  Event,  then all  Senior  Obligations  shall  first be paid in full
before any payment is made upon any Subordinated Obligations; and any payment or
distribution of any kind or character  (whether in cash,  property or securities
and  whether  or not any of such  Senior  Obligations  has been  disallowed,  or
estimated for purpose of allowance,  under the United States  Bankruptcy Code or
otherwise) made upon or in respect of the Subordinated  Obligations in violation
of this Note shall be paid over to the Senior  Lenders  (or their  Agent(s),  as
applicable),  for application in payment of the Senior  Obligations,  unless and
until the Senior Obligations shall have been paid or satisfied in full.

            (b) Authority to Act for Creditor.  If the Subordinated Lender fails
to file a proper  claim or proof of debt  therefor  prior to  thirty  (30)  days
before the  expiration of the time to file such claim or proof,  then the Senior
Lenders  (and/or  their  Agent(s),  as  applicable)  are  hereby  permitted  and
authorized  (but not obligated) for the specified and limited  purpose set forth
in this  paragraph,  to file such claim or proof for or on behalf of such holder
at any time  prior to the  expiration  of the time to file such  claim or proof;
provided, however, that the Senior Lenders (and/or such Agent(s)) shall promptly
deliver a copy of any such claim or proof so filed to the  Subordinated  Lender.
Upon written  request of any Senior Lender (or any Agent,  as  applicable),  the
Subordinated Lender shall confirm to the Senior Lenders (and such Agent) whether
the  Subordinated  Lender shall have in fact filed a proof of claim in order for
the Senior Lenders (and their Agent(s),  as applicable) to exercise their rights
in this  paragraph.  Nothing  contained  in this Note  shall be  interpreted  or
construed to impair the voting rights of the Subordinated  Lender in any meeting
relating  to  any   Reorganization  or  Liquidation   Event,   except  that  the
Subordinated Lender hereby covenants to the Senior Lenders that the Subordinated
Lender shall not vote in favor of any reorganization plan (whether under Chapter
11 of the United States Bankruptcy Code or other statute or law) that any Senior
Lender opposes.

            (c)  Additional  Action.  The  Subordinated  Lender  agrees duly and
promptly  to file  appropriate  proofs of claim in respect  of the  Subordinated
Obligations and to execute and deliver to the Senior Lenders, or their Agent(s),
as applicable,  promptly following request, such assignments, proofs of claim or
other  instruments  as may be reasonably  requested by any Senior Lender (and/or
their  Agent(s)) to enable the Senior Lender (and/or their  Agent(s)) to enforce
any and all claims upon or with respect to the  Subordinated  Obligations and to
collect and receive any and all payments and distributions  which may be payable
or deliverable at any time upon or with respect to the Subordinated Obligations.

            (d)  Payments  Held in  Trust.  In the  event  that any  payment  of
principal or interest or other payment or  distribution  of assets of any Debtor
shall be  collected or received by the  Subordinated  Lender in violation of the
subordination  provisions  of this Part B, before  payment in full of all of the
Senior Obligations,  the Subordinated Lender shall forthwith deliver the same to
the Senior Lenders (and/or their Agent(s), as applicable), in the form received,
together with any  endorsement  and assignment  necessary to make such delivery,
for application to the Senior  Obligations,  whether then due or not due. If the
Subordinated  Lender  shall fail to make such  endorsement  or  assignment,  the
Senior Lenders (or such Agent(s) or any of their respective officers) are hereby
irrevocably  authorized to make the same.  Until so delivered,  the Subordinated
Lender shall hold such payment or  distribution  in trust as the property of the
Senior  Lenders,  segregated  from all  other  funds  and  property  held by the
Subordinated Lender.

            2.3 Permitted Payments of Subordinated Obligations.

            (a) For so long as no Senior Default has occurred and is continuing,
or would occur as a result of such a payment, the Borrower may pay when due, but
not in advance,  and so long as it has not received a Blockage  Notice  (defined
below) which shall not be required in the case of a Senior Payment Default,  the
Subordinated  Lender may  receive and  retain,  (i) all  payments of interest in
arrears under the Subordinated  Notes, (ii) all regularly  scheduled payments of
principal  under Section 2.2 of the  Subordinated  Note  Agreement and (iii) all
amounts due to the  Subordinated  Lender pursuant to Sections 2.10 and 8.3(a) of
the Subordinated Note Agreement.

            (b) Upon receipt by the Borrower  and the  Subordinated  Lender of a
Blockage Notice (as defined below) or immediately upon the occurrence and during
the  continuation  of a Senior  Payment  Default,  then unless and until (i) all
Senior  Defaults that gave rise to the Blockage  Notice shall have been remedied
or  effectively  waived  or shall  have  ceased  to  exist,  or (ii) the  Senior
Obligations  in respect of which such Senior  Defaults shall have occurred shall
have  been  paid in full,  no direct or  indirect  payment  (in cash,  property,
securities  or by set-off  or  otherwise)  of or on account of any  Subordinated
Obligation or as a sinking fund for any  Subordinated  Obligations or in respect
of any redemption, retirement, purchase or other acquisition of any Subordinated
Obligations  shall be made prior to the  expiration  of the Blockage  Period (as
defined below). Notwithstanding the foregoing and except in the case of a Senior
Payment Default,  all amounts paid with respect to the Subordinated  Obligations
as permitted under Section  2.3(a),  prior to the receipt of the Blockage Notice
in  question by the  Subordinated  Lender,  may be retained by the  Subordinated
Lender.

            (c) For  purposes  of this  Section  2.3, a  "Blockage  Notice" is a
notice of a Senior  Default that has occurred  and is  continuing,  given to the
Borrower  and the  Subordinated  Lender  by a Senior  Lender  (or an  Agent,  as
applicable).

            (d) For  purposes  of this  Section  2.3, a "Blockage  Period"  with
respect  to a  Blockage  Notice is the period  commencing  upon  receipt of such
Blockage  Notice  by the  Borrower  and the  Subordinated  Lender  and  having a
duration as follows:

               (i)  unlimited,  if the  Senior  Default  to which  the  Blockage
                    Notice refers is a Senior Payment Default; or

               (ii) 180 days, if the Senior Default to which the Blockage Notice
                    refers is a Senior Covenant Default.

         (e)  Notwithstanding any provision contained in this Section 2.3 to the
contrary:

              (i) the Borrower  shall not be  prohibited  from  making,  and the
       Subordinated Lender shall not be prohibited from receiving and retaining,
       payments in respect of the Subordinated  Obligations  pursuant to Section
       2.3(d)(ii)  hereof for more than an  aggregate of 179 days within any 360
       day period;

              (ii) there shall not be more than two  Blockage  Notices  given in
       any 360-day period in respect of a Senior Covenant  Default under Section
       2.3(d)(ii) hereof;

              (iii) no Senior Covenant Default (or event which,  with the giving
       of notice and/or the passage of time would  constitute a Senior  Covenant
       Default)  existing on the date on which any  Blockage  Notice is given to
       the  Subordinated  Lender  shall  be used as a basis  for any  subsequent
       Blockage  Notice,  unless such Senior  Covenant  Default (or event which,
       with the giving of notice  and/or the passage of time would  constitute a
       Senior  Covenant  Default)  shall have ceased to exist for a period of at
       least 180  consecutive  days (it being  acknowledged  that any subsequent
       action or any breach of any financial covenant,  for a period commencing,
       or as at a date  occurring,  after  the  date  of  commencement  of  such
       Blockage  Period,  that in  either  case,  would  give  rise to a  Senior
       Covenant Default pursuant to any provisions under which a Senior Covenant
       Default  previously  existed or was  continuing  shall  constitute  a new
       Senior Covenant Default for this purpose); and

              (iv) once all  Senior  Defaults  which  gave rise to the  Blockage
       Notice in  question  shall have been  remedied or  effectively  waived or
       shall have ceased to exist or the Senior  Obligations in respect of which
       such Senior  Defaults  shall have occurred  shall have been paid in full,
       thereafter  (unless  another  Blockage  Period shall then be in effect or
       unless  any  Senior  Obligation  shall  have  matured,  by lapse of time,
       acceleration,  required  prepayment or otherwise) all amounts which would
       have been payable hereunder with respect to the Subordinated  Obligations
       but for the  existence  of the Blockage  Period  effected by the Blockage
       Notice  delivered with respect to the Senior Default in question shall be
       immediately payable in their entirety.

         2.4 Limitation on Exercise of Remedies by the Subordinated Lender.

         (a) In the  event  that  any  Subordinated  Default  shall  occur,  the
Subordinated  Lender shall not be entitled to, and will not, (i) ask,  demand or
sue for, or take or receive from any Debtor, by set-off or otherwise, payment of
all or any portion of the Subordinated Obligations (including without limitation
the Subordinated Conditional Guaranty) or any collateral provided therefor; (ii)
accelerate any Subordinated  Obligations;  (iii) exercise any of its remedies in
respect of any Subordinated Obligations; (iv) initiate or join in any litigation
or other proceedings against, or reorganization of, any Debtor; or (v) foreclose
or  otherwise  realize on any  security  given by any Debtor or any other Person
(including any guarantor) to secure the  Subordinated  Obligations;  in any such
case unless and until the earliest to occur of the following:

                  (A)  the  Senior   Lenders   shall  have   caused  the  Senior
         Obligations to become due prior to their stated maturity and shall have
         commenced the exercise of material  remedies under the Senior  Security
         Documents;

                  (B) a  Subordinated  Default  pursuant  to  Section  7.1(h) or
         7.1(i) of the Subordinated Note Agreement shall have commenced; and

                  (C) any other  Subordinated  Default shall have occurred under
         the Subordinated Note Agreement and the Subordinated  Lender shall have
         provided to the Senior Lenders (and their Agent(s),  as applicable) and
         the Borrower written notice of the Subordinated Lender's ability (under
         the terms of the Subordinated  Note Agreement) to accelerate on account
         of the  occurrence of such  Subordinated  Default (a "Remedy  Notice"),
         such Remedy Notice shall have been received by the Senior  Lenders (and
         such Agents) and the Borrower and 180 days shall have elapsed following
         such receipt (in any such case, the "Remedy Standstill Period").

         (b) Notwithstanding  the foregoing,  the Remedy Standstill Period shall
be inapplicable or cease to be effective if the Senior Lenders shall have caused
the Senior  Obligations  to become due prior to their stated  maturity and shall
have  commenced  the  exercise of material  remedies  under the Senior  Security
Documents or a Subordinated  Default pursuant to Section 7.1(h) or 7.1(i) of the
Subordinated Note Agreement shall have occurred.

         (c) Upon the expiration or termination of any Remedy Standstill Period,
the  Subordinated  Lender  shall be entitled to exercise  any of its rights with
respect  to  the  Subordinated   Obligations  (but  otherwise   subject  to  the
subordination  and  other  provisions  of this  Note)  other  than any  right to
accelerate  the  maturity  date of any  Subordinated  Obligation  based upon the
occurrence of any  Subordinated  Default in respect thereto which has been cured
or otherwise remedied during such Remedy Standstill Period.

         2.5 Covenants to Cooperate.  In addition to its agreements set forth in
Section  2.4,  the  Subordinated   Lender,  in  its  capacity  as  a  holder  of
Subordinated  Obligations,  agrees to take  such  actions  as may be  reasonably
necessary or  appropriate,  and otherwise to cooperate  with the Senior  Lenders
(and their  Agent(s),  as applicable) to effectuate the  subordination  provided
hereby. In furtherance thereof, the Subordinated Lender agrees (a) not to oppose
any motion filed or  supported by any Senior  Lender for relief from stay or for
adequate protection in respect of the Senior Obligations;  (b) not to oppose any
motion supported by any Senior Lender for any Debtor's use of cash collateral or
post-petition borrowing from any Senior Lender; (c) not to institute against any
Debtor any bankruptcy,  reorganization,  arrangement,  insolvency or liquidation
proceedings,  or other  proceedings  under any  United  States  Federal or state
bankruptcy or similar law, until such time as the Senior  Obligations  have been
paid in full; and (d) not otherwise to (i) impede, interfere with or restrict or
restrain the exercise by the Senior Lenders (and their Agent(s),  as applicable)
of their rights and remedies  under the Senior Credit  Documents or (ii) take or
permit any action prejudicial to or inconsistent with the priority position over
the Subordinated  Lenders that is created in favor of the Senior Lenders by this
Note.

         2.6  Violation of Agreements  to Take No Action and  Cooperate.  If the
Subordinated Lender shall commence, prosecute or participate in any suit, action
or  proceeding  against  any  Debtor  or take  any  other  action  in any  legal
proceeding  involving  any Debtor in  violation  of this Note,  such  Debtor may
interpose  this Note as a defense  or plea and each of the Senior  Lenders  (and
each of their Agent(s),  as applicable) are irrevocably  authorized to intervene
and to  interpose  such  defense or plea in its or any  Debtor's  name.  Without
limiting the generality of Section 3 below, if the Subordinated  Lender attempts
to enforce or realize  upon any  security for the  Subordinated  Obligations  in
violation  of this Note,  any  Debtor,  any Senior  Lender or any Agent (in such
Debtor's,  such Senior Lender's or such Agent's name) may by virtue of this Note
restrain such realization or enforcement.

         2.7 No Amendment of Subordinated  Obligations.  The Subordinated Lender
shall not,  without the prior written  consent of the Required  Senior  Lenders,
amend or permit  the  amendment  of the  terms of any  instrument  or  agreement
evidencing any  Subordinated  Obligations the effect of which is to (a) increase
the maximum  principal amount or rate of interest under the  Subordinated  Notes
(it being understood that the imposition of a default rate of interest contained
in the  Subordinated  Documents  as in  effect on the date  hereof  shall not be
restricted by this clause (a)),  (b) accelerate  the dates  (including  maturity
dates) upon which  payments of principal or interest on the  Subordinated  Notes
are due, (c) add or make more  restrictive  any event of default,  any financial
covenant  (including the definitions  applicable  thereto) or any other covenant
with respect to the Subordinated  Notes set forth in the Subordinated  Documents
(as in effect on the date  hereof),  (d) change  the  redemption  or  prepayment
provisions  of the  Subordinated  Notes,  (e) amend the Warrant to increase  the
shares of capital  stock of the  Parent  issuable  upon  exercise  thereof,  (f)
provide for the issuance to the Subordinated  Lender of any additional  warrants
or other  equity  securities  in any Debtor in  violation  of any Senior  Credit
Agreement, or (g) change, amend or supplement any other term of the Subordinated
Documents if such change, amendment or supplementation would materially increase
the  obligations  of the Borrower or confer  additional  material  rights on the
Subordinated  Lender or any other holder of the  Subordinated  Notes in a manner
adverse to the Borrower or any Senior Lender (or any Agent).

         2.8 No Transfer of Subordinated  Obligations.  The Subordinated  Lender
will not sell,  assign  or  transfer  any of its  interest  in the  Subordinated
Obligations,  unless the buyer,  assignee or  transferee  thereof shall agree in
writing to become  bound by the  provisions  of this Note  pursuant to a written
agreement in form and substance  satisfactory to the Required Senior Lenders (or
their Agent(s), as applicable) executed by the buyer, assignee or transferee, an
original copy of which shall have been furnished to the Senior Lenders (and such
Agent(s)).  In addition, the Subordinated Lender shall not grant or agree to any
subordination  in respect of the  Subordinated  Obligations  or grant a security
interest or participation  in any of the Subordinated  Obligations to any Person
other than the Senior Lenders.  In addition,  the Subordinated  Lender shall not
grant or agree to any  subordination in respect of the Subordinated  Obligations
or  grant  a  security  interest  or  participation  in any of the  Subordinated
Obligations  to any Person other than the Senior  Lenders and to Persons to whom
the Senior Lenders shall have granted or agreed to any  subordination in respect
of the Senior Obligations or granted a security interest or participation in any
of the Senior Obligations.

         3. No Collateral.  The  Subordinated  Lender will not take or enjoy any
collateral  to  secure  the  Subordinated  Obligations.   Without  limiting  the
generality of the foregoing,  none of the Senior Lenders (or their Agent(s),  as
applicable)  shall have any duty to the Subordinated  Lender with respect to the
preservation  or maintenance of any collateral or the manner in which the Senior
Lenders (or such Agent(s)) enforce their respective rights in such collateral or
to  preserve  or maintain  the rights of any Person in any  collateral,  and the
Subordinated  Lender  hereby waives (a) any claims which it may now or hereafter
have  against  the  Senior  Lenders  (or such  Agent(s))  which  relate  to such
preservation, maintenance or enforcement and (b) the right to require the Senior
Lenders (or such  Agent(s)) to marshal any  collateral,  to enforce any security
interest or lien the Senior Lenders (or such Agent(s)) may now or hereafter have
in any collateral  securing the Senior Obligations or to pursue any claim any of
the Senior  Lenders (or any such Agent) may have  against any  guarantor  of the
Senior  Obligations,  as a condition to the Senior Lenders' (and such Agent(s)')
entitlement to receive any payment on account of the Subordinated Obligations.

         4. Agreements with Respect to Loan Documents.

         (a) The  Subordinated  Lender hereby agrees that at any time,  and from
time to time, without the consent of, or notice to, the Subordinated Lender, the
Senior  Lenders  (and  their  Agent(s),   as  applicable)  may,  in  their  sole
discretion, (i) modify or amend (with consent of other parties to the agreements
so affected), grant consents under and waivers of or release any of the terms of
the Senior Credit Agreements, the Senior Notes, the Senior Security Documents or
any of the  other  Senior  Credit  Documents,  (ii)  exercise  or  refrain  from
exercising any powers or rights which the Senior Lenders (and such Agent(s)) may
have thereunder and (iii) make loans and other financial  accommodations  to the
Debtors in addition to the loans made on the date  hereof,  it being  understood
and agreed  that no such  modification,  amendment,  consent,  waiver,  release,
exercise,  failure to exercise or financial accommodation shall affect, release,
or impair any of the subordination  rights or other rights and benefits afforded
to the Senior  Lenders (and such  Agent(s))  under this Note or give rise to any
liabilities  on the  part  of the  Senior  Lenders  (or  such  Agent(s))  to the
Subordinated   Lender.   Notwithstanding  the  foregoing,   no  such  amendment,
restatement,  waiver,  or other  modification  shall,  without the prior written
consent of the  Subordinated  Lender,  (A) increase the principal  amount of the
Senior  Obligations  in excess of the Maximum Senior Debt Amount then in effect,
(B)  further  limit the right of the  Debtors to amend or  otherwise  modify the
Subordinated  Agreements,  or (C)  prohibit or restrict the payment of principal
of,  interest on, or other  amounts  payable  with respect to, the  Subordinated
Notes  in  a  manner  that  is  more   restrictive  than  the  prohibitions  and
restrictions currently contained in the Senior Credit Documents (as in effect as
of the date hereof).

         (b) Without  limiting the generality of the foregoing,  no right of the
Senior Lenders (or their Agent(s),  as applicable) to enforce  subordination  as
herein  provided  shall at any time or in any way be affected or impaired by any
act or failure to act on the part of any Debtor or the Subordinated  Lender,  or
by any act or failure to act of the Senior Lenders (or such Agent(s)), or by any
non-compliance by any Debtor with any of the terms,  provisions and covenants of
this Note or any other  Senior  Credit  Document,  regardless  of any  knowledge
thereof that the Senior Lenders (or such Agent(s)) may have or be charged with.

         5. Relative Rights.  Nothing contained in this Section 5 is intended to
or shall impair,  as between each Debtor,  its  creditors  other than the Senior
Lenders,  and the Subordinated  Lender, the obligation of such Debtor,  which is
absolute  and  unconditional,  to pay to the  Subordinated  Lender  when due the
principal of and the interest on the Subordinated Obligations, or is intended to
or shall affect the relative rights of the Subordinated Lender and the creditors
of each Debtor other than the Senior Lenders.

         6. Subrogation. After all amounts payable under or in respect of Senior
Obligations are indefeasibly paid in full in cash, the Subordinated Lender shall
be subrogated to the rights of holders of Senior Obligations to receive payments
or   distributions   applicable  to  Senior   Obligations  to  the  extent  that
distributions  otherwise payable to the Subordinated Lender have been applied to
the payment of Senior  Obligations.  A distribution  made under this Part B to a
holder  of  Senior  Obligations  which  otherwise  would  have  been made to the
Subordinated  Lender is not, as between the applicable  Debtor, on the one hand,
and the  Subordinated  Lender,  on the other  hand,  a payment  by any Debtor on
Senior Obligations.

         7.  Reliance.  The  Subordinated  Lender  acknowledges  notice that, in
entering  into the Senior  Credit  Agreements  and  electing  to hold the Senior
Obligations,  each of the Senior  Lenders  is  relying,  and will  rely,  on the
subordination of the Subordinated  Obligations provided herein. The Subordinated
Lender  expressly  waives all notice of the  acceptance  of, or reliance on, the
provisions of this Part B by the Senior Lenders.

         8. Miscellaneous.

         8.1 Conforming Agreement; Reinstatement. The agreements of the Borrower
and the  Subordinated  Lender  set  forth  in this  Part B shall  be  continuing
agreements and shall be irrevocable and shall remain in full force and effect so
long as there are Senior  Obligations  outstanding  or committed to be advanced.
The liability of the  Subordinated  Lender  hereunder  shall be  reinstated  and
revived,  and  the  rights  of  the  Senior  Lenders  (and  their  Agent(s),  as
applicable)  shall  continue,  with  respect  to any  amount at any time paid on
account of the Senior  Obligations  which  shall  thereafter  be  required to be
restored or returned by any Senior Lender in any Bankruptcy or Liquidation Event
(including  without  limitation  any repayment made pursuant to any provision of
Chapter 5 of Title 11, United  States  Code),  all as though such amount had not
been paid.

         8.2 Application of Payments. The Subordinated Lender hereby agrees that
all payments  received by the Senior Lenders (or their Agent(s),  as applicable)
may be applied, reversed and reapplied, in whole or in part, to such part of the
Senior  Obligations  as the  Senior  Lenders,  in their  sole  discretion,  deem
appropriate, in accordance with the provisions of their respective Senior Credit
Agreements.

         8.3 Specific  Performance.  The  Subordinated  Lender hereby waives any
defense based on the adequacy of a remedy at law that might be asserted as a bar
to the  remedy  of  specific  performance  of this  Note in any  action  brought
therefor by or on behalf of the Senior Lenders.

         8.4  Modification  of Part B. The provisions of this Part B are for the
benefit of the holders from time to time of Senior  Obligations  and, so long as
any Senior Obligations remain unpaid, may not be modified, rescinded or canceled
in whole or in part (except insofar as the effect thereof would be to cause such
provisions to be more favorable to the Senior Lenders, without the prior written
consent thereto of all the Senior Lenders.

         C. General Terms.

         1. The Borrower, for itself and its legal  representatives,  successors
and  assigns,  to the extent it may  lawfully  do so,  hereby  expressly  waives
presentment,  demand, protest, notice of protest, presentment for the purpose of
accelerating maturity, diligence in collection, and the benefit of any exemption
or insolvency  laws, and consents that the  Subordinated  Lender may, subject to
the Subordinated  Note Agreement,  release or surrender,  exchange or substitute
any personal  property or other collateral  security which may (without limiting
the  generality  of Part B(3))  hereafter be held as security for the payment of
this Note, and may extend the time for payment or otherwise  modify the terms of
payment  of any part or the whole of the debt  evidenced  hereby  to the  extent
provided in the  Subordinated  Note  Agreement  without in any way affecting the
liability of the Borrower;  provided that such modifications do not increase the
obligations hereunder.

         2. This Note is one of the "Subordinated  Notes" referred to in, and is
entitled  to  the  benefits  of,  the  Subordinated  Note  Agreement  (including
Schedules  and  Exhibits  thereto)  and all  other  instruments  and  agreements
evidencing the  indebtedness  outstanding  hereunder,  which  Subordinated  Note
Agreement and other instruments and agreements are hereby made part of this Note
and are deemed  incorporated  herein in full.  The occurrence or existence of an
Event of Default shall  constitute a default under this Note and shall,  subject
to the provisions of the Subordinated  Note Agreement,  entitle the Subordinated
Lender to accelerate  the entire  indebtedness  hereunder and to take such other
action as may be provided for in the  Subordinated  Note  Agreement or any other
instrument or agreement  evidencing and/or securing this Note, all in accordance
with the terms of the  Subordinated  Note Agreement and the provisions of Part B
hereof.

         3. All agreements between the Borrower and the Subordinated  Lender are
hereby expressly limited so that in no contingency or event whatsoever,  whether
by reason of  acceleration of maturity of the  indebtedness or otherwise,  shall
the  amount  paid or  agreed  to be  paid  for  the  use or  forbearance  of the
indebtedness  evidenced  hereby exceed the maximum amount which the Subordinated
Lender is permitted to receive under applicable law. If, from any  circumstances
whatsoever,  fulfillment  of any provision  hereof or of the  Subordinated  Note
Agreement, at the time performance of such provision shall be due, shall involve
exceeding such amount,  then the obligation to be fulfilled shall  automatically
be reduced to the limit of such  validity  and if, from any  circumstances,  the
Subordinated Lender should ever receive as interest an amount which would exceed
such maximum  amount,  such amount which would be  excessive  interest  shall be
applied to the reduction of the principal  balance  evidenced  hereby and not to
the payment of interest.  As used herein,  the term  "applicable law" shall mean
the law in effect as of the date hereof,  provided,  however,  that in the event
there is a change  in the law  which  results  in a higher  permissible  rate of
interest,  then this Note shall be governed by such new law as of its  effective
date.  This  provision  shall  control every other  provision of all  agreements
between the Borrower and the Subordinated Lender.

         4. If this  Note  shall not be paid when due and shall be placed by the
holder  hereof  in the  hands of any  attorney  for  collection,  through  legal
proceedings or otherwise,  the Borrower will pay reasonable  attorneys'  fees to
the holder hereof  together with  reasonable  costs and expenses of  collection,
including,  without  limitation,  any such attorneys'  fees,  costs and expenses
relating to any  proceedings  with  respect to the  bankruptcy,  reorganization,
insolvency, readjustment of debt, dissolution or liquidation of the Borrower.

         5. THIS NOTE SHALL BE GOVERNED BY, AND  CONSTRUED AND  INTERPRETED,  IN
ACCORDANCE  WITH,  THE  LAWS  OF THE  STATE  OF NEW  YORK  (EXCLUDING  THE  LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW).

                   [Balance of Page Left Blank Intentionally]


<PAGE>



         IN WITNESS  WHEREOF,  the  Borrower has caused this Note to be executed
under seal by its duly  authorized  representative  as of the date  first  above
written.


WITNESS                                  TIMEPAYMENT CORP., LLC


                                         By_____________________________________
                                            Name:_______________________________
                                            Title: _____________________________



  [Signature Page to Subordinated Note issued to Ampac Capital Solutions, LLC]


<PAGE>



                          ACKNOWLEDGEMENT AND AGREEMENT

MicroFinancial  Incorporated  hereby  assents  and agrees to the  provisions  of
Section A.3 of the foregoing  Subordinated  Promissory Note as of the date first
written therein.


WITNESS                                      MICROFINANCIAL INCORPORATED


______________________________________       By_________________________________
                                                Name:  _________________________
                                                Title:  ________________________

</TEXT>
</DOCUMENT>
