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                                                                  EXHIBIT 10.6.3

                           MICROFINANCIAL INCORPORATED
                           1998 EQUITY INCENTIVE PLAN
                        INCENTIVE STOCK OPTION AGREEMENT

      This Agreement is by and between MicroFinancial Incorporated (the
"Company") and _____ (the "Optionee").

                              W I T N E S S E T H:

      1. GRANT OF OPTION. Pursuant to the provisions of the MicroFinancial
Incorporated 1998 Equity Incentive Plan (the "Plan"), effective _______________
(the "Grant Date"), the Company awarded to the Optionee, subject to the terms
and conditions of the Plan and the terms and conditions contained herein, the
right and option to purchase from the Company all or any part of an aggregate of
____________ shares of the common stock ($.01 par value) of the Company ("Common
Shares"), at a purchase price equal to $____________ per share, such option to
be exercised as hereinafter provided. It is intended that the option evidenced
hereby constitute an incentive stock option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). Capitalized terms
not defined herein shall have the meanings given to such terms in the Plan.

      2. TERMS AND CONDITIONS. In addition to the terms and conditions contained
in the Plan, it is understood and agreed that the option evidenced hereby is
subject to the following additional terms and conditions:

      (a) Expiration Date. The option shall expire on the tenth anniversary of
the Grant Date.

      (b) Period of Exercise. Subject to the other terms of this Agreement
regarding the exercisability of this option, this option shall become
exercisable in cumulative installments in accordance with the following
schedule:

                                          Percentage of Options
On or after                                     Exercisable
-----------                               ---------------------
[       ]                                       [  ]%
[       ]                                       [  ]%
[       ]                                       [  ]%
[       ]                                        100%

      (c) Exercise of Option. This option shall be exercised by submitting a
written notice to the Committee authorized to administer the Plan pursuant to
Section 4 thereof (the "Committee") signed by the Optionee and specifying the
number of Common Shares as to which the option is being exercised. Such notice
shall be accompanied by the payment of the full option price for the Common
Shares being purchased. Payment shall be made in cash, which may be paid by
check, or other instrument acceptable to the Company, (ii) with the consent of
the Committee or the Chief Executive Officer, in Common Shares, valued at the
Fair Market Value (as defined in the Plan) on the date prior to exercise, or if
there were no sales on such date, on the next preceding day on which there were
sales, (iii) with the consent of the Committee and subject to such terms and
conditions as it may determine, by surrender of outstanding options under the
1998 Plan, (iv) with the consent of the Committee, the delivery of a promissory
note containing such terms as deemed acceptable to the Committee, or (v) any
combination of the above. In addition, any amount necessary to satisfy
applicable federal, state or local tax requirements shall be paid
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promptly upon notification of the amount due. The Committee may permit such
amount to be paid in Common Shares previously owned by Optionee, or a portion of
the Common Shares that otherwise would be distributed to Optionee upon exercise
of the option, or a combination of cash and such Common Shares. A certificate or
certificates for the Common Shares purchased shall be issued by the Company
after the exercise of the option and payment therefor, including the provision
for any federal and state withholding taxes, and other applicable employment
taxes.

      In lieu of delivering all or a portion of the Common Shares as to which an
option has been exercised, the Committee may elect to pay the Optionee an amount
in cash or Common Shares, or a combination of cash or Common Shares, equal to
the excess of the Fair Market Value of the Common Shares the Optionee would have
received upon exercise over the aggregate exercise price, as determined in
accordance with the Plan.

      (d) Termination of Option upon Termination of Employment, Death or Total
Disability.

      (i) Unless the Committee in its discretion determines otherwise, upon the
termination of Optionee's employment with the Company for any reason other than
a Breach of Conduct (as defined in the Plan), death or Total Disability (as
defined in the Plan), any portion of this option that is not exercisable by
reason of Paragraph 2(b) hereof shall immediately terminate. Any portion of this
option that is exercisable on the employment termination date shall continue to
be exercisable for three months following such termination date, unless sooner
terminated by reason of Paragraph 2(a) hereof.

      (ii) If termination of employment is by reason of death or Total
Disability, any portion of this option which is not exercisable on the date of
death or Total Disability by reason of Paragraph 2(b) hereof shall immediately
terminate, and any remaining portion of this option shall terminate if not
exercised within one year following the date of death or commencement of Total
Disability, unless sooner terminated by reason of Paragraph 2(a) hereof.

      (iii) In the event of a Breach in Conduct by Optionee at any time while
employed by the Company or within two years of termination of employment, (i)
any unexercised portion of this option, whether exercisable pursuant to
Paragraph 2(b) hereof or not exercisable, shall immediately terminate upon
action by the Committee. The Committee's action shall be communicated in writing
to the Optionee as soon as practicable. In addition, the Committee may, in its
sole discretion, by written notice demand that any or all stock certificates for
Common Shares acquired pursuant to the exercise of this option, or any profit
realized from the sale or transfer of such Common Shares, be returned to the
Company within five (5) days of receipt of such notice. Any exercise price paid
by the Optionee shall be returned to Optionee by the Company immediately
thereafter, without interest. The Company shall be entitled to reimbursement of
reasonable attorney fees and expenses incurred in seeking to enforce it rights
under this subparagraph 2(d)(iii) and Section 15 of the Plan.

      (e) Non-transferability. This option and all rights hereunder shall be
exercisable during the Optionee's lifetime only by the Optionee and shall be
non-assignable and non-transferable by the Optionee except, in the event of the
Optionee's death, by will or by the laws of descent and distribution. In the
event the death of the Optionee occurs, the representative or representatives of
the Optionee's estate, or the person or persons who acquire (by bequest or
inheritance) the rights to exercise this option in whole or in part, may
exercise this option prior to the expiration of the applicable exercise period,
as specified in Paragraph 2(d) above.

      (f) Change in Control. Unless the Committee determines otherwise, this
option shall accelerate and become immediately exercisable for a period of
fifteen days (or such longer or shorter period as the

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Committee may prescribe) immediately prior to the scheduled consummation of a
Change in Control (as defined in the Plan). Such acceleration of exercisability
shall be conditioned upon the consummation of the Change in Control and, any
exercise of any portion of the option that becomes exercisable by reason of this
Paragraph 2(f) shall become effective only immediately before the consummation
of such Change in Control.

      Unless the Committee determines otherwise, upon consummation of any such
Change in Control, the Plan and any unexercised portion of this option shall
terminate. Notwithstanding the foregoing, to the extent provision is made in
writing in connection with such Change in Control for the continuation of the
Plan and the assumption of this option, or for the substitution for this option
of new options covering the stock of a successor company, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and kinds of
shares or units and exercise prices, then the Plan and this option shall
continue in the manner and under the terms contained herein, and the
acceleration and termination provisions set forth in the first two sentences of
this Paragraph 2(f) shall be of no effect. The Company shall send written notice
of a Change in Control to Optionee not later than the time at which the Company
gives notice thereof to its shareholders.

      (g) Modification or cancellation of option. The Committee shall have the
authority to effect, at any time and from time to time, with the consent of the
Optionee, the modification of the terms of this option agreement (subject to the
limitations contained in the Plan).

      (h) No Rights as Shareholder. The Optionee shall have no rights as a
shareholder with respect to any Common Shares subject to this option prior to
the date of issuance to Optionee of a certificate or certificates for such
shares.

      (i) No Right to Continued Employment. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company,
nor shall it interfere in any way with the right of the Company to terminate the
Optionee's employment at any time.

      (j) Compliance with Law and Regulations. This option and the obligation of
the Company to sell and deliver shares hereunder shall be subject to all
applicable federal and state laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for Common Shares prior to (i)
the listing of such Common Shares on any stock exchange on which the Common
Shares may then be listed, and (ii) the completion of any registration or
qualification of such Common Shares under any federal or state law, or any rule
or regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable. Moreover, this option may
not be exercised if its exercise, or the receipt of Common Shares pursuant
thereto, would be contrary to applicable law.

      3. DISQUALIFYING DISPOSITION OF SHARES. This option shall not qualify as
an incentive stock option within the meaning of Section 422 of the Code if the
Common Shares acquired pursuant to the exercise of the option are transferred,
other than by will or by the laws of descent and distribution, within two years
of the Grant Date or within one year after the transfer of the Common Shares to
the Optionee pursuant to such exercise.

      4. OPTIONEE BOUND BY PLAN. The Optionee hereby agrees to be bound by all
of the terms and provisions of the Plan. In the event of any inconsistency
between this Agreement and the terms of the Plan, the terms of the Plan shall
govern.

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      5. WITHHOLDING TAXES. Optionee acknowledges and agrees that the Company
has the right to deduct from payments of any kind otherwise due to Optionee any
federal, state or local taxes of any kind required by law to be withheld with
respect to the exercise of this option hereunder.

      6. NOTICES. Any notice hereunder to the Company shall be addressed to it
at its principal business office, 10-M Commerce Way, Woburn, Massachusetts
01801, and any notice hereunder to the Optionee shall be sent to the address
reflected on the payroll records of the Company, subject to the right of either
party to designate at any time hereafter in writing some other address.

      7. MASSACHUSETTS LAW TO GOVERN. This Agreement shall be construed and
administered in accordance with and governed by the laws of the Commonwealth of
Massachusetts.

      IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Optionee has executed this Agreement this
___ day of _______ ________.

                                          MICROFINANCIAL INCORPORATED

                                          By:___________________________________

                                          Title:________________________________

                                          ______________________________________

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