-----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, U+Jeq6cWudGc13UUtermqwcIp+FHroG6xP7fdJDdApEoN/HlPqKjIBfoIx654NB9 YaJtOI8vjlPBJWMcnWkgBQ== 0000882515-99-000028.txt : 19990817 0000882515-99-000028.hdr.sgml : 19990817 ACCESSION NUMBER: 0000882515-99-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITCHFIELD FINANCIAL CORP /MA CENTRAL INDEX KEY: 0000882515 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 043023928 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19822 FILM NUMBER: 99689958 BUSINESS ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIAMSTOWN STATE: MA ZIP: 01267 BUSINESS PHONE: 4134581000 MAIL ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIAMSTOWN STATE: MA ZIP: 01267 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1999 Commission File Number: 0-19822 LITCHFIELD FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3023928 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 430 MAIN STREET, WILLIAMSTOWN, MA 01267 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (413) 458-1000 if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. Yes X No As of August 9, 1999, there were 6,984,166 shares of common stock of Litchfield Financial Corporation outstanding. FORM 10-Q LITCHFIELD FINANCIAL CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 1999
INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements................................. 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings.................................... 23 Item 2. Changes in Securities and Use of Proceeds............ 23 Item 3. Defaults Upon Senior Securities...................... 23 Item 4. Submission of Matters to a Vote of Security Holders.. 23 Item 5. Other Information.................................... 24 Item 6. Exhibits and Reports on Form 8-K..................... 38 SIGNATURES........................................................ 40
PART I - FINANCIAL INFORMATION Item 1. Financial Statements LITCHFIELD FINANCIAL CORPORATION Consolidated Balance Sheets (In thousands, except share and per share amounts)
June 30, December 31, 1999 1998 -------- ---------- (unaudited) ASSETS Cash and cash equivalents...................... $ 21,983 $ 10,537 Restricted cash................................ 27,598 27,898 Loans held for sale, net ...................... 13,351 19,750 Other loans, net .............................. 219,944 191,292 Retained interests in loan sales, net ......... 32,603 28,883 Other.......................................... 25,110 15,522 -------- -------- Total assets............................. $340,589 $293,882 ======== ======== LIABILITIES, COMMITMENTS AND STOCKHOLDERS' EQUITY Liabilities: Lines of credit............................. $ 62,012 $ 49,021 Accounts payable and other liabilities...... 8,741 9,812 Dealer/developer reserves................... 9,365 9,979 Deferred income taxes....................... 9,086 8,388 Long-term notes............................. 133,897 134,588 -------- -------- Total liabilities........................ 223,101 211,788 -------- -------- Commitments: Litchfield Obligated Mandatorily Redeemable Preferred Securities of Trust Subsidiary Holding Debentures of Litchfield.......... 26,200 --- Stockholders' equity: Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding............................... --- --- Common stock, $.01 par value; authorized 12,000,000 shares, 6,983,366 shares issued and outstanding in 1999 and 6,886,329 shares issued and outstanding in 1998..... 70 69 Additional paid in capital.................. 59,644 58,040 Accumulated other comprehensive income...... 3,352 1,250 Retained earnings........................... 28,222 22,735 -------- -------- Total stockholders' equity............... 91,288 82,094 -------- -------- Total liabilities, commitments and stockholders' equity..................... $340,589 $293,882 ======== ========
See accompanying notes to unaudited consolidated financial statements LITCHFIELD FINANCIAL CORPORATION Consolidated Statements of Income (In thousands, except share and per share amounts) Unaudited
Three Months Ended June 30, 1999 1998 -------- ------ Revenues: Interest and fees on loans................... $8,477 $6,055 Gain on sale of loans........................ 4,262 3,452 Servicing and other income................... 533 466 ------ ------ 13,272 9,973 ------ ------ Expenses: Interest expense............................. 4,724 3,695 Salaries and employee benefits............... 1,438 1,147 Other operating expenses..................... 1,061 916 Provision for loan losses.................... 500 460 ------ ------ 7,723 6,218 ------ ------ Income before income taxes and distributions on 5,549 3,755 preferred securities............................ Provision for income taxes...................... 2,137 1,446 Distributions on preferred securities (net of tax 205 --- benefit of $128)................................ ------ ------ Net income...................................... $3,207 $2,309 ====== ====== Earnings per common share amounts: Basic ....................................... $ .46 $ .40 Diluted ..................................... $ .45 $ .38 Weighted average number of shares: Basic ....................................... 6,908,145 5,754,018 Diluted ..................................... 7,186,471 6,117,832
See accompanying notes to unaudited consolidated financial statements. LITCHFIELD FINANCIAL CORPORATION Consolidated Statements of Income (In thousands, except share and per share amounts) Unaudited
Six Months Ended June 30, 1999 1998 Revenues: Interest and fees on loans................... $16,364 $11,288 Gain on sale of loans........................ 6,879 5,679 Servicing and other income................... 1,104 959 ------- ------- 24,347 17,926 ------- ------- Expenses: Interest expense............................. 9,352 6,692 Salaries and employee benefits............... 2,704 2,280 Other operating expenses..................... 2,039 1,869 Provision for loan losses.................... 1,000 810 ------- ------- 15,095 11,651 ------- ------- Income before income taxes and distributions on preferred securities......................... 9,252 6,275 Provision for income taxes...................... 3,562 2,416 Distributions on preferred securities (net of tax benefit of $128)......................... 205 --- ------ ------ Net income...................................... $5,485 $3,859 ====== ====== Earnings per common share amounts: Basic ....................................... $ .80 $ .68 Diluted ..................................... $ .76 $ .64 Weighted average number of shares: Basic ....................................... 6,897,411 5,706,887 Diluted ..................................... 7,189,488 6,069,164
See accompanying notes to unaudited consolidated financial statements. LITCHFIELD FINANCIAL CORPORATION Consolidated Statement of Stockholders' Equity (In thousands, except share amounts) Unaudited
Accumulated Additional Other Common Paid In Comprehensive Retained Stock Capital Income Earnings Total ----- ------- ------ -------- ----- Balance, December 31,1998.... $69 $58,040 $1,250 $22,735 $82,094 Issuance of 101,583 shares of common stock.... 1 1,681 --- --- 1,682 Retirement of 4,546 shares of treasury stock.. --- (77) --- --- (77) Other comprehensive income, net of tax....... --- --- 2,102 --- 2,102 Tax benefit from stock options exercised........ --- --- --- 2 2 Net income................. --- --- --- 5,485 5,485 ----- ------- ------ ------- -------- Balance, June 30, 1999. $70 $59,644 $3,352 $28,222 $91,288 ===== ======= ====== ======= ========
See accompanying notes to unaudited consolidated financial statements. LITCHFIELD FINANCIAL CORPORATION Consolidated Statements of Comprehensive Income (In thousands) Unaudited
Three Months Ended June 30, 1999 1998 ---- ---- Net income......................................... $3,207 $2,309 Unrealized gain on retained interests in loan sales, net of tax expense of $299 and $128 for 1999 and 1998, respectively...................... 477 204 ------ ------ Comprehensive income............................... $3,684 $2,513 ====== ======
Six Months Ended June 30, 1999 1998 ---- ---- Net income......................................... $5,485 $3,859 Unrealized gain on retained interests in loan sales, net of tax expense of $1,316 and $113 for 1999 and 1998, respectively...................... 2,102 180 ------ ------ Comprehensive income............................... $7,587 $4,039 ====== ======
See accompanying notes to unaudited consolidated financial statements. > LITCHFIELD FINANCIAL CORPORATION Consolidated Statements of Cash Flows (In thousands) Unaudited
Six Months Ended June 30, 1999 1998 ---- ---- Cash flows from operating activities: Net income................................... $ 5,485 $ 3,859 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of loans..................... (6,879) (5,679) Amortization and depreciation............. 677 484 Amortization of retained interests in loan sales.................................. 3,605 2,905 Provision for loan losses................. 1,000 810 Deferred income taxes..................... 698 1,327 Net changes in operating assets and liabilities: Restricted cash........................ 300 (3,976) Loans held for sale.................... 4,757 3,879 Retained interests in loan sales....... (4,063) (872) Dealer/developer reserves.............. (614) (211) Net change in other assets and liabilities......................... (1605) 1,723 -------- ------- Net cash provided by operating activities. 3,361 4,249 -------- ------- Cash flows from investing activities: Net originations, purchases and principal payments on other loans.................. (60,524) (73,114) Other loans sold............................. 31,609 25,159 Collections on retained interests in loan sales.................................... 4,182 1,866 Capital expenditures and other assets........ (1,669) (1,157) Investments in affiliates.................... (5,618) (235) ------- ------- Net cash used in investing activities..... (32,020) (47,481) ------- ------- Cash flows from financing activities: Net borrowings on lines of credit............ 12,991 22,424 Payments on term note........................ --- (1,493) Retirement of long-term notes................ (691) (291) Proceeds from issuance of preferred securities................................ 26,200 --- Purchase and retirement of treasury stock.... (77) --- Net proceeds from issuance of common stock... 1,682 17,865 ------- ------- Net cash provided by financing activities. 40,105 38,505 ------- ------- Net increase (decrease) in cash and cash equivalents.............................. 11,446 (4,727) Cash and cash equivalents, beginning of period... 10,537 19,295 ------- ------- Cash and cash equivalents, end of period......... $21,983 $14,568 ======= ======= Supplemental Schedule on Noncash Financing and Investing Activities: Exchange of loans for retained interests in loan sales............................... $ 1,717 $ 529 Transfers from loans to real estate acquired through foreclosure...................... $ 2,616 $ 1,005 Supplemental Cash Flow Information: Interest paid................................ $ 9,061 $ 6,053 Income taxes paid............................ $ 3,038 $ 239
See accompanying notes to unaudited consolidated financial statements. FORM 10-Q LITCHFIELD FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited A. Basis of Presentation The accompanying unaudited consolidated interim financial statements as of June 30, 1999 and for the three and six month periods ended June 30, 1999 and 1998, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1999, are not necessarily indicative of the results expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and notes thereto included in Litchfield Financial Corporation's annual report on Form 10-K for the year ended December 31, 1998. In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("Statement No. 133"), "Accounting for Derivative Instruments and Hedging Activities." Statement No. 133, as amended by Statement No. 137 issued in June 1999, is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000, with early adoption permitted as of the beginning of any quarter after the date of issuance. Statement No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The provisions of Statement No. 133 can not be applied retroactively to financial statements of prior periods. The Company plans to adopt Statement No. 133 in the fiscal quarter beginning January 1, 2001. At the date of initial application, the Company must recognize any freestanding derivative instruments in the balance sheet as either assets or liabilities and measure them at fair value. The Company shall also recognize offsetting gains and losses on hedged assets, liabilities, and firm commitments by adjusting their carrying amounts at that date as a cumulative effect of a change in accounting principal. Whether such transition adjustment is reported in net income, other comprehensive income, or allocated between both is based on the hedging relationships, if any, that existed for that derivative instrument and were the basis for accounting prior to the application of Statement No. 133. The Company is evaluating the effect that the implementation of Statement No. 133 will have on its results of operations and financial position. B. Gain on Sale of Loans and Retained Interests in Loan Sales Gains on sales of loans are based on the difference between the allocated cost basis of the assets sold and the proceeds received, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. The previous carrying amount is allocated between the assets sold and any retained interests based on their relative fair values at the date of transfer. Retained interests in transferred assets FORM 10Q LITCHFIELD FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) consist primarily of subordinate portions of the principal balance of transferred assets and interest only strips, which are initially recorded at fair value. The Company estimates fair value using discounted cash flow analysis, since quoted market prices are not readily available. The Company's analysis incorporates estimates that market participants would be expected to use in their estimates of future cash flows, including assumptions about interest rates, defaults and prepayment rates. Estimates made are based on, among other things, the Company's past experience with similar types of financial assets. The interest rates paid to investors range from 6.5% to 9.0%. The prepayment rates were 17.5% for Land Loan sales and 18.0% for VOI Loan sales. For the Hypothecation Loan sales, the prepayment rates for the underlying collateral used were 17.5% for Land Loans and 18.0% for VOI Loans. The Company estimates default rates to be 1.9% on Land Loans, 3.0% on VOI Loans and 0.5% on Hypothecation Loans. In valuing its retained interests in loan sales, the Company selects discount rates commensurate with the duration and risks embedded in the particular assets. Specifically, the Company uses discount rates ranging from the investor pass-through rates (for restricted cash) to the Baa corporate bond rate plus 325 basis points (for interest only strips and retained principal certificates) to estimate the fair value of its retained interests. There is no servicing asset or liability arising from loan sales, because the Company estimates that the benefits of servicing approximate the costs to meet its servicing responsibilities. On a quarterly basis, the Company assess the carrying value of retained interests in loans sold by comparing actual and assumed interest, prepayment and default rates on a disaggregate basis reflecting factors such as origination dates and types of loans. The Company adjusts the carrying value of retained interests accordingly. Since its inception, the Company has sold $613,426,000 of loans at face value ($492,960,000 through December 31, 1998). The principal amount remaining on the loans sold was $275,388,000 at June 30, 1999 and $238,132,000 at December 31, 1998. The Company guarantees, through replacement or repayment, loans in default up to a specified percentage of loans sold. Dealer/developer guaranteed loans are secured by repurchase or replacement guarantees in addition to, in most instances, dealer/developer reserves. The Company's exposure to loss on loans sold in the event of non-performance by the consumer, the dealer/developer on its guarantee, and the determination that the collateral is of no value was $18,553,000 at June 30, 1999 ($12,750,000 at December 31, 1998). Such amounts have not been discounted. The Company repurchased $211,000 and $26,000 of loans under the recourse provisions of loan sales during the three months ended June 30, 1999 and 1998, respectively. Loans repurchased during the six months ended June 30, 1999 and 1998 were $403,000 and $144,000, respectively, and $491,000 during the year ended December 31, 1998. In addition, when the Company sells loans through securitization programs, the Company commits either to replace or repurchase any loans that do not conform to the requirements thereof in the operative loan sale documents. As of June 30, 1999, $25,547,000 of the Company's cash was restricted as credit enhancements in connection with certain securitization programs. To date, the Company has participated $17,055,000 of A&D and Other Loans ($10,505,000 through December 31, 1998). The Company's Serviced Portfolio is geographically diversified with collateral and consumers located in 48 and 50 states, respectively. The Serviced Portfolio consists of the principal amount of loans serviced by or on behalf of the Company, except loans participated without recourse to the Company. At June 30, 1999, 14.5% and 11.2% of the Serviced Portfolio by collateral location was located in Texas and Florida, respectively, and 16.0% and 14.2% of the Serviced Portfolio by borrower location were located in Florida and Texas, respectively. At December 31, 1998, 14.7%, 10.3%, 10.2% of the Serviced Portfolio by collateral location were located in Texas, Florida and California, respectively, and 16.1% and 14.4% of the Serviced Portfolio by borrower location were located in Florida and Texas, respectively. At June 30, 1999, no other state accounted for more than 10.0% of the total by either collateral or borrower location. C. Allowance for Loan Losses and Estimated Recourse Obligations An analysis of the total allowances for all loan losses and recourse obligations follows:
June 30, December 31, 1999 1998 -------- ---------- Allowance for losses on loans held for sale... $ 178,000 $ 549,000 Allowance for losses on other loans........... 2,740,000 2,477,000 Estimated recourse obligations on retained interests in loan sales..................... 4,627,000 3,681,000 ---------- ---------- $7,545,000 $6,707,000 ========== ==========
D. Debt The Company finances a portion of its liquidity needs with secured lines of credit with eight participating institutions. Interest rates on the lines of credit range from the Eurodollar or LIBOR rates plus 2.00% to the prime rate plus 1.00%. The Company is not required to maintain compensating balances or forward sales commitments under the terms of these lines of credit. The lines of credit mature as follows:
Date Amount ---------- ----------- October 1999 $ 40,000,000 March 2000 25,000,000 April 2000 65,000,000 May 2001 5,000,000 ------------ $135,000,000 ============
Financial data relating to the Company's secured lines of credit is as follows:
June 30, December 31, (Dollars in thousands) 1999 1998 -------- ---------- Lines of credit available .......... $135,000 $116,000 Borrowings outstanding at end of period ......................... $ 62,012 $ 49,021 Weighted average interest rate at end of period................... 7.2% 7.6% Maximum borrowings outstanding at any month end................... $ 83,500 $ 73,666 Average amount outstanding during the period.................. $36,344 $ 37,485 Weighted average interest rate during the period (determined by dividing interest expense by average borrowings)................ 7.2 7.9%
In July 1999, the Company renewed and amended a line of credit to increase the line from $60,000,000 to $70,000,000 and extended the maturity to April 2002. As of June 30, 1999 and December 31, 1998, the Company had no unsecured lines of credit. The Company has an additional revolving line of credit and sale facility as part of an asset backed commercial paper facility with a multi-seller commercial paper issuer ("Conduit A"). In June 1998, the Company amended the facility to increase the facility to $150,000,000, subject to certain terms and conditions. The facility matures in June 2001. In connection with the facility, the Company formed a wholly-owned subsidiary, Litchfield Mortgage Securities Corporation 1994, to purchase loans from the Company. In October 1998, Litchfield Mortgage Securities Corporation 1994 was merged with and into Litchfield Mortgage Securities Company 1994, LLC ("LMSC"). LMSC either pledges the loans on a revolving line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues commercial paper or other indebtedness to fund the purchase or pledge of loans from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of June 30, 1999 and December 31, 1998, the outstanding balance of the sold or pledged loans securing this facility was $138,040,000 and $137,532,000, respectively. Outstanding borrowings at June 30, 1999 were $66,000. There were no outstanding borrowings under the line of credit at December 31, 1998. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates. In March 1997, the Company closed an additional revolving line of credit and sale facility of $25,000,000 with another multi-seller of commercial paper conduit ("Conduit B"). The facility, which matures in March 2000, is subject to certain terms and conditions, credit enhancement requirements and loan eligibility criteria. The outstanding aggregate balance of the loans pledged and sold under the facility at any time cannot exceed $25,000,000. In connection with the facility, the Company formed a wholly-owned subsidiary, Litchfield Capital Corporation 1996, to purchase loans from the Company. In October 1998, Litchfield Capital Corporation 1996, was merged with and into Litchfield Capital Company 1996, LLC ("LCC"). LCC either pledges the loans on a revolving line of credit with Conduit B or sells the loans to Conduit B. Conduit B issues commercial paper or other indebtedness to fund the purchase or pledge of loans from LCC. Conduit B is not affiliated with the Company or its affiliates. As of June 30, 1999 and December 31, 1998, the outstanding aggregate balance of the loans sold or pledged under the facility was $14,603,000 and $10,632,000, respectively. There were no outstanding borrowings under the line of credit as of June 30, 1999 or December 31, 1998. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates. The Company also finances a portion of its liquidity with long-term debt. The following table shows the total long-term debt outstanding at June 30, 1999 and December 31, 1998:
June 30, December 31, 1999 1998 (Dollars in thousands) 9.3% Notes............... $ 20,000 $ 20,000 8.45% Notes due 2002..... 51,247 51,282 8.875% Notes due 2003.... 14,460 15,066 8.25% Notes due 2003..... 10,000 10,000 9.25% Notes due 2003..... 20,000 20,000 10% Notes due 2004....... 18,190 18,240 -------- -------- $133,897 $134,588 ======== ========
The 9.3% Notes require principal reductions of $7,500,000, $6,000,000, $6,000,000 and $500,000 in March 2001, 2002, 2003 and 2004, respectively. Interest is payable semiannually in arrears. The Company shall have the option to redeem all or any portion of the long-term notes at predetermined redemption prices. The earliest call date of each issuance is as follows: 9.3% Notes......................... April 1998 8.45% Notes due 2002............... November 1999 8.875% Notes due 2003.............. June 1996 8.25% Notes due 2003............... November 2000 9.25% Notes due 2003............... December 2000 10% Notes due 2004................. April 1998 E. Commitments On April 14, 1999, the Company, Litchfield Capital Trust I ("Trust I") and Litchfield Capital Trust II, subsidiaries of the Company and statutory business trusts created under the Business Trust Act of the State of Delaware (collectively, the Trusts), filed a Registration Statement on Form S-3, as amended, with the Securities and Exchange Commission relating to the registration of $100,000,000 in aggregate principal amount of (i) trust preferred securities of the Trusts, (ii) junior subordinated debentures of the Company, and (iii) guarantee of preferred securities of the Trusts by the Company. In connection with this offering, the Trusts will sell the preferred securities to the public and common securities to the Company, use the proceeds from those sales to buy an equivalent principal amount of junior subordinated debentures issued by the Company and distribute the interest payments it receives on the junior subordinated debentures to the holders of preferred and common securities. On May 19, 1999, Trust I issued 2,500,000 of 10% Series A Trust Preferred Securities ("Series A Preferred Securities") to the public for $25,000,000 and used the proceeds to buy an equivalent amount of 10% Series A Junior Subordinated Debentures due 2029 ("Series A Debentures") from the Company. On June 8, 1999, the underwriters exercised their option to purchase an additional 120,000 10% Series A Preferred Securities for $1,200,000 and the proceeds were also used to buy an equivalent amount of Series A Debentures from the company. The sole assets of the Trust I are the Series A Debentures. The Company owns all the securities of Trust I that possess general voting rights. The Trust's obligation under the Series A Preferred Securities are fully and unconditionally guaranteed by the Company. Trust I will redeem all of the outstanding Series A Preferred Securities when the Series A Debentures are paid at maturity on June 30, 2029, or otherwise become due. The Company will have the right to redeem 100% of the principal plus accrued interest and unpaid interest on or after June 30, 2004. Interest is paid on the Series A Debentures quarterly, with corresponding quarterly distributions to the holders of the Series A Preferred Securities. F. Derivative Financial Instruments Held for Purposes Other than Trading The Company entered into two interest rate swap agreements to manage its basis exposures. The swap agreements involve the payment of interest to the counterparty at the prime rate on a notional amount of $110,000,000 and the receipt of interest at the commercial paper rate plus a spread of 277 basis points on a notional amount of $80,000,000 and the LIBOR rate plus a spread of 267 basis points on notional amount of $30,000,000. The swap agreements expire in June 2000. There is no exchange of the notional amounts upon which the interest payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest income from the excess servicing asset. The related amount receivable from or payable to the counterparty is included in other assets or other liabilities. The fair values of the swap agreements are not recognized in the financial statements. The Company intends to keep the contracts in effect until they mature in June 2000. The Company entered into an interest rate cap agreement with a bank in order to manage its exposure to certain increases in interest rates. The interest rate cap entitles the Company to receive payments, based on an amortizing notional amount, when commercial paper rates exceed 8.0%. If payments were to be received as a result of the cap agreement, they would be accrued as a reduction of interest expense. The notional amount outstanding at June 30, 1999 was $3,371,000. This agreement expires in July 2005. The Company does not use interest rate swap agreements or other derivative instruments for speculation. The Company is exposed to credit loss in the event of non-performance by the swap counterparty or the cap provider. FORM 10-Q Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking Statements Except for the historical information contained or incorporated by reference in this Form 10-Q, the matters discussed or incorporated by reference herein are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risk factors set forth under "Risk Factors" as well as the following: general economic and business conditions; industry trends; changes in business strategy or development plans; availability and quality of management; and availability, terms and deployment of capital. Special attention should be paid to such forward-looking statements including, but not limited to, statements relating to (i) the Company's ability to execute its growth strategies and to realize its growth objectives and (ii) the Company's ability to obtain sufficient resources to finance its working capital needs and provide for its known obligations. Refer to the Company's annual report on Form 10-K for the year ended 1998 for a complete list of factors as discussed under "Risk Factors". Overview Litchfield Financial Corporation (the "Company") is a diversified finance company that provides financing to creditworthy borrowers for assets not typically financed by banks. The Company provides this financing by making loans to businesses secured by consumer receivables or other assets and by purchasing loans and tax lien certificates. The Company purchases consumer loans (the "Purchased Loans") consisting primarily of loans to purchasers of rural and vacation properties ("Land Loans") and vacation ownership interests popularly known as timeshare interests ("VOI Loans"). The Company also provides financing to rural land dealers, timeshare resort developers and other finance companies secured by receivables ("Hypothecation Loans") and to dealers and developers for the acquisition and development of rural land and timeshare resorts ("A&D Loans"). In addition, the Company purchases other loans, such as consumer home equity loans, mortgages and construction loans and tax lien certificates, and provides financing to other businesses secured by receivables or other assets ("Other Loans"). The Company extends Hypothecation Loans to land dealers, resort developers and other finance companies secured by receivables. Hypothecation Loans typically have advance rates of 75% to 90% of the current balance of the pledged receivables and variable interest rates based on the prime rate plus 1.5% to 4%. The Company also purchases Land Loans and VOI Loans. Land Loans are typically secured by one to twenty acre rural parcels. Land Loans are secured by property located in 40 states, predominantly in the southern United States. VOI Loans typically finance consumer purchases of ownership interests in fully furnished vacation properties. VOI Loans are secured by property located in 18 states, predominantly in California and Florida. The Company requires most dealers or developers from whom it buys loans to guarantee repayment or replacement of any loan in default. Ordinarily, the Company retains a percentage of the purchase price as a reserve until the loan is repaid. The Company also makes A&D Loans to land dealers and resort developers for the acquisition and development of rural land and timeshare resorts in order to finance additional receivables generated by the A&D Loans. At the time the Company makes A&D Loans, it typically receives an exclusive right to purchase or finance the related consumer receivables generated by the sale of the subdivided land or timeshare interests. A&D Loans typically have loan to value ratios of 60% to 80% and variable interest rates based on the prime rate plus 2% to 4%. The principal sources of the Company's revenues are interest and fees on loans, gains on sales of loans and servicing and other income. Gains on sales of loans are based on the difference between the allocated cost basis of the assets sold and the proceeds received, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. Because a significant portion of the Company's revenues is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations. Results of Operations The following table sets forth the percentage relationship to revenues, unless otherwise indicated, of certain items included in the Company's statements of income.
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenues Interest and fees on loans..... 63.9% 60.7% 67.2% 63.0% Gain on sale of loans.......... 32.1 34.6 28.3 31.7 Servicing and other income..... 4.0 4.7 4.5 5.3 ----- ----- ----- ----- 100.0 100.0 100.0 100.0 Expenses Interest expense............... 35.6 37.0 38.4 37.4 Salaries and employee benefits. 10.8 11.5 11.1 12.7 Other operating expenses....... 8.0 9.2 8.4 10.4 Provision for loan losses...... 3.8 4.6 4.1 4.5 ----- ----- ----- ----- 58.2 62.3 62.0 65.0 Income before income taxes......... 41.8 37.7 38.0 35.0 Provision for income taxes......... 16.1 14.5 14.6 13.5 Distributions on preferred securities, net................... 1.5 --- 0.9 --- ----- ----- ----- ----- Net income......................... 24.2% 23.2% 22.5% 21.5% ===== ===== ===== =====
Revenues increased 33.1% and 35.8% to $13,272,000 and $24,347,000 for the three and six months ended June 30, 1999, from $9,973,000 and $17,926,000 for the same periods in 1998. Net income for the three and six months ended June 30, 1999 increased 38.9% and 42.1% to $3,207,000 and $5,485,000 compared to $2,309,000 and $3,859,000 for the same periods in 1998. Net income as a percentage of revenues was 24.2% and 22.5% for the three and six months ended June 30, 1999 compared to 23.2% and 21.5% for the three and six months ended June 30, 1998. Loan purchases and originations grew 24.5% and 33.0% to $118,973,000 and $216,964,000 for the three and six months ended June 30, 1999 from $95,585,000 and $163,078,000 for the same periods in 1998. The average Serviced Portfolio increased 45.7% to $498,853,000 at June 30, 1999 from $342,422,000 at June 30, 1998. Interest and fees on loans increased 40.0% and 45.0% to $8,477,000 and $16,364,000 for the three and six months ended June 30, 1999 from $6,055,000 and $11,288,000 for the same periods in 1998, primarily as the result of the higher average balance of other loans during the 1999 period, which was only partially offset by a decrease in the average rate. The average rate earned on the Serviced Portfolio decreased to 11.3% at June 30, 1999 from 12.2% at June 30, 1998, primarily due to the reduction in the prime rate and the effect of the growth in Hypothecation Loans as a percentage of the portfolio. Hypothecation Loan yields are usually less than Land Loan or VOI Loan yields, but servicing costs and loan losses are generally less as well. Gain on the sale of loans increased 23.5% and 21.1% to $4,262,000 and $6,879,000 for the three and six months ended June 30, 1999 from $3,452,000 and $5,679,000 in the same periods in 1998. The volume of loans sold increased 34.2% and 74.9% to $67,595,000 and $120,466,000 for the three and six months ended June 30, 1999 from $50,380,000 and $68,882,000 during the three and six months ended June 30, 1998. The increase in the gain on sale of loans was not proportionate to the increase in the volume of loans sold primarily due to variations in the mix of loans sold. The yield on Hypothecation and Other loan sales is generally lower than the yield on Land and VOI loan sales. Land and VOI loan sales were $34,494,000 and $50,682,000 for the three and six months ended June 30, 1998 compared to $14,665,000 and $33,167,000 for the same periods in 1998. Hypothecation and Other loans sold were $33,101,000 and $69,784,000 for the three and six months ended June 30, 1999 compared to $35,715,000 for the three and six months ended June 30, 1998. Approximately $17,508,000 of loan sales in the three months ended June 30, 1999 consisted of loans that were repurchased from other facilities due to clean up calls and other factors which made it more economical to repurchase and resell loans. As a result of the repurchase, there was recapture of unamortized gain, which reduced the overall yield on these loan sales. Servicing and other income increased 14.4% and 15.1% to $533,000 and $1,104,000 for the three and six months ended June 30, 1999, from $466,000 and $959,000 for the same periods in 1998 largely due to the increase in the other fee income and prepayment penalties from Hypothecation Loans. Although loans serviced for others increased 25.3% to $275,388,000 as of June 30, 1999 from $219,809,000 at June 30, 1998, servicing income remained relatively constant due to an increase in Hypothecation Loans serviced for others and a decrease in the average servicing fee per loan. Interest expense increased 27.8% and 39.7% to $4,724,000 and $9,352,000 during the three and six months ended June 30, 1999 from $3,695,000 and $6,692,000 for the same periods in 1998. The increase in interest expense primarily reflects an increase in average borrowings which was only partially offset by lower rates. During the three and six months ended June 30, 1999, borrowings averaged $212,032,000 and $210,169,000 at an average rate of 8.3% and 8.3% respectively, as compared to $158,531,000 and $139,503,000 at an average rate of 8.7% and 8.8% during the same periods in 1998. Interest expense includes the amortization of deferred debt issuance costs. Salaries and employee benefits increased 25.4% and 18.6% to $1,438,000 and $2,704,000 for the three and six months ended June 30, 1999 from $1,147,000 and $2,280,000 for the same periods in 1998 because of an increase in the number of employees in 1999, primarily related to bringing customer service and collections in house, and to a lesser extent, an increase in salaries. Personnel costs as a percentage of revenues decreased to 10.8% and 11.1% for the three and six months ended June 30, 1999 compared to 11.5% and 12.7% for the same periods in 1998. Also, as a percentage of the Serviced Portfolio, personnel costs remained relatively constant at 1.2% and 1.1% for the three and six months ended June 30, 1999 compared to 1.2% for the same periods in 1998. Total salaries and employee benefits plus other operating expenses as a percentage of revenues decreased to 18.8% and 19.5% for the three and six months ended June 30, 1999 from 20.7% and 23.1% for the same periods in 1998. Other operating expenses increased 15.8% and 9.1% to $1,061,000 and $2,039,000 for the three and six months ended June 30, 1999 from $916,000 and $1,869,000 for the same periods in 1998. Other operating expenses increased due to the growth in the Serviced Portfolio that was only partially offset by the decrease in third party servicing expenses related to bringing customer service and collections in-house. As a percentage of revenues, other operating expenses decreased to 8.0% and 8.4% for the three and six months ended June 30, 1999 compared to 9.2% and 10.4% for the corresponding periods in 1998. As a percentage of the Serviced Portfolio, other operating expenses decreased to 0.9% and 0.8% for the three and six months ended June 30, 1999 from 1.0% and 1.1% for the same periods in 1998. During the three and six months ended June 30, 1999, the provision for loan losses increased 8.7% and 23.5% to $500,000 and $1,000,000 from $460,000 and $810,000 for the same periods in 1998 primarily due to the growth of the Serviced Portfolio. Liquidity and Capital Resources The Company's business requires continued access to short and long-term sources of debt financing and equity capital. The Company's principal cash requirements arise from loan originations, repayment of debt on maturity and payments of operating and interest expenses. The Company's primary sources of liquidity are loan sales, short-term borrowings under secured lines of credit and long-term debt and equity offerings. Since its inception, the Company has sold $613,426,000 of loans at face value ($492,960,000 through December 31, 1998). The principal amount remaining on the loans sold was $275,388,000 at June 30, 1999 and $238,132,000 at December 31, 1998. In connection with certain loan sales, the Company commits to repurchase from investors any loans that become 90 days or more past due. This obligation is subject to various terms and conditions, including, in some instances, a limitation on the amount of loans that may be required to be repurchased. There were approximately $18,553,000 of loans at June 30, 1999 which the Company could be required to repurchase in the future should such loans become 90 days or more past due. The Company repurchased $211,000 and $403,000 as compared to $26,000 and $144,000 of such loans under the recourse provisions of loan sales during the three and six months ended June 30, 1999 and 1998, respectively. As of June 30, 1999, $25,547,000 of the Company's cash was restricted as credit enhancement for certain securitization programs. To date, the Company has participated $17,055,000 of A&D and Other Loans ($10,505,000 through December 31, 1998). The Company funds its loan purchases in part with borrowings under various lines of credit. Lines are paid down when the Company receives the proceeds from the sale of the loans or when cash is otherwise available. These lines of credit totaled $135,000,000 and $116,000,000 at June 30, 1999 and December 31, 1998, respectively. Outstanding borrowings on these lines of credit were $62,012,000 at June 30, 1999. Interest rates on these lines of credit range from the Eurodollar or LIBOR rate plus 2.00% to the prime rate plus 1.00%. The Company is not required to maintain compensating balances or forward sales commitments under the terms of these lines of credit. In July 1999, the Company renewed and amended a line of credit to increase the line from $60,000,000 to $70,000,000 and extend the maturity to April 2002. The Company also finances its loan purchases with two revolving line of credit and sale facilities as part of asset backed commercial paper facilities with multi-seller commercial paper issuers. Such facilities totaled $175,000,000 at June 30, 1999 and December 31, 1998, respectively. As of June 30, 1999 and December 31, 1998, the outstanding balances of loans sold or pledged under these facilities were $152,643,000 and $148,164,000, respectively. Outstanding borrowings under these lines of credit at June 30, 1999 were $66,000. There were no outstanding borrowings under these line of credit at December 31, 1998. Interest is payable on these lines of credit based on certain commercial paper rates. In May 1999, Litchfield Capital Trust I issued 2,500,000 shares of 10% Series A Trust Preferred Securities ("Series A Preferred Securities") at $10 per share. The proceeds of the offering were $25,000,000 and were used to buy an equivalent amount of 10% Series A Junior Subordinated Debentures ("Series A Debentures") due 2029 issued by the Company. In connection with the underwriters' option to purchase additional shares to cover over-allotments, Litchfield Capital Trust I issued an additional 120,000 10% Series A Preferred Securities in June 1999. The proceeds of these shares totaled $1,200,000 and were also used to buy an equivalent amount of Series A Debentures issued by the Company. The Company will have the right to redeem 100% of the principal and accrued interest and unpaid interest on or after June 30, 2004, or otherwise become due. Interest is paid on the Series A Debentures quarterly, with corresponding quarterly distributions to the holders of the Series A Preferred Securities. In June 1998, the Company issued 1,000,000 shares of common stock at $19 per share. The net proceeds of the offering were $17,717,000 and were used to pay down certain lines of credit. In connection with the underwriters' option to purchase additional shares to cover over-allotments, the Company issued an additional 166,500 shares in July 1998. Net proceeds of these shares totaled $2,990,000 and were also used to pay down certain lines of credit. The Company also finances its liquidity needs with long-term debt. Long-term debt totaled $133,897,000 at June 30, 1999 and $134,588,000 at December 31, 1998. The Company entered into two interest rate swap agreements. The swap agreements involve the payment of interest to the counterparty at the prime rate on a notional amount of $110,000,000 and the receipt of interest at the commercial paper rate plus a spread and the LIBOR rate plus a spread on notional amounts of $80,000,000 and $30,000,000, respectively. The swap agreements expire in June 2000. There is no exchange of the notional amounts upon which interest payments are based. The Company entered into an interest rate cap agreement with a bank in order to manage its exposure to certain increases in interest rates. The interest rate cap entitles the Company to receive an amount, based on an amortizing notional amount, which at June 30, 1999 was $3,371,000, when commercial paper rates exceed 8%. This agreement expires in July 2005. Historically, the Company has not required major capital expenditures to support its operations. Acquisitions In the third quarter of 1998, the Company acquired 25% of Land Finance Company ("Land Finance"), a broker specializing in the land business, located in Atlanta, Georgia. At the time of the transaction, the Company received the right to acquire additional shares of Land Finance at future dates. On April 1, 1999, the Company acquired the remaining 75% of Land Finance. All of Land Finance's employees became employees of the Company as of that date. The Company has accounted for this acquisition by the purchase method. The total purchase price was $275,000, consisting of the issuance of 9,092 shares of common stock with a fair value of $155,000 and $120,000 of expenses and assumed liabilities. The goodwill of $225,000, resulting from the purchase, is being amortized on a straight line basis over a period of 10 years. The results of operation of Land Finance have been included in the Company's income statement beginning April 1, 1999. On June 17, 1999, the Company acquired 100% of Ironwood Acceptance Company, L.L.C., ("Ironwood LLC"), located in Scottsdale, Arizona. Ironwood LLC purchases, services and liquidates tax lien certificates. During the fiscal years 1997 and 1998, the Company provided Ironwood LLC with a Hypothecation Loan for the purchase of tax lien certificates. All of Ironwood LLC's employees became employees of the Company following the acquisition. The Company has accounted for this acquisition by the purchase method. The total purchase price was $15,833,000, consisting of the issuance of 91,665 shares of common stock with a fair value of $1,519,000 and $13,523,000 of expenses and assumed liabilities. The goodwill of $2,938,000, resulting from the purchase, is being amortized on a straight line basis over a period of 20 years. The results of operations of Ironwood have been included in the Company's income statement from June 17, 1999. Credit Quality and Allowances for Loan Losses The Company maintains allowances for loan losses and recourse obligations on retained interests in loan sales at levels which, in the opinion of management, provide adequately for current and estimated future losses on such assets. Past-due loans (loans 31 days or more past due which are not covered by dealer/developer reserves or guarantees) as a percentage of the Serviced Portfolio as of June 30, 1999, increased to 1.04% from .95% at December 31, 1998. Management evaluates the adequacy of the allowances on a quarterly basis by examining current delinquencies, the characteristics of the accounts, the value of the underlying collateral, and general economic conditions and trends. Management also evaluates the extent to which dealer/developer reserves and guarantees can be expected to absorb loan losses. When the Company does not receive guarantees on loan portfolios purchased, it adjusts its purchase price to reflect anticipated losses and its required yield. This purchase adjustment is recorded as an increase in the allowance for loan losses and is used only for the respective portfolio. A provision for loan losses is recorded in an amount deemed sufficient by management to maintain the allowances at adequate levels. Total allowances for loan losses and recourse obligations on retained interests in loan sales increased to $7,545,000 at June 30, 1999 compared to $6,707,000 at December 31, 1998. The allowance ratio (the allowances for loan losses divided by the amount of the Serviced Portfolio) at June 30, 1999 remained relatively constant at 1.43% as compared to 1.44% at December 31, 1998. As part of the Company's financing of Purchased Loans, arrangements are entered into with dealers and resort developers, whereby reserves are established to protect the Company from potential losses associated with such loans. As part of the Company's agreement with the dealers and resort developers, a portion of the amount payable to each dealer and resort developer for a Purchased Loan is retained by the Company and is available to the Company to absorb loan losses for those loans. The Company negotiates the amount of the reserves with the dealers and developers based upon various criteria, two of which are the financial strength of the dealer or developer and credit risk associated with the loans being purchased. Dealer/developer reserves amounted to $9,365,000 and $9,979,000 at June 30, 1999 and December 31, 1998, respectively. The Company generally returns any excess reserves to the dealer/developer on a quarterly basis as the related loans are repaid by borrowers. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept only two-digit entries in the date code field and cannot distinguish 21st century dates from 20th century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with "Year 2000" requirements. State of Readiness. The year 2000 readiness process consists of the following phases: (i) identification of all IT Systems and non-IT Systems; (ii) assessment of repair or replacement requirements; (iii) repair or replacement; (iv) testing; (v) implementation; and (vi) creation of contingency plans in the event of year 2000 failures. The Company has evaluated the year 2000 readiness of the information technology systems used in its operations ("IT Systems") and it non-IT Systems, such as building security, voice mail and other systems. The Company has tested all computing equipment and deemed it to be Year 2000 ready. All non-computing equipment and computer systems are deemed Year 2000 ready based on manufacturer's warranty. The Company uses a third party servicer to perform some functions, such as receipt and posting of loan payments and other loan related activity. The third party servicer has represented to the Company that its systems are year 2000 compliant. In addition, the Company relies upon various vendors, governmental agencies, utility companies, telecommunication service companies, delivery service companies and other service providers who are outside of its control. There is no assurance that such parties will not suffer a year 2000 business disruption, which could have a material adverse effect on the Company's financial condition and results of operations. The Company has inquired as to the Year 2000 readiness of vendors and customers with whom the company has material relationships. We have requested that our business partners address significant risks by July 1, 1999, and plan to replace any material non-compliant business partners by October 1, 1999. Costs. To date, the Company has not incurred any material expenditures in connection with identifying or evaluating year 2000 compliance issues. Most of its expenses have related to the opportunity cost of time spent by employees of the Company evaluating year 2000 compliance matters generally. The Company believes that internally generated funds or available cash should be sufficient to cover the projected costs associated with any modifications to existing software to make it year 2000 compliant. However, no assurances can be given that such modifications can be made in a timely and cost effective manner. Failure to make timely modifications could, in a worse case scenario, result in the inability to process loans and loan related data and could have a material adverse effect on the Company. At this time, the Company does not possess all the information necessary to estimate the potential impact of year 2000 compliance issues relating to its other IT-Systems, non-IT Systems, its vendors, its customers and other parties. Such impact, including the effect of a year 2000 business disruption, could have a material adverse effect on the Company's financial condition and results of operations. Contingency Plan. The Company is in the process of developing a comprehensive disaster recovery plan, which will be activated should a Year 2000 issue arise. Inflation Inflation has not had a significant effect on the Company's operating results to date. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Exposure to Market Risk The Company performs an interest rate sensitivity analysis to identify the potential interest rate exposures. Specific interest rate risks analyzed include asset/liability mismatches, basis risk, risk caused by floors and caps, duration mismatches and re-pricing lag in response to changes in a base index. A simulated earnings model is used to identify the impact of specific interest rate movements on earnings per share for the next 12 months. The model incorporates management's expectations about future origination levels, origination mix, amortization rates, prepayment speeds, timing of loan sales, timing of capital issues, extensions and/or increases in lines of credit, pricing of originations and cost of debt and lines of credit. The Company's objective in managing the interest rate exposures is to maintain, at a reasonable level, the impact on earnings per share of an immediate and sustained change of 100 basis points in interest rates in either direction. The Company periodically reviews the interest rate risk and various options such as capital structuring, product pricing, hedging and spread analysis to manage the interest rate risk at reasonable levels. As of June 30, 1999, the Company had the following estimated sensitivity profile: Interest rate changes (in basis points) 100 (100) Impact on earnings per share ($0.01) $0.05 Impact on interest income and pre-tax earnings ($111,000) $635,000 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information SUMMARY CONSOLIDATED FINANCIAL INFORMATION (Dollars in thousands, except per share data) Six Months Ended Year Ended December 31, June 30, Statement of Income Data (1): 1998 1997 1996 1995 1994 1999 1998 ------ ------ ------ ------ ------ ------ ------ Revenues: Interest and fees on loans............. $ 25,736 $ 19,374 $14,789 $ 11,392 $ 5,669 $16,364 $11,288 Gain on sale of loans.................. 10,691 8,564 7,331 5,161 4,847 6,879 5,679 Servicing and other income............. 2,379 1,753 1,576 908 459 1,104 959 ------ ------ ------ ------ ----- ------ ----- Total revenues....................... 38,806 29,691 23,696 17,461 10,975 24,347 17,926 ------ ------ ------ ------ ----- ------ ------ Expenses: Interest expense....................... 14,265 10,675 7,197 6,138 3,158 9,352 6,692 Salaries and employee benefits......... 4,806 3,399 2,824 2,798 1,776 2,704 2,280 Other operating expenses............... 3,834 3,480 3,147 2,120 1,164 2,039 1,869 Provision for loan losses.............. 1,532 1,400 1,954 890 559 1,000 810 ------ ------ ------ ------ ------ ------ ------ Total expenses....................... 24,437 18,954 15,122 11,946 6,657 15,095 11,651 ------ ------ ------ ------ ------ ------ ------ Income before income taxes and distributions on preferred securities.... 14,369 10,737 8,574 5,515 4,318 9,252 6,275 Provision for income taxes................ 5,537 4,134 3,301 2,066 1,619 3,562 2,416 Distributions on preferred securities,net. --- --- --- --- --- 205 --- ------ ------ ----- ------ ------ ------ ------ Income before extraordinary item.......... 8,832 6,603 5,273 3,449 2,699 5,485 3,859 Extraordinary item (2).................... (77) (220) --- --- (126) --- --- ------ ------ ------ ------ ------ ------ ------ Net income............................ $ 8,755 $6,383 $5,273 $3,449 $2,573 $5,485 $3,859 ====== ====== ====== ====== ====== ====== ====== Basic per common share amounts: Income before extraordinary item........ $ 1.41 $ 1.19 $ .97 $ .80 $ .66 $ .80 $ .68 Extraordinary item...................... (.01) (.04) --- --- (.03) --- --- ------ ------ ------ ------ ------ ------ ------ Net income per share..................... $ 1.40 $ 1.15 $ .97 $ .80 $ .63 $ .80 $ .68 ====== ====== ====== ====== ====== ====== ====== Basic weighted average number of shares outstanding............................. 6,273,638 5,572,465 5,441,636 4,315,469 4,116,684 6,897,411 5,706,887 Diluted per common share amounts: Income before extraordinary item........ $ 1.34 $ 1.12 $ .93 $ .76 $ .63 $ .76 $ .64 Extraordinary item...................... (.01) (.04) --- --- (.03) --- --- ------ ------ ------ ------ ------ ------ ------ Net income per share.................... $ 1.33 $ 1.08 $ .93 $ .76 $ .60 $ .76 $ .64 ====== ====== ====== ====== ====== ====== ====== Diluted weighted average number of shares outstanding............................. 6,604,367 5,909,432 5,682,152 4,524,607 4,282,884 7,189,488 6,069,164 Cash dividends declared per Common share............................ $ .07 $ .06 $ .05 $ .04 $ .03 $ --- $ --- Other Statement of Income Data: Income before extraordinary item as a percentage of revenues................. 22.8% 22.2% 22.3% 19.8% 24.6% 22.5% 21.5% Ratio of EBITDA to interest expense (3)... 2.13 2.17 2.38 2.05 2.64 2.10 2.13 Ratio of earnings to fixed charges (4).... 2.01 2.01 2.19 1.90 2.37 2.02 1.94 Return on average assets (5).............. 3.7% 3.8% 4.0% 3.7% 4.6% 3.4% 3.6% Return on average equity (5).............. 13.2% 14.1% 13.3% 16.6% 17.2% 12.9% 13.8% __________
(1) Certain amounts in the 1994 through 1996 financial information have been restated to conform to the 1997 through 1999 presentation. (2) Reflects loss on early extinguishment of a portion of the 1992 Notes (as defined herein), net of applicable tax benefit of $76,000, for 1994, of the remainder of the 1992 Notes, net of applicable tax benefit of $138,000, for 1997, and of the term note payable, net applicable tax benefit of $48,000, for 1998. (3) The ratio of EBITDA to interest expense is required to be calculated for the twelve month period immediately preceding each calculation date, pursuant to the terms of the indentures to which the Company is subject. EBITDA is defined as earnings before deduction of taxes, depreciation, amortization of debt costs, and interest expense (but after deduction for any extraordinary item). (4) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and extraordinary items and fixed charges. Fixed charges consist of interest charges and the amortization of debt expense. (5) Calculations are based on income before extraordinary item. SUMMARY CONSOLIDATED FINANCIAL INFORMATION - (Continued) (Dollars in thousands, except per share data)
December 31, June. 30, Balance Sheet Data (6): 1998 1997 1996 1995 1994 1999 ---- ---- ---- ---- ---- ---- Total assets..........$293,882 186,790 152,689 112,459 63,487 $340,589 Loans held for sale(7) 19,750 16,366 12,260 14,380 11,094 13,351 Other loans (7)....... 191,292 86,307 79,996 33,613 15,790 219,944 Retained interests in loan sales (7)........ 28,883 30,299 28,912 22,594 11,996 32,603 Secured debt.......... 49,021 5,387 43,727 9,836 5,823 62,012 Unsecured debt........ 134,588 105,347 46,995 47,401 29,896 133,897 Stockholders' equity.. 82,094 52,071 42,448 37,396 16,610 91,288
Six Months Ended
Year Ended December 31, June 30, Other Financial Data: 1998 1997 1996 1995 1994 1999 ---- ---- ---- ---- ---- ---- Loans purchased and originated (8).......$375,292 $184,660 $133,750 $121,046 $ 59,798 $216,964 Loans sold (8)........ 144,762 98,747 54,936 65,115 40,116 120,466 Loans participated (8) 3,569 6,936 --- --- --- 6,550 Serviced Portfolio (9) 466,912 304,102 242,445 176,650 105,013 529,198 Loans serviced for others............... 238,132 179,790 129,619 111,117 72,731 275,388 Dealer/developer reserves............. 9,979 10,655 10,628 9,644 6,575 9,365 Allowance for loan losses (10).......... 6,707 5,877 4,528 3,715 1,264 7,545 Allowance ratio (11).. 1.44% 1.93% 1.87% 2.10% 1.20% 1.43% Delinquency ratio(12). 0.95% 1.20% 1.34% 1.73% .93% 1.04% Net charge-off ratio (8)(13).............. .58% .74% .94% .67% .38% .46% Non-performing asset ratio (14)............ .84% 1.03% 1.57% 1.35% 1.02% 1.07%
- -------------------------------------------------------------------------- (6) In 1997 the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Consequently, certain amounts included in the 1994 through 1996 financial statements have been reclassified to conform with the 1997 through 1999 presentations: "Subordinated pass through certificates held to maturity," "Excess servicing asset" and "Allowance for loans sold" have been reclassified as "Retained interests in loan sales." In addition, "Loans held for investment" have been reclassified as "Other loans." (7) Amount indicated is net of allowance for losses and recourse obligation on retained interests in loan sales. (8) During the relevant period. (9) The Serviced Portfolio consists of the principal amount of loans serviced by or on behalf of the Company, except loans participated without recourse to the Company. (10) The allowance for loan losses includes estimated recourse obligations for loans sold. See Note C to financial statements. (11) The allowance ratio is the allowances for loan losses divided by the amount of the Serviced Portfolio. (12) The delinquency ratio is the amount of delinquent loans divided by the amount of the Serviced Portfolio. Delinquent loans are those which are 31 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned. (13) The net charge-off ratio is determined by dividing the amount of net charge-offs for the period by the average Serviced Portfolio for the period. The June 30, 1999 amount is calculated on an annualized basis. (14) The non-performing asset ratio is determined by dividing the sum of the amount of those loans which are 91 days or more past due and other real estate owned by the amount of the Serviced Portfolio. BUSINESS Overview Litchfield Financial Corporation (the "Company") is a diversified finance company that provides financing to creditworthy borrowers for assets not typically financed by banks. The Company provides this financing by making loans to businesses secured by consumer receivables or other assets and by purchasing consumer loans. The Company purchases consumer loans (the "Purchased Loans") consisting primarily of loans to purchasers of rural and vacation properties ("Land Loans") and vacation ownership interests popularly known as timeshare interests ("VOI Loans"). The Company also provides financing to rural land dealers, timeshare resort developers and other finance companies secured by receivables ("Hypothecation Loans") and to dealers and developers for the acquisition and development of rural land and timeshare resorts ("A&D Loans"). In addition, the Company purchases other loans, such as consumer home equity loans, mortgages and construction loans and tax lien certificates, and provides financing to other businesses secured by receivables or other assets ("Other Loans"). The principal sources of the Company's revenues are interest and fees on loans, gains on sales of loans and servicing and other income. Gains on sales of loans are based on the difference between the allocated cost basis of the assets sold and the proceeds received, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. Because a significant portion of the Company's revenues is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations. Characteristics of the Serviced Portfolio, Loan Purchases and Originations The following table shows the growth in the diversity of the Serviced Portfolio from primarily Purchased Loans to a mix of Purchased Loans, Hypothecation Loans, A&D Loans and Other Loans:
December 31, June 30, 1998 1997 1996 1995 1994 1999 ---- ---- ---- ---- ---- ---- Purchased Loans............ 38.4% 56.6% 67.1% 81.6% 85.3% 35.8% Hypothecation Loans........ 35.2 26.9 20.7 12.5 9.0 36.4 A&D Loans.................. 11.2 13.7 8.7 3.1 3.3 12.2 Other Loans................ 15.2 2.8 3.5 2.8 2.4 15.6 ----- ----- ----- ----- ----- ----- Total............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== =====
The following table shows the growth in the diversity of the Company's originations from primarily Purchased Loans to a mix of Purchased Loans, Hypothecation Loans, A&D Loans and Other Loans:
Year Ended December 31, Six Months Ended June 30, 1998 1997 1996 1995 1994 1999 1998 ---- ---- ---- ---- ---- ---- ---- Purchased Loans..... 14.9% 30.3% 49.9% 71.4% 67.6% 13.6% 19.8% Hypothecation Loans. 48.6 37.1 29.6 20.9 22.2 54.1 40.7 A&D Loans........... 10.2 24.0 14.4 3.1 6.0 13.4 13.2 Other Loans......... 26.3 8.6 6.1 4.6 4.2 18.9 26.3 ----- ----- ----- ----- ----- ----- ----- Total.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== ===== ===== =====
(1) Purchased Loans The Company provides indirect financing to consumers through a large number of experienced land dealers and resort developers from which it regularly purchases Land and VOI Loans. The land dealers and resort developers make loans to consumers. The Company then purchases such loans from the land dealers and resort developers on an individually approved basis in accordance with its credit guidelines. Each land dealer and resort developer from whom the Company purchases loans is interviewed by the Company and approved by its credit committee. Management evaluates each land dealer's and resort developer's experience, financial statements and credit references and inspects a substantial portion of the land dealer's and resort developer's inventory of land or VOIs prior to approval of loan purchases. In order to enhance the creditworthiness of loans purchased from land dealers and resort developers, the Company typically requires land dealers and resort developers to guarantee payment of the loans and typically retains a portion of the amount payable by the Company to each land dealer and resort developer on purchase of the loan. The retained portion, or reserve, is released to the land dealer or resort developer as the related loan is repaid. Prior to purchasing Land or VOI Loans, the Company evaluates the credit and payment history of each borrower in accordance with its underwriting guidelines, performs borrower interviews on a sample of loans, reviews the documentation supporting the loans for completeness and obtains an appropriate opinion from local legal counsel. The Company purchases only those loans which meet its credit standards. The Company also purchases portfolios of seasoned loans primarily from land dealers and resort developers. The land dealers or resort developers generally guarantee the loans sold and the Company generally withholds a reserve as described above. Management believes that the portfolio acquisition program is attractive to land dealers and resort developers because it provides them with liquidity to purchase additional inventory. The Company also purchases portfolios of seasoned loans from financial institutions and others. Sellers generally do not guarantee such loans, but estimated loan losses are considered in establishing the purchase price. In evaluating such seasoned portfolios, the Company conducts its normal review of the borrower's documentation, payment history and underlying collateral. However, the Company may not always be able to reject individual loans. The Company's portfolio of Purchased Loans is secured by property located in 41 states.
Principal Amount of Loans December 31 June 30, 1998 1997 1996 1995 1994 1999 ---- ---- ---- ---- ---- ---- Southwest................ 32% 30% 26% 16% 19% 35% South.................... 30 31 31 31 37 29 West..................... 19 17 20 20 3 18 Mid-Atlantic............. 8 10 10 16 16 8 Northeast................ 11 12 13 17 25 10 ---- ---- ---- ---- ---- ---- Total............... 100% 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== ====
a. Land Loans Dealers from whom the Company purchases Land Loans are typically closely-held firms with annual revenues of less than $3.0 million. Dealers generally purchase large rural tracts (generally 100 or more acres) from farmers or other owners and subdivide the property into one to twenty acre parcels for resale to consumers. Generally the subdivided property is not developed significantly beyond the provision of graded access roads. In recreational areas, sales are made primarily to urban consumers who wish to use the property for a vacation or retirement home or for recreational purposes such as fishing, hunting or camping. In other rural areas, sales are more commonly made to persons who will locate a manufactured home on the parcel. During the six months ended June 30, 1999, the Company acquired approximately $31.7 million of Land Loans. The aggregate principal amount of Land Loans purchased from individual dealers during the six months ended June 30, 1999 varied from a low of approximately $6,300 to a high of approximately $1.4 million. As of June 30, 1999 and December 31, 1998, the five largest dealers accounted for approximately 17.7% and 20.6%, respectively, of the principal amount of the Land Loans in the Serviced Portfolio. No single dealer accounted for more than 4.7% and 5.4% at June 30, 1999 and at December 31, 1998, respectively. As of June 30, 1999 and December 31, 1998, 32.8% and 34.3%, respectively, of the Serviced Portfolio consisted of Land Loans. The average principal balance of such Land Loans were approximately $13,500 and $13,100 at June 30, 1999 and December 31, 1998, respectively. The following table sets forth as of June 30, 1999, the distribution of Land Loans in the Company's Serviced Portfolio:
Percentage of Percentage of Principal Principal Number of Number of Principal Balance Amount Amount Loans Loans - ----------------- ------------ --------- ----------- --------- Loans Less than $10,000........$ 29,948,000 17.3% 5,720 44.6% $10,000-$19,999.......... 62,478,000 36.0 4,374 34.1 $20,000 and greater...... 80,848,000 46.7 2,737 21.3 ------------ ------ ------ ----- Total...............$173,274,000 100.0% 12,831 100.0% ============ ===== ====== =====
As of June 30, 1999 and December 31, 1998, the weighted average interest rate of the Land Loans included in the Company's Serviced Portfolio was 12.0%. The weighted average remaining maturity was 12.3 and 12.0 years at June 30, 1999 and December 31, 1998, respectively. The following table sets forth as of June 30, 1999, the distribution of interest rates payable on the Land Loans: Percentage of
Principal Principal Interest Rate Amount Amount - ------------- --------- ------------- Less than 12.0%........................ $ 63,398,000 36.6% 12.0%-13.9%............................ 87,458,000 50.5 14.0% and greater...................... 22,418,000 12.9 ------------ ----- Total............................. $173,274,000 100.0% ============ =====
As of June 30, 1999 and December 31, 1998, the Company's Land Loan borrowers resided in 50 states, the District of Columbia and nine territories or foreign countries. b. VOI Loans The Company purchases VOI Loans from various resort developers. The Company generally targets small to medium size resorts with completed amenities and established property owners associations. These resorts participate in programs that permit purchasers of VOIs to exchange their timeshare intervals for timeshare intervals in other resorts around the world. During the six months ended June 30, 1999, the Company acquired approximately $1,606,000 of VOI Loans. As of June 30, 1999 and December 31, 1998, the five largest developers accounted for approximately 32.6% and 35.1%, respectively, of the principal amount of the VOI Loans in the Serviced Portfolio. No single developer accounted for more than 9.1% and 9.4% at June 30, 1999 and December 31, 1998, respectively. As of June 30, 1999 and December 31, 1998, 3.0% and 4.1%, respectively, of the Serviced Portfolio consisted of VOI Loans. The average principal balance of such VOI Loans was approximately $3,300 and $3,400, at June 30, 1999 and December 31, 1998, respectively. The following table sets forth as of June 30, 1999, the distribution of VOI Loans:
Principal Percentage of Number of Percentage of Amount Principal Amount Loans Number of Loans --------- ---------------- -------- --------------- Less than $4,000...... $ 6,691,000 41.7% 3,290 67.1% $4,000-$5,999......... 5,387,000 33.5 1,101 22.4 $6,000 and greater.... 3,979,000 24.8 515 10.5 ----------- ----- ----- ----- Total............ $16,057,000 100.0% 4,906 100.0% =========== ===== ===== =====
As of June 30, 1999 and December 31, 1998, the weighted average interest rate of the VOI Loans included in the Company's Serviced Portfolio was 14.5% and 14.6%, respectively, and the weighted average remaining maturity was 3.6 and 3.7 years, respectively. The following table sets forth as of June 30, 1999, the distribution of interest rates payable on the VOI Loans:
Percentage of Principal Interest Rate Principal Amount - ------------- --------- ------ Less than 14.0%........................... $ 7,153,000 44.5% 14.0%-15.9%............................... 3,542,000 22.1 16.0% and greater......................... 5,362,000 33.4 ----------- ----- Total................................ $16,057,000 100.0% =========== =====
As of June 30, 1999, the Company's VOI borrowers resided in 50 states, the District of Columbia and four territories or foreign countries. As of December 31, 1998, the Company's VOI borrowers resided in 50 states, the District of Columbia and three territories or foreign countries. (2) Hypothecation Loans The Company extends Hypothecation Loans to land dealers and resort developers and other businesses secured by receivables. The Company has expanded its marketing of Hypothecation Loans to include loans to other finance companies secured by other types of collateral. These loans may be larger than the Company's average Hypothecation Loans and may provide the Company with an option to take an equity position in the borrower. During the six months ended June 30, 1999, the Company extended or acquired approximately $113.8 million of Hypothecation Loans, of which $20.6 million, or 18.1%, were secured by Land Loans, $69.0 million, or 60.6%, were secured by VOI Loans and $24.2 million, or 21.3%, were secured by other types of collateral such as tax lien certificates, accounts receivable and mortgages. The Company generally extends Hypothecation Loans based on advance rates of 75% to 90% of the eligible receivables which serve as collateral. The Company's Hypothecation Loans are generally made at variable rates based on the prime rate of interest plus 1.5% to 4%. As of June 30, 1999 and December 31, 1998, the Company had $192.7 million and $164.5 million of Hypothecation Loans outstanding, none of which were 31 days or more past due. During the three months ended March 31, 1998, the Company acquired a $17.0 million participation interest in a Hypothecation Loan from another financial institution. As planned, in May of 1998, the Company purchased the underlying receivables, which the Company has reclassified as Other Loans. The proceeds of the receivables purchased were applied to pay off the Company's participation interest. At June 30, 1999, Hypothecation Loans ranged in size from $2,900 to $25.5 million with an average principal balance of $2,095,000. At December 31, 1998, Hypothecation Loans ranged in size from less than $500 to $21.5 million with an average balance of $1,678,000. The five largest Hypothecation Loans represented 14.8% and 15.5% of the Serviced Portfolio at June 30, 1999 and December 31, 1998, respectively. (3) A&D Loans The Company also makes A&D Loans to dealers and developers for the acquisition and development of rural and timeshare resorts in order to finance additional receivables generated by the A&D Loans. During the six months ended June 30, 1999, the Company made $33.0 million of A&D Loans to land dealers and resort developers, of which $2.7 million, or 8.2%, were secured by land and $30.3 million, or 91.8%, were secured by resorts under development. The Company generally makes A&D Loans to land dealers and resort developers based on loan to value ratios of 60% to 80% at variable rates based on the prime rate plus 2% to 4%. As of June 30, 1999 and December 31, 1998, the Company had $64.6 million and $52.3 million, respectively, of A&D Loans outstanding, none of which were 31 days or more past due. At June 30, 1999 and December 31, 1998, A&D Loans were secured by timeshare resort developments and rural land subdivisions in 19 states and one territory and 16 states and one territory, respectively. A&D Loans ranged in size from $3,500 to $11.8 million with an average principal balance of $979,000 at June 30, 1999. A&D Loans ranged in size from $1,700 to $9.5 million with an average principal balance of $780,000 at December 31, 1998. The five largest A&D Loans represented 5.4% and 4.7%, of the Serviced Portfolio at June 30, 1999 and December 31, 1998, respectively. (4) Other Loans At June 30, 1999, Other Loans consisted primarily of consumer home equity, mortgage and construction loans, other secured commercial loans and tax lien certificates. Historically, the Company has made or acquired certain other secured and unsecured loans as it has identified additional lending opportunities or lines of business for possible future expansion as it did with VOI Loans and Hypothecation Loans. In May of 1998, the Company purchased 232 builder construction loans totaling $32.7 million, a portion of which had previously been collateral for the Hypothecation Loan in which the Company owned a participation interest. At June 30, 1999 and December 31, 1998, the Company had 162 and 176 of the builder construction loans totaling $37.4 million and $33.9 million, respectively. In October 1998, the Company began purchasing tax lien certificates. At June 30, 1999 and December 31, 1998 the Company held $33.5 million and $21.2 million, respectively, of such certificates. The Company had $82.5 million and $71.0 million of Other Loans, 1.60% and 1.33% of which were 91 days or more past due at June 30, 1999 and December 31, 1998, respectively. At June 30, 1999, Other Loans ranged in size from less than $500 to $1,101,000 with an average principal balance of $11,900. At December 31, 1998, Other Loans ranged in size from less than $500 to $875,000 with an average principal balance of $23,200. The five largest Other Loans represent 0.8% of the Serviced Portfolio at June 30, 1999 and December 31, 1998. Loan Underwriting The Company has established loan underwriting criteria and procedures designed to reduce credit losses on its Serviced Portfolio. The loan underwriting process includes reviewing each borrower's credit history. In addition, the Company's underwriting staff routinely conducts telephone interviews with a sample of borrowers. The primary focus of the Company's underwriting is to assess the likelihood that the borrower will repay the loan as agreed by examining the borrower's credit history through credit reporting bureaus. The Company's loan policy is to purchase Land and VOI Loans from $3,000 to $50,000. On a case by case basis, the Company will also consider purchasing such loans in excess of $50,000. As of June 30, 1999, the Company had 163 Land Loans exceeding $50,000 representing 1.3% of the number of such loans in the Serviced Portfolio, for a total of $11.3 million. There were no VOI Loans exceeding $50,000 as of June 30, 1999. The Company will originate Hypothecation Loans up to $15 million and A&D Loans up to $10 million. From time to time, the Company may have an opportunity to originate larger Hypothecation Loans or A&D Loans in which case the Company would seek to participate such loans with other financial institutions. As of June 30, 1999, the Company's five largest Hypothecation Loan relationships had aggregate loan balances ranging from $9.9 million to $25.5 million and its largest A&D Loan relationship had an aggregate loan balance of $11.8 million. Construction Loans greater than $200,000 and any other loans greater than $100,000 must be approved by the Credit Committee which is comprised of the Chief Executive Officer, four Executive Vice Presidents and a Senior Vice President. Collections and Delinquencies Management believes that the relatively low delinquency rate for the Serviced Portfolio is attributable primarily to the application of its underwriting criteria, as well as to dealer guarantees and reserves withheld from dealers and developers. No assurance can be given that these delinquency rates can be maintained in the future. Collection efforts are managed and delinquency information is analyzed at the Company's headquarters. Unless circumstances otherwise dictate, collections are generally made by mail and telephone. Collection efforts begin when an account is seven days past due, at which time the Company sends out a late notice. When an account is fifteen days past due, the Company attempts to contact the borrower to determine the reason for the delinquency and to attempt to cause the account to become current. If the status of the account continues to deteriorate, an analysis of the account is performed by the collection manager to determine the appropriate action. When the loan is 90 days past due in accordance with its original terms and it is determined that the amounts cannot be collected from the dealer or developer guarantees or reserves, the loan is generally placed on a non-accrual status and the collection manager determines the action to be taken. The determination of how to work out a delinquent loan is based upon many factors, including the borrower's payment history and the reason for the current inability to make timely payments. When a guaranteed loan becomes 60 days (90 days in some cases) past due, in addition to the Company's collection procedures, the Company generally obtains the assistance of the dealer or developer in collecting the loan. The Company extends a limited number of its loans for reasons the Company considers acceptable such as temporary loss of employment or serious illness. In order to qualify for a one to three month extension, the customer must make three timely payments without any intervention from the Company. For extensions of four to six months, the customer must make four to six timely payments, respectively, without any intervention from the Company. The Company will not extend a loan more than two times for an aggregate six months over the life of the loan. The Company has extended approximately 0.8% of its loans through June 30, 1999. The Company does not generally modify any other loan terms such as interest rates or payment amounts. Regulations and practices regarding the rights of the mortgagor in default vary greatly from state to state. To the extent permitted by applicable law, the Company collects late charges and return-check fees and records these items as additional revenue. Only if a delinquency cannot otherwise be cured will the Company decide that foreclosure is the appropriate course of action. If the Company determines that purchasing a property securing a mortgage loan will minimize the loss associated with such defaulted loan, the Company may accept a deed in lieu of foreclosure, take legal action to collect on the underlying note or bid at the foreclosure sale for such property. Serviced Portfolio The following table shows the Company's delinquencies and delinquency rates, net of dealer/developer reserves and guarantees, for the Serviced Portfolio: Six Months Ended
Year Ended December 31, June 30, 1998 1997 1996 1995 1994 1999 ----------- ----------- ------------ ----------- ------------ ----------- Serviced Portfolio...... $466,912,000 $304,102,000 $242,445,000 $176,650,000 $105,013,000 $529,198,000 Delinquent loans (1)...... 4,456,000 3,642,000 3,255,000 3,062,000 981,000 5,486,000 Delinquency as a Percentage of Serviced Portfolio...... .95% 1.20% 1.34% 1.73% .93% 1.04%
_____ (1) Delinquent loans are those which are 31 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned. Land Loans The following table shows the Company's delinquencies and delinquency rates, net of dealer/developer reserves and guarantees, for Land Loans in the Serviced Portfolio: Six Months Ended
Year Ended December 31, June 30, 1998 1997 1996 1995 1994 1999 ------------ ------------ ------------ ---------- ---------- ------------ Land Loans in Serviced Portfolio... $160,098,000 $142,828,000 $119,370,000 $97,266,000 $90,502,000 $173,274,000 Delinquent Land Loans (1)............ 2,728,000 2,453,000 1,920,000 1,059,000 981,000 3,092,000 Delinquency as a Percentage of Land Loans in Serviced Portfolio... 1.70% 1.72% 1.61% 1.09% 1.08% 1.78%
__________ (1) Delinquent loans are those which are 31 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned. VOI Loans The following table shows the Company's delinquencies and delinquency rates, net of dealer/developer reserves and guarantees, for VOI Loans in the Serviced Portfolio: Six Months Ended Year Ended December 31, June 30, 1998 1997 1996 1995 1994 1999 ----------- ----------- ----------- ----------- ---------- ----------- VOI Loans in Serviced Portfolio... $19,119,000 $29,232,000 $43,284,000 $46,700,000 $2,851,000 $16,057,000 Delinquent VOI Loans (1)........... 350,000 739,000 1,316,000 1,958,000 --- 421,000 Delinquency as a Percentage of VOI Loans in Serviced Portfolio.. 1.83% 2.53% 3.04% 4.19% -- 2.62% __________
(1) Delinquent loans are those which are 31 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned. Hypothecation, A&D and Other Loans The Company did not have any delinquent Hypothecation Loans or A&D Loans for the years ended December 31, 1994 through December 31, 1998 or for the six months ended June 30, 1999. The Company did not have significant amounts of delinquent Other Loans for the years ended December 31, 1994 through December 31, 1997. At December 31, 1998, there were $71.0 million of Other Loans of which $1,378,000 or 1.94% were 31 days or more past due and not covered by dealer/developer reserves or guarantees and not included in other real estate owned. At June 30, 1999, there were $82.5 million of Other Loans of which $1,973,000 or 2.39% were 31 days or more past due and not covered by dealer/developer reserves or guarantees and not included in other real estate owned. Allowance for Loan Losses and Estimated Recourse Obligations, Net Charge-offs and Dealer Reserves The following is an analysis of the total allowances for all loan losses: Six Months Ended Year Ended December 31, June 30, 1998 1997 1996 1995 1994 1999 Allowance, beginning of Period........... $5,877,000 $4,528,000 $3,715,000 $1,264,000 $1,064,000 $6,707,000 Net charge-offs of uncollectible accounts..... (2,239,000 (2,010,000 (1,965,000) (946,000) (359,000) (1,157,000) Provision for loan losses.................. 1,532,000 1,400,000 1,954,000 890,000 559,000 1,000,000 Allocation of purchase adjustment (1)...... 1,537,000 1,959,000 824,000 2,507,000 --- 995,000 ---------- --------- -------- ---------- --------- --------- Allowance, end of period....................... $6,707,000 $5,877,000 $4,528,000 $3,715,000 $1,264,000 $7,545,000 ========== ========= ========= ========= ========== ==========
__________ (1) Represents allocation of purchase adjustment related to the purchase of certain nonguaranteed loans. The following is an analysis of net charge-offs by major loan and collateral types experienced by the Company: Six Months Ended Year Ended December 31, June 30, 1998 1997 1996 1995 1994 1999 Land Loans............ $1,358,000 $ 986,000 $ 669,000 $ 546,000 $ 359,000 $ 784,000 VOI Loans............. 556,000 939,000 1,284,000 45,000 --- 124,000 Hypothecation Loans... --- --- --- --- --- --- A&D Loans............. --- (2,000) (8,000) 352,000 --- --- Other Loans........... 325,000 87,000 20,000 3,000 --- 249,000 --------- -------- --------- ---------- -------- -------- Total net charge-offs. $2,239,000 $2,010,000 $1,965,000 $946,000 $359,000 $1,157,000 ========= ========= ========= ========== ======== ======== Net charge-offs as a percentage of the average Serviced Portfolio.... .58% .74% .94% .67% .38% .46%
As part of the Company's financing of Land and VOI Loans, the Company enters into arrangements with most land dealers and resort developers whereby the Company retains a portion of the amount payable to a dealer when purchasing a Land or VOI Loan to protect the Company from potential losses associated with such loans and uses the amount retained to absorb loan losses. The Company negotiates the amount of the reserves with the land dealers and resort developers based upon various criteria, two of which are the financial strength of the land dealer or resort developer and the credit risk associated with the loans being purchased. Dealer reserves for Land Loans were $8,219,000, $8,321,000 and $7,555,000 at December 31, 1998, 1997 and 1996, respectively, and $8,749,000 at June 30, 1999. Developer reserves for VOI Loans were $1,760,000, $2,299,000 and $3,072,000 at December 31, 1998, 1997 and 1996, respectively, and $1,284,000 at June 30, 1999. Most dealers and developers provide personal and, when relevant, corporate guarantees to further protect the Company from loss. Loan Servicing and Sales The Company retains the right to service all the loans it purchases or originates. Servicing includes collecting payments from borrowers, remitting payments to investors who have purchased the loans, accounting for principal and interest, contacting delinquent borrowers and supervising foreclosure and bankruptcies in the event of unremedied defaults. Substantially all servicing results from the origination and purchase of loans by the Company, and the Company has not historically purchased loan servicing rights except in connection with the purchase of loans. Servicing rates generally approximate .5% to 2% of the principal balance of a loan. Historically, the Company subcontracted the servicing of its loans to an unaffiliated third party. In July 1998, the Company resumed certain customer service and collection functions. The unaffiliated third party will continue to provide certain data processing and payment processing functions. The Company retains responsibility for servicing all loans as a master servicer. In 1990, the Company began privately placing issues of pass-through certificates evidencing an undivided beneficial ownership interest in pools of mortgage loans which have been transferred to trusts. The principal and a portion part of the interest payments on the loans transferred to the trust are collected by the Company as the servicer of the loans, remitted to the trust for the benefit of the investors, and then distributed by the trust to the investors in the pass-through certificates. As of June 30, 1999, the Company had sold or securitized a total of approximately $613.4 million in loans at face value. In certain of the Company's issues of pass-through certificates, credit enhancement was achieved by dividing the issue into a senior portion which was sold to the investors and a subordinated portion which was retained by the Company. In certain other of the Company's private placements, credit enhancement was achieved through cash collateral. If borrowers default in the payment of principal or interest on the loans underlying these issues of pass-through certificates, losses would be absorbed first by the subordinated portion or cash collateral account retained by the Company and might, therefore, have to be charged against the estimated recourse obligations to the extent dealer guarantees and reserves are not available. The Company also has a $150.0 million revolving line of credit and sale facility for its Land Loans as part of an asset backed commercial paper facility with a multi-seller commercial paper conduit. The facility expires in June 2001. As of June 30, 1999, the outstanding balance of the sold or pledged loans securing this facility was $138.0 million. The Company has an additional revolving line of credit and sale facility for its VOI Loans of $25.0 million with another multi-seller commercial paper conduit. The facility expires in March 2000. As of June 30, 1999, the outstanding aggregate balance of the sold loans under the facility was $14.6 million. Marketing and Advertising The Company markets its program to rural land dealers and resort developers through brokers, referrals, dealer and developer solicitation, and targeted direct mail. The Company employs three marketing executives based in Lakewood, Colorado, five marketing executives based in Williamstown, Massachusetts, two marketing executives based in Hoover, Alabama, three marketing executives based in Scottsdale, Arizona and one marketing executive based in Atlanta, Georgia. In the last five years the Company has closed loans with over 350 different dealers and developers. Management believes that the Company benefits from name recognition as a result of its referral, advertising and other marketing efforts. Referrals have been the strongest source of new business for the Company and are generated in the states in which the Company operates by dealers, brokers, attorneys and financial institutions. Management and marketing representatives also attend trade shows to improve awareness and understanding of the Company's programs. Regulation The Company is licensed as a lender, mortgage banker or mortgage broker in 20 of the states in which it operates, and in those states its operations are subject to supervision by state authorities (typically state banking or consumer credit authorities). Expansion into other states may be dependent upon a finding of financial responsibility, character and fitness of the Company and various other matters. The Company is generally subject to state regulations, examination and reporting requirements, and licenses are revocable for cause. The Company is subject to state usury laws in all of the states in which it operates. The consumer loans purchased or financed by the Company are subject to the Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements designed to provide consumers with uniform, understandable information with respect to the terms and conditions of loans and credit transactions in order to give them the ability to compare credit terms. Failure to comply with the requirements of the Truth-in-Lending Act may give rise to a limited right of rescission on the part of the borrower. The Company believes that its purchase or financing activities are in substantial compliance in all material respects with the Truth-in-Lending Act. Origination of the loans also requires compliance with the Equal Credit Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors from discriminating against applicants on the basis of race, color, sex, age or marital status. Regulation B promulgated under ECOA restricts creditors from obtaining certain types of information from loan applicants. It also requires certain disclosures by the lender regarding consumer rights and requires lenders to advise applicants of the reasons for any credit denial. In instances where the applicant is denied credit or the interest rate charged increases as a result of information obtained from a consumer credit agency, another statute, the Fair Credit Reporting Act of 1970, as amended, requires the lenders to supply the applicant with a name and address of the reporting agency. Competition The finance business is highly competitive, with competition occurring primarily on the basis of customer service and the term and interest rate of the loans. Traditional competitors in the finance business include commercial banks, credit unions, thrift institutions, industrial banks and other finance companies, many of which have considerably greater financial, technical and marketing resources than the Company. There can be no assurance that the Company will not face increased competition from existing or new financial institutions or finance companies. In addition, the Company may enter new lines of business that may be highly competitive and may have competitors with greater financial resources than the Company. The Company believes that it competes on the basis of providing competitive rates and prompt, efficient and complete service, and by emphasizing customer service on a timely basis to attract borrowers whose needs are not met by traditional financial institutions. Employees As of June 30, 1999, the Company had 125 full-time equivalent employees. None of the Company's employees is covered by a collective bargaining agreement. The Company considers its relations with its employees to be good. Facilities The Company owns a leasehold interest in approximately 26,000 square feet of office space in Williamstown, Massachusetts, which is used as the Company's headquarters. The initial ten year lease term expires in May 2007 and is renewable at the Company's option for two additional ten year periods. The initial land lease provides for an annual rental of $20,000. The Company also occupies an aggregate of approximately 5,100 square feet of office space in Lakewood, Colorado, pursuant to a lease expiring in January 2001, with an option to renew until 2004, providing for an annual rental of approximately $56,000, including utilities and exterior maintenance expenses. A subsidiary of the Company occupies an aggregate of approximately 2,710 square feet of office space in Scottsdale, Arizona, pursuant to a lease expiring September 2000, providing for an annual rental of approximately $46,000. A subsidiary of the Company occupies an aggregate of approximately 6,100 square feet of office space in Hoover, Alabama, pursuant to a lease expiring in December 1999, providing for an annual rental of approximately $88,000. A subsidiary of the Company occupies an aggregate of approximately 1,001 square feet of office space in Atlanta, Georgia, pursuant to a lease expiring in December 2000, providing for an annual rental of approximately $14,500. Item 6. Exhibits and Reports on Form 8-K The following exhibits are filed herewith: 1.1 Underwriting Agreement dated May 13, 1999 between the Company, Tucker Anthony Cleary Gull and Ferris, Baker Watts Incorporated. 2.1 Agreement and Plan of Merger dated June 16, 1999 among Litchfield Financial Corporation, Stamford Asset Recovery Corporation, Ironwood Acceptance Company, LLC and the members of the Company. 2.2 Agreement and Plan of Merger dated April 1, 1999 among Litchfield Financial Corporation, Stamford Business Credit Corporation and Land Finance Corporation. 4.12 Junior Subordinated Indenture dated as of May 19,1999 between the Company and The Bank of New York. 4.13 Supplemental Indenture No. 1 dated as of May 19, 1999 between the Company and The Bank of New York. 4.14 Amended and Restated Declaration of Trust of Litchfield Capital Trust I dated as of May 19, 1999 by and between John J. Malloy, Heather A. Sica, Ronald E. Rabidou, The Bank of New York, The Bank of New York (Delaware), the Company and the holders, from time to time, of undivided beneficial interests in the assets of Litchfield Capital Trust I. 4.15 Amendment No. 1 to the Amended and Restated Declaration of Trust of Litchfield Capital Trust I dated as of May 19, 1999 by an between John J. Malloy, Heather A. Sica, Ronald E. Rabidou, The Bank of New York, The Bank of New York (Delaware), the Company and the holders, from time to time, of undivided beneficial interests in the assets of Litchfield Capital Trust I. 4.16 Guarantee Agreement dated as of May 19, 1999 between the Company and The Bank of New York. 4.17 Guarantee Agreement dated as of June 8, 1999 between the Company and The Bank of New York. 10.193 Amendment No. 1 to the Indenture of Trust dated as of March 1, 1999, between Litchfield Hypothecation Corporation 1997-B and The Chase Manhattan Bank. 10.194 Amendment No. 2 to the Indenture of Trust dated as of June 1, 1999, between Litchfield Hypothecation Corporation 1997-B and The Chase Manhattan Bank. 10.195 Amendment No. 3 to the Indenture of Trust dated as of March 1, 1999, between Litchfield Hypothecation Corporation 1998-A and The Chase Manhattan Bank. 10.196 Amendment No. 4 to the Indenture of Trust dated as of June 1, 1999, between Litchfield Hypothecation Corporation 1998-A and The Chase Manhattan Bank. 10.197 Loan and Security Agreement dated as of May 28, 1999, between the Company and MetroWest Bank. 10.198 Note Purchase Agreement dated as of June 28, 1999, among the Company, Litchfield Hypothecation Corporation 97-B and Union Bank. 10.199 Limited Guarantee dated as of June 1, 1999, between the Company and Union Bank. 10.200 Note Purchase Agreement dated as of June 28, 1999, among the Company, Litchfield Hypothecation Corporation 98-A and BankBoston. 10.201 Limited Guarantee dated as of June 1, 1999, between the Company and BankBoston. 10.202 Receivables Purchase Agreement dated as of June 30, 1999, between the Company and First Massachusetts Bank. 10.203 Collateral Agent Agreement dated as of June 30, 1999, among The Chase Manhattan Bank, First Massachusetts Bank and the Company. 11.1 Statement re: computation of earnings per share 27.1 Financial Data Schedule Reports on Form 8-K Form 8-K filed June 25, 1999 regarding the acquisition of Ironwood Acceptance Company. 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. LITCHFIELD FINANCIAL CORPORATION DATE: August 13, 1999 /s/ Richard A. Stratton RICHARD A. STRATTON Chief Executive Officer, President and Director DATE: August 13, 1999 /s/ Ronald E. Rabidou RONALD E. RABIDOU Chief Financial Officer, Executive Vice President and Treasurer EX-1 2 Exhibit 1.1 LITCHFIELD CAPITAL TRUST I 10% Series A Trust Issued Preferred Securities (liquidation amount $10 per preferred security) guaranteed by LITCHFIELD FINANCIAL CORPORATION ------------------------------------------------ UNDERWRITING AGREEMENT May 13, 1999 TUCKER ANTHONY CLEARY GULL FERRIS, BAKER WATTS INCORPORATED c/o Tucker Anthony Cleary Gull One Beacon Street Boston, Massachusetts 02108 Ladies and Gentlemen: Litchfield Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), and Litchfield Financial Corporation, a Massachusetts corporation (the "Company"), on its own behalf and as depositor and sponsor of the Trust and as guarantor, propose, subject to the terms and conditions stated herein, that the Trust issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") for whom you are acting as the representatives (the "Representatives") an aggregate of 2,500,000 (the "Firm Securities") and, at the election of the Underwriters, up to an additional 375,000 (the "Optional Securities"), of 10% Series A Trust Issued Preferred Securities (liquidation amount $10 per preferred security), representing preferred undivided beneficial interests in the assets of the Trust, guaranteed on a subordinated basis by the Company as to the payment of distributions, and as to payments on liquidation or redemption, to the extent set forth in a guarantee agreement (the "Guarantee") between the Company and The Bank of New York, as trustee (the "Guarantee Trustee"). The Firm Securities and the Optional Securities that the Underwriters elect to purchase pursuant to Section 2 hereof are referred to collectively as the "Preferred Securities." The Trust is to purchase, with the proceeds of the sale of the Preferred Securities and up to 77,320 of its 10% Series A Trust Common Securities (liquidation amount $10 per Common Security) (not including 11,598 if the underwriters exercise their over-allotment option) (the "Common Securities," and, collectively with the Preferred Securities, the "Trust Securities"), $25,773,200 aggregate principal amount (or $29,639,180 aggregate principal amount assuming full exercise by the Underwriters of the over-allotment option described herein) of 10% Series A Junior Subordinated Debentures due 2029 (the "Subordinated Debentures") of the 1 Company, to be issued pursuant to an Indenture (the "Indenture") between the Company and The Bank of New York, as trustee (the "Indenture Trustee"). The Company will be the holder of 100% of the Common Securities. The Trust will be subject to the terms of an Amended and Restated Declaration of Trust (the "Trust Agreement"), among the Company, as Depositor, The Bank of New York, as Property Trustee ("Property Trustee"), The Bank of New York (Delaware), as Delaware Trustee (the "Delaware Trustee") and three individual trustees who are employees or officers of or affiliated with the Company (the "Regular Trustees"), and the holders from time to time, of undivided beneficial interests in the assets of the Trust. The Property Trustee, the Delaware Trustee and the Regular Trustees are collectively referred to herein as the "Trustees." 1. Representations and Warranties of the Trust and the Company. Each of the Trust and the Company represents and warrants to, and agrees with, the Underwriters that: a. The Trust and the Company have filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), a registration statement on Form S-3 (Registration Nos. 333-76285, 333-76285-01 and 333-76285-02), including the related preliminary prospectus relating to the offering of the Preferred Securities, the Subordinated Debentures and the Guarantee, have filed such amendments thereto as may have been required as of the date hereof, and will file such additional amendments as may hereafter be required. Copies of such registration statement and any amendments, including any post- effective amendments, and all forms of the related prospectuses contained therein and any supplements thereto, have been delivered to the Underwriters. Such registration statement, including the prospectus, prospectus supplement, Part II, all financial schedules and exhibits thereto, and all information deemed to be a part of such Registration Statement pursuant to Rule 430A under the Securities Act, at the time when it shall become effective, together with any registration statement filed by the Trust pursuant to Rule 462(b) of the Securities Act, is herein referred to as the "Registration Statement," and the prospectus and prospectus supplement included as part of the Registration Statement on file with the Commission that discloses all the information that was omitted from the prospectus on the effective date pursuant to Rule 430A of the Rules and Regulations (as defined below) and in the form filed pursuant to Rule 424(b) under the Securities Act is herein referred to as the "Final Prospectus." The prospectus and prospectus supplement included as part of the Registration Statement on the date when the Registration Statement became effective is referred to herein as the "Effective Prospectus." Any prospectus and prospectus supplement included in the Registration Statement and in any amendment thereto prior to the effective date of the Registration Statement is referred to herein as a "Preliminary Prospectus." For purposes of this Agreement, "Rules and Regulations" mean the rules and regulations promulgated by the Commission under either the Securities Act or the 2 Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. b. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus, and each Preliminary Prospectus, at the time of filing thereof, complied with the requirements of the Securities Act and the Rules and Regulations, and did not include any 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, in the light of the circumstances under which they were made, not misleading; except that the foregoing does not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Trust by the Underwriters specifically for use therein (it being understood that the only information so provided is certain information included in the second, eighth and eleventh paragraphs under the caption "Underwriting" in the Final Prospectus). When the Registration Statement becomes effective and at all times subsequent thereto up to and including the First Closing Date (as hereinafter defined), (i) the Registration Statement, the Effective Prospectus and Final Prospectus and any amendments or supplements thereto will contain all statements which are required to be stated therein in accordance with the Securities Act, the Exchange Act and the Rules and Regulations and will comply with the requirements of the Securities Act, the Exchange Act and the Rules and Regulations, and (ii) neither the Registration Statement, the Effective Prospectus nor the Final Prospectus nor any amendment or supplement thereto will include any 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, in light of the circumstances in which they are made, not misleading; except that the foregoing does not apply to statements or omissions made in reliance upon and in conformity with written information furnished to the Company or the Trust by the Underwriters specifically for use therein (it being understood that the only information so provided is certain information included in the second, eighth and eleventh paragraphs under the caption "Underwriting" in the Final Prospectus). c. The Company and each subsidiary of the Company (as used herein, the term "subsidiary" includes any corporation, joint venture or partnership in which the Company or any subsidiary of the Company has a 50% or greater ownership interest) is duly organized and validly existing and in good standing under the laws of the respective jurisdictions of their organization or incorporation, as the case may be, with full power and authority (corporate, partnership and other, as the case may be) to own their properties and conduct their businesses as now conducted and are duly qualified or authorized to do business and are in good standing in all jurisdictions wherein the nature of their business or the character of property owned or leased may require them to be qualified or authorized to 3 do business, except for jurisdictions in which the failure to so qualify would not have a material adverse effect on the Company and its subsidiaries taken as a whole. The Company and its subsidiaries hold all licenses, consents and approvals, and have satisfied all eligibility and other similar requirements imposed by federal and state regulatory bodies, administrative agencies or other governmental bodies, agencies or officials, in each case as material to the conduct of the respective businesses in which they are engaged in the Effective Prospectus and the Final Prospectus. d. The outstanding stock of each of the Company's corporate subsidiaries is duly authorized, validly issued, fully paid and nonassessable. All of the outstanding stock of each of the Company's corporate subsidiaries owned beneficially and of record by the Company is owned clear of any lien, encumbrance, pledge, equity or claim of any kind. Neither the Company nor any of its subsidiaries is a partner or joint venturer in any partnership or joint venture. e. The Trust has been duly created and is validly existing as a statutory business trust in good standing under the Business Trust Act of the State of Delaware (the "Delaware Business Trust Act") with the trust power and authority to own property and conduct its business as described in the Registration Statement, Effective Prospectus and Final Prospectus and has conducted and will conduct no business other than the transactions contemplated by this Agreement and described in the Registration Statement, Effective Prospectus and Final Prospectus; the Trust is not a party to or bound by any agreement or instrument other than this Agreement, the Trust Agreement and the agreements and instruments contemplated by the Trust Agreement and described in the Registration Statement; based on expected operations and current law, the Trust is not and will not be classified as an association taxable as a corporation for United States federal income tax purposes; and the Trust is not a party to or subject to any action, suit or proceeding of any nature; f. The Preferred Securities have been duly and validly authorized by the Trust, and, when issued and delivered to the Underwriters against payment therefor as provided herein, will be duly and validly issued and, subject to the terms of the Trust Agreement, fully paid and non-assessable undivided beneficial interests in the assets of the Trust and will conform to the description thereof contained in the Registration Statement, Effective Prospectus and Final Prospectus and will be in substantially the form previously delivered to you; the issuance of the Preferred Securities is not subject to preemptive or other similar rights; the Preferred Securities will have the rights set forth in the Trust Agreement, and the terms of the Preferred Securities are valid and binding on the Trust; the holders of the Preferred Securities (the "Securityholders") will be entitled to the same limitation of personal liability 4 extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; g. The Common Securities have been duly and validly authorized by the Trust and upon delivery by the Trust to the Company against payment therefor as described in the Registration Statement, Effective Prospectus and Final Prospectus, will be duly and validly issued undivided beneficial interests in the assets of the Trust and will conform to the description thereof contained in the Registration Statement, Effective Prospectus and Final Prospectus; the issuance of the Common Securities is not subject to preemptive or other similar rights; and at the First Closing Date (as defined in Section 2c hereof), all of the issued and outstanding Common Securities of the Trust will be directly owned by the Company free and clear of any Lien (as defined below); and the Trust Securities are the only interests authorized to be issued by the Trust; h. This Agreement has been duly authorized, executed and delivered by the Company and the Trust and constitutes a valid and binding agreement of each of the Company and the Trust, enforceable against the Company and the Trust in accordance with their terms. No consent, approval, authorization or order of any court or governmental agency or body or third party is required for the performance of this Agreement by the Company or the Trust or the consummation by the Company or the Trust of the transactions contemplated hereby or under the Guarantor Agreements (as defined herein), except such as have been obtained and such as may be required by the National Association of Securities Dealers, Inc. ("NASD") or under the Securities Act, or state securities or Blue Sky laws in connection with the purchase and distribution of the Preferred Securities, the Guarantee and the Subordinated Debentures. The Company's performance of this Agreement and the Guarantor Agreements, and by the Trust to the extent the Trust is a party to such agreements, and the consummation of the transactions contemplated hereby and thereby, and the issuance and sale of the Trust Securities by the Trust, will not result in a breach or violation of, or conflict with, any of the terms and provisions of, or constitute a material default under, the Trust Agreement, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries or the Trust is a party or to which the Company or any of its subsidiaries or the Trust or any of their respective properties is subject, the Articles of Organization or bylaws of the Company or any of its subsidiaries or any statute or any judgment, decree, order, rule or regulation of any court or governmental agency or body applicable to the Company, or any subsidiary or any of their respective properties. Neither the Company nor any subsidiary is (i) in violation of its Articles of Organization, (ii) in violation of any partnership agreement or joint venture agreement, as the case may be, (iii) in violation of its bylaws or any law, administrative rule or regulation or arbitrators' or 5 administrative or court decree, judgment or order or (iv) in violation of or default (there being no existing state of facts which with notice or lapse of time or both would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, deed of trust, mortgage, loan agreement, note, lease, agreement or other instrument or permit to which it is a party or by which it or any of its properties is or may be bound. i. The Guarantee, the Subordinated Debentures, the Trust Agreement and the Indenture (collectively, the "Guarantor Agreements") have each been duly authorized and, when executed and delivered by the Company, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except to the extent (A) that enforcement thereof may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to the rights of creditors generally, and (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity); and (B) with respect to the Indenture, the waiver contained in Section 6.06 of the Indenture may be deemed unenforceable. Each of the Preferred Guarantee, the Trust Agreement and the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended. j. The Subordinated Debentures are entitled to the benefits provided by the Indenture; each of the Guarantor Agreements will conform to the descriptions thereof in the Registration Statement and will be in substantially the form previously delivered to you. k. The documents that are incorporated by reference in the Registration Statement, Effective Prospectus and Final Prospectus or from which information is so incorporated by reference, when they become effective or were filed with the Commission, as the case may be, complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the Rules and Regulations of the Commission thereunder. l. The Company has full legal right, power and authority to authorize the offering of the Subordinated Debentures and the Guarantee, to execute, deliver and perform this Agreement and to issue, sell and deliver the Subordinated Debentures and the Guarantee. m. The Trust has full legal right, power and authority to authorize the offering of the Preferred Securities, to execute, deliver and perform this Agreement and to sell and deliver the Preferred Securities to the Underwriters as provided herein. 6 n. The capitalization of the Company as of December 31, 1998 is as set forth under the caption "Capitalization" in the Effective Prospectus and the Final Prospectus, and the Guarantee, the Subordinated Debentures and the Preferred Securities conform to the descriptions thereof in the Effective Prospectus and the Final Prospectus. All the issued shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable. None of the issued shares of capital stock of the Company have been issued in violation of any preemptive or similar rights. No holder of any security of the Company has or will have any right to require the registration of such security by virtue of any transaction contemplated by this agreement. The Preferred Securities have been duly authorized by the Trust Agreement and are duly and validly issued and, subject to the qualifications set forth herein, fully paid and non-assessable undivided beneficial interests in the assets of the Trust and will entitle the Securityholders to the benefits provided by the Trust Agreement (subject to the terms of the Trust Agreement). The Securityholders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. The Underwriters will receive good and marketable title to the Preferred Securities to be issued and delivered hereunder, free and clear of all liens, encumbrances, claims, security interests, restrictions, stockholders' agreements and voting trusts whatsoever. o. All offers and sales of the Company's securities prior to the date hereof were at all relevant times duly registered or exempt from the registration requirements of the Securities Act and were duly registered or the subject of an available exemption from the registration requirements of the applicable state securities or Blue Sky laws, or if not registered in compliance with the applicable federal and state securities laws, any actions arising from such failure to register any such securities are barred by applicable statute of limitations. p. The consolidated financial statements and the related notes of the Company, incorporated by reference in the Registration Statement, the Effective Prospectus and the Final Prospectus present fairly the financial position, results of operations and changes in financial position and cash flow of the Company and its subsidiaries, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated. The other financial statements and schedules incorporated by reference in or as schedules to the Registration Statement conform to the requirements of the Securities Act, the Exchange Act and the Rules and Regulations and present fairly the information presented therein for the periods shown. The financial and statistical data set forth in the Effective Prospectus and the Final Prospectus under the captions "Use of Proceeds," 7 and "Summary Financial Information of Litchfield" fairly presents the information set forth therein on the basis stated in the Effective Prospectus and the Final Prospectus. Ernst & Young LLP, whose reports appear in the Effective Prospectus and the Final Prospectus, are independent accountants as required by the Securities Act and the Rules and Regulations. q. Subsequent to March 31, 1999, neither the Company nor any subsidiary nor the Trust has sustained any material loss or interference with its business or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, which is not disclosed in the Effective Prospectus and the Final Prospectus; and subsequent to the respective dates as of which information is given in the Registration Statement, the Effective Prospectus and the Final Prospectus, (i) neither the Company nor any of its subsidiaries nor the Trust has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business, and (ii) there has not been any change in the capital stock, partnership interests, joint venture interests, long-term debt or obligations under capital leases of the Company and its subsidiaries, or any issuance of options, warrants or rights to purchase the capital stock of the Company, or any adverse change, or any development involving a prospective adverse change in the management, business, prospects, financial position, net worth or results of operations of the Company or its subsidiaries, taken as a whole, or the Trust except in each case as described in or contemplated by the Effective Prospectus and the Final Prospectus. r. Except as described in the Effective Prospectus and the Final Prospectus, there is not pending, or to the knowledge of the Company threatened, any action, suit, proceeding, inquiry or investigation, to which the Company, any of its subsidiaries or any of their officers or directors is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or body, wherein an unfavorable decision, ruling or finding could prevent or materially hinder the consummation of this Agreement or result in a material adverse change in the business condition (financial or other), prospects, financial position, net worth or results of operations of the Company or its subsidiaries. s. There are no contracts or other documents required by the Securities Act or by the Rules and Regulations to be described in the Registration Statement, the Effective Prospectus or the Final Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. 8 t. Except as described in the Effective Prospectus and the Final Prospectus, the Company and each of its subsidiaries have good and marketable title to all real and material personal property owned by them, free and clear of all liens, charges, encumbrances or defects except those reflected in the financial statements hereinabove described. The real and personal property and buildings referred to in the Effective Prospectus and the Final Prospectus which are leased from others by the Company are held under valid, subsisting and enforceable leases. The Company or its subsidiaries owns or leases all such properties as are necessary to its operations as now conducted. u. The Company's system of internal accounting controls taken as a whole is sufficient to meet the broad objectives of internal accounting control insofar as those objectives pertain to the prevention or detection of errors or irregularities in amounts that would be material in relation to the Company's financial statements; and, except as disclosed in the Effective Prospectus and the Final Prospectus, neither the Company nor any of its subsidiaries nor any employee or agent of the Company or any subsidiary has made any payment of funds of the Company or any subsidiary or received or retained any funds in violation of any law, rule or regulation. v. The Company and its subsidiaries have filed all federal, state and local income, excise and franchise tax returns required to be filed through the date hereof and have paid all taxes shown as due therefrom; and there is no tax deficiency that has been, nor does the Company or any subsidiary have knowledge of any tax deficiency which is likely to be, asserted against the Company or its subsidiaries, which if determined adversely could materially and adversely affect the earnings, assets, affairs, business prospects or condition (financial or other) of the Company or its subsidiaries. w. The Company and its subsidiaries operate their respective businesses in conformity in all material respects with all applicable statutes, common laws, ordinances, decrees, orders, rules and regulations of governmental bodies. The Company and its subsidiaries have all licenses, approvals or consents to operate their respective businesses in all locations in which such businesses are currently being operated, and the Company and its subsidiaries are not aware of any existing or imminent matter which may adversely impact their operations or business prospects other than as specifically disclosed in the Effective Prospectus and the Final Prospectus. The Company has not engaged in any activity, whether alone or in concert with one of its customers, creating the potential for exposure to material civil or criminal monetary liability or other material sanctions under federal or state laws regulating consumer credit transactions, debt collection practices or land sales practices. 9 x. Neither the Company nor any of its subsidiaries have failed to file with the applicable regulatory authorities any statement, report, information or form required by any applicable law, regulation or order where the failure to file the same would have a material adverse effect on the Company and its subsidiaries, taken as a whole; all such filings or submissions were in material compliance with applicable laws when filed and no deficiencies have been asserted by any regulatory commission, agency or authority with respect to such filings or submissions. Neither the Company nor any of its subsidiaries have failed to maintain in full force and effect any license or permit necessary or proper for the conduct of its business, or received any notification that any revocation or limitation thereof is threatened or pending, and, except as disclosed in the Effective Prospectus and the Final Prospectus, there is not pending any change under any law, regulation, license or permit which could materially adversely affect its business, operations, property or business prospects. Neither the Company nor any of its subsidiaries have received any notice of violation of or been threatened with a charge of violating and are not under investigation with respect to a possible violation of any provision of any law, regulation or order. y. No labor dispute exists with the Company's employees or with employees of its subsidiaries or is imminent which could materially adversely affect the Company or any of its subsidiaries. The Company is not aware of any existing or imminent labor disturbance by its employees or by any employees of its subsidiaries which could be expected to materially adversely affect the condition (financial or otherwise), results of operations, properties, affairs, management, business affairs or business prospects of the Company or any of its subsidiaries. z. Except as disclosed in the Effective Prospectus and the Final Prospectus, the Company and its subsidiaries own or possess, or can acquire on reasonable terms, the licenses, copyrights, trademarks, service marks and trade names presently employed by them in connection with the businesses now operated by them, and neither the Company nor any of its subsidiaries have received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing which, alone or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or its subsidiaries. aa. Neither the Company nor any of its subsidiaries, nor any of the directors, officers, employees or agents of the Company and its subsidiaries have taken and will not take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might be expected to constitute, stabilization or manipulation of the price of any security of the 10 Company in connection with the offering, the sale or resale of the Preferred Securities. bb. The Company and each of its subsidiaries are insured by insurers of reorganized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; and the Company has no reason to believe that it or any of its subsidiaries will not be able to renew their existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their respective businesses at a comparable cost. cc. The Company is not, and will not become as a result of the offering and sale of the Trust Securities and Subordinated Debentures, an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. dd. The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"), and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. ee. The Preferred Securities have been approved for listing on the Nasdaq National Market subject to notice of issuance. 2. Purchase, Sale and Delivery of the Preferred Securities. a. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Trust and the Company agree that the Trust shall issue and sell to the Underwriters, and the Underwriters, severally and not jointly, agree to purchase at a purchase price of $10 per Preferred Security, the number of Firm Securities set forth opposite the Underwriters' names in Schedule I hereto. 11 b. The Trust and the Company also grant to the Underwriters an option to purchase, solely for the purpose of covering over-allotments in the sale of Firm Securities, all or any portion of the Optional Securities at the purchase price per Preferred Security set forth above. The option granted hereby may be exercised as to all or any part of the Optional Securities at any time within 30 days after the date the Registration Statement becomes effective. The Underwriters shall not be under any obligation to purchase any Optional Securities prior to the exercise of such option. The option granted hereby may be exercised by the Underwriters giving written notice to the Company setting forth the number of Optional Securities to be purchased and the date and time for delivery of and payment for such Optional Securities and stating that the Optional Securities referred to therein are to be used for the purpose of covering over-allotments in connection with the distribution and sale of the Firm Securities. If such notice is given prior to the First Closing Date (as defined herein), the date set forth therein for such delivery and payment shall not be earlier than two full business days thereafter or the First Closing Date, whichever occurs later. If such notice is given on or after the First Closing Date, the date set forth therein for such delivery and payment shall not be earlier than three full business days thereafter. In either event, the date so set forth shall not be more than 15 full business days after the date of such notice. The date and time set forth in such notice is herein called the "Option Closing Date." Upon exercise of the option, the Company shall become obligated to sell to the Underwriters, and, subject to the terms and conditions herein set forth, the Underwriters shall become obligated to purchase, for the account of each Underwriter, from the Company, severally and not jointly, the number of Optional Securities specified in such notice. Optional Securities shall be purchased for the account of the Underwriters in proportion to the number of Firm Securities set forth opposite the Underwriter's name in Schedule I hereto, except that the purchase obligations of the Underwriters shall be adjusted so that the Underwriters shall not be obligated to purchase fractional Optional Securities. c. A global certificate or certificates in definitive form for the Firm Securities which the Underwriters have agreed to purchase hereunder shall be delivered by or on behalf of the Trust to the Underwriters, through the facilities of DTC, for the accounts of the Underwriters against payment by the Underwriters or on their behalf of the purchase price therefor by same day funds to an account designated by the Trust, such time of delivery against payment being herein referred to as the "First Closing Date." The First Closing Date and the Option Closing Date are herein individually referred to as the "Closing Date" and collectively referred to as the "Closing Dates." A global certificate or certificates in definitive form for the Optional Securities which the Underwriters shall have agreed to purchase hereunder shall be similarly delivered by or on behalf of the Trust on the Option Closing Date against payment by the Underwriters or on its 12 behalf of the purchase price in the manner set forth above. The global certificate or certificates in definitive form for the Preferred Securities will be in good delivery form and in such denominations and registered in such names as Tucker Anthony Cleary Gull may request not less than 48 hours prior to the First Closing Date or the Option Closing Date, as the case may be. Such certificate or certificates will be made available for checking at the office of DTC or its designated custodian, at least 24 hours prior to the First Closing Date or the Option Closing Date, as the case may be. The Preferred Securities to be purchased by the Underwriters hereunder will be represented by one or more global Preferred Securities in book-entry form which will be deposited by or on behalf of the Trust with DTC or its designated custodian. d. As compensation to the Underwriters for their commitments hereunder, and in view of the fact that the proceeds of the sale of the Preferred Securities will be used by the Trust to purchase the Subordinated Debentures of the Company at each Closing Date, the Company will pay to the Underwriters an amount equal to $.40 per Preferred Security for the Preferred Securities to be delivered by the Company at such Closing Date. 3. Offering by the Underwriters. After the Registration Statement becomes effective, the Underwriters propose to offer for sale to the public the Firm Securities and any Optional Securities which may be sold at the price and upon the terms set forth in the Final Prospectus. 4. Covenants of the Company. Each of the Company and the Trust, jointly and severally, covenants and agrees with the Underwriters: a. To comply with the provisions of and make all requisite filings with the Commission pursuant to Rules 424(b), 430A and 462(b) of the Rules and Regulations and to notify the Underwriters promptly (in writing, if requested) of all such filings; to notify the Underwriters promptly of any request by the Commission for any amendment of or supplement to the Registration Statement, the Effective Prospectus or the Final Prospectus or for additional information; to prepare and file with the Commission, promptly upon the request of the Underwriters, any amendments of or supplements to the Registration Statement, the Effective Prospectus or the Final Prospectus which, in the Underwriters's reasonable opinion, may be necessary or advisable in connection with the distribution of the Preferred Securities; and the Company and Trust shall not file any amendment of or supplement to the Registration Statement, the Effective Prospectus or the Final Prospectus which is not approved by the Underwriters after reasonable notice thereof; to advise the Underwriters promptly of the issuance by the Commission or any jurisdiction or other regulatory body of any stop order or other order suspending the effectiveness of the Registration Statement, suspending or preventing the use of any Preliminary Prospectus, the Effective Prospectus or the Final Prospectus or 13 suspending the qualification of the Preferred Securities for offering or sale in any jurisdiction, or of the institution of any proceedings for any such purpose; and to use its best efforts to prevent the issuance of any stop order or other such order and, should a stop order or other such order be issued, to obtain as soon as possible the lifting thereof. b. To take or cause to be taken all necessary action and furnish to whomever the Underwriters direct such information as may be reasonably required in qualifying the Preferred Securities, the Subordinated Debentures and the Guarantee for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Underwriters may designate and will continue such qualifications in effect for as long as may be reasonably necessary to complete the distribution. The Company and the Trust shall not be required to qualify as a foreign corporation or trust or (except for the sole purpose of complying with Blue Sky filing requirements) to file a general consent to service of process in any jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation or trust. c. Within the time during which a Final Prospectus relating to the Preferred Securities, the Subordinated Debentures and the Guarantee is required to be delivered under the Securities Act, to comply with all requirements imposed upon it by the Securities Act, as now and hereafter amended, and by the Rules and Regulations, as from time to time in force, so far as is necessary to permit the continuance of sales of or dealings in the Preferred Securities, the Subordinated Debentures and the Guarantee as contemplated by the provisions hereof and the Final Prospectus. If during such period any event occurs as a result of which the Final Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such period it is necessary to amend the Registration Statement or supplement the Final Prospectus to comply with the Securities Act, the Company and Trust shall promptly notify the Underwriters and shall amend the Registration Statement or supplement the Final Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance. d. To furnish without charge to the Underwriters and make available to the Underwriters copies of the Registration Statement (four of which shall be signed and shall be accompanied by all exhibits, including any which are incorporated by reference, which have not previously been furnished), each Preliminary Prospectus, the Effective Prospectus and the Final Prospectus, and all amendments and supplements thereto, including any prospectus or supplement prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Underwriters 14 may reasonably request. The Company and Trust will deliver to the Underwriters a copy of each document incorporated by reference in the Effective Prospectus and the Final Prospectus which has not previously been furnished. e. To (i) deliver to the Underwriters at such office or offices as the Underwriters may designate as many copies of the Preliminary Prospectus and Final Prospectus as the Underwriters may reasonably request, and (ii) for a period of not more than nine months after the Registration Statement becomes effective, send to the Underwriters as many additional copies of the Final Prospectus and any supplement thereto as the Underwriters may reasonably request. f. To make generally available to its security holders, in the manner contemplated by Rule 158(b) under the Securities Act as promptly as practicable and in any event no later than 90 days after the end of its fiscal quarter in which the first anniversary of the effective date of the Registration Statement occurs, an earnings statement satisfying the provisions of Section 11(a) of the Securities Act covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement. g. At any time when the Company or the Trust is not subject to Section 13 or 15(d) of the Exchange Act, for the benefit of holders from time to time of Preferred Securities or Subordinated Debentures, to furnish at the Company's or the Trust's expense, as appropriate, upon request, to holders of Preferred Securities or Subordinated Debentures and prospective purchasers of such securities information (the "Additional Issuer Information") satisfying the requirements of subsection (d)(4)(i) of Rule 144A under the Securities Act. h. To furnish to the holders of the Preferred Securities as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Registration Statement (unless such quarter is the fourth fiscal quarter, in which case beginning with the second fiscal quarter ending after the date of the Registration Statement)), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail. i. During a period of five years from the date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders of the Company, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements 15 furnished to or filed with the Commission or any securities exchange on which the Preferred Securities or any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission). j. In the case of the Company, to issue the Guarantee concurrently with the issue and sale of the Preferred Securities as contemplated herein. k. To apply the net proceeds from the sale of the Preferred Securities, in the case of the Trust, and the Subordinated Debentures, in the case of the Company, as set forth under the caption "Use of Proceeds" in the Final Prospectus. l. From time to time, after the effective date of the Registration Statement to file with the Commission such reports as are required by the Securities Act, the Exchange Act and the Rules and Regulations, and shall also file with state securities commissions in states where the Preferred Securities have been sold by the Underwriters (as the Underwriters shall have advised the Company in writing) such reports as are required to be filed by the securities acts and the regulations of those states. m. During the period beginning from the date hereof and continuing for a period of 180 days after the date of the Effective Prospectus, not to offer, issue, sell, contract to sell, grant any option (other than the grant of options by the Company pursuant to plans in effect on the date hereof) for the sale of, or otherwise dispose of ("Transfer"), directly or indirectly, (a) any trust certificates or other securities of the Trust (other than the Preferred Securities and the Common Securities), (b) any preferred stock or any other security of the Company or its affiliates that is substantially similar to the Preferred Securities, or (c) any other securities which are convertible into, or exercisable or exchangeable for, any of (a) and (b) above, without the prior consent of Tucker Anthony for a period of 180 days after the date of the Effective Prospectus. n. To not take, directly or indirectly, any action designed to cause or result in, or which might constitute or be expected to constitute, stabilization or manipulation of the price of any security of the Company in connection with the offering, the sale or resale of the Preferred Securities, the Guarantee or the Subordinated Debentures. 5. Expenses. The Company agrees with the Underwriters that whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, the Company will pay all fees and expenses incident to the performance 16 of the obligations of the Company and the Trust hereunder, including, but not limited to, (i) the fees, disbursements and expenses of the Trust's and the Company's counsel and accountants in connection with the issue of the Preferred Securities and all other expenses in connection with the preparation, printing and filing of the Registration Statement and any amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters; (ii) the cost of printing or producing this Agreement, the Indenture, the Trust Agreement, the Guarantee, any Blue Sky and legal investment memorandum, any closing documents (including any compilations thereto) and any other documents in connection with the offering, purchase, sale and delivery of the Preferred Securities; (iii) the fees, disbursements and expenses of Hutchins, Wheeler & Dittmar, special tax counsel to the Trust; (iv) the cost of preparing the Preferred Securities and the Subordinated Debentures; (v) the fees and expenses of the Trustees and any other agent thereof and the fees and disbursements of their counsel, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky surveys; and (vi) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Preferred Securities by them, and any advertising expenses connected with any offers they may make. The Company shall not in any event be liable to the Underwriters for the loss of anticipated profits from the transactions covered by this Agreement. 6. Conditions of the Underwriters' Obligations. The obligations of the Underwriters to purchase and pay for the Firm Securities and Optional Securities shall be subject, in their discretion, to the accuracy of the representations and warranties of the Company and the Trust herein as of the date hereof and as of the Closing Date as if made on and as of the Closing Date, to the accuracy of the statements of the Company's officers made pursuant to the provisions hereof, to the performance by the Company and the Trust of all of their covenants and agreements hereunder and to the following additional conditions: a. All filings required by Rules 424, 430A and 462 of the Rules and Regulations shall have been made; no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened or, to the knowledge of the Company, the Trust or the Underwriters, shall be contemplated by the Commission; any request of the Commission for additional information (to be included in the Registration Statement or the Final Prospectus or otherwise) shall have been complied with to the Underwriters' satisfaction; and the NASD, upon review of the terms of the public offering of the Preferred Securities, shall not have objected to such offering, such terms or the Underwriters' participation in the same. b. No Underwriter shall have advised the Company and the Trust that the Registration Statement, Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or any amendment or any supplement thereto, contains an untrue statement of fact which, in the Representatives' reasonable judgment, is material, or omits to state a fact which, in the Representatives' 17 judgment, is material and is required to be stated therein or necessary to make the statements therein not misleading, and the Company and the Trust shall not have cured such untrue statement of fact or stated a statement of fact required to be stated therein. c. The Underwriters shall have received an opinion, dated the Closing Date, from Hutchins, Wheeler & Dittmar, A Professional Corporation ("Hutchins, Wheeler & Dittmar"), counsel for the Company, substantially to the effect that: (1) The Company is validly existing in good standing as a corporation under the laws of the Commonwealth of Massachusetts, with corporate power and authority to own its properties and conduct its business as now conducted, and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the failure to so qualify would have a material adverse effect upon the Company and its subsidiaries taken as a whole. To the best knowledge of such counsel, the Company holds all licenses, certificates, permits, franchises and authorizations from governmental authorities which are material to the conduct of its business in all locations in which such business is currently being conducted. (2) Each of the Company's subsidiaries is validly existing and in good standing as a corporation under the laws of the state of its incorporation or organization, as the case may be, with power and authority to own its properties and conduct its business as now conducted, and is duly qualified or authorized to do business and is in good standing in all other jurisdictions where the failure to so qualify would have a material adverse effect upon the business of the Company and its subsidiaries taken as a whole. The outstanding stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable. To the best knowledge of such counsel, all of the outstanding stock of each of the corporate subsidiaries owned beneficially and of record by the Company is owned free and clear of all liens, encumbrances, equities and claims. To the best knowledge of such counsel, no options or warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in any of the Company's subsidiaries are outstanding. To the best knowledge of such counsel, each of the Company's subsidiaries holds all licenses, certificates, permits, franchises and authorizations from governmental authorities which are material to the conduct of its business in all locations in which such business is currently being conducted. 18 (3) The Company has full legal right, power and authority to enter into this Agreement and the Guarantor Agreements, and this Agreement and the Guarantor Agreements, upon due execution, authentication and delivery, have been duly authorized, executed, and delivered by the Company. This Agreement and the Guarantor Agreements constitute valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms, except to the extent that (A) enforcement thereof may be limited by (1) bankruptcy, insolvency, fraudulent transfer, rehabilitation, conservation, reorganization, moratorium or other similar laws now or hereafter in effect relating to the rights of creditors generally, and (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity); (B) with respect to the Indenture, the waiver contained in Section 6.06 of the Indenture may be deemed unenforceable, and (C) with respect to this Agreement, the enforceability of indemnification and contribution provisions may be limited by federal and state securities laws and the policies underlying such laws. The Subordinated Debentures are entitled to the benefits provided by the Indenture. (4) No consent, approval, authorization or order of any court or governmental agency or body or third party is required for the performance of this Agreement or the Guarantor Agreements and or the consummation by the Company of the transactions contemplated hereby and thereby, except such as have been obtained under the Securities Act and such as may be required by the NASD and under state securities or Blue Sky laws in connection with the purchase and distribution of the Preferred Securities, the Guarantee and the Subordinated Debentures. The performance of this Agreement and the Guarantor Agreements and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default by the Company under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument known to such counsel to which the Company is a party or to which the Company or its properties is subject, the Articles of Organization or bylaws of the Company, any statute, or any judgment, decree, order, rule or regulation known to such counsel of any court or governmental agency or body applicable to the Company or any of its subsidiaries or their properties. (5) Except as described in the Final Prospectus, there is not pending, or to the best knowledge of such counsel threatened, any action, suit, proceeding, inquiry or investigation, to which the Company or any of its subsidiaries is a party, or to which the property of the Company or any of its subsidiaries is subject, before or brought by 19 any court or governmental agency or body, which, if determined adversely to the Company or any of its subsidiaries, could result in any material adverse change in the business, financial position, net worth or results of operations, or could materially adversely affect the properties or assets, of the Company or any of its subsidiaries. (6) To the best knowledge of such counsel, no default exists, and no event has occurred which with notice or after the lapse of time to cure or both, would constitute a default, in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or to which they or their properties are subject, or of the Articles of Organization or bylaws of the Company or any of its subsidiaries. (7) To the best knowledge of such counsel after reasonable inquiry, neither the Company nor any of its subsidiaries is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of its subsidiaries and material to the Company and its subsidiaries taken as a whole or any decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries. (8) The Registration Statement and all post effective amendments thereto have become effective under the Securities Act, and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are threatened, pending or contemplated by the Commission. All filings required by Rule 424 and Rule 430A of the Rules and Regulations have been made; the Registration Statement, the Effective Prospectus and Final Prospectus, and any amendments or supplements thereto (except for the financial statements and schedules included therein as to which such counsel need express no opinion), as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations; the descriptions in the Registration Statement, the Effective Prospectus and the Final Prospectus of statutes, regulations, legal and governmental proceedings, and contracts and other documents are accurate in all material respects and present fairly the information required to be stated; and such counsel does not know of any pending or threatened legal or governmental proceedings, statutes or regulations required to be described in the Final Prospectus which are not described as required nor of any contracts or documents of a character required to be described in the 20 Registration Statement or the Final Prospectus or to be filed as exhibits to the Registration Statement which are not described and filed as required. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, the Effective Prospectus and the Final Prospectus or any amendment or supplement thereto contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). To the extent that matters discussed above are addressed in the legal opinions of the same date of Orrick Herrington & Sutcliffe, Thomas P. McHugh, Esq. and John J. Malloy, Esq. (copies of which are concurrently delivered to the Underwriters), the opinion of Hutchins, Wheeler & Dittmar may be given in reliance on, and subject to any limitations in, such opinions. d. Richards, Layton & Finger, P.A., special Delaware counsel for the Trust, shall have furnished to you their written opinion, dated the Closing Date, in form and substance satisfactory to you, to the effect that: i. The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act, and all filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a business trust have been made; ii. Under the Delaware Business Trust Act and the Trust Agreement, the Trust has the trust power and authority to own property and conduct its business, all as described in the Effective Prospectus. iii. Each of this Agreement and the Trust Agreement constitutes a valid and legally binding obligation of the Company and the Trustees, and is enforceable against the Company and the Trustees, in accordance with its terms, subject, as to enforcement, to the effect upon the declaration of (i) bankruptcy, insolvency, reorganization, moratorium, receivership, liquidation, fraudulent transfer and conveyance, and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. 21 iv. Under the Delaware Business Trust Act and the Trust Agreement, the Trust has the trust power and authority to (a) execute and deliver, and to perform its obligations under, the Underwriting Agreement and (b) issue and perform its obligations under the Trust Securities. v. Under the Delaware Business Trust Act and the Trust Agreement, the execution and delivery by the Trust of the Underwriting Agreement, and the performance by the Trust of its obligations thereunder, have been duly authorized by all necessary trust action on the part of the Trust. vi. Under the Trust Agreement and the Delaware Business Trust Act, the Underwriting Agreement may be duly executed on behalf of the Trust by the Sponsor. vii. The Preferred Securities have been duly authorized by the Trust Agreement and are duly and validly issued and, subject to the qualifications set forth herein, fully paid and non-assessable undivided beneficial interests in the assets of the Trust and will entitle the Securityholders to the benefits provided by the Trust Agreement (subject to the terms of the Trust Agreement). The Securityholders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. viii. The Common Securities have been duly authorized by the Trust Agreement and are validly issued and fully paid undivided beneficial interests in the assets of the Trust. ix. Under the Delaware Business Trust Act and the Trust Agreement, the issuance of the Trust Securities is not subject to preemptive rights. x. The issuance and sale by the Trust of the Trust Securities, the execution, delivery and performance by the Trust of the Underwriting Agreement, and the consummation by the Trust of the transactions contemplated by the Underwriting Agreement and the Trust Agreement and the compliance by the Trust with its obligations thereunder do not violate (a) any provisions of the Certificate of Trust of the Trust, dated as of April 12, 1999, or the Trust Agreement, or (b) any applicable Delaware law or administrative regulation. xi. With respect to statements made in the Final Prospectus under the caption "The Trusts" and in the prospectus supplement under "Litchfield Capital Trust I," insofar as such statements are statements of Delaware law, such statements are fairly presented. xii. No authorization, approval, consent or order of any Delaware court or Delaware governmental authority or Delaware agency is required to be obtained by the Trust solely in connection with the sale of the Trust Securities. 22 xiii. The Securityholders (other than those Securityholders who reside or are domiciled in the State of Delaware) will have no liability for income taxes imposed by the State of Delaware solely as a result of their participation in the Trust, and the Trust will not be liable for any income tax imposed by the State of Delaware. e. Hutchins, Wheeler & Dittmar, counsel to the Trust and the Company in relation to the classification of the Trust for United States federal income tax purposes, shall have furnished their written opinion to the effect that the statements made in the Effective Prospectus or Final Prospectus under the caption "Certain Federal Income Tax Consequences" are a fair and accurate summary of certain of the United States federal income tax issues relating to the purchase, ownership and the disposition of the Preferred Securities. f. The Underwriters shall have received an opinion or opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel for the Underwriters, with respect to this Agreement, the Subordinated Debentures, the Indenture, the Trust Agreement and the Registration Statement, Effective Prospectus and the Final Prospectus, and such other related matters as the Underwriters may require, and the Company and Trust shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. Such counsel may rely on Hutchins, Wheeler & Dittmar, Thomas P. McHugh, Esq., and John J. Malloy, Esq. as to matters of Massachusetts law and on Richards, Layton & Finger, P.A. as to matters of Delaware law. g. The Underwriters shall have received from Ernst & Young LLP, a letter dated the date hereof and, at the Closing Date, a second letter dated the Closing Date, in form and substance satisfactory to the Underwriters, stating that they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the Securities Act and the applicable Rules and Regulations, and to the effect that: (1) In their opinion, the financial statements and schedules examined by them and included in or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the published Rules and Regulations and are presented in accordance with generally accepted accounting principles; and they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the consolidated interim financial statements, selected financial data, and/or condensed financial statements derived from audited financial statements of the Company; (2) On the basis of a reading of the latest available unaudited interim consolidated financial statements of the Company and its subsidiaries, a reading of the minute books of the Company and its 23 subsidiaries, inquiries of management of the Company responsible for financial and accounting matters and other specified procedures, all of which have been agreed to by the Underwriters, nothing came to their attention that caused them to believe that: (a) the unaudited financial statements included or incorporated by reference in the Registration Statement do not comply as to form in all material respects with the accounting requirements of the federal securities laws and the related published rules and regulations thereunder or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with the basis for the audited financial statements contained in the Registration Statement; (b) any other unaudited financial statement data included or incorporated by reference in the Final Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which data was derived and any such unaudited data were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited financial statements included or incorporated by reference in the Prospectus; (c) at a specified date not more than five days prior to the date of delivery of such respective letter, there was any change in the consolidated capital stock, decline in stockholders' equity or increase in long-term debt of the Company and its subsi diaries, or other items specified by the Underwriters, in each case as compared with amounts shown in the latest balance sheets included or incorporated by reference in the Final Prospectus, except in each case for changes, decreases or increases which the Final Prospectus discloses have occurred or may occur or which are described in such letters; and (d) for the period from the closing date of the latest consolidated statements of income included or incorporated by reference in the Effective Prospectus and the Final Prospectus to a specified date not more than five days prior to the date of delivery of such respective letter, there were any decreases in total revenues or net income of the Company, or other items specified by the Underwriters, or any increases in any items specified by the Underwriters, in each case as compared with the corresponding period of the preceding year, except in each case for decreases which the Final 24 Prospectus discloses have occurred or may occur or which are described in such letter. They have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information specified by the Underwriters which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Effective Prospectus and the Final Prospectus and have compared and agreed such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries or to analyses and schedules prepared by the Company and its subsidiaries from its detailed accounting records. In the event that the letters to be delivered referred to above set forth any such changes, decreases or increases, it shall be a further condition to the obligations of the Underwriters that the Underwriters shall have determined, after discussions with officers of the Company responsible for financial and accounting matters and with Ernst & Young LLP, that such changes, decreases or increases as are set forth in such letters do not reflect a material adverse change in the stockholders' equity or long-term debt of the Company as compared with the amounts shown in the latest consolidated balance sheets of the Company included in the Final Prospectus, or a material adverse change in total revenues or net income, of the Company, in each case as compared with the corresponding period of the prior year. h. The Trust Agreement, the Guarantee and the Indenture shall have been executed and delivered, in each case in a form reasonably satisfactory to you. i. Subsequent to the respective dates as of which information is given in the Registration Statement, and except as stated therein, neither the Company nor the Trust have sustained any material loss or interference with their business or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any court or governmental action, order or decree, or become a party to or the subject of any litigation which is material to the Company or the Trust, nor shall there have been any material adverse change, or any development involving a prospective material adverse change, in the business, properties, key personnel, capitalization, net worth, results of operations or condition (financial or other) of the Company or the Trust, which loss, interference, litigation or change, in the judgment of the Underwriters shall render it unadvisable to commence or continue the offering or the delivery of the Preferred Securities on the terms and in the manner contemplated in this Agreement and in the Registration Statement. 25 j. All such opinions, certificates, letters and documents delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory to Tucker Anthony and their counsel. The Company shall furnish to the Underwriters such conformed copies of such opinions, certificates, letters and documents in such quantities as the Underwriters shall reasonably request. k. There shall have been furnished to the Underwriters a certificate, dated the Closing Date and addressed to the Underwriters, signed by the Chief Executive Officer and by the Chief Financial Officer of the Company and the trustees of the Trust to the effect that: (1) the representations and warranties of the Company and Trust in Section 1 of this Agreement are true and correct, as if made at and as of the Closing Date, and each of the Company and Trust have complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (2) no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been initiated or are pending, or to their knowledge, threatened under the Securities Act; (3) all filings required by Rules 424, 430A and 462 of the Rules and Regulations have been made; (4) they have carefully examined the Registration Statement, the Effective Prospectus and the Final Prospectus, and any amendments or supplements thereto, and such documents do not include any 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; and (5) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amendment or supplement to the Registration Statement, the Effective Prospectus or the Final Prospectus which has not been so set forth. The obligation of the Underwriters to purchase and pay for the Optional Securities shall be subject, in their discretion, to each of the foregoing conditions to purchase the Firm Securities, except that all references to the "Closing Date" shall be deemed to refer to the Option Closing Date, if it shall be a date other than the First Closing Date. 26 7. Condition of the Company's and the Trust's Obligations. The obligations hereunder of the Company and the Trust are subject to the condition set forth in Section 6(a) hereof. 8. Indemnification and Contribution. a. The Company and the Trust, jointly and severally, agree to indemnify and hold harmless the Underwriters, and each person, if any, who controls the Underwriters within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Underwriters or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based in whole or in part upon (i) any inaccuracy in the representations and warranties of the Company or the Trust contained herein, (ii) any failure of the Company or the Trust to perform its or their obligations hereunder or under law or (iii) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or any amendment or supplement thereto, or in any Blue Sky application or other written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Preferred Securities under the securities laws thereof (a "Blue Sky Application"), or arise out of or are based upon the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus or any amendment or supplement thereto or any Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Underwriters and each such controlling person for any legal or other expenses reasonably incurred by the Underwriters or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that neither the Company nor the Trust will be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Preliminary Prospectus, the Effective Prospectus or Final Prospectus or such amendment or such supplement or any Blue Sky Application in reliance upon and in conformity with written information furnished to the Company or the Trust by the Underwriters specifically for use therein (it being understood that the only information so provided is the information included in the second, eighth and eleventh paragraphs under the caption "Underwriting" in any Preliminary Prospectus and the Final Prospectus and the Effective Prospectus). b. The Underwriters will indemnify and hold harmless the Trust and the Company, each of its directors, each of its officers who signed the Registration 27 Statement and each person, if any, who controls the Company within the meaning of the Securities Act, and each Regular Trustee or any other person who controls the Trust within the meaning of the Securities Act, against any losses, claims, damages or liabilities to which the Company or Trust or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus, or any amendment or supplement thereto, or any Blue Sky Application, or arise out of or are based upon the omission or the alleged omission to state in the Registration Statement, any Preliminary Prospectus, the Effective Prospectus or Final Prospectus or any amendment or supplement thereto or any Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company and the Trust by the Underwriters specifically for use therein (it being understood that the only information so provided is the information included in the second, eighth and eleventh paragraphs under the caption "Underwriting" in any Preliminary Prospectus and in the Effective Prospectus and the Final Prospectus); c. Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, including governmental proceedings, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8 notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation except that the indemnified party shall have the right to employ separate counsel if, in its reasonable judgment, it is advisable for the indemnified party to be represented by separate counsel, and in that event the fees and expenses of separate counsel shall be paid by the 28 indemnifying party. Neither the Company nor the Trust will, without prior written consent of the Underwriters, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding (or related cause of action or portion thereof) in respect of which indemnification may be sought hereunder (whether or not the Underwriters are a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Underwriters from all liability arising out of such claim, action, suit or proceeding (or related cause of action or portion thereof). d. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in the preceding part of this Section 8 is for any reason held to be unavailable to the Underwriters, the Company, or the Trust as insufficient to hold harmless an indemnified party, then the Company and the Trust shall contribute to the damages paid by the Underwriters, and the Underwriters shall contribute to the damages paid by the Company and the Trust 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. In determining the amount of contribution to which the respective parties are entitled, there shall be considered the relative benefits received by each party from the offering of the Preferred Securities (taking into account the portion of the proceeds of the offering realized by each), the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and any other equitable considerations appropriate under the circumstances. The Company, the Trust and the Underwriters agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation. The Underwriters or any person controlling the Underwriters shall not be obligated to make contribution hereunder which in the aggregate exceeds the amounts paid to the Underwriters as compensation for their commitments to purchase Preferred Securities under this Agreement, less the aggregate amount of any damages which the Underwriters and their controlling persons have otherwise been required to pay in respect of the same or any similar claim. For purposes of this Section, each person, if any, who controls the Underwriters within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Underwriters, 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, and each Regular Trustee and each person who controls the Trust within the meaning of Section 15 of the Securities Act, shall have the same right to contribution as the Trust. 29 e. The obligations of the Company and the Trust under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Underwriters within the meaning of the Securities Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Securities Act, and to each person who controls the Trust within the meaning of the Securities Act. 9. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Trust, the Company, its officers and the Underwriters set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, the Underwriters or any controlling person, the Trust or any Regular Trustee or controlling person of the Trust (ii) any termination of this Agreement and (iii) delivery of and payment for the Preferred Securities. 10. Effective Date. This Agreement, after due execution, shall become effective at whichever of the following times shall first occur: (i) execution and delivery of this Agreement by the parties hereto or (ii) at such time after the Registration Statement has become effective as the Underwriters shall release the Firm Securities for sale to the public; provided, however, that the provisions of Sections 5, 8, 9 and 10 hereof shall at all times be effective. For purposes of this Section 10, the Firm Securities shall be deemed to have been so released upon the release by the Underwriters for publication, at any time after the Registration Statement has become effective, of any newspaper advertisement relating to the Firm Securities or upon the release by the Underwriters of telegrams offering the Firm Securities for sale to securities dealers, whichever may occur first. 11. Termination. a. The Company's obligations under this Agreement may be terminated by the Company by notice to the Underwriters (i) at any time before it becomes effective in accordance with Section 10 hereof, or (ii) in the event that the condition set forth in Section 7 shall not have been satisfied at or prior to the First Closing Date. b. This Agreement may be terminated by the Underwriters by notice to the Company and the Trust (i) at any time before it becomes effective in accordance with Section 10 hereof; (ii) in the event that at or prior to the First Closing Date the Company or the Trust shall have failed, refused or been unable to perform any agreement on the part of the Company or the Trust to be performed hereunder or any other condition to the obligations of the Underwriters hereunder is not fulfilled; (iii) if at or prior to the Closing Date trading in securities on the New York Stock Exchange, the American 30 Stock Exchange or the over-the-counter market shall have been suspended or materially limited or minimum or maximum prices shall have been established on either of such Exchanges or such market, or a banking moratorium shall have been declared by Federal or state authorities; (iv) if at or prior to the Closing Date trading in securities of the Company shall have been suspended; or (v) if there shall have been such a material change in general economic, political or financial conditions or if the effect of international conditions on the financial markets in the United States shall be such as, in the Underwriters' reasonable judgment, makes it inadvisable to commence or continue the offering of the Preferred Securities at the offering price to the public set forth on the cover page of the Prospectus or to proceed with the delivery of the Securities. c. Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party other than as provided in Sections 5 and 8 hereof. 12. Notices. All communications hereunder shall be in writing and, if sent to the Underwriters, shall be mailed or delivered or telegraphed and confirmed in writing to Tucker Anthony Cleary Gull, One Beacon Street, Boston, Massachusetts 02108, Attn: Gregory W. Benning, or if sent to the Company or the Trust shall be mailed, delivered or telegraphed and confirmed in writing to the Company or the Trust at 430 Main Street, Williamstown, Massachusetts 01267, Attn: Richard A. Stratton. 13. Miscellaneous. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and the Trust and their respective successors and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Company, the Trust and the Underwriters and for the benefit of no other person except that (i) the representations and warranties of the Company and the Trust contained in this Agreement shall also be for the benefit of any person or persons who control the Underwriters within the meaning of Section 15 of the Securities Act, and (ii) the indemnities by the Underwriters shall also be for the benefit of the directors of the Company, officers of the Company who have signed the Registration Statement and any person or persons who control the Company within the meaning of Section 15 of the Securities Act and the Regular Trustees and any person or persons who control the Trust within the meaning of Section 15 of the Securities Act. No purchaser of Preferred Securities from the Underwriters will be deemed a successor because of such purchase. The validity and interpretation of this Agreement shall be governed by the laws of the State of Massachusetts. 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. 14. No Liability of Property Trustee, Delaware Trustee or Guarantee Trustee. 31 It is understood and agreed by the parties hereto that (a) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as representations, warranties, covenants, undertakings and agreements of any Trustee of the Trust, including, without limitation, The Bank of New York, as Guarantee Trustee or Property Trustee, or The Bank of New York (Delaware), as Delaware Trustee, in their individual capacity, but is made and intended for the purpose of binding only the Trust, and (b) under no circumstances shall any Trustee, including The Bank of New York as Guarantee Trustee or Property Trustee or The Bank of New York (Delaware) as Delaware Trustee be personally liable for any breach or failure of any obligation, representation, warranty, or covenant made or undertaken by the Trust under this Agreement except, if such breach or failure is due to any gross negligence or wilful misconduct of the Trustee. If the foregoing is in accordance with your understanding of our agreement, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company, the Trust and the Underwriters. Very truly yours, LITCHFIELD FINANCIAL CORPORATION By: Name: Title: LITCHFIELD CAPITAL TRUST I By: Litchfield Financial Corporation, as sponsor By: Name: Title: 32 Confirmed and accepted as of the date first above written. TUCKER ANTHONY CLEARY GULL FERRIS, BAKER WATTS INCORPORATED For themselves and as Representatives of the several Underwriters By: Tucker Anthony Cleary Gull By:_______________________________ Name: Title: By: Ferris, Baker Watts Incorporated By:_______________________________ Name: Title: 33 SCHEDULE I UNDERWRITERS Number of Firm Securities Underwriters to Be Purchased - ---------------------------------------------------------------------------- --------------------------- Tucker Anthony Cleary Gull.................................................. 1,666,667 Ferris, Baker Watts Incorporated............................................ 833,333 Total Firm Securities to be Purchased.................. 2,500,000 ===========================
34 EX-2 3 Exhibit 2.1 ___________________________________________________________ AGREEMENT AND PLAN OF MERGER BY AND AMONG LITCHFIELD FINANCIAL CORPORATION STAMFORD ASSET RECOVERY CORPORATION IRONWOOD ACCEPTANCE COMPANY, LLC AND THE MEMBERS OF IRONWOOD ACCEPTANCE COMPANY, LLC DATED JUNE 16, 1999 ___________________________________________________________ AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of June 16, 1999 by and among Litchfield Financial Corporation (the "Parent"), a corporation organized under the laws of the Commonwealth of Massachusetts, Stamford Asset Recovery Corporation ("Acquisition"), a corporation organized under the laws of the State of Delaware and a wholly-owned subsidiary of the Parent, Ironwood Acceptance Company, LLC, a limited liability company organized under the laws of the State of Arizona (the "Company"), and the members of the Company, (the "Members"). WHEREAS, the Boards of Directors of the Parent and Acquisition and the Board of Managers of the Company have approved the merger of the Company with and into the Acquisition (the "Merger"), pursuant to which Acquisition will be the surviving corporation and the members of the Company immediately prior to such merger (the "Members") will be entitled to receive the consideration provided for in this Agreement, all upon the terms and subject to the conditions set forth herein; WHEREAS, as a condition and inducement to the Parent's willingness to enter into this Agreement, all of the Members have, concurrently with the execution of this Agreement, executed and delivered to the Parent written consents approving this Agreement, the Merger and the other transactions contemplated hereby. NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements set forth herein, and intending to be legally bound hereby, the parties hereby agree as follows: ARTICLE I THE MERGER 1.1 The Merger. (a) At the Effective Time (as defined in Section 1.2), and subject to and upon the terms and conditions of this Agreement, the Arizona Limited Liability Company Act (the "ALLCA") and the Delaware General Corporation Law (the "DGCL"), the Company shall be merged with and into Acquisition, the separate existence of the Company shall cease, and Acquisition shall continue as the surviving corporation. Acquisition as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." (b) Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Article X and subject to the satisfaction or waiver of the conditions set forth in Articles VIII and IX, the consummation of the Merger (the "Closing") will take place as promptly as practicable (and in any event within two business days) after satisfaction or waiver of the conditions set forth in Articles VIII and IX, at the offices of Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal Street, Boston, Massachusetts, unless another date, time or place is agreed to in writing by the Company and the Parent. The date of such Closing is referred to herein as the "Closing Date." 1.2 Effective Time. As promptly as practicable after the satisfaction or waiver of the conditions set forth in Articles VIII and IX, the parties hereto shall cause the Merger to be consummated by filing agreements, certificates or articles of merger, as the case may be, as contemplated by the ALLCA and the DGCL in the forms of Exhibit A-1 and Exhibit A-2 hereto (collectively, the "Certificate of Merger"), together with any required related certificates, with the Arizona Corporation Commission and the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of the ALLCA and the DGCL (the time of such filings being the "Effective Time"). 1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of the ALLCA and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Acquisition shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Acquisition shall become the debts, liabilities and duties of the Surviving Corporation. 1.4 Certificate of Incorporation; By-Laws. (a) Certificate of Incorporation. Unless otherwise determined by the Parent prior to the Effective Time, at the Effective Time, the Certificate of Incorporation of Acquisition, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended in accordance with the DGCL and Certificate of Incorporation. (b) By-Laws. Unless otherwise determined by the Parent prior to the Effective Time, the By-Laws of Acquisition, as in effect immediately prior to the Effective Time, shall be the By-Laws of the Surviving Corporation until thereafter amended in accordance with the DGCL, the Certificate of Incorporation of the Surviving Corporation and such By-Laws. 1.5 Directors and Officers. The directors of Acquisition immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and By-Laws of the Surviving Corporation, and the officers of Acquisition immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. 1.6 Additional Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other acts or things are necessary or desirable to vest, perfect or confirm, or record or otherwise, in the Surviving Corporation, its right, title or interest in or to any of the rights, properties or assets of Acquisition or the Company acquired or to be acquired by reason of, or as a result of, the Merger, or otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors shall be authorized to execute and deliver, in the name and on behalf of Acquisition or the Company, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of Acquisition or the Company, all such other acts and things necessary or desirable to vest, perfect or confirm any and all right, title or interest in, to or under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement. ARTICLE II CONSIDERATION; CONVERSION OF SHARES 2.1 Merger Consideration. Except as set forth in Section 2.2(e) hereof, the consideration payable in the Merger to holders of membership interests in the Company (the"Membership Units"), shall consist of (i) an aggregate of $790,653.75 payable in cash by wire transfer of immediately available funds to the Members on a pro rata basis based on the number of Fully Diluted Shares (as defined below) held by each Member, and (ii) an aggregate of 91,665 shares of the Common Stock, par value $.01 per share, of the Parent (the "Parent Common Stock"), such shares of the Parent Common Stock to be issuable at the Closing in accordance with the terms of this Agreement. 2.2 Conversion of Shares. (a) Conversion of Shares. Each Membership Unit issued and outstanding as of the Effective Time (other than shares owned by holders who have properly exercised their rights of appraisal within the meaning of the ALLCA ("Dissenting Shares")) shall, by virtue of the Merger and without any action on the part of the holder thereof, automatically be converted into (i) the right to receive from the Parent $263.55 and (ii) that number of shares of the Parent Common Stock as shall be obtained by dividing 91,665 (total number of Parent Shares to be issued) by the number of Fully Diluted Shares (as hereinafter defined) with the resulting quotient being carried to five decimal places (the "Merger Consideration"). "Fully Diluted Shares" shall be equal to the total number of outstanding Membership Units calculated on a fully diluted, fully converted basis as though all convertible debt and equity securities and options (whether vested or unvested) and warrants had been converted or exercised. The Exchange Ratio shall not change as a result of fluctuations in the market price of the Parent Common Stock between the date of this Agreement and the Effective Time. The aggregate number of shares of the Parent Common Stock issued pursuant to this Section 2.2(a) shall be referred to in this Agreement as the "Merger Shares." On the Closing Date, the Company will deliver to the Parent a certificate certifying the cash proceeds received by the Company from the exercise of stock options. (b) Treasury Shares. Each Membership Unit held in the Company's treasury as of the Effective Time, if any, shall, by virtue of the Merger, be canceled without payment of any consideration therefor. (c) Stock Options. At the Effective Time, all outstanding options to purchase Membership Units (each a "Stock Option"), whether vested or unvested, shall be deemed assumed by the Parent and deemed to constitute an option to acquire, on the same terms and conditions as were applicable under such Stock Option prior to the Effective Time (including terms and conditions relating to such Stock Option's term, exercisability, vesting schedule and status as an "incentive stock option" under Section 422 of the Code), the number (rounded down to the nearest whole number) of shares of the Parent Common Stock equal to the aggregate of that number of shares of the Parent Common Stock (based on the Exchange Ratio) as the holder of such Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such Option in full immediately prior to the Effective Time (not taking into account whether or not such Option was in fact exercisable). The exercise price for such Stock Options shall be the price per share equal to (x) the aggregate exercise price for Membership Units otherwise purchasable pursuant to such Stock Option divided by (y) the number of shares of the Parent Common Stock deemed purchasable pursuant to such Stock Option (the exercise price per share, so determined, being rounded up to the nearest full cent). No payment shall be made for fractional shares. The aggregate number of shares of the Parent Common Stock issuable upon the exercise of Options assumed by the Parent pursuant to this Section 2.2(c) shall be referred to in this Agreement as the "Option Shares." Any adjustment to an incentive stock option made under this Section 2.2(c) shall comply with Section 424(a) of the Code. (d) Acquisition Shares. Each share of common stock, par value $.01 per share, of Acquisition issued and outstanding at the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, automatically be converted into one fully paid and nonassessable share of common stock of the Surviving Corporation, as such shares of common stock are constituted immediately following the Effective Time. (e) Dissenting Shares. Any Dissenting Shares shall be converted into the right to receive from the Surviving Corporation such consideration as may be determined to be due with respect to each such Dissenting Share pursuant to the ALLCA; provided, however, Membership Units that are Dissenting Shares at the Effective Time of the Merger and are held by a holder who shall, after the Effective Time of the Merger, withdraw his demand for appraisal or lose his right of appraisal as provided in the ALLCA, shall be deemed to be converted, as of the Effective Time of the Merger, into the right to receive the Merger Consideration in accordance with the procedures specified in Section 2.3. The Company shall give the Parent (i) prompt notice of any written demands for appraisal, withdrawals of demands for appraisal and any other instruments served pursuant to the ALLCA received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the ALLCA. The Company will not voluntarily make any payment with respect to any demands for appraisal and will not, except with the prior written consent of the Parent, settle or offer to settle any such demands. It is understood and agreed that the obligation to make any payment under the ALLCA shall be exclusively that of the Surviving Corporation and that the Parent shall be under no obligation to perform and discharge any such obligation or to reimburse or make any contribution to the capital of the Surviving Corporation to enable it to perform and discharge any such obligation. 2.3 Exchange of Certificates. (a) At the Closing, certificates (the "Certificates") representing all of the issued and outstanding Membership Units together with stock powers executed in blank shall be surrendered for cancellation and termination in the Merger. At the Effective Time, each Certificate shall be canceled in exchange for a certificate representing the number of whole shares of the Parent Common Stock (other than the Escrow Shares, as defined below) into which the Membership Units evidenced by the Certificates so surrendered shall have been converted pursuant to Section 2.2(a) of this Agreement. Such certificates representing shares of the Parent Common Stock will be delivered to the Members as soon as practicable but no later than five (5) business days after the Closing. Until surrendered, each outstanding Certificate which prior to the Effective Time represented Membership Units shall be deemed for all corporate purposes to evidence ownership of the number of whole shares of the Parent Common Stock into which the Membership Units have been converted but shall, subject to applicable appraisal rights under the ABCA and ALLCA and Section 2.2(e), have no other rights. Subject to appraisal rights under the ABCA and ALLCA and Section 2.2(e), from and after the Effective Time, the holders of Membership Units shall cease to have any rights in respect of such units and their rights shall be solely in respect of the Parent Common Stock into which the Membership Units have been converted. (b) If any shares of the Parent Common Stock are to be issued in the name of a person other than the person in whose name the Certificate(s) surrendered in exchange therefor is registered, it shall be a condition to the issuance of such shares that (i) the Certificate(s) so surrendered shall be transferable, and shall be properly assigned, endorsed or accompanied by appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii) the person requesting such transfer shall pay the Parent, or its exchange agent, any transfer or other taxes payable by reason of the foregoing or establish to the reasonable satisfaction of the Parent that such taxes have been paid or are not required to be paid. Notwithstanding the foregoing, neither the Parent nor the Company shall be liable to a holder of Membership Units for shares of the Parent or the Company issuable to such holder pursuant to the provisions of Section 2.2(a) of this Agreement that are delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (c) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed, the Parent shall issue in exchange for such lost, stolen or destroyed Certificate the shares of the Parent Common Stock issuable in exchange therefor pursuant to the provisions of Section 2.2(a) of this Agreement. The Board of Directors of the Parent may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Certificate to provide to the Parent, at the Parent's option, either a performance bond or an indemnity agreement against any claim that may be made against the Parent with respect to the Certificate alleged to have been lost, stolen or destroyed. 2.4 No Fractional Securities. No fractional shares of the Parent Common Stock shall be issuable by the Parent upon the conversion of Membership Units in the Merger pursuant to Section 2.2(a) hereof. In lieu of any such fractional shares, each holder of Membership Units who would otherwise have been entitled to receive a fraction of a share of the Parent Common Stock shall be entitled to receive instead an amount in cash equal to such fraction multiplied by the Closing Market Price. For purposes of this Agreement, the term "Closing Market Price" shall mean the last quoted sale price for shares of the Parent Common Stock on The Nasdaq National Market the day preceding the Effective Time. 2.5 Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers of Membership Units thereafter on the records of the Company. 2.6 No Further Ownership Rights in Membership Units. The Merger Shares delivered upon the surrender for exchange of Membership Units in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares, and there shall be no further registration of transfers on the records of the Surviving Corporation of Membership Units which were outstanding immediately prior to the Effective Time. If, after the Effective Time, certificates for Membership Units are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article II. 2.7 Adjustment Event. If, between the date hereof and the Effective Time, the issued and outstanding shares of the Parent Common Stock shall have been combined, split, reclassified or otherwise changed into a different number of shares or a different class of shares, an appropriate adjustment to the Exchange Ratio shall be made to fully reflect such change in such manner as is reasonably acceptable to the Parent and the Company. 2.8 Escrow. At the Effective Time, the Parent will deposit on behalf of the Members (pro rata as to each Member) in escrow all certificates representing the Merger Shares received by the Members, registered in the name of Arizona Escrow & Financial Corporation, as Escrow Agent (collectively, the "Escrow Shares"). The Escrow Shares shall be held as security for the indemnification obligations under Article XI and shall be distributed fifty percent (50%) on the first anniversary of the Closing and fifty percent (50%) on the second anniversary of the Closing, or as otherwise provided pursuant to the provisions of an Escrow Agreement (the "Escrow Agreement") in the form of Exhibit B attached hereto. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MEMBERS The Company and the Members jointly and severally represent and warrant to the Parent and Acquisition as set forth below, subject to the exceptions set forth in the disclosure schedules attached hereto (the "Disclosure Schedules"), the section numbers and letters of which correspond to the section and subsection numbers and letters of this Agreement. Notwithstanding anything to the contrary contained in this Agreement, any information disclosed in one section of the Disclosure Schedules shall, should the existence of the information be relevant to any other section of the Disclosure Schedules, be deemed to be disclosed in all sections of the Disclosure Schedules, but only to the extent that the relevance of such information to such other section is reasonably apparent in the section of the Disclosure Schedules on which such information is disclosed. The disclosure of any information shall not be deemed to constitute an acknowledgment that such information is required to be disclosed in connection with the representations and warranties made by the Company in this Agreement or that it is material, nor shall such information be deemed to establish a standard of materiality 3.1 Company Organization. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Arizona. The Company has no Subsidiaries (as that term is hereinafter defined) except for Palo Verde Trading Company, LLC which is a wholly owned direct subsidiary of the Company. The Company has all requisite power and authority to own, operate and lease the properties and assets it now owns, operates and leases and to carry on its business as presently conducted. The Company is duly qualified to transact business as a foreign company and in good standing in the jurisdictions set forth in Schedule 3.1, which are the only jurisdictions where such qualification is required by reason of the nature of the properties and assets currently owned, operated or leased by the Company or the business currently conducted by it, except for such jurisdictions where the failure to be so qualified would not have a Company Material Adverse Effect (as defined below). The Company has previously delivered to the Parent complete and correct copies of its Articles of Organization (certified by the secretary of state of the jurisdiction in which it was formed as of a recent date) and its Operating Agreement (certified by the Secretary of the Company as of a recent date). Except as set forth in Schedule 3.1, neither the Articles of Organization nor the Operating Agreement of the Company have been amended since the respective dates of certification thereof, nor has any action been taken for the purpose of effecting any amendment of such instruments. The term "Company Material Adverse Effect" means, for purposes of this Agreement, any change, event or effect that is, or that would be, materially adverse to the business, operations, assets, liabilities, financial condition or results of operations of the Company, taken as a whole. 3.2 Authorization. The Company has full limited liability company power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Board of Managers and Members of the Company, and no other action on the part of the Company is necessary to approve and authorize the execution and delivery of this Agreement or (subject to the filing of the Articles of Merger or Certificate of Merger pursuant to the ALLCA and the DGCL respectively) the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding agreement of the Company, enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in law or in equity. 3.3 Consents and Approvals; No Violations. Subject to the filing of the Certificate of Merger with the Arizona Corporation Commission and the Secretary of State of the State of Delaware and compliance with applicable federal and state securities laws, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not: (i) violate or conflict with any provision of the Certificate of Organization or Operating Agreement of the Company, (ii) breach, violate or constitute an event of default (or an event which with the lapse of time or the giving of notice or both would constitute an event of default) under, give rise to any right of termination, cancellation, modification or acceleration under, or require any consent or the giving of any notice under, any note, bond, indenture, mortgage, security agreement, lease, license, franchise, permit, agreement or other instrument or obligation to which the Company is a party, or by which the Company or any of its properties or assets may be bound, or result in the creation of any lien, claim or encumbrance or other right of any third party of any kind whatsoever upon the properties or assets of the Company pursuant to the terms of any such instrument or obligation, other than any breach, violation, default, termination, cancellation, modification or acceleration which would not have a Company Material Adverse Effect, (iii) violate or conflict with any law, statute, ordinance, code, rule, regulation, judgment, order, writ, injunction, decree or other instrument of any Federal, state, local or foreign court or governmental or regulatory body, agency or authority applicable to the Company or by which any of its properties or assets may be bound except for such violations and conflicts which would not have a Company Material Adverse Effect or (iv) require, on the part of the Company, any filing or registration with, or permit, license, exemption, consent, authorization or approval of, or the giving of any notice to, any governmental or regulatory body, agency or authority, other than any filing, registration, permit, license, exemption, consent, authorization, approval or notice which if not obtained would not have a Company Material Adverse Effect. 3.4 Capitalization. (a) The authorized membership interests of the Company consists of 3,000 Membership Units, of which 3,000 Membership Units are issued and outstanding. Schedule 3.4(a) sets forth a complete and correct list of the record and beneficial ownership of the issued and outstanding Membership Units. Except as set forth on Schedule 3.4(a), all of the issued and outstanding Membership Units were duly authorized and validly issued and are fully paid and nonassessable, and were not issued in violation of any preemptive rights or Federal or state securities laws. Except as disclosed in Schedule 3.4(a) hereto, the Company has never repurchased or redeemed any Membership Units, and there are no amounts owed or which may be owed to any person by the Company as a result of any repurchase or redemption of its Membership Units. Except as disclosed in Schedule 3.4(a) hereto, there are no agreements, arrangements or understandings to which the Company is a party or by which it is bound to redeem or repurchase any Membership Units. Except as set forth in Schedule 3.4(a), there are no outstanding options, warrants or other rights to purchase, or any securities convertible into or exchangeable for, Membership Units of the Company, and there are no agreements, arrangements or understandings to which the Company is a party or by which it is bound pursuant to which the Company is or may be required to issue additional Membership Units. (b) The Company does not own, directly or indirectly, any equity securities, or options, warrants or other rights to acquire equity securities, or securities convertible into or exchangeable for equity securities, of any other corporation, or any partnership interest in any general or limited partnership or unincorporated joint venture (a "Subsidiary") except for Palo Verde Trading Company, LLC, a direct wholly owned subsidiary of the Company. 3.5 Financial Statements; Business Information. (a) Attached hereto as Schedule 3.5(a) are (i) the audited balance sheet of the Company as of December 31, 1998 and the statements of income for the year then ended, and (ii) the unaudited balance sheets of the Company as of May 31, 1999 and the statements of income of the Company for the fiscal year or period then ended (hereinafter collectively referred to as the "Financial Statements"). The Financial Statements (i) have been prepared from the books and records of the Company, (ii) have been prepared in accordance with generally accepted accounting principles consistently applied during the periods covered thereby, and (iii) present fairly in all material respects the financial condition and results of operations of the Company as at the dates, and for the periods, stated therein, except that the interim Financial Statements are subject to normal year-end adjustments which will not be individually or in the aggregate material in amount or effect and do not include footnotes. 3.6 Absence of Undisclosed Liabilities. Except (i) as set forth or reserved against in the balance sheet of the Company dated as of May 31, 1999, included in the Financial Statements (the "Balance Sheet") and (ii) for obligations incurred since May 31, 1999 in the ordinary course of business, do not individually or in the aggregate exceed $10,000 (except for accrued and unpaid interest payable to the Parent since May 31, 1999), the Company does not have any material liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise. 3.7 Absence of Certain Changes or Events. Except as set forth in Schedule 3.7, since December 31, 1998, the Company has carried on its business in all material respects in the ordinary course and consistent with past practice. Except as set forth on Schedule 3.7 hereto, since December 31, 1998, the Company has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise) except in the ordinary course of business and consistent with past practice; (ii) experienced any Company Material Adverse Effect; (iii) made any change in any accounting principle or practice or in its methods of applying any such principle or practice; (iv) suffered any material damage, destruction or loss, whether or not covered by insurance, affecting its properties, assets or business; (v) mortgaged, pledged or subjected to any lien, charge or other encumbrance, or granted to third parties any rights in, any of its assets, tangible or intangible; (vi) sold or transferred any of its assets, except in the ordinary course of business and consistent with past practice, or canceled or compromised any debts or waived any claims or rights of a material nature; (vii) issued any additional Membership Units or any rights, options or warrants to purchase, or securities convertible into or exchangeable for, its Membership Units; (viii) declared or paid any dividends on or made any distributions (however characterized) in respect of its Membership Units; (ix) repurchased or redeemed any Membership Units; (x) granted any general or specific increase in the compensation payable or to become payable to any of their Employees (as that term is hereinafter defined) or any bonus or service award or other like benefit, or instituted, increased, augmented or improved any Benefit Plan (as that term is hereinafter defined); or (xi) entered into any agreement to do any of the foregoing. 3.8 Legal Proceedings, etc. Except as set forth in Schedule 3.8, there are no suits, actions, claims or proceedings (including, without limitation, arbitral or administrative proceedings) or, to the knowledge of the Company or the Members, investigations pending or, to the knowledge of the Company or the Members, threatened against the Company or its properties, assets or business or, to the best knowledge of the Company or the Members in their capacity as such, pending or threatened against any of the officers, directors, employees, agents or consultants of the Company in connection with the business of the Company. There are no such suits, actions, claims, proceedings or investigations pending against the Company, or, to the best knowledge of the Company or the Members, threatened against the Company challenging the validity or propriety of the transactions contemplated by this Agreement. There is no judgment, order, injunction, decree or award (whether issued by a court, an arbitrator or an administrative agency) to which the Company is a party, or involving the Company's properties, assets or business, which is unsatisfied or which requires continuing compliance therewith by the Company. 3.9 Taxes. (a) Except as set forth in Schedule 3.9, the Company has duly and timely filed, all Tax returns and other filings in respect of Taxes (as that term is hereinafter defined) required to be filed by it prior to May 31, 1999, and has in a timely manner paid all Taxes which are (or will be) due for all periods ending on or before May 31, 1999, whether or not shown on such returns. All such Tax returns have been, accurately and completely prepared in all material respects in compliance with all laws, rules and regulations. (b) Except as set forth in Schedule 3.9 hereto, there are no actions or proceedings currently pending or, to the knowledge of the Company or the Members, threatened against the Company by any governmental authority for the assessment or collection of Taxes, no claim for the assessment or collection of Taxes has been asserted against the Company, and there are no matters under discussion by the Company with any governmental authority regarding claims for the assessment or collection of Taxes. Any Taxes that have been claimed or imposed as a result of any examinations of any tax return of the Company by any governmental authority are being contested in good faith and have been disclosed in writing to the Parent. Except as set forth in Schedule 3.9, there are no agreements or applications by the Company for an extension of time for the assessment or payment of any Taxes nor any waiver of the statute of limitations in respect of Taxes. There are no Tax liens on any of the assets of the Company, except for liens for Taxes not yet due or payable. (c) For purposes of this Agreement, the terms "Tax" and "Taxes" shall mean and include any and all United States, state, local, foreign or other income, sales, use, withholding, employment, payroll, social security, property taxes and all other taxes of any kind, deficiencies, fees or other governmental charges, including, without limitation, any installment payment for taxes and contributions or other amounts determined with respect to compensation paid to directors, officers, employees or independent contractors from time to time imposed by or required to be paid to any governmental authority (including penalties and additions to tax thereon, penalties for failure to file a return or report, and interest on any of the foregoing). (d) There is no agreement, plan or arrangement covering any employee or independent contractor or former employee or independent contractor of the Company that, considered individually or considered collectively with any other such agreement, plan or arrangement, will, or could reasonably be expected to, give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 280G of the Code or that would be subject to an excise tax under Section 4999 of the Code. (e) The Company is not and has never been a party to or bound by any tax indemnity agreement, tax sharing agreement, tax allocation agreement or similar agreement or arrangement and the Company does not have any liability for Taxes of any person (other than the Company) under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law). (f) The Company has withheld amounts from its employees and other persons required to be withheld under the tax, social security, unemployment and other withholding provisions of all federal, state, local and foreign laws. 3.10 Title to Properties and Related Matters. (a) Except as set forth on Schedule 3.10(a), the Company has good and valid title to all personal property, tangible or intangible, which the Company purports to own, including the properties reflected on the Balance Sheet or acquired after the date thereof (other than properties and assets sold or otherwise disposed of in the ordinary course of business and consistent with past practice since December 31, 1998), free and clear of any claims, liens, pledges, security interests or encumbrances of any kind whatsoever (other than (i) purchase money security interests and common law vendor's liens, in each case for goods purchased on open account in the ordinary course of business and having a fair market value of less than $10,000 in each individual case), (ii) liens for Taxes not yet due and payable, and (iii) such imperfections of title and encumbrances, if any, that are not material in character, amount or extent and that do not materially detract from the value, or materially interfere with the use of, the property subject thereto or affected thereby. (b) Except as set forth on Schedule 3.10(b), the Company does not own any real property or any interest in real property. (c) Schedule 3.10(c) sets forth a list, which is correct and complete in all material respects, of all equipment, machinery, instruments, vehicles, furniture, fixtures and other items of personal property currently owned or leased by the Company with a book value as of May 31, 1999, in each case of $10,000 or more. All such personal property is in suitable operating condition (ordinary and reasonable wear and tear excepted), is physically located in or about one of the Company's places of business and is owned by the Company or is leased by the Company under one of the leases set forth in Schedule 3.10(d). Except as disclosed in Schedule 3.10(c), none of such personal property is subject to any agreement or commitment for its use by any person other than the Company. The maintenance and operation of such personal property has been in material conformance with all applicable laws and regulations except for such non-conformance as would not have a Company Material Adverse Effect. There are no assets leased by the Company or required for the operation of the business of the Company that are owned, directly or indirectly, by any Related Person (as that term is hereinafter defined). (d) Schedule 3.10(d) sets forth a complete and correct list of all real property and personal property leases to which the Company is a party. The Company has previously delivered to the Parent complete and correct copies of each lease (and any amendments or supplements thereto) listed in Schedule 3.10(d). Except as set forth in Schedule 3.10(d), (i) each such lease is valid and binding and in full force and effect; except to the extent that applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights may affect such validity or enforceability, (ii) neither the Company nor (to the knowledge of the Company or the Members) any other party is in default under any such lease, and no event has occurred which constitutes, or with the lapse of time or the giving of notice or both would constitute, a default by the Company or (to the knowledge of the Company or the Members) a default by any other party under such lease; (iii) to the knowledge of the Company or the Members, there are no disputes or disagreements between the Company and any other party with respect to any such lease; and (iv) the lessor under each such lease has consented or been given notice (or prior to the Closing shall have consented or been given notice), where such consent or the giving of such notice is necessary, sufficient that such lease shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement without requiring modification in the rights or obligations of the lessee under any such lease. (e) Schedule 3.10(e) sets forth a complete list of all indebtedness of the Company in respect of borrowed money, including without limitation all amounts guaranteed by the Company and capital leases entered into by the Company. 3.11 Intellectual Property; Proprietary Rights; Employee Restrictions. (a) Schedule 3.11 sets forth a complete and current list of all registered copyrights, copyright registrations and copyright applications, trademark registrations and applications for registration, patents and patent applications, trademarks, service marks, trade names, or other intellectual property rights (collectively, "Intellectual Property Rights") owned or licensed by the Company. All Intellectual Property Rights purported to be owned by the Company held by any employee, officer or consultant are owned by the Company by operation of law or have been validly assigned to the Company. The Intellectual Property Rights are sufficient in all material respects to carry on the business of the Company as presently conducted. The Company has exclusive ownership of or license to use all Intellectual Property Rights identified in Schedule 3.11 as owned or licensed by the Company or has obtained any licenses, releases or assignments reasonably necessary to use all third parties' Intellectual Property Rights in works embodied in the Company's products. The present business activities or products of the Company do not infringe any Intellectual Property Rights of others. Except as set forth in Schedule 3.11, the Company has not received any notice or other claim from any person asserting that any of the Company's present activities infringe in any material respect or may infringe any Intellectual Property Rights of such person. The Company has taken all reasonable measures to protect and preserve the security and confidentiality of its trade secrets and other confidential information. To the knowledge of the Company and the Members, all trade secrets and other confidential information of the Company are not part of the public domain or knowledge, nor, to the knowledge of the Company and the Members, have they been misappropriated by any person having an obligation to maintain such trade secrets or other confidential information in confidence for the Company. To the knowledge of the Company and the Members, no employee or consultant of the Company has used any trade secrets or other confidential information of any other person in the course of their work for the Company. The Company is the exclusive owner of all right, title and interest in its Intellectual Property Rights as purported to be owned by the Company, and to the Company's and the Members' knowledge, such Intellectual Property Rights are valid and in full force and effect. No university, government agency (whether federal or state) or other organization which sponsored research and development conducted by the Company or has any claim of right to or ownership of or other encumbrance upon the Intellectual Property Rights of the Company. The Company is not aware of any infringement by others of its copyrights or other Intellectual Property Rights in any of its products, technology or services, or any violation of the confidentiality of any of its proprietary information. To the Company's and the Members' knowledge, the Company is not making unlawful use of any confidential information or trade secrets of any past or present employees of the Company. Neither the Company nor, to the knowledge of the Company and the Members, any of the Company's employees, have any agreements or arrangements with former employers of such employees relating to confidential information or trade secrets of such employers or are bound by any consulting agreement relating to confidential information or trade secrets of another entity that are being violated by such persons. The activities of the Company's employees on behalf of the Company do not violate in any material respects any agreements or arrangements known to the Company which any such employees have with former employers or any other entity to whom such employees may have rendered consulting services. For the purposes of this Section 3.11, Intellectual Property Rights also includes any and all intellectual property rights, licenses, databases, computer programs and other computer software user interfaces, know-how, trade secrets, customer lists, proprietary technology, processes and formulae, source code, object code, algorithms, architecture, structure, display screens, layouts, development tools, instructions, templates, marketing materials created by the Company, inventions, trade dress, logos and designs. (b) The Company has all franchises, permits, licenses and other rights and privileges reasonably necessary to permit it to own its property and to conduct its business as it is presently conducted. (c) To the knowledge of the Company and the Members, except as set forth in Schedule 3.11(c), the management information systems (including all computer hardware and software) owned, licensed or otherwise used by the Company will not perform differently or experience any material malfunctions or usage problems due to the change in the calendar year from 1999 to the year 2000. 3.12 Contracts. (a) Except as set forth in Schedule 3.12(a) (or in Schedule 3.4, Schedule 3.10(d), Schedule 3.11, or Schedule 3.13(a)), the Company is not a party to, or subject to: (i) any contract, arrangement or understanding, or series of related contracts, arrangements or understandings, which involves annual expenditures or receipts by the Company of more than $25,000; (ii) any note, indenture, credit facility, mortgage, security agreement or other contract, arrangement or understanding relating to or evidencing indebtedness for money borrowed or a security interest or mortgage in the assets of the Company; (iii)any guaranty issued by the Company; (iv) any contract, arrangement or understanding relating to the acquisition, issuance or transfer of any securities; (v) any contract, arrangement or understanding relating to the acquisition, transfer, distribution, use, development, sharing or license of any technology or Intellectual Property Rights other than licenses granted in the ordinary course of business with a term of less than one year; (vi) any contract, arrangement or understanding granting to any person the right to use any property or property right of the Company other than licenses granted in the ordinary course of business with a term of less than one year; (vii)any contract, arrangement or understanding restricting the Company's or any Subsidiary's right to (A) engage in any business activity or compete with any business, or (B) develop or distribute any technology; (viii) any contract, arrangement or understanding relating to the employment of, or the performance of services of, any employee, consultant or independent contractor and pursuant to which the Company is required to pay more than $25,000 per year; (ix) any contract, arrangement or understanding with a Related Person (as that term is hereinafter defined); or (x) any outstanding offer, commitment or obligation to enter into any contract or arrangement of the nature described in subsections (i) through (vi) of this subsection 3.12(a). (b) The Company has previously made available for inspection and copying to the Parent complete and correct copies (or, in the case of oral contracts, a complete and correct description) of each contract (and any amendments or supplements thereto) listed on Schedule 3.12(a). Except as set forth in Schedule 3.12(b), (i) each contract listed in Schedule 3.12(a) is in full force and effect; (ii) neither the Company nor (to the knowledge of the Company or the Members) any other party is in default under any material contract, and no event has occurred which constitutes, or with the lapse of time or the giving of notice or both would constitute, a default by the Company or (to the knowledge of the Company or the Members) a default by any other party under such contract; (iii) to the knowledge of the Company or the Members, there are no disputes or disagreements between the Company and any other party with respect to any material contract; and (iv) each other party to each material contract has consented or been given notice (or prior to the Closing shall have consented or been given notice), where such consent or the giving of such notice is necessary, sufficient that such contract shall remain in full force and effect following the consummation of the transactions contemplated by this Agreement without modification in the rights or obligations of the Company thereunder. (c) Except as set forth and described in Schedule 3.12(d), the Company has not issued any warranty or any agreement or commitment to indemnify any person other than in the ordinary course of business. 3.13 Employees; Employee Benefits. (a) Schedule 3.13(a) sets forth the names of all current employees of the Company (the "Employees") and such Employee's job title, the location of employment of such Employee, such Employee's current salary, the amount of any bonuses or other compensation paid since December 31, 1998 to such Employee, the date of employment of such Employee and the accrued vacation time of such Employee. Schedule 3.13(a) hereto sets forth a true and correct statement of the liability, if any, of the Company for accrued but unused sick pay. Except as set forth on Schedule 3.13(a), there are no outstanding loans from the Company to any officer, director, employee, agent or consultant of the Company, or to any other Related Person. Schedule 3.13(a) hereto sets forth a complete and correct description of all severance policies of the Company. Complete and correct copies of all written agreements with Employees and all employment policies, and all amendments and supplements thereto, have previously been delivered or made available to the Parent, and a list of all such agreements and policies is set forth on Schedule 3.13(a). None of the Employees has, to the knowledge of the Company or the Members, indicated a desire to terminate his or her employment, or any intention to terminate his or her employment upon a sale of, or business combination relating to, the Company or in connection with the transactions contemplated by this Agreement. Except as set forth on Schedule 3.13(a), since December 31, 1998, the Company has not (i) increased the salary or other compensation payable or to become payable to or for the benefit of any of the Employees, (ii) increased the term or tenure of employment for any Employee, except in the ordinary course of business consistent with past practice, (iii) increased the amounts payable to any of the Employees upon the termination of any such person's employment or (iv) adopted, increased, augmented or improved benefits granted to or for the benefit of any of the Employees under any Benefit Plan. (b) Except as disclosed on Schedule 3.13(b), the Company has complied in all material respects with Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, the Fair Labor Standards Act, as amended, the Immigration Reform and Control Act of 1986, and all applicable laws, rules and regulations governing payment of minimum wages and overtime rates, the withholding and payment of taxes from compensation, discriminatory practices with respect to employment and discharge, or otherwise relating to the conduct of employers with respect to Employees or potential employees, and there have been no claims made or, to the knowledge of the Company or the Members, threatened thereunder against the Company arising out of, relating to or alleging any violation of any of the foregoing. Except as disclosed in Schedule 3.13(b), there are no material controversies, strikes, work stoppages, picketing or disputes pending or, to the knowledge of the Company or the Members, threatened between the Company and any of the Employees or Former Employees; no labor union or other collective bargaining unit represents or has ever represented any of the Employees, including any "leased employees" (within the meaning of Section 414(n) of the Code); no organizational effort by any labor union or other collective bargaining unit currently is under way or, to the knowledge of the Company or the Members, threatened with respect to any Employees; and the consent of no labor union or other collective bargaining unit is required to consummate the transactions contemplated by this Agreement. (c) Schedule 3.13(c) sets forth a list of each material defined benefit and defined contribution plan, stock ownership plan, employment or consulting agreement, executive compensation plan, bonus plan, incentive compensation plan or arrangement, deferred compensation agreement or arrangement, agreement with respect to temporary employees or "leased employees" (within the meaning of Section 414(n) of the Code), vacation pay, sickness, disability or death benefit plan (whether provided through insurance, on a funded or unfunded basis or otherwise), employee stock option, stock appreciation rights or stock purchase plan, severance pay plan, arrangement or practice, employee relations policy, practice or arrangement, and each other employee benefit plan, program or arrangement, including, without limitation, each "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which has been maintained by the Company for the benefit of or relating to any of the Employees or to any Former Employees or their dependents, survivors or beneficiaries, whether or not legally binding, whether written or oral or whether express or implied, all of which are hereinafter referred to as the "Benefit Plans." (d) Except as set forth on Schedule 3.13(d), each Benefit Plan which is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to meet the requirements of Section 401(a) of the Code meets such requirements; the trust, if any, forming part of such plan is exempt from U.S. federal income tax under Section 501(a) of the Code; a favorable determination letter has been issued by the Internal Revenue Service (the "IRS") with respect to each plan and trust and each amendment thereto; and nothing has occurred since the date of such determination letter that would adversely affect the qualification of such plan; no Benefit Plan is a "voluntary employees beneficiary association" (within the meaning of section 501(c)(9) of the Code) and there have been no other "welfare benefit funds" (within the meaning of Section 419 of the Code) relating to Employees or Former Employees; no event or condition exists with respect to any Benefit Plan that could subject the Company to any material Tax under Section 4980B of the Code. With respect to each Benefit Plan, the Company has heretofore delivered or made available to the Parent complete and correct copies of the following documents, where applicable and to the extent available: (i) the most recent annual report (Form 5500 series), together with schedules, as required, filed with the IRS, and any financial statements and opinion required by Section 103(a)(3) of ERISA, (ii) the most recent determination letter issued by the IRS, (iii) the most recent summary plan description and all modifications, as well as all other descriptions distributed to Employees or set forth in any manuals or other documents, (iv) the text of the Benefit Plan and of any trust, insurance or annuity contracts maintained in connection therewith and (v) the most recent actuarial report, if any, relating to the Benefit Plan. (e) There has been and will be no "excess parachute payment" (as that term is defined in Section 280G(b)(1) of the Code) to any of the Employees as a result of the consummation of the transactions contemplated hereby. 3.14 Compliance with Applicable Law. The Company is not in violation in any material respect of any applicable safety, health, environmental or other law, statute, ordinance, code, rule, regulation, judgment, order, injunction, writ or decree of any Federal, state, local or foreign court or governmental or regulatory body, agency or authority having, asserting or claiming jurisdiction over it or over any part of its business, operations, properties or assets, except for any violation that would not have a Company Material Adverse Effect or result in a fine or penalty in excess of $5,000 individually or in the aggregate. The Company has not received any notice alleging any such violation, nor to the knowledge of the Company or any Member, is there any inquiry, investigation or proceedings relating thereto. 3.15 Ability to Conduct the Business. There is no agreement, arrangement or understanding, nor any judgment, order, writ, injunction or decree of any court or governmental or regulatory body, agency or authority applicable to the Company or to which the Company is a party or by which it (or any of its properties or assets) is bound, that will prevent the use by the Surviving Corporation, after the Effective Time, of the properties and assets owned by, the business conducted by or the services rendered by the Company on the date hereof, in each case on substantially the same basis as the same are used, owned, conducted or rendered on the date hereof. The Company has in force, and is in compliance with, in all material respects, all material governmental permits, licenses, exemptions, consents, authorizations and approvals used in or required for the conduct of their business as presently conducted, all of which shall continue in full force and effect, without requirement of any filing or the giving of any notice and without modification thereof, following the consummation of the transactions contemplated hereby. The Company has not received any notice of, and to the knowledge of the Company or the Members, there are no inquiries, proceedings or investigations relating to or which could result in the revocation or modification of any such permit, license, exemption, consent, authorization or approval. 3.16 Consultants, Sales Representatives and Other Agents. Schedule 3.16 hereto sets forth a complete and correct list of the names and addresses of each consultant, sales representative or other agent (other than any such person performing solely clerical functions) currently engaged by the Company who is not an employee of the Company and who has received compensation in excess of $25,000 in respect of the five months ended May 31, 1999, the commission rates or other compensation applicable with respect to each such person and the amount of commissions or other compensation earned by each such person for the five months ended May 31, 1999. Except as described on Schedule 3.16, complete and correct copies of all current agreements between the Company and any such person have previously been delivered or made available by the Company to the Parent. 3.17 Tax Liens. All tax liens of the Company reflected on the Balance Sheet (i) arose from bona fide transactions in the ordinary course of business and consistent with past practice, and (ii) except as set forth on Schedule 3.17, are owned by the Company free and clear of any claim, security interest, lien or other encumbrance, and (iii) are accurately and fairly reflected on the Balance Sheet, or, with respect to accounts receivable of the Company created after May 31, 1999, are accurately and fairly reflected in the books and records of the Company. Except as described on Schedule 3.17, the reserves for bad debts reflected on the Balance Sheet are adequate and were calculated in accordance with generally accepted accounting principles consistent with past practice. 3.18 Insurance. Schedule 3.18 hereto is a true and complete list of all insurance policies carried by the Company with respect to its business, together with, in respect of each such policy, the name of the insurer, the number of the policy, the annual policy premium payable therefor, the limits of coverage, the deductible amount (if any), the expiration date thereof and each pending claim thereunder. Complete and correct copies of each certificate of insurance have previously been delivered or made available by the Company to the Parent. All such policies are in full force and effect. All premiums due thereon have been paid in a timely manner. 3.19 Bank Accounts; Powers of Attorney. Schedule 3.19 sets forth a complete and correct list showing: (i) all bank accounts of the Company, together with, with respect to each such account, the account number, the names of all signatories thereof, the authorized powers of each such signatory and the approximate balance thereof on the date of this Agreement; and (ii) the names of all persons holding powers of attorney from the Company and a summary statement of the terms thereof. 3.20 Minute Books, etc. The minute books, stock certificate book and stock ledger of the Company are complete and correct in all material respects. The minute books of the Company contain accurate and complete records of all meetings or written consents to action of the Board of Managers and Members of the Company and accurately reflect all corporate actions of the Company which are required by law to be passed upon by the Board of Managers or Members of the Company. 3.21 Related Person Indebtedness and Contracts. Schedule 3.21 sets forth a complete and correct summary of all contracts, commitments, arrangements and understandings not described elsewhere in this Agreement between the Company and any of the following (collectively, "Related Persons"): (i) the Members; (ii) the spouses and children of any of the Members (collectively, "near relatives"); (iii) any trust for the benefit of any of the Members or any of their respective near relatives; or (iv) any corporation, partnership, joint venture or other entity or enterprise owned or controlled by any of the Members or by any of their respective near relatives. 3.22 Brokers; Payments. Except as set forth on Schedule 3.22, no broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any Member. The Company has suspended or terminated, and has the legal right to terminate or suspend, all negotiations and discussions of Acquisition Transactions (as defined in Section 6.4) with parties other than the Parent. No valid claim exists against the Company or, based on any action by the Company, against the Surviving Corporation or the Parent for payment of any "topping," "break-up" or "bust-up" fee or any similar compensation or payment arrangement as a result of the transactions contemplated hereby. 3.23 Company Action. The Board of Managers of the Company, by unanimous written consent or at a meeting duly called and held, has (i) determined that the Merger is fair and in the best interests of the Company and its Members, (ii) approved the Merger and this Agreement in accordance with the provisions of the ALLCA, and (iii) directed that this Agreement and the Merger be submitted to the Company Members for their approval and resolved to recommend that the Company's Members vote in favor of the approval of this Agreement and the Merger. The Members of the Company have approved the Merger and this Agreement in accordance with the provisions of the ALLCA. 3.24 Year 2000 Matters. The management information systems (including all computer hardware and software) owned, licensed or otherwise used by the Company will not perform differently and experience any material malfunctions or usage problems due to the change in the calendar year from 1999 to the year 2000. 3.25 Disclosure. No representation or warranty by the Company or the Members contained in this Agreement and no statement contained in any of the Disclosure Schedules delivered or to be delivered pursuant to this Agreement by the Company contains or will contain, when considered together as a whole, any untrue statement of a material fact or omits or will omit to state any material fact necessary to make the statements contained therein not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE MEMBERS 4.1 Authorization etc. The Members represent and warrant to the Parent and Acquisition as follows: (i) the Members are the sole and exclusive record and beneficial owners of the of the Company's Membership Units set forth opposite their name in Schedule 3.4 hereto, free and clear of any claims, liens, pledges, options, rights of first refusal or other encumbrances or restrictions of any nature whatsoever (other than restrictions on transfer imposed under applicable securities laws), and, except as set forth on Schedule 3.4 hereto, there are no agreements, arrangements or understandings to which the Members are parties (other than this Agreement) involving the purchase, sale or other acquisition or disposition of Membership Units owned by such Members; (ii)such Members shall (A) concurrently with such Members' execution and delivery of this Agreement, execute and deliver to the Parent a written consent in which such Members voted all Membership Units owned by such Members in favor of the Merger and the adoption of this Agreement by the Company, (B) at the Effective Time, deliver or cause to be delivered to the Parent certificates representing all Membership Units owned by such Members, each such certificate to be duly endorsed for transfer and free and clear of any claims, liens, pledges, options, rights of first refusal or other encumbrances or restrictions of any nature whatsoever (other than restrictions imposed under applicable securities laws); (iii) such Members have all necessary legal capacity, right, power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby, and this Agreement constitutes a valid and binding obligation of such Members enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors, rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in law or in equity; and (iv)the execution and delivery of this Agreement by such Members and the consummation of the transactions contemplated hereby will not (A) violate or conflict with any provision of any partnership agreement or other constitutional documents of any such Members that is constituted as a general or limited partnership, (B) breach, violate or constitute an event of default (or an event which with the lapse of time or the giving of notice or both would constitute an event of default) under, give rise to any right of termination, cancellation, modification or acceleration under or require any consent or the giving of any notice under, any note, bond, indenture, mortgage, security agreement, lease, license, franchise, permit, agreement or other instrument or obligation to which such Members are a party, or by which such Members or the Membership Units held by such Members may be bound, or result in the creation of any material lien, claim or encumbrance or other right of any third party of any kind whatsoever upon the properties or assets of such Members pursuant to the terms of any such instrument or obligation, which breach, violation or event of default would have a material adverse effect on such Members' ability to perform such Members' obligations hereunder, or (C) to such Members' knowledge, violate or conflict with any law, statute, ordinance, code, rule, regulation, judgment, order, writ, injunction, decree or other instrument of any court or governmental or regulatory body, agency or authority applicable to such Members or by which such the Membership Units held by such Members may be bound. 4.2 The Parent Common Stock. The Members acknowledge, represent and warrant to the Parent and Acquisition as follows: (i) The Members understands that the shares of the Parent Common Stock to be issued to the Members in the Merger will not have been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities law by reason of specific exemptions under the provisions thereof which depend in part upon the other representations and warranties made by the Members in this Agreement. The Members understand that the Parent is relying upon the Members' representation and warranties contained in this Section 4.2 for the purpose of determining whether this transaction meets the requirements for such exemptions. (ii) The Members have such knowledge, skill and experience in business, financial and investment matters so that the Members are capable of evaluating the merits and risks of an investment in the Parent Common Stock pursuant to the transactions contemplated by this Agreement or to the extent that the Members have deemed it appropriate to do so, the Members have relied upon appropriate professional advice regarding the tax, legal and financial merits and consequences of an investment in the Parent Common Stock pursuant to the transactions contemplated by this Agreement. (iii)The Members have made, either alone or together with the Members' advisors, such independent investigation of the Parent, its management and related matters as the Members deem to be, or such advisors have advised to be, necessary or advisable in connection with an investment in the Parent Common Stock through the transactions contemplated by this Agreement; and the Members and advisors have received all information and data that the Members and such advisors believe to be necessary in order to reach an informed decision as to the advisability of an investment in the Parent Common Stock pursuant to the transactions contemplated by this Agreement. (iv) The Members have reviewed the Members' financial condition and commitments, alone and together with the Members' advisors, and, based on such review, the Members are satisfied that (A) the each Member has adequate means of providing for such Members' financial needs and possible contingencies and has assets or sources of income which, taken together, are more than sufficient so that he could bear the risk of loss of the Members' entire investment in the Parent Common Stock, (B) such Member has no present or contemplated future need to dispose of all or any portion of the Parent Common Stock to satisfy any existing or contemplated undertaking, need or indebtedness, and (C) such Member is capable of bearing the economic risk of an investment in the Parent Common Stock for the indefinite future. The Members shall furnish any additional information about the Members reasonably requested by the Parent to assure the compliance of this transaction with applicable federal and state securities laws. (v) The Members understand that the shares of the Parent Common Stock to be received by the Members in the transactions contemplated hereby will be "restricted securities" under applicable federal securities laws and that the Securities Act and the rules of the Securities and Exchange Commission (the "SEC") promulgated thereunder provide in substance that the Members may dispose of such shares only pursuant to an effective registration statement under the Securities Act or an exemption from registration if available. The Members further understand that, except as provided in Article XII, the Parent has no obligation or intention to register the sale of any of the shares of the Parent Common stock to be received by the Members in the transactions contemplated hereby, or take any other action so as to permit sales pursuant to, the Securities Act. Accordingly, except as provided in Article XII, the Members understand that the Members may dispose of such shares only in transactions which are of a type exempt from registration under the Securities Act, including (without limitation) a "private placement," in which event the transferee will acquire such shares as "restricted securities" and subject to the same limitations as in the hands of the Members. The Members further understand that applicable state securities laws may impose additional constraints upon the sale of securities. As a consequence, the Members understand that the Members may have to bear the economic risk of an investment in the Parent Common Stock to be received by the Members pursuant to the transactions contemplated hereby for an indefinite period of time. (vi) The Members are acquiring shares of the Parent Common Stock pursuant to the transactions contemplated hereby for investment only and not with a view to or intention of or in connection with any resale or distribution of such shares or any interest therein. (vii)The certificate(s) evidencing the shares of the Parent Common Stock to be issued pursuant to the transactions contemplated hereby shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be sold or transferred in the absence of such registration or an exemption therefrom under the Securities Act of 1933, as amended, and applicable state securities laws." ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION The Parent and Acquisition jointly and severally represent and warrant to the Company that: 5.1 Corporate Organization. Each of the Parent and Acquisition is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. Each of the Parent and Acquisition has all requisite corporate power and authority to own, operate and lease the properties and assets it now owns, operates and leases and to carry on its business as now being conducted. The Parent and Acquisition are each duly qualified to transact business as a foreign corporation and are each in good standing in the jurisdictions set forth opposite their respective names in Schedule 5.1, which are the only jurisdictions where such qualification is required by reason of the nature of the properties and assets currently owned, operated or leased by the Parent or Acquisition or the business currently conducted by them, except for such jurisdictions where the failure to be so qualified would not have a Parent Material Adverse Effect (as defined below). Acquisition is a corporation newly formed by the Parent for the sole purpose of consummating the transactions contemplated by this Agreement and has not conducted any business other than as expressly set forth in or contemplated by this Agreement. The Parent has previously delivered to the Company complete and correct copies of (i) its Articles of Organization (certified by the Secretary of State of Massachusetts as of a recent date) and its By-Laws (certified by the Secretary of the Parent as of a recent date) and (ii) the Certificate of Incorporation of Acquisition and all amendments thereto to the date hereof (certified by the Secretary of State of the State of Delaware as of a recent date) and the By-Laws of Acquisition (certified by the secretary of Acquisition as of a recent date). Neither the Certificate of Incorporation nor the By-Laws of the Parent or Acquisition has been amended since the respective dates of certification thereof, nor has any action been taken for the purpose of effecting any amendment of such instruments. The term "Parent Material Adverse Effect" means for purposes of this Agreement, any change, event or effect that is, or would be, materially adverse to the business, operation, assets, liabilities, financial condition or results of operations of the Parent and Acquisition, taken as a whole. 5.2 Authorization. Each of the Parent and Acquisition has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly approved by the Boards of Directors of the Parent and Acquisition and by the Parent as the sole shareholder of Acquisition, and no other corporate proceedings on the part of the Parent or Acquisition are necessary to approve and authorize the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Parent and Acquisition and constitutes the valid and binding agreement of the Parent and Acquisition, enforceable in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or in law). 5.3 Consents and Approvals; No Violations. Subject to (a) the filing of Articles of Merger and a Certificate of Merger with the Arizona Corporation Commission and the Secretary of State of the State of Delaware respectively and (b) compliance with applicable federal and state securities laws, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not: (i) violate or conflict with any provisions of the Certificate of Incorporation or By-Laws of the Parent or Acquisition; (ii) breach, violate or constitute an event of default (or an event which with the lapse of time or the giving of notice or both would constitute an event of default) under, give rise to any right of termination, cancellation, modification or acceleration under, or require any consent or the giving of any notice under, any note, bond, indenture, mortgage, security agreement, lease, license, franchise, permit, agreement or other instrument or obligation to which the Parent or Acquisition is a party, or by which any of them or any of their respective properties or assets may be bound, or result in the creation of any lien, claim or encumbrance of any kind whatsoever upon the properties or assets of the Parent or Acquisition pursuant to the terms of any such instrument or obligation, other than any breach, violation, default, termination, cancellation, modification or acceleration which would not have a Parent Material Adverse Effect; (iii) violate or conflict with any law, statute, ordinance, code, rule, regulation, judgment, order, writ, injunction or decree or other instrument of any Federal, state, local or foreign court or governmental or regulatory body, agency or authority applicable to the Parent or Acquisition or by which any of their respective properties or assets may be bound, except for such violations or conflicts which would not have a Parent Material Adverse Effect; or (iv) require, on the part of the Parent or Acquisition, any filing or registration with, or permit, license, exemption, consent, authorization or approval of, or the giving of any notice to, any governmental or regulatory body, agency or authority other than any filing, registration, permit, license, exemption, consent, authorization, approval or notice which if not obtained or made would not have a Parent Material Adverse Effect. 5.4 Capitalization. (a) The authorized capital stock of the Parent consists of 12,000,000 shares of the Parent Common Stock, of which 6,886,939 shares were issued and outstanding as of March 31, 1999 and 1,000,000 shares of Preferred Stock, none of which are issued or outstanding. All of the issued and outstanding shares of the Parent Common Stock are (and all shares of the Parent Common Stock to be issued in connection with the Merger, when issued in accordance with this Agreement, shall be) duly authorized, validly issued, fully paid and nonassessable, and none of such shares has been issued in violation of any applicable preemptive rights. There are no agreements or commitments to which the Parent is a party or by which it is bound for the redemption or repurchase of any shares of its capital stock. Except for options issued under the Parent's stock option plan (the "Stock Option Plan"), there are no outstanding options, warrants or other rights to purchase, or securities convertible into or exchangeable for, shares of the capital stock of the Parent, and (except as contemplated by this Agreement and except with respect to options issued under the Stock Option Plan) there are no agreements or commitments to which the Parent is a party or by which it is bound pursuant to which the Parent is or may become obligated to issue additional shares of its capital stock. (b) The authorized capital stock of Acquisition consists of 1,000 shares of common stock, par value $0.01 per share, of which 100 shares are issued and outstanding, all of which shares are owned beneficially and of record by the Parent. There are no outstanding options, warrants or other rights to purchase, or securities convertible into or exchangeable for, shares of the capital stock of Acquisition, and there are no agreements or commitments to which Acquisition is a party or by which it is bound pursuant to which Acquisition is or may become obligated to issue additional shares of its capital stock. 5.5 Absence of Certain Changes. Except as set forth in Schedule 5.5, since December 31, 1998, the Parent has carried on its business in the ordinary course and consistent with past practice. Except as set forth on Schedule 5.5 hereto, since December 31, 1998, the Parent has not: (i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise) except in the ordinary course of business and consistent with past practice; (ii) experienced any Parent Material Adverse Effect; (iii) made any change in any accounting principle or practice or in its methods of applying any such principle or practice; (iv) suffered any material damage, destruction or loss, whether or not covered by insurance, affecting its properties, assets or business; (v) mortgaged, pledged or subjected to any lien, charge or other encumbrance, or granted to third parties any rights in, any of its assets, tangible or intangible; (vi) sold or transferred any of its assets, except in the ordinary course of business and consistent with past practice, or canceled or compromised any debts or waived any claims or rights of a material nature; (vii) issued any additional shares of capital stock or any rights, options or warrants to purchase, or securities convertible into or exchangeable for, shares of its capital stock other than options to purchase shares of the Parent Common Stock granted under its employee stock plans, shares of the Parent Common Stock issued upon exercise of employee stock options and shares of the Parent Common Stock issued upon the exercise of outstanding warrants; (viii) declared or paid any dividends on or made any distributions (however characterized) in respect of shares of its capital stock; (ix) repurchased or redeemed any shares of its capital stock; (x) granted any general or specific increase in the compensation payable or to become payable to any of its executive officers or any bonus or service award or other like benefit such persons; or (xi) entered into any agreement to do any of the foregoing. 5.6 Litigation. Except as set forth in Schedule 5.6 hereto, there are no suits, actions, claims, proceedings (including, without limitation, arbitral or administrative proceedings) or investigations pending or, to the knowledge of the Parent, threatened against the Parent or its properties, assets or business or, to the knowledge of the Parent, pending or threatened against any of the officers, directors, employees, agents or consultants of the Parent in connection with the business of the Parent. There are no such suits, actions, claims, proceedings or investigations pending, or, to the knowledge of the Parent, threatened challenging the validity or propriety of the transactions contemplated by this Agreement. There is no judgment, order, injunction, decree or award (whether issued by a court, an arbitrator or an administrative agency) to which the Parent is a party, or involving the Parent's properties, assets or business, which is unsatisfied or which requires continuing compliance therewith by the Parent. 5.7 Compliance with Applicable Law. Except as set forth in Schedule 5.7 the Parent is not in violation of any applicable safety, health, environmental or other law, statute, ordinance, code, rule, regulation, judgment, order, injunction, writ or decree of any Federal, state, local or foreign court or governmental or regulatory body, agency or authority having, asserting or claiming jurisdiction over it or over any part of its business, operations, properties or assets, except where any such violation would not have a Parent Material Adverse Effect. The Parent has not received any notice alleging any such violation, nor to the knowledge of the Parent, is there any inquiry, investigation or proceedings relating thereto. 5.8 Disclosure. No representation or warranty by the Parent or Acquisition contained in this Agreement and no statement contained in any of the Disclosure Schedules delivered or to be delivered pursuant to this Agreement contains or will contain, when considered together as a whole, any untrue statement of a material fact or omits or will omit to state any material fact necessary to make the statements contained therein not misleading. 5.9 The Parent Action. The Board of Directors of the Parent, by unanimous written consent or at a meeting duly called and held, has approved the Merger and this Agreement in accordance with the provisions of the DGCL. 5.10 Contracts. The Parent has filed as exhibits to the SEC Filings all agreements which are required by Rule 601 of Regulation S-K promulgated under the Securities Act to be filed with the SEC as material agreements. 5.11 Brokers Fees. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Parent. ARTICLE VI CONDUCT OF BUSINESS OF THE COMPANY AND THE PARENT PRIOR TO THE EFFECTIVE TIME 6.1 Conduct of Business of the Company. During the period commencing on the date hereof and continuing until the Effective Time, the Company and the Members agree that the Company, except as otherwise expressly contemplated by this Agreement or agreed to in writing by the Parent: (a) will carry on its business only in the ordinary course and consistent with past practice; (b) will not declare or pay any dividend on or make any other distribution (however characterized) in respect of shares of its capital stock; (c) will not, directly or indirectly, redeem or repurchase, or agree to redeem or repurchase, any Membership Units; (d) will not amend its Certificate of Organization or Operating Agreement; (e) will not issue, or agree to issue, any Membership Units, or any options, warrants or other rights to acquire Membership Units, or any securities convertible into or exchangeable for shares of its Membership Units; (f) will not combine, split or otherwise reclassify any of its Membership Units; (g) will not form a Subsidiary; (h) will use its commercially reasonable best efforts to preserve intact its present business organization, keep available the services of its officers and key employees and preserve its relationships with clients and others having business dealings with it to the end that its goodwill and ongoing business shall not be materially impaired at the Effective Time; (i) will not (i) make any capital expenditures individually in excess of $5,000 or in the aggregate in excess of $15,000, (ii) enter into any Agreement involving individually in excess of $5,000, (iii) enter into or terminate any lease of, or purchase or sell, any real property, (iv) enter into any leases of personal property involving individually in excess of $5,000 annually or in the aggregate in excess of $15,000 annually, (v) incur or guarantee any additional indebtedness for borrowed money, (vi) create or permit to become effective any security interest, mortgage, lien, charge or other encumbrance on its properties or assets, or (vii) enter into any agreement to do any of the foregoing; (j) will not adopt or amend any Benefit Plan for the benefit of Employees, or increase the salary or other compensation (including, without limitation, bonuses or severance compensation) payable or to become payable to its Employees or accelerate, amend or change the period of exercisability or the vesting schedule of options granted under any stock option plan or agreements except as specifically required by the terms of such plans or agreements, or enter into any agreement to do any of the foregoing; (k) will not accelerate receivables or delay payables; (l) will promptly advise the Parent of the commencement of, or threat of (to the extent that such threat comes to the knowledge of the Company, or any of the Members), any claim, action, suit, proceeding or investigation against, relating to or involving the Company or any of its Subsidiaries or any of their directors, officers, employees, agents or consultants in connection with their businesses or the transactions contemplated hereby that could reasonably be expected to have a Company Material Adverse Effect; (m) will use its commercially reasonable efforts to maintain in full force and effect all insurance policies maintained by the Company on the date hereof; and (n) will not enter into any agreement to dissolve, merge, consolidate or, except in the ordinary course, sell any material assets of the Company, or acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or substantial portion of the assets of, or by any other manner, any business or any corporation, partnership or other business organization or division, or otherwise acquire or agree to acquire any assets in excess of $10,000 in the aggregate other than tax liens acquired in the ordinary course of business in excess of $10,000 in the aggregate. 6.2 Other Negotiations. Neither the Company nor the Members will (nor will they permit any of their respective officers, directors, employees, agents, partners and affiliates on their behalf to) take any action to solicit, initiate, seek, encourage or support any inquiry, proposal or offer from, furnish any information to, or participate in any negotiations with, any corporation, partnership, person or other entity or group (other than the Parent) regarding any acquisition of the Company, any merger or consolidation with or involving the Company, or any acquisition of any material portion of the stock or assets of the Company, or any equity or debt financing of the Company or any material license of Intellectual Property Rights (any of the foregoing being referred to in this Agreement as an "Acquisition Transaction") or enter into an agreement concerning any Acquisition Transaction with any party other than the Parent. If between the date of this Agreement and the termination of this Agreement pursuant to Article X, the Company receives from a third party any offer to negotiate or consummate an Acquisition Transaction, the Company shall (i) notify the Parent immediately (orally and in writing) of such offer, including the identity of such party and the terms of any proposal therein, and (ii) notify such third party of the Company's obligations under this Agreement. ARTICLE VII ADDITIONAL AGREEMENTS 7.1 Access to Properties and Records. The Company and the Parent will provide each other and their respective accountants, counsel and other authorized advisors, with reasonable access, during business hours, to their premises and properties and their books and records (including, without limitation, contracts, leases, insurance policies, litigation files, minute books, accounts, working papers and tax returns filed and in preparation) and will cause its officers to furnish to each other and their respective authorized advisors such additional financial, tax and operating data and other information pertaining to their respective businesses as the Company or the Parent, as the case may be, shall from time to time reasonably request. All of such data and information shall be kept confidential by the Parent and the Company until the consummation of the Merger. 7.2 Transfer of Shares. The Members agree that they (i) shall not dispose of or in any way encumber their Membership Units prior to the consummation of the transactions contemplated hereby, (ii) shall take no action inconsistent with the approval and consummation of said transactions and (iii) at the Closing shall surrender the certificates representing all Membership Units owned by them, duly endorsed for transfer. 7.3 Reasonable Efforts; etc. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use his/its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including obtaining any consents, authorizations, exemptions and approvals from, and making all filings with, any governmental or regulatory authority, agency or body which are necessary in connection with the transactions contemplated by this Agreement. 7.4 Material Events. At all times prior to the Effective Time, each party shall promptly notify the others in writing of the occurrence of any event which will or may result in the failure to satisfy any of the conditions specified in Article VIII or Article IX hereof. 7.5 Fees and Expenses. The parties hereto shall bear and pay all of their own fees, costs and expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, accountants, brokers and financial advisors, except that the Members shall be responsible for all fees, costs and expenses incurred by the Company (except for expense incurred in connection with the audit performed in connection with the Closing), which shall be borne by the Surviving Corporation, in connection with this Agreement and the transactions contemplated hereby and such fees, costs and expenses shall be deemed expenses of the Members and paid by the Members. 7.6 Affiliates' Letters. Concurrently with the execution of the Agreement, all persons who are "affiliates" of the Company or Parent for purposes of Rule 145 under the Securities Act, agree to deliver to the Company, a signed, written Agreement, in the form attached as Exhibit C hereto. ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND ACQUISITION The obligation of the Parent and Acquisition to consummate the transactions contemplated hereby shall be subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions (any of which may be waived in writing by the Parent and Acquisition in their sole discretion): 8.1 Representations and Warranties True. The representations and warranties of the Company and the Members which are contained in this Agreement, or contained in any Schedule or certificate delivered or to be delivered pursuant to this Agreement, shall be true and correct in all material respects at and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, and at the Closing the Company shall have delivered to the Parent and Acquisition a certificate (signed on behalf of the Company by the Chief Executive Officer of the Company) to that effect with respect to all such representations and warranties made by the Company, and the Members shall have executed and delivered to the Parent and Acquisition a certificate to that effect with respect to all such representations and warranties made by the Members. 8.2 Performance. The Company and the Members shall have performed and complied in all material respects with all of the obligations under this Agreement which are required to be performed or complied with by them on or prior to the Closing Date, and at the Closing the Company shall have delivered to the Parent and Acquisition a certificate (duly executed on behalf of the Company by the Chief Executive Officer of the Company) to that effect with respect to all such obligations required to have been performed or complied with by the Company on or before the Closing Date, and the Members shall have executed and delivered to the Parent and Acquisition a certificate to that effect with respect to all such obligations required to have been performed or complied with by the Members on or before the Closing Date. 8.3 Absence of Litigation. No statute, rule or regulation shall have been enacted or promulgated, and no order, decree, writ or injunction shall have been issued and shall remain in effect, by any court or governmental or regulatory body, agency or authority which restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby, and no action, suit or proceeding before any court or governmental or regulatory body, agency or authority shall have been instituted by any person (or instituted or threatened by any governmental or regulatory body, agency or authority), and no investigation by any governmental or regulatory body, agency or authority shall have been commenced with respect to the transactions contemplated hereby or with respect to the Company which would have a material adverse effect on the transactions contemplated hereby or on the business of the Company taken as a whole. 8.4 Consents. All approvals, consents, waivers and authorizations required to be obtained by the Company or any Member in connection with the Merger and the other transactions contemplated by this Agreement (including those identified on Schedule 3.3) shall have been obtained and shall be in full force and effect. 8.5 Additional Agreements. The Parent shall have the following agreements: (i) the Employment and Non-Competition Agreement in the form of Exhibit D hereto, duly executed by Peter Reardon; (ii) the Escrow Agreement annexed as Exhibit B hereto, duly executed by the Members; and (iii)An executed Affiliate Letter in the form annexed as Exhibit C hereto duly executed by each person who is an affiliate (as such term is defined in Rule 145 of the Securities Act). 8.6 Opinion of Company Counsel. The Company shall have delivered to the Parent an opinion of counsel for the Company, in substantially the form attached as Exhibit E hereto. 8.7 Delivery of Certificates for Cancellation. The share certificates representing all of the issued and outstanding Membership Units as of the Closing Date, duly endorsed in blank, shall have been surrendered for cancellation. 8.8 Appraisal Rights. The holders of 100% of the issued and outstanding Membership Units shall have voted in favor of the approval of the Merger and the transactions contemplated hereby and no holders of Membership Units shall have demanded appraisal rights in respect of the Merger. 8.9 Articles/Certificate of Merger. The Company shall have executed and delivered to the Parent counterparts of the Articles of Merger and Certificate of Merger to be filed with the Arizona Corporation Commission and the Secretary of State of the State of Delaware, as required, in connection with the Merger. ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE MEMBERS The obligation of the Company and the Members to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or prior to the Closing Date, of each of the following conditions (any of which may be waived in writing by the -Company and the Members in their sole discretion): 9.1 Representations and Warranties True. The representations and warranties of each of the Parent and Acquisition contained in this Agreement, or contained in any Schedule, certificate or other instrument or document delivered or to be delivered pursuant to this Agreement, shall be true and correct in all material respects at and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date, and at the Closing each of the Parent and Acquisition shall have delivered to the Company and the Members a certificate (signed on its behalf by its President and its Chief Financial Officer) to that effect with respect to all such representations and warranties made by such entity. 9.2 Performance. Each of the Parent and Acquisition shall have performed and complied in all material respects with all of the obligations under this Agreement which are required to be performed or complied with by them on or prior to the Closing Date, and at the Closing each of the Parent and Acquisition shall have delivered to the Company and the Members a certificate, signed on its behalf by its President and its Chief Financial Officer, to that effect with respect to all such obligations required to have been performed or complied with by such entity on or before the Closing Date. 9.3 Absence of Litigation. No statute, rule or regulation shall have been enacted or promulgated, and no order, decree, writ or injunction shall have been issued and shall remain in effect, by any court or governmental or regulatory body, agency or authority which restrains, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby, and no action, suit or proceeding before any court or governmental or regulatory body, agency or authority shall have been instituted by any person (or instituted or threatened by any governmental or regulatory body, agency or authority) and no investigation by any governmental or regulatory body, agency or authority shall have been commenced with respect to the transactions contemplated hereby or with respect to the Parent or the Parent Subsidiaries which would have a material adverse effect on the transactions contemplated hereby or on the business of the Parent and the Parent Subsidiaries taken as a whole. 9.4 Consents. All approvals, consents, waivers and authorizations required to be obtained by the Parent or Acquisition in connection with the Merger and the other transactions contemplated by this Agreement (including those identified on Schedule 5.3) shall have been obtained and shall be in full force and effect. 9.5 Additional Agreements. The Parent shall have executed and delivered (and shall have agreed to cause the Surviving Corporation to execute and deliver immediately following the Effective Time, as applicable) counterparts of the following agreements; (i) the Employment and Non-Competition Agreement referred to in Section 8.7(i) hereof; (ii) the Escrow Agreement referred to in Section 8.7(ii) hereof, together with counterparts signed by the escrow agent named therein; 9.6 Opinion of Counsel for the Parent. The Parent shall have delivered to the Company an opinion of Counsel for the Parent in substantially the form annexed as Exhibit F hereto. 9.7 Articles/Certificate of Merger. The Parent and Acquisition shall have executed and delivered to the Company counterparts of the Articles of Merger and Certificate of Merger to be filed with the Arizona Corporation Commission and the Secretary of the State of the State of Delaware, as required, in connection with the Merger. ARTICLE X TERMINATION 10.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) by the mutual written consent of the Company and the Parent; (b) by either the Company or the Parent (i) if any court or governmental or regulatory agency, authority or body shall have enacted, promulgated or issued any statute, rule, regulation, ruling, writ or injunction, or taken any other action, restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and all appeals and means of appeal therefrom have been exhausted; or (ii) if the Effective Time shall not have occurred on or before June 30, 1999; provided, however, that the right to terminate this Agreement pursuant to this Section 10.1(b)(ii) shall not be available to any party whose (or whose affiliate(s)') breach of any representation or warranty or failure to perform or comply with any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; or (c) by the Company, if any of the conditions specified in Article IX have not been met or waived prior to such time as such condition can no longer be satisfied; or (d) by the Parent, if any of the conditions specified in Article VIII shall not have been met or waived prior to such time as such condition can no longer be satisfied. 10.2 Effect of Termination. In the event of termination of this Agreement, this Agreement shall forthwith become void and there shall be no liability on the part of any of the parties hereto or (in the case of the Company, the Parent and Acquisition) their respective officers or directors, except for Section 12.6 and the last sentence of Section 7.1, which shall remain in full force and effect, and except that nothing herein shall relieve any party from liability for a breach of this Agreement prior to the termination hereof. ARTICLE XI INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES 11.1 Indemnity Obligations. Subject to Section 11.4 hereof, the Members hereby jointly and severally agree to indemnify and hold the Parent harmless from, and to reimburse the Parent for, any Indemnity Claims (as that term is hereinafter defined) arising under the terms and conditions of this Agreement. For purposes of this Agreement, the term "Indemnity Claim" shall mean any and all actual losses, damages, deficiencies, liabilities, obligations, actions, claims, suits, proceedings, demands, assessments, judgments, recoveries, fees, costs and expenses (including, without limitation, all out-of-pocket expenses, reasonable investigation expenses and reasonable fees and disbursements of accountants and counsel), in each case only to the extent Parent incurs actual out-of-pocket damages and net of insurance proceeds actually realized by the Parent (collectively, "Losses") arising out of, based upon or resulting from (i) any inaccuracy in or breach of any representation and warranty of the Company or the Members which is contained in this Agreement or any Schedule or certificate delivered pursuant hereto or thereto; or (ii) any breach or nonfulfillment of, or any failure to perform, any of the covenants, agreements or undertakings of the Company (which covenants, agreements or undertakings were to be performed or complied with on or prior to the consummation of the Merger) or the Members which are contained in or made pursuant to the terms and conditions of this Agreement. Notwithstanding anything to the contrary contained herein, no Indemnity Claim made pursuant to this Article XI may be based on consequential damages sustained by the Parent. 11.2 Notification of Claims. Subject to the provisions of Section 11.3 below, in the event of the occurrence of an event which the Parent asserts constitutes an Indemnity Claim, the Parent shall provide the Members with prompt written notice of such event and shall otherwise promptly make available to the Members all relevant information which is material to the claim and which is in the possession of the indemnified party. If such event involves the claim of any third party (a "Third-Party Claim"), the Members as the indemnifying party shall have the right to elect to join in the defense, settlement, adjustment or compromise of any such Third-Party Claim, and, if he so elects to control such defense, settlement, adjustment or compromise, and to employ counsel to assist such indemnifying party in connection with the handling of such claim, at the sole expense of the indemnifying party, in the case of the Members as the indemnifying party, to be paid from amounts held in escrow by the Escrow Agent in accordance with the terms of the Escrow Agreement. Unless the Members elect to assume such defense, settlement, adjustment or compromise, the Parent shall have the right to settle any such Third-Party Claim; provided, however, that the Parent may not effect the settlement, adjustment or compromise of any such Third-Party Claim without the written consent of the Members, which consent shall not be unreasonably withheld. In the event that the Members have consented in writing to any such settlement, adjustment or compromise, the Members shall have no power or authority to object to the amount of any claim by the Parent against the escrow for indemnity with respect to such settlement, adjustment or compromise. The Members shall have the right to settle, adjust, or compromise any Third-Party Claim, the defense of which is controlled by the Members, using amounts held in escrow; provided, however, that, unless the settlement, adjustment or compromise involves no more than the payment of an amount that is less than the amount of funds then remaining in the escrow and provides for the unconditional release of the Parent, the Company and their respective affiliates, the Members may not effect the settlement, adjustment, compromise or satisfaction of any such Third-Party Claim without the consent of the Parent, which consent shall not be unreasonably withheld. The Parent's failure to give timely notice or to promptly furnish the Members with any relevant data and documents in connection with any Third-Party Claim shall not constitute a defense (in part or in whole) to any claim for indemnification by such party, except and only to the extent that such failure shall result in any prejudice to the indemnifying party. In connection with any Third-Party Claim, the indemnified party, or the indemnifying party if it has assumed the defense of such claim pursuant to the preceding sentence, shall diligently pursue the defense of such Third-Party Claim. 11.3 Duration. Except as otherwise provided in this Agreement, all representations, warranties, covenants and agreements of the parties contained in this Agreement, and the rights of the parties to seek indemnification with respect thereto, shall survive the Closing but, except in respect of any claims for indemnification as to which notice shall have been duly given prior to the Escrow Release Date (as defined below), the representations and warranties of the Company and the Members contained in this Agreement shall expire on the second anniversary of the Closing Date (the "Escrow Release Date"). To be duly given, any such notice shall set forth in reasonable detail the nature of such claim, the provisions under this Agreement pursuant to which such claim is being asserted and, to the extent feasible, a reasonable estimate of the anticipated amount of such claim ("Claim Notice"). 11.4 Escrow. At the Effective Time, the Escrow Shares shall be delivered to Arizona Escrow & Financial Corporation, as escrow agent (the "Escrow Agent"), to be held for a period ending, (i) with respect to fifty percent (50%) of the Escrow Shares, on the first anniversary of the Closing date and, (ii) with respect to the remaining Escrow Shares, on the Escrow Release Date, except Escrow Shares may be withheld after the Escrow Release Date to satisfy claims for indemnification which are the subject to a Claim Notice delivered prior to the Escrow Release Date. The Escrow Shares shall be held and disbursed by the Escrow Agent in accordance with the terms hereof and pursuant to the Escrow Agreement in the form attached hereto as Exhibit B. For the purpose of any claim against the Escrow Shares hereunder, the value per share of the Escrow Shares shall be deemed to be the Then Market Price. For purposes of this Agreement, the term "Then Market Price" shall means the last quoted sales price for Shares on the Nasdaq National market on the day on which an Indemnity Claim is made. Except with respect to claims based on fraud committed by the Company or the Members, which shall be unlimited as to amount recoverable, if the Closing occurs, the Parent agrees that the Parent's sole and exclusive remedy and recourse against the Members under this Agreement for Losses attributable to any inaccuracy or breach of any representation or warranty of the Company or the Members which is contained in this Agreement or any Schedule or certificate delivered pursuant hereto or thereto, other than Losses arising from breaches of the representations and warranties set forth in Sections 3.4 and 3.9 (the "Covered Representations"), shall be against the Escrow Shares. Except as provided in the next sentence, the maximum aggregate liability of the Members hereunder shall not exceed the value (determined by reference to the Then Market Price) of the Escrow Shares. Any claims for indemnification arising from any inaccuracy in or breach of any Covered Representations will not be subject to any limitation. 11.5 No Contribution. The Members hereby waive, and acknowledge and agree that the Members shall not have and shall not exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against the Parent, Acquisition, or the Company in connection with any indemnification payments which the Members are required to make under this Article XI. ARTICLE XII REGISTRATION RIGHTS 12.1 Registrable Shares. For purposes of this Agreement, "Registrable Shares" shall mean the shares of Parent Common Stock issued in the Merger, no longer subject to the terms of the Indemnification provisions of Article XI provided, however, that a distribution of shares of Parent Common Stock issued in the Merger without additional consideration, to underlying beneficial owners (such as the general and limited partners, shareholders of trust beneficiaries of a Member) shall not be deemed such a sale or transfer for purposes of this Article XII and such underlying beneficial owners shall be entitled to the same rights under this Article XII as the initial Member from which the Registrable Shares were received and shall be deemed a Member for the purposes of this Article XII. 12.2 Piggyback Registration (a) Right to Piggyback. Subject to the provisions of Article XI and the provisions of the Escrow Agreement, if at any time the Parent proposes to file a registration statement under the Securities Act for any shares of common stock or any options, warrants, units, convertibles, rights or other securities related or linked to any shares of such common stock (except with respect to registration statements on Form S-4 or S-8, or any other form not available for registering the Registrable Securities for sale to the public), with respect to an offering for its own account or for the account of another person (other than the holders of Registrable Securities in their capacity as such) of any class of security (a "Proposed Registration"), then the Parent shall in each case give written notice of such proposed filing to the holders of Registrable Securities at least forty-five (45) days before the anticipated filing date, and shall, include in such registration statement such amount of Registrable Securities as each such holder may request within twenty (20) days of the receipt of such notice. The Parent shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the holders of Registrable Securities requesting to be included in the registration for such offering to include such securities in such offering on the same terms and conditions as the securities of the Parent included therein. (b) Priority on Piggyback Registrations. If the managing underwriter or underwriters of such offering delivers a written opinion to the holders of Registrable Securities that the number of Registrable Securities which they and any other persons (including the Parent) intend to include in such offering exceeds the number which can be sold in such offering or is reasonably likely materially and adversely to affect the success or offering price of such offering, then the amount of securities to be offered for the accounts of holders of Registrable Securities shall be reduced as follows: first, the securities which the Parent proposes to sell; second, the Registrable Securities of the holders thereof who have made requests to be included in such registration, pro rata (in accordance with the number of Registrable Securities held by such holder requested to be included in such registration); and third, the securities requested to be included in such registration by other persons, pro rata in accordance with the number of such securities held by such persons requested to be included in such registration. (c) Selection of Underwriters. If any registration pursuant to this Article XII is an underwritten offering, the Parent will select a managing underwriter or underwriters to administer the offering, which managing underwriter or underwriters will be of nationally recognized standing. 12.3 Expenses. The costs and expenses to be borne by Parent for purposes of this Article XII shall include, without limitation, printing expenses (including a reasonable number of prospectuses for circulation by the selling Members), legal fees and disbursements of counsel for Parent, "blue sky" expenses, accounting fees and filing fees, but shall not include underwriting commissions or similar charges, legal fees (if any) and disbursements of counsel for the selling Members. 12.4 Indemnification. (a) To the extent permitted by law, Parent will indemnify and hold harmless each Member, any underwriter (as defined in the Securities Act) for such Member, its officers, directors, shareholders or partners and each person, if any, who controls such Member or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained or incorporated by reference in the Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (B) the omission or alleged omission to state or incorporate by reference therein a material fact required to be stated or incorporated by reference therein, or necessary to make the statements included or incorporated by reference therein not misleading, or (C) any violation or alleged violation by Parent of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and Parent will pay to each such Member (and its officers, directors, shareholders or partners), underwriter or controlling person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity Agreement contained in this Section 12.4(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of Parent (which consent may not be unreasonably withheld); nor shall Parent be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon (i) a Violation which occurs in reliance upon and in conformity with written information furnished by any such Member expressly for use in the Registration Statement, or (ii) a Violation that would not have occurred if such Member had delivered to the purchaser the version of the Prospectus most recently provided by Parent to the Member as of a date prior to such sale. (b) To the extent permitted by law, each selling Member, severally and not jointly, will indemnify and hold harmless Parent, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls Parent within the meaning of the Securities Act, any underwriter, any other Member selling securities pursuant to the Registration Statement and any controlling person of any such underwriter or other Member, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as, and only to the extent that, such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation (which includes without limitation the failure of the Member to comply with the prospectus delivery requirements under the Securities Act, and the failure of the Member to deliver the most current prospectus provided by Parent prior to the date of such sale), in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Member expressly for use in the Registration Statement or such Violation is caused by the Member's failure to deliver to the purchaser of the Member's Registrable Shares a prospectus (or amendment or supplement thereto) that had been made available to the Member by Parent prior to the date of the sale; and each such Member will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 12.4(b) in connection with investigating or defending any such loss, claim, damage, liability, or action;, however, that the indemnity Agreement contained in this Section 12.4(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Member, which consent shall not be unreasonably withheld. The aggregate indemnification and contribution liability of each Member under this Section 12.4(b) shall not exceed the net proceeds received by such Member in connection with sale of shares pursuant to the Registration Statement. (c) Each person entitled to indemnification under this Section 12.4 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim and any litigation resulting therefrom, provided that counsel for the Indemnifying Party who conducts the defense of such claim or any litigation resulting therefrom shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 12.4 unless the Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in the defense of any such claim or litigation, shall (except with the consent of each Indemnified Party) consent to entry of any judgment or enter into any settlement that 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. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. (d) To the extent that the indemnification provided for in this Section 12.4 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one had and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue of alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 12.5 Procedures for Sale of Shares Under Registration Statement. (a) Notice and Approval. Subject to the provisions of Article XI and the provisions of the Escrow Agreement, if any Member shall propose to sell (which may include an intent to sell over a specific period of time) Registrable Shares pursuant to the Registration Statement, it shall notify Parent of its intent to do so (including the proposed manner and timing of all sales) at least one (1) full trading day prior to such sale, and the provision of such notice to Parent shall conclusively be deemed to reestablish and reconfirm an Agreement by such Member to comply with the registration provisions set forth in this Agreement. Unless otherwise specified in such notice, such notice shall be deemed to constitute a representation that any information previously supplied by such Member expressly for inclusion in the Registration Statement (as the same may have been superseded by subsequent such information) is accurate as of the date of such notice. At any time within such one (1) trading-day period, Parent may refuse to permit the Member to resell any Registrable Shares pursuant to the Registration Statement; provided, however, that in order to exercise this right, Parent must deliver a certificate in writing to the Member to the effect that a delay in such sale is necessary because a sale pursuant to the Registration Statement in its then-current form without the addition of material, non-public information about Parent, could constitute a violation of the federal securities laws. Notwithstanding the foregoing, Parent will ensure that in any event the Members shall have at least ten (10) trading days (prorated for partial quarters) available to sell Registrable Shares during each calendar quarter (or portion thereof) from the Pooling Release Date until the expiration of the applicable Registration Effective Period. (b) Delivery of Prospectus. For any offer or sale of any of the Registrable Shares by a Member in a transaction that is not exempt under the Securities Act, the Member, in addition to complying with any other federal securities laws, shall deliver a copy of the final prospectus (or amendment of or supplement to such prospectus) of Parent covering the Registrable Shares in the form furnished to the Member by Parent to the purchaser of any of the Registrable Shares on or before the settlement date for the purchase of such Registrable Shares. (c) Copies of Prospectuses. Subject to the provisions of this Section 12.5, the provisions of Article XI and the provisions of the Escrow Agreement, when a Member is entitled to sell and gives notice of its intent to sell Registrable Shares pursuant to the Registration Statement, Parent shall, within two (2) trading days following the request, furnish to such Member a reasonable number of copies of a supplement to or in amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not as of the date of delivery to the Member include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein not misleading or incomplete in the light of the circumstances then existing. 12.6 Transferability of Registration Rights. The rights under this Article XII are not transferable except (a) a transfer by will or intestacy, (b) estate planning transfers consisting of gifts to the spouse or issue of the transferee and transfers to trusts for the benefit of the spouse or issue of the transferee, (c) a transfer to the constituent partners of a Member that is a partnership as part of a pro rata distribution of the shares of Parent Common Stock held by such partnership so long as all such transferees appoint a single representative as their attorney-in-fact for the purpose of receiving any notices and exercising their rights under this Article XII, or (d) with the written consent of Parent. ARTICLE XIII MISCELLANEOUS PROVISIONS 13.1 Amendment. This Agreement may be amended by written agreement among the Company and the Parent prior to the Effective Time. 13.2 Waiver of Compliance. Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant or agreement contained herein may be waived only by a written notice from the party or parties entitled to the benefits thereof. No failure by any party hereto to exercise, and no delay in exercising, any right hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or future exercise of that right by that party. 13.3 Notices. All notices and other communications hereunder shall be deemed given if given in writing and delivered personally, by registered or certified mail, return receipt requested, postage prepaid, or by overnight courier to the party to receive the same at its respective address set forth below (or at such other address as may from time to time be designated by such party to the others in accordance with this Section 13.3): (a) if to the Company, to: Ironwood Acceptance Company, LLC 13430 N. Scottsdale Road Suite 206 Scottsdale, AZ 85254 with copies to: (b) if to the Members, to: Richard Miller Mika Ag Corp. 7535 Hilltop Circle Suite 200 Denver, CO 80221 William Crisp 6051 East Cactus Wren Road Paradise Valley, AZ 85253 Peter Reardon 8550 East Bronco Trail Scottsdale, AZ 85255 (c) if to the Parent or Acquisition, to: Litchfield Financial Corporation 430 Main Street Williamstown, MA 01267 Attention: John Malloy, Esq. with copies to: Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Street Boston, MA 02110 Attention: James Westra, Esq. All such notices and communications hereunder shall be deemed given when received, as evidenced by the signed acknowledgment of receipt of the person to whom such notice or communication shall have been personally delivered, the acknowledgment of receipt returned to the sender by the applicable postal authorities or the confirmation of delivery rendered by the applicable overnight courier service. 13.4 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors (or, in the case of the Members, his heirs, administrators, executors and personal representatives) and permitted assigns. Neither this Agreement nor any rights, duties or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other parties hereto, except that vested rights to receive payment or to initiate legal action with respect to causes of action that have accrued hereunder shall be assignable by devise, descent or operation of law. 13.5 No Third Party Beneficiaries. Neither this Agreement or any provision hereof nor any Schedule, certificate or other instrument delivered pursuant hereto, nor any agreement to be entered into pursuant hereto or any provision hereof, is intended to create any right, claim or remedy in favor of any person or entity, other than the parties hereto and their respective successors (or, in the case of the Members, his heirs, administrators, executors and personal representatives) and permitted assigns and any other parties indemnified under Article XI. 13.6 Public Announcements. Promptly upon execution and delivery of this Agreement, the Parent and the Company shall issue a press release in such form as they shall mutually agree. Thereafter, and prior to the consummation of the Merger or the termination of this Agreement, none of the parties hereto shall, except as mutually agreed by the Parent and the Company, or except as may be required by law or applicable regulatory authority (including, without limitation, the rules applicable to Nasdaq National Market companies), issue any reports, releases, announcements or other statements to the public relating to the transactions contemplated hereby. 13.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13.8 Headings. The article and section headings contained in this Agreement are solely for convenience of reference, are not part of the agreement of the parties and shall not be used in construing this Agreement or in any way affect the meaning or interpretation of this Agreement. 13.9 Entire Agreement. This Agreement, and the Schedules, certificates and other instruments and documents delivered pursuant hereto, together with the other agreements referred to herein and to be entered into pursuant hereto, embody the entire agreement of the parties hereto in respect of, and there are no other agreements or understandings, written or oral, among the parties relating to, the subject matter hereof, other than the Confidentiality Agreements. This Agreement supersedes all prior agreements and understandings, written or oral, between the parties with respect to such subject matter, other than the Confidentiality Agreements. 13.10Governing Law. The parties hereby agree that this Agreement, and the respective rights, duties and obligations of the parties hereunder, shall be governed by and construed in accordance with the General Corporation Laws of the State of Delaware as to matters within the scope thereof and, as to all other matters shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of law thereunder. Each of the parties hereby (i) irrevocably consents and agrees that any legal or equitable action or proceeding arising under or in connection with this Agreement shall be brought exclusively in the Federal or state courts sitting in Boston, Massachusetts and any court to which an appeal may be taken in any such litigation, and (ii) by execution and delivery of this Agreement, irrevocably submits to and accepts, with respect to any such action or proceeding, for itself and in respect of its properties and assets, generally and unconditionally, the jurisdiction of the aforesaid courts, and irrevocably waives any and all rights such party may now or hereafter have to object to such jurisdiction. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the Parent, Acquisition, the Company and the Members named below have caused this Agreement to be duly executed and delivered as of the date first above written. LITCHFIELD FINANCIAL CORPORATION By: /s/ Joseph S. Weingarten Name: Joseph S. Weingarten Title: Executive Vice President STAMFORD ASSET RECOVERY CORPORATION By: /s/ Heather A. Sica Name: Heather A. Sica Title: Executive Vice President IRONWOOD ACCEPTANCE COMPANY, LLC By: /s/ Peter Reardon Name: Peter Reardon Title: General Manager MEMBERS: /s/ Richard Miller Richard Miller /s/ William Crisp William Crisp /s/ Peter Reardon Peter Reardon HWD2: 531809-6 EX-2 4 Exhibit 2.2 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered into as of the 1st day of April, 1999, by and among LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation ("Litchfield"), STAMFORD BUSINESS CREDIT CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Litchfield ("Stamford"), and LAND FINANCE CORPORATION., a Georgia corporation ("Land"). Stamford and Land are hereinafter sometimes referred to individually as a "Merging Corporation" and collectively as the "Merging Corporations." W I T N E S S E T H: WHEREAS, the Boards of Directors of Litchfield and Land have approved the acquisition of Land by Litchfield; and WHEREAS, the Boards of Directors of Litchfield, Stamford and Land have approved the merger of Land into Stamford (the "Merger"), pursuant to the provisions set forth in this Agreement and the transactions contemplated hereby, in accordance with the applicable provisions of the statutes of the States of Delaware and Georgia, which permit such Merger; and WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, each of the parties to this Agreement desires to make certain representations, warranties and agreements in connection with the Merger and also to describe various conditions. NOW, THEREFORE, for and in consideration of the mutual agreements, promises and covenants contained herein, the Merging Corporations do hereby agree, subject to the approval and adoption of the Agreement by the respective shareholders of all of the Merging Corporations, as hereinafter provided. I. NAMES OF MERGING AND SURVIVING CORPORATIONS The names of the corporations proposing to merge are Stamford Business Credit Corporation, a Delaware corporation, and Land Finance Corporation, a Georgia corporation. Stamford shall be the Surviving Corporation. Upon the Effective Date of Merger (as hereinafter defined), the name of the Surviving Corporation shall be "Stamford Business Credit Corporation." II. TERMS AND CONDITIONS OF PROPOSED MERGER A. The acts and things required to be done by the Georgia Business Corporation Code ("GBCC") in order to make the Agreement effective, including, but not limited to, the submission of this Agreement for the consent of the shareholders of Stamford and Land to the adoption and approval of this Agreement, the execution of a Certificate of Merger, the filing of the Certificate of Merger and the publication of the notice of such merger in the manner provided under the GBCC, shall be attended to and done by the proper officers of the Merging Corporations. B. This merger of Land into Stamford shall be effective on the later of April 1, 1999 or the filing of the Certificate of Merger with the Secretary of State of Georgia ("Effective Date of Merger"). C. This Agreement may be terminated by the mutual consent of the Boards of Directors of both of the Merging Corporations at any time prior to the issuance of a Certificate of Merger by the Secretary of State of Georgia. III. ARTICLES OF INCORPORATION, DIRECTORS AND OFFICERS OF SURVIVING CORPORATION The Articles of Incorporation of the Surviving Corporation shall not be changed in any manner as a result of this merger. The By-Laws of the Surviving Corporation shall not be changed in any manner as a result of this merger. From and after the Effective Date of Merger, the directors and officers of Stamford shall be the directors and officers of the Surviving Corporation IV. MANNER AND BASIS OF CONVERSION OF SHARES OF STOCK A. Upon the Effective Date of Merger, by virtue of the Merger and without any action on the part of any holder of any capital stock of Land, the manner and basis of converting the shares of stock of Land into shares of stock of Stamford shall be as follows: (1) all shares of Common Stock, no par value per share, of Land ("Land Common Stock") owned by Litchfield or any subsidiary of Litchfield or Land shall be canceled and shall cease to exist from and after the Effective Date of Merger; and (2) the remaining 16,020 issued and outstanding shares of Land Common Stock, shall be converted into, and become exchangeable for, 9,092 shares of validly issued, fully paid and nonassessable common stock, without par value, of Litchfield owned by Stamford ("Litchfield Common Stock"). Each owner of Land Common Stock will receive Litchfield Common Stock in proportion to his or her current ownership of Land Common Stock, or .5675 shares of Litchfield Common Stock for each share of Land Common Stock. The consideration referred to in this Section A is hereinafter referred to as the "Merger Consideration." B. At the Effective Date of Merger, by virtue of the Merger and without any action on the part of any holder of any capital stock of Stamford, each issued and outstanding share of common stock of Stamford shall continue unchanged and remain outstanding as a share of common stock of the Surviving Corporation. C. The exchange of capital stock certificates shall take place as follows: (1) As soon as practical after the Effective Date of Merger, Litchfield shall make available to the Exchange Agent the certificates representing shares of Litchfield Common Stock required to effect the exchange referred to in Section C(2) of this Article IV. Shares of Litchfield Common Stock into which shares of Land Common Stock shall be converted in the Merger shall be deemed to have been issued at the Effective Date of Merger. (2) As soon as practical after the Effective Date of Merger, each holder of a certificate of Land Common Stock, shall receive in exchange therefor, upon surrender thereof to Lawler & Tanner, P.C. (the "Exchange Agent"), a certificate or certificates representing the number of shares of Litchfield Common Stock into which such holder's shares of Land Common Stock were converted pursuant to Section A hereof. Until so surrendered, each such outstanding certificate of Land Common Stock shall be deemed for all corporate purposes to evidence the applicable ownership interest of the number of shares of Litchfield Common Stock. D. From and after the Effective Date of Merger, the stock transfer books of Land shall be closed and no transfer of shares of Land Common Stock shall thereafter be made. If, after the Effective Date of Merger, Land Certificates are presented to Litchfield, they shall be canceled and exchanged for the Merger Consideration in accordance with the procedures set forth in this Article IV. IV. CONTINUITY OF INTEREST A. The holders of Land Common Stock represent and warrant that they, individually, have, and as of the Effective Date of Merger will have, no present plan, intention or arrangement to sell, transfer or otherwise dispose of a number of shares of Litchfield Common Stock to be received in the Merger that would reduce former Land's shareholders' ownership of Litchfield Common Stock to a number of shares having a value, as of the date of the Merger, of less than fifty percent (50%) of the value of all of the issued and outstanding capital stock of Land immediately prior to the Effective Date of Merger. B. Each holder of Land Common Stock agrees that prior to the Effective Date of Merger, he or she will not sell, transfer, or otherwise dispose of any Land Common Stock without the consent of all the other holders of Land Common Stock. C. Each Land shareholder agrees that, for a period of one year after the Effective Date of Merger (the "Post-Merger Continuity Period"), he or she will not sell, transfer or otherwise dispose of any Litchfield Common Stock without the consent of all the other pre-merger holders of Land. V. REPRESENTATIONS AND WARRANTIES A. Representations and Warranties of Litchfield and Stamford. Litchfield and Stamford make the following warranties and representations to Land, its successors and assigns, each of which is true and correct as of the date of this Agreement and on and as of the Effective Date of Merger, with the understanding that all of the warranties and representations contained herein shall survive the Effective Date of Merger: (1) Litchfield and Stamford are duly organized, validly existing and in good standing under the laws of the jurisdictions of incorporation or organization; Litchfield and Stamford have the full corporate power, authority and legal right to execute and deliver this Agreement and all other documents and instruments contemplated hereby, to perform their respective obligations and to comply with the terms and conditions hereunder and thereunder; this Agreement and all documents and instruments contemplated hereby have been duly executed and delivered and constitute the valid, legal, binding and enforceable obligations of Litchfield and Stamford, regardless of whether such enforcement is sought in a proceeding in equity or at law; and all requisite corporate action has been taken by Litchfield and Stamford to make this Agreement and all other documents and instruments contemplated hereby valid and binding upon Litchfield and Stamford in accordance with their terms; (2) The consummation of the Merger contemplated by this Agreement will not conflict with or result in a breach of any of the terms, conditions or provisions of Litchfield's or Stamford's organizational documents or any legal restriction or any agreement or instrument to which Litchfield and Stamford is now a party or by which each is bound, or constitute a default or result in an acceleration under any of the foregoing, or result in the violation of any law, rule, regulation, order, judgment or decree to which Litchfield, Stamford or any of their property is subject; (3) No consent of any other party and no consent, approval, authorization or order of, or registration or filing with, or notice to any court or governmental agency or body is required for the consummation of the Merger by Litchfield or Stamford, or if required, such approval has been obtained; (4) Both Litchfield and Stamford have made all requisite filings with the Securities and Exchange Commission ("SEC Filings"); and such filings contain true and accurate information in all material respects; and (5) Litchfield and Stamford understand and agree that Land, without independent investigation, is relying upon the above representations and warranties in contemplating the Merger. Litchfield and Stamford further agree that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect after the Merger. B. Representations and Warranties of Land. Land makes the following warranties and representations to Litchfield and Stamford, their successors and assigns, each of which is true and correct as of the date of this Agreement and on and as of the Effective Date of Merger, with the understanding that all of the warranties and representations contained herein shall survive the Effective Date of Merger: (1) Land is duly organized and validly existing under the laws of the jurisdiction of incorporation or organization; Land has the full corporate power, authority and legal right to execute and deliver this Agreement and all other documents and instruments contemplated hereby, to perform its obligations and to comply with the terms and conditions hereunder and thereunder; this Agreement and all documents and instruments contemplated hereby have been duly executed and delivered and constitute the valid, legal, binding and enforceable obligations of Land, regardless of whether such enforcement is sought in a proceeding in equity or at law; and all requisite corporate action has been taken by Land to make this Agreement and all other documents and instruments contemplated hereby valid and binding upon Land in accordance with their terms; (2) The consummation of the Merger contemplated by this Agreement will not conflict with or result in a breach of any of the terms, conditions or provisions of Land's organizational documents or any legal restriction or any agreement or instrument to which Land is now a party or by which it is bound, or constitute a default or result in an acceleration under any of the foregoing, or result in the violation of any law, rule, regulation, order, judgment or decree to which Land or any of its property is subject; (3) No consent of any other party and no consent, approval, authorization or order of, or registration or filing with, or notice to any court or governmental agency or body is required for the consummation of the Merger by Land, or if required, such approval has been obtained; (4) The authorized capital stock of Land Finance consists solely of one hundred thousand (100,000) shares of Land Finance Common Stock, of which twenty-two thousand three hundred fifty-three and one-third (22,353 1/3) shares are outstanding. All of the issued and outstanding shares of Land Finance Common Stock are duly authorized and validly issued, and are fully paid, non-assessable and free of preemptive rights; and (5) Land Finance has no subsidiaries. VI. EFFECT OF MERGER Upon the Effective Date of Merger: A. The separate existence of Land shall cease. B. The Surviving Corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all of the duties and liabilities of a corporation organized under the laws of the State of Delaware. C. The Surviving Corporation shall possess all the rights, privileges, immunities and franchises, whether of a public or a private nature, of all of the Merging Corporations. D. All property, real, personal and mixed, and all debts due on whatever account, including subscriptions to shares, and all other choses in action, and all and every other interest of or belonging to or due to all of the Merging Corporations shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed. E. The title to any real estate, or any interest therein, vested in any of the Merging Corporations, shall not revert or be in any way impaired by reason of the merger. F. The Surviving Corporation shall thenceforth be responsible and liable for all the liabilities and obligations of all of the Merging Corporations. G. Any claims existing or actions or proceedings pending by or against any of the Merging Corporations may be prosecuted as if the merger had not taken place, or the Surviving Corporation may be substituted in its place. H. Neither the rights of creditors nor any liens upon the property of any of the Merging Corporations shall be impaired by the Merger. VII. SERVICE OF PROCESS The Surviving Corporation may be served with process in the State of Georgia in any proceeding of enforcement of any obligation of Land, as well as for enforcement of any obligation of the Surviving Corporation arising from the merger. VIII. PLAN OF REORGANIZATION The Merging Corporations hereby adopt a plan of reorganization pursuant to the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended, to be effectuated in the manner herein set forth. IX. GENERAL PROVISIONS A. Land agrees that from time to time, as and when requested by Stamford or by its successors or assigns, it will execute and deliver, or cause to be executed and delivered, all such deeds and other instruments, and will take or cause to be taken such further or other action, as the Surviving Corporation may deem necessary or desirable, in order more fully to vest in and confirm to the Surviving Corporation title to and possession of all property, rights, privileges, powers and franchises of Land and otherwise to carry out the intent and purposes of this Agreement. B. Any number of counterparts of this Agreement may be signed and delivered and each shall be considered an original and together they shall constitute one agreement. C. This Agreement shall be construed and performed in accordance with the laws of the State of Georgia. The rights and liabilities of the parties shall bind and inure to the benefit of their respective successors and assigns. D. This Agreement constitutes the entire agreement among the parties pertaining to its subject matter and supersedes all prior agreements and understandings of the parties in connection therewith. This Agreement cannot be changed or terminated orally, nor shall any change, termination or attempted waiver of any of the provisions of this Agreement be binding on any Merging Corporation unless in writing signed by its President. [the remainder of this page is intentionally left blank] IN WITNESS WHEREOF, all of the Merging Corporations have caused this Agreement and Plan of Merger to be executed on their behalf and their respective corporate seals affixed and the foregoing attested, all by their dully authorized officers on the day and year first above specified. LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation By:/s/ Joseph S. Weingarten Name: Joseph S. Weingarten Title: Executive Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] [SIGNATURES CONTINUED FROM PREVIOUS PAGE] STAMFORD BUSINESS CREDIT CORPORATION, a Delaware corporation By:/s/ Joseph S. Weingarten Name: Joseph S. Weingarten Title: Executive Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] EX-4 5 Exhibit 4.12 LITCHFIELD FINANCIAL CORPORATION AND THE BANK OF NEW YORK, AS TRUSTEE JUNIOR SUBORDINATED INDENTURE DATED AS OF MAY 19, 1999 JUNIOR SUBORDINATED DEBENTURES TABLE OF CONTENTS
Page ARTICLE 1 Definitions Section 1.01. Definitions..................................................................................2 ARTICLE 2 Issue Description, Terms, Execution Registration and Exchange of Debentures Section 2.01. Designation, Terms, Amount, Authentication and Delivery of Debentures................................................................................8 Section 2.02. Form of Debenture and Trustee's Certificate.................................................11 Section 2.03. Date and Denominations of Debentures and Provisions for Payment of Principal, Premium and Interest.............................................................11 Section 2.04. Execution of Debentures.....................................................................12 Section 2.05. Exchange of Debentures......................................................................14 Section 2.06. Temporary Debentures........................................................................15 Section 2.07. Mutilated, Destroyed, Lost or Stolen Debentures.............................................15 Section 2.08. Cancellation of Surrendered Debentures......................................................16 Section 2.09. Provisions of Indenture and Debentures for Sole Benefit of Parties and Debentureholders........................................................................16 Section 2.10. Appointment of Authenticating Agent.........................................................16 Section 2.11. Global Debentures...........................................................................17 Section 2.12. Cusip Numbers...............................................................................19 ARTICLE 3 Redemption of Debentures and Sinking Fund Provisions Section 3.01. Redemption..................................................................................19 Section 3.02. Notice of Redemption........................................................................19 Section 3.04. Sinking Funds for Debentures................................................................21 Section 3.05. Satisfaction of Sinking Fund Payments with Debentures.......................................21 Section 3.06. Redemption of Debentures for Sinking Fund...................................................22 ARTICLE 4 Particular Covenants of the Company Section 4.01. Payment of Principal of (And Premium, If Any) and Interest on Debentures..................................................................22 i Section 4.02. Maintenance of Office or Agent for Payment of Debentures, Designation of Office or Agency for Payment, Registration, Transfer and Exchange of Debentures.........................................................22 Section 4.03. Duties of Paying Agent; Company as Payment Agent; and Holding Sums in Trust...............................................................................22 Section 4.04. Appointment to Fill Vacancy in Office of Trustee............................................23 ARTICLE 5 Debentureholders Lists and Reports by the Company and the Trustee Section 5.01. Company to Furnish Trustee Information as to Names and Addresses of Debentureholders...............................................................23 Section 5.02. Trustee to Preserve Information as to Names and Addresses of Debentureholders............................................................................24 Section 5.03. Annual and Other Reports to Be Filed by Company with the Trustee............................25 Section 5.04. Trustee to Transmit Annual Report to Debentureholders.......................................26 ARTICLE 6 Remedies of the Trustee and Debentureholders on Event of Default Section 6.01. Events of Default Defined...................................................................26 Section 6.02. Covenant of Company to Pay to Trustee Whole Amount Due on Debentures on Default in Payment of Interest or Principal (And Premiums, If Any)......................................................................29 Section 6.03. Application of Moneys Collected by Trustee..................................................30 Section 6.04. Limitation on Suits by Holders of Debentures................................................31 Section 6.05. Remedies Cumulative; Delay or Omission in Exercise of Rights Not Waiver of Default.......................................................................32 Section 6.06. Rights of Holders of Majority in Principal Amount of Debentures to Direct Trustee and to Waive Defaults.....................................................32 Section 6.07. Trustee to Give Notice of Defaults Known to It, but May Withhold in Certain Circumstances....................................................................33 Section 6.08. Requirements of an Undertaking to Pay Costs in Certain Suits under Indenture or Against Trustee..........................................................33 ARTICLE 7 Concerning the Trustee Section 7.01. Upon Event of Default Occurring and Continuing, Trustees Shall Exercise Powers Vested in It, and Use Same Degree of Care and Skill in Their Exercise, as Prudent Individual Would Use................................34 Section 7.02. Certain Rights of the Trustee...............................................................35 ii Section 7.03. Trustee Not Liable for Recitals in Indenture or in Debentures...............................37 Section 7.04. Trustee, Paying Agent or Debenture Registrar May Own Debentures.............................37 Section 7.05. Moneys Received by Trustee to Be Held in Trust Without Interest.............................37 Section 7.06. Trustee Entitled to Compensation, Reimbursement and Indemnity...............................38 Section 7.07. Right of Trustee to Rely on Certificate of Officers of Company Where No Other Evidence Specifically Prescribed.............................................38 Section 7.08. Disqualification; Conflicting Interests.....................................................39 Section 7.09. Requirements for Eligibility of Trustee.....................................................39 Section 7.10. Resignation of Trustee and Appointment of Successor.........................................39 Section 7.11. Acceptance by Successor to Trustee..........................................................41 Section 7.12. Successor to Trustee by Merger, Consolidation or Succession to Business.................................................................................42 Section 7.13. Preferential Collection of Claims Against the Company.......................................42 ARTICLE 8 Concerning the Debentures Section 8.01. Evidence of Action by Debentureholders......................................................42 Section 8.02. Proof of Execution of Instruments and of Holding of Debentures..............................43 Section 8.03. Who May Be Deemed Owners of Debentures......................................................43 Section 8.04. Debentures Owned by the Company or Controlled or Controlling Companies Disregarded for Certain Purposes..................................................43 Section 8.05. Instruments Executed by Debentureholders Bind Future Holders................................44 ARTICLE 9 Supplemental Indentures Section 9.01. Purposes for Which Supplemental Indenture May Be Entered into Without Consent of Debentureholders.........................................................44 Section 9.02. Modification of Indenture with Consent of Debentureholders..................................46 Section 9.03. Effect of Supplemental Indentures...........................................................47 Section 9.04. Debentures May Bear Notation of Changes by Supplemental Indentures..................................................................................47 Section 9.05. Opinion of Counsel..........................................................................47 iii ARTICLE 10 Consolidation, Merger, Sale or Conveyance Section 10.01. Company May Consolidate, Etc. on Certain Terms............................................48 Section 10.02. Successor Corporation Substituted.........................................................48 Section 10.03. Opinion of Counsel........................................................................48 ARTICLE 11 Stisfaction and Discharge of Indenture; Unclaimed Moneys Section 11.01. Satisfaction and Discharge of Indenture.....................................................48 Section 11.02. Application by Trustee of Funds Deposited for Payment of Debentures..................................................................................51 Section 11.03. Repayment of Moneys Held by the Paying Agent................................................51 Section 11.04. Repayment of Moneys Held by the Trustee.....................................................51 Section 11.05. Indemnification Relating to Governmental Obligations........................................51 ARTICLE 12 Imunity of Incorporators, Stockholders, Officers and Directors Section 12.01. Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability............................................................52 ARTICLE 13 Micellaneous Provisions Section 13.01. Successors and Assigns of Company Bound by Indenture........................................52 Section 13.02. Acts of Board, Committee or Officer of Successor Company Valid..............................52 Section 13.03. Surrender of Powers of the Company..........................................................53 Section 13.04. Required Notices or Demands May Be Served by Mail...........................................53 Section 13.05. Indenture and Debentures to Be Construed in Accordance with Laws of the State of New York...............................................................54 Section 13.06. Officer's Certificate and Opinion of Counsel to Be Furnished upon Application or Demands by Company; Statements to Be Included in Each Certificate or Opinion with Respect to Compliance with Condition or Covenant..................................................................53 Section 13.07. Payments Due on Sundays or Holidays.......................................................53 Section 13.08. Provisions Required by Trust Indenture Act of 1939 to Control...............................54 Section 13.09. Indenture May Be Executed by its Counterparts...............................................54 Section 13.10. Separability of Indenture Provisions........................................................54 Section 13.11. Assignment by Company to a Subsidiary or Affiliate..........................................54 iv Section 13.12. Holders of Preferred Securities as Third Party Beneficiaries of the Indenture; Holders of Preferred Securities May Institute Legal Proceedings Against the Company in Certain Cases............................................54 ARTICLE 14 Sbordination of Debentures Section 14.01. Agreement to Subordinate....................................................................55 Section 14.02. Default on Senior Debt......................................................................55 Section 14.03. Liquidation; Dissolution; Bankruptcy........................................................56 Section 14.04. Subrogation of Debentures...................................................................57 Section 14.05. Authorization by Debentureholders...........................................................58 Section 14.06. Notice to Trustee...........................................................................58 Section 14.07. Trustee's Relation to Senior Debt...........................................................59 Section 14.08. No Impairment to Subordination..............................................................59 Section 14.09. Article Applicable to Paying Agents.........................................................60 Section 14.10. Trust Moneys Not Subordinated...............................................................60
v THIS JUNIOR SUBORDINATED INDENTURE, is dated as of the 19th day of May, 1999, between Litchfield Financial Corporation, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts (hereinafter sometimes referred to as the "Company"), and The Bank of New York, a New York banking corporation, as Trustee (hereinafter sometimes referred to as the "Trustee"): WHEREAS, for its lawful corporate purposes, the Company has fully authorized the execution and delivery of this Indenture to provide for the issuance of unsecured junior subordinated debentures (hereinafter referred to as the "Debentures"), in an unlimited aggregate principal amount to be issued from time to time in one or more series in accordance with the terms of this Indenture, as registered Debentures without coupons, to be authenticated by the certificate of the Trustee; WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; WHEREAS, the Debentures and the certificate of authentication to be borne by the Debentures (the "Certificate of Authentication") are to be substantially in such forms as may be approved by the Board of Directors (as defined below) or set forth in any indenture supplemental to this Indenture; and WHEREAS, all acts and things necessary to make the Debentures issued pursuant hereto, when executed by the Company and authenticated and delivered by the Trustee in accordance with the terms of this Indenture, the valid, binding and legal obligations of the Company, and to constitute a valid indenture and agreement according to its terms, have been done and performed or will be done and performed prior to the issuance of such Debentures, and the execution of this Indenture has been and the issuance hereunder of the Debentures has been or will be prior to issuance in all respects duly authorized, and the Company, in the exercise of the legal right and power in it vested, executes this Indenture and proposes to make, execute, issue and deliver the Debentures; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Debentures are and are to be authenticated, issued and delivered, and in consideration of the premises and of the acquisition and acceptance of the Debentures by the holders thereof, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit (subject to the provisions of this Indenture) of the respective holders from time to time of the Debentures, without any discrimination, preference or priority of any one Debenture over any other by reason of priority in the time of issue, sale or negotiation thereof, or otherwise, except as provided herein, as follows: 1 ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS. The terms defined in this Section (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture, any resolution of the Board of Directors of the Company and of any indenture supplemental hereof shall have the respective meanings specified in this Section. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939, as amended, or which are by reference in such Act defined in the Securities Act of 1933, as amended (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of this instrument. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, no Litchfield Capital Trust to which Debentures have been issued shall be deemed to be an Affiliate of the Company. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" means an authenticating agent with respect to all or any of the series of Debentures, as the case may be, appointed with respect to all or any series of the Debentures, as the case may be, by the Trustee pursuant to Section 2.10. "Board of Directors" means the Board of Directors of the Company, or any committee of such Board duly authorized to act hereunder. "Board Resolution" means a copy of one or more resolutions, certified by the secretary or an assistant secretary of the Company to have been adopted or consented to by the Board of Directors and to be in full force and effect, and delivered to the Trustee. "Business Day," with respect to any series of Debentures, means any day other than (i) a Saturday or a Sunday, (ii) a day on which banking institutions in the Borough of Manhattan, The City and State of New York or Boston, Massachusetts are authorized or obligated by law or executive order to close or (iii) a day on which the Corporate Trust Office of the Trustee, or, with respect to Debentures of a series initially issued to a Litchfield Capital Trust, the principal corporate trust office of the Property Trustee under the related Declaration of Trust, is closed for business. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer, the principal accounting officer or the Treasurer of the Company. The Certificate need not comply with the provisions of Section 13.06. 2 "Common Securities" means the common undivided beneficial interests in the assets of the applicable Litchfield Capital Trust. "Company" means Litchfield Financial Corporation, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts, and, subject to the provisions of Article 10, shall also include its successor and assigns. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of the execution of this Indenture is located at 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Trustee Administration. "Debenture" or "Debentures" means any Debenture or Debentures, as the case may be, authenticated and delivered under this Indenture. "Debenture Register" has the meaning assigned in Section 2.05(b). "Debenture Registrar" has the meaning assigned in Section 2.05(b). "Debentureholder," "holder of Debentures," "registered holder," or other similar term, means the person or persons in whose name or names a particular Debenture shall be registered on the books of the Company kept for the purpose in accordance with the terms of this Indenture. "Debt" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) all obligations of such Person in respect of letters of credit or bankers' acceptances or other similar instruments (or reimbursement obligations thereto) issued on the account of such person, (iv) all obligations of such person to pay the deferred purchase price of property or services, except Trade Payables, (v) all obligations of such Person as lessee under capitalized leases, (vi) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; provided that, for purposes of determining the amount of any Debt of the type described in this clause (vi), if recourse with respect to such Debt is limited to such asset, the amount of such Debt shall be limited to the lesser of the fair market value of such asset or the amount of such Debt, (vii) all Debt of others Guaranteed by such Person to the extent such Debt is Guaranteed by such Person, and (viii) to the extent not otherwise included in this definition, all obligations of such Person for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity prices, forward contracts, options, swaps, collars and similar arrangements. "Declaration of Trust" means the Amended and Restated Declaration of Trust of a Litchfield Capital Trust, if any, specified in the applicable Board Resolution or supplemental indenture establishing a particular series of Debentures pursuant to Section 2.01 hereof. 3 "Default" means any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default hereunder. "Depositary" means with respect to Debentures of any series, for which the Company shall determine that such Debentures will be issued as one or more Global Debentures, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Exchange Act or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.01 or 2.11. "Event of Default," with respect to Debentures of a particular series means any event specified in Section 6.01(a), continued for the period of time, if any, and the giving of the notice, if any, therein designated. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Global Debenture" means, with respect to any series of Debentures, a Debenture in the form prescribed in Section 2.11 executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "Governmental Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such Governmental Obligation or a specific payment of principal of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depository receipt. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Debt of other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); 4 provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Indenture" means this instrument as originally executed, or, if amended or supplemented as herein provided, as so amended or supplemented. "Interest Payment Date" when used with respect to any installment of interest on a Debenture of a particular series means the date specified in such Debenture or in a Board Resolution or in an indenture supplemental hereto with respect to such series as the fixed date on which an installment of interest with respect to Debentures of that series is due and payable. "Lien" means, with respect to any property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such property. For purposes of this Indenture, the Company shall be deemed to own subject to a Lien any property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property. "Litchfield Capital Trust" means any statutory business trust created under the laws of the State of Delaware as specified in the applicable Board Resolution or supplemental indenture establishing a particular series of Debentures pursuant to Section 2.01 hereof. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Comptroller or an Assistant Comptroller or the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Each such certificate shall include the statements provided for in Section 13.06, if and to the extent required by the provisions thereof. "Opinion of Counsel" means an opinion in writing signed by legal counsel, who may be counsel for the Company, a Litchfield Capital Trust or the Trustee, which may be an employee of the Company but not an employee of a Litchfield Capital Trust or the Trustee, and who shall be reasonably acceptable to the Trustee. Each such opinion shall include the statements provided for in Section 13.06, if and to the extent required by the provisions thereof. "Outstanding," when used with reference to Debentures of any series, subject to the provisions of Section 8.01, means, as of any particular time, all Debentures of that series theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore cancelled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or which have previously been cancelled; (b) Debentures or portions thereof for the payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust for the holders of such Debentures by the Company (if the Company shall act as its own paying agent); provided, however, that if such Debentures or portions of such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article 3 5 provided, or provision satisfactory to the Trustee shall have been made for giving such notice; (c) Debentures paid pursuant to Section 2.07; and (d) Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.07; provided, however, that in determining whether the holders of the requisite principal amount of Outstanding Debentures are present at a meeting of holders of Debentures for quorum purposes or have consented to or voted in favor of any request, demand, authorization, direction, notice, consent, waiver, amendment or modification hereunder, Debentures held for the account of the Company, any of its subsidiaries or any of its Affiliates shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in making such a determination or relying upon any such quorum, consent or vote, only Debentures which the Trustee actually knows to be so owned shall be so disregarded. "Person" means any individual, corporation, estate, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment," when used with respect to the Debentures of any series, means the place or places where the principal of and any premium and interest on the Debentures of that series are payable as specified as contemplated by Section 2.01. "Predecessor Debenture" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.07 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" means the preferred undivided beneficial interests in the assets of the applicable Litchfield Capital Trust. "Property Trustee" means the entity performing the function of the Property Trustee under the applicable Declaration of Trust of a Litchfield Capital Trust. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Securities Act" means the Securities Act of 1933, as amended. 6 "Security Exchange" when used with respect to the Debentures of any series which are held as trust assets of a Litchfield Capital Trust pursuant to the Declaration of Trust of such Litchfield Capital Trust, means the distribution of the Debentures of such series by such Litchfield Capital Trust in exchange for the Preferred Securities and Common Securities of such Litchfield Capital Trust in dissolution of such Litchfield Capital Trust pursuant to the Declaration of Trust of such Litchfield Capital Trust. "Senior Debt" means the principal of (and premium, if any) and interest on all Debt of the Company whether created, incurred or assumed before, on or after the date of this Indenture; provided that such Senior Debt shall not include (i) Debt of the Company that, when incurred and without respect to any election under Section 1111(b) of Title 11, U.S. Code, was without recourse, and (ii) any other Debt of the Company which by the terms of the instrument creating or evidencing the same is specifically designated as being subordinated to or pari passu with the Debentures, and in particular the Debentures shall rank pari passu with all other debt securities and guarantees issued to any trust, partnership or other entity affiliated with the Company which is a financing vehicle of the Company in connection with an issuance of preferred securities by such financing entity. "Subsidiary" means any corporation at least a majority of whose outstanding voting stock shall at the time be owned, directly or indirectly, by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. For the purposes only of this definition of the term "Subsidiary," the term "voting stock," as applied to the stock of any corporation shall mean stock of any class or classes having ordinary voting power for the election of a majority of the directors of such corporation, other than stock having such power only by reason of the occurrence of a contingency. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "Trustee" means The Bank of New York, a New York banking corporation, and, subject to the provisions of Article 7, shall also include its successors and assigns, and, if at any time there is more than one person acting in such capacity hereunder, "Trustee" shall mean each such person. The term "Trustee" as used with respect to a particular series of the Debentures shall mean the trustee with respect to that series. "Trust Indenture Act," subject to the provisions of Section 9.01 and 9.02, means the Trust Indenture Act of 1939, as amended and in effect at the date of execution of this Indenture. 7 ARTICLE 2 ISSUE DESCRIPTION, TERMS, EXECUTION REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. DESIGNATION, TERMS, AMOUNT, AUTHENTICATION AND DELIVERY OF DEBENTURES. The aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is unlimited. The Debentures may be issued in one or more series up to the aggregate principal amount of Debentures of that series from time to time authorized by or pursuant to a Board Resolution or pursuant to one or more indentures supplemental hereto, prior to the initial issuance of Debentures of a particular series. Prior to the initial issuance of Debentures of any series, there shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto: (1) the title of the Debentures of the series (which shall distinguish the Debentures of the series from all other Debentures); (2) any limit upon the aggregate principal amount of the Debentures of that series which may be authenticated and delivered under this Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures of that series); (3) the date or dates on which the principal of the Debentures of the series is payable and the right to shorten, extend or defer such date or dates; (4) the rate or rates at which the Debentures of the series shall bear interest or the manner of calculation of such rate or rates, if any; (5) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination of such Interest Payment Dates and the record date for the determination of holders to whom interest is payable on any such Interest Payment Dates; (6) the right, if any, to extend or defer the interest payment periods and the duration of such extension; (7) the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem or purchase Debentures of the series pursuant to any sinking fund or analogous provisions (including payments made in cash in anticipation of future sinking fund obligations) or at the option of a holder thereof and the period or periods within which, the price or prices at which, the currency or currencies (including 8 currency unit or units) in which and the terms and conditions upon which, Debentures of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) any exchangeability, conversion or prepayment provisions of the Debentures; (10) the form of the Debentures of the series including the form of the Certificate of Authentication for such series; (11) if other than denominations of $10 or any integral multiple thereof, the denominations in which the Debentures of the series shall be issuable; (12) whether the Debentures are issuable as one or more Global Debentures and, in such case, the identity of the Depositary for such series, the form of any legend or legends which shall be borne by any such Global Debentures in addition to or in lieu of that set forth in Section 2.11 and any circumstances in addition to or in lieu of those set forth in Section 2.11 in which any such Global Debentures may be exchanged in whole or in part for Debentures registered, and any transfer of such Global Debentures in whole or in part may be registered, in the name or names of Persons other than the Depositary for such Global Debentures or a nominee thereof; (13) if the Debentures of such series are to be deposited as trust assets in a Litchfield Capital Trust the name of the applicable Litchfield Capital Trust (which shall distinguish such statutory business trust from all other Litchfield Capital Trusts) into which the Debentures of such series are to be deposited as trust assets and the date of its Declaration of Trust; (14) the place or places where the principal of (and premium, if any) and interest on the Debentures of such series shall be payable, the place or places where the Debentures of such series may be presented for registration of transfer or exchange, and the place or places where notices and demands to or upon the Company in respect of the Debentures of such series may be made; (15) if other than U.S. dollars, the currency or currencies (including currency unit or units) in which the principal of (and premium, if any) and interest, if any, on the Debentures of the series shall be payable, or in which the Debentures of the series shall be denominated; (16) the additions, modifications or deletions, if any, in the Events of Default or covenants of the Company set forth herein with respect to the Debentures of such series; (17) if other than the principal amount thereof, the portion of the principal amount of Securities of such series that shall be payable upon declaration of acceleration of the maturity thereof; (18) the additions or changes, if any, to this Indenture with respect to the Debentures of such series as shall be necessary to permit or facilitate the issuance of the Debentures of such 9 series in bearer form, registrable or not registrable as to principal, and with or without interest coupons; (19) any index or indices used to determine the amount of payments of principal of and premium, if any, on the Debentures of such series or the manner in which such amounts will be determined; (20) the appointment of any Paying Agent or Agents for the Debentures of such series; (21) the relative degree, if any, to which the Debentures of such series shall be senior to or be subordinated to other series of Debentures in right of payment, whether such other series of Debentures are Outstanding or not; (22) any and all other terms with respect to the Debentures of such series (and any terms which may be required by or advisable under applicable laws or regulations not inconsistent with the terms of this Indenture); and (23) an identification of any applicable United States Federal income tax consequences with respect to the Debentures of such series, including whether and under what circumstances the Company will pay additional amounts on the Debentures of such series held by a Person who is not a U.S. Person in respect of any tax, assessment or governmental charge withheld or deducted and, if so, whether the Company will have the option to redeem the Debentures of such series rather than pay such additional amounts. All Debentures of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to any such Board Resolution or in any indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. SECTION 2.02. FORM OF DEBENTURE AND TRUSTEE'S CERTIFICATE. The Debentures of any series and the Trustee's certificate of authentication to be borne by such Debentures shall be substantially of the tenor and purport as set forth in one or more indentures supplemental hereto or as provided in a Board Resolution and as set forth in an Officers' Certificate, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements typewritten, printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or automated quotation system on which Debentures of that series may be listed or traded, or to conform to usage. 10 SECTION 2.03. DATE AND DENOMINATIONS OF DEBENTURES AND PROVISIONS FOR PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Debentures shall be issuable as registered Debentures and in the denominations of $10 or any integral multiple thereof, subject to Section 2.01(11). The Debentures of a particular series shall bear interest payable on the dates and at the rate specified with respect to that series. The principal of and the interest on the Debentures of any series, as well as any premium thereon in case of redemption thereof prior to maturity, shall, subject to Section 2.01(8) and (15), be payable in the coin or currency of the United States of America which at the time is legal tender for public and private debt, at the Place of Payment. Each Debenture shall be dated the date of its authentication. Interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months. The interest installment on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Debentures of that series shall be paid to the person in whose name said Debenture (or one or more Predecessor Debentures) is registered at the close of business on the regular record date for such interest installment. In the event that any Debenture of a particular series or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, interest on such Debenture will be paid upon presentation and surrender of such Debenture as provided in Section 3.03. Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for Debentures of the same series (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered holder on the relevant regular record date by virtue of having been such holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (1) or clause (2) below: (1) The Company may make payment of any Defaulted Interest on Debentures to the persons in whose names such Debentures (or their respective Predecessor Debentures) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Debentureholder at his or her address as it appears in the Debenture Register (as hereinafter defined), not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted 11 Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names such Debentures (or their Predecessor Debentures) are registered on such special record date and shall be no longer payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest on any Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which such Debentures may be listed or traded, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Unless otherwise set forth in a Board Resolution or one or more indentures supplemental hereto establishing the terms of any series of Debentures pursuant to Section 2.01 hereof, the term "regular record date" as used in this Section with respect to a series of Debentures with respect to any Interest Payment Date for such series shall mean either the fifteenth day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the first day of a month, or the last day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the fifteenth day of a month, whether or not such date is a Business Day. Subject to the foregoing provisions of this Section, each Debenture of a series delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Debenture of such series shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 2.04. EXECUTION OF DEBENTURES. The Debentures shall, subject to the provisions of Section 2.06, be printed on steel engraved borders or fully or partially engraved, or legibly typed, as the proper officers of the Company may determine, and shall be signed on behalf of the Company by the Chairman or Vice Chairman of its Board of Directors or its Chief Executive Officer, President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. The signature of the Chairman, Vice Chairman, Chief Executive Officer, President or a Vice President and/or the signature of the Secretary or an Assistant Secretary in attestation of the corporate seal, upon the Debentures, may be in the form of a manual or facsimile signature and may be imprinted or otherwise reproduced on the Debentures and for that purpose the Company may use the manual or facsimile signature of any person who shall have been a Chairman, Vice Chairman, Chief Executive Officer, President or Vice President, or of any person who shall have been a Secretary or Assistant Secretary, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such person shall have ceased to be the Chairman, Vice Chairman, Chief Executive Officer, President or a Vice President, or the Secretary or an Assistant Secretary, of the Company, as the case may be. The seal of the Company may be in the form of a facsimile of the 12 seal of the Company and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. Only such Debentures as shall bear thereon a Certificate of Authentication substantially in the form established for such Debentures, executed manually by an authorized signatory of the Trustee, or by any Authenticating Agent with respect to such Debentures, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate executed by the Trustee, or by any Authenticating Agent appointed by the Trustee with respect to such Debentures, upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and made available for delivery hereunder and that the holder is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Debenture shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Debenture to the Trustee for cancellation as provided in Section 2.08, for all purposes of this Indenture such Debenture shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures of any series executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures, signed by its President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and make available for delivery such Debentures. Each Debenture shall be dated the date of its authentication by the Trustee. In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 7.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee. SECTION 2.05. EXCHANGE OF DEBENTURES. (a) Debentures of any series may be exchanged upon presentation thereof at a Place of Payment, for other Debentures of such series of authorized denominations, and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in exchange therefor the Debenture or Debentures of the same series which the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. 13 (b) The Company shall keep, or cause to be kept, at the Corporate Trust Office of the Trustee (the register maintained in such office and in any other office or agency of the Company in a Place of Payment is herein sometimes collectively referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as in this Article provided and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall be appointed by the Company (the "Debenture Registrar"). The initial Debenture Registrar shall be the Trustee. Upon surrender for transfer of any Debenture at the office or agency of the Company in a Place of Payment, the Company shall execute and the Trustee shall authenticate and deliver, in the name of the transferee or transferees, one or more new Debentures of the same series as the Debenture presented, of any authorized denominations and of like tenor and aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section, shall be accompanied (if so required by the Company or the Debenture Registrar) by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture Registrar, duly executed by the registered holder or by his duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption of any series, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.06, the second paragraph of Section 3.03 and Section 9.04 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Debentures and ending at the close of business on the day of such mailing, nor (ii) to register the transfer of or exchange any Debentures of any series or portions thereof called for redemption. The provisions of this Section 2.05 are, with respect to any Global Debenture, subject to Section 2.11 hereof. SECTION 2.06. TEMPORARY DEBENTURES. Pending the preparation of definitive Debentures of any series, the Company may execute, and the Trustee shall authenticate and make available for delivery, temporary Debentures (printed, lithographed or typewritten) of any authorized denomination, and substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture of any series shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures of such series. Without unnecessary delay the Company will execute and will furnish definitive Debentures of such series and thereupon any or all temporary Debentures of such series may be surrendered in exchange therefor (without charge to the holders), at a Place 14 of Payment, and upon receipt of a written order of the Company signed by its President or any Vice President and its Treasurer or any Assistant Treasurer, the Trustee shall authenticate and deliver in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures of such series, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures of such series shall be entitled to the same benefits under this Indenture as definitive Debentures of such series authenticated and delivered hereunder. SECTION 2.07. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon its written request the Trustee (subject as aforesaid) shall authenticate and make available for delivery, a new Debenture of the same series bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and make available for delivery the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture which has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and to the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. Every Debenture issued pursuant to the provisions of this Section in substitution for any Debenture which is mutilated, destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures of the same series duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. 15 SECTION 2.08. CANCELLATION OF SURRENDERED DEBENTURES. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be cancelled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On written request of the Company, the Trustee shall deliver to the Company cancelled Debentures held by the Trustee. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. SECTION 2.09. PROVISIONS OF INDENTURE AND DEBENTURES FOR SOLE BENEFIT OF PARTIES AND DEBENTUREHOLDERS. Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and the holders of the Debentures, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Debentures. SECTION 2.10. APPOINTMENT OF AUTHENTICATING AGENT. So long as any of the Debentures of any series remain outstanding there may be an Authenticating Agent for any or all such series of Debentures which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures of such series issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent for such series except for authentication upon original issuance or pursuant to Section 2.07 hereof. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation which has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and which is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by Federal or State authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. 16 SECTION 2.11. GLOBAL DEBENTURES. (a) If the Company shall establish pursuant to Section 2.01 that the Debentures of a particular series are to be issued as one or more Global Debentures, then the Company shall execute and the Trustee shall, in accordance with Section 2.04, authenticate and deliver, one or more Global Debentures which (i) shall represent, and shall be denominated in an aggregate amount equal to the aggregate principal amount of, all of the Outstanding Debentures of such series, (ii) shall be registered in the name of the Depositary or its nominee, (iii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction and (iv) shall bear, subject to Section 2.01(12), a legend substantially to the following effect: "Except as otherwise provided in Section 2.11 of the Indenture, this Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary or to a successor Depositary or to a nominee of such successor Depositary." (b) Notwithstanding the provisions of Section 2.05, the Global Debenture of a series may be transferred, in whole but not in part and in the manner provided in Section 2.05, only to another nominee of the Depositary for such series, or to a successor Depositary for such series selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time the Depositary for a series of Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such series or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act, or other applicable statute or regulation and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, this Section 2.11 shall no longer be applicable to the Debentures of such series and the Company will execute, and subject to Section 2.05, the Trustee will authenticate and make available for delivery Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. In addition, the Company may at any time determine that the Debentures of any series shall no longer be represented by one or more Global Debentures and that the provisions of this Section 2.11 shall no longer apply to the Debentures of such series. In such event the Company will execute and subject to Section 2.05, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and deliver Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. Upon the exchange of the Global Debentures for Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be cancelled by the Trustee. Such Debentures in definitive registered form issued in exchange for Global Debentures pursuant to this Section 2.11(c) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Debentures to the Depositary for delivery to the persons in whose name such Debentures are so registered. 17 (d) Debentures distributed to holders of Global Certificates (as defined in the applicable Declaration of Trust) upon the dissolution of the applicable Litchfield Capital Trust shall be distributed in the form of one or more Global Debentures registered in the name of the Depositary or its nominee, and deposited with the Debenture Registrar, as custodian for the Depositary, or with such Depositary, for credit by the Depositary to the respective accounts of the beneficial owners of the Debentures represented thereby (or such other accounts as they may direct). Debentures distributed to holders of Certificates (as defined in the applicable Declaration of Trust), other than Global Certificates, upon the dissolution of the applicable Litchfield Capital Trust shall not be issued in the form of a Global Debenture or any other form intended to facilitate book-entry trading in beneficial interests in such Debentures. (e) The Depositary or its nominee, as the registered owner of a Global Debenture, shall be the holder of such Global Debenture for all purposes under this Indenture and the Debentures, and owners of beneficial interests in a Global Debenture shall hold such interests pursuant to the applicable procedures of the Depositary. Accordingly, any such owner's beneficial interest in a Global Debenture shall be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its participants. None of the Company, the Trustee or the Debenture Registrar shall have any liability in respect of any transfer effected by the Depositary. (f) The rights of owners of beneficial interests in a Global Debenture shall be exercised only through the Depositary and shall be limited to those established by law and agreements between such owners and the Depositary and/or its participants. SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Debentures may use "CUSIP" numbers, and the Trustee shall use such CUSIP numbers in notices of redemption or exchange as a convenience to Debentureholders and no representation shall be made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of redemption or exchange. The Company shall promptly notify the Trustee of any change in the CUSIP numbers of the Debentures. ARTICLE 3 REDEMPTION OF DEBENTURES AND SINKING FUND PROVISIONS SECTION 3.01. REDEMPTION. The Company may redeem the Debentures of any series issued hereunder on and after the dates and in accordance with the terms established for such series pursuant to Section 2.01 hereof. SECTION 3.02. NOTICE OF REDEMPTION. (a) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Debentures of any series in accordance with the right reserved so to do, it shall give notice of such redemption to the Trustee. The Trustee shall then notify holders of the Debentures of such series who are to be redeemed by mailing, first class postage prepaid, by a notice of such redemption not less than 30 days and not more than 60 days before the date fixed 18 for redemption of that series to such holders at their last addresses as they shall appear upon the Debenture Register. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Debenture of any series designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Debentures of such series or any other series. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with any such restriction. Each such notice of redemption shall identify the Debentures to be redeemed (including CUSIP number) and shall specify: (i) the date fixed for redemption, (ii) the redemption price at which Debentures of that series are to be redeemed, (iii) the place or places where Debentures are to be surrendered for payment of the redemption price, (iv) that payment of the redemption price will be made upon presentation and surrender of such Debentures, at such place or places, (v) that interest accrued to the date fixed for redemption will be paid as specified in said notice, (vi) that from and after said date interest will cease to accrue and (vii) that the redemption is for a sinking fund, if such is the case. If less than all the Debentures of a series are to be redeemed, the notice to the holders of Debentures of that series to be redeemed in whole or in part shall specify the particular Debentures to be so redeemed. In case any Debenture is to be redeemed in part only, the notice which relates to such Debenture shall state the portion of the principal amount thereof to be redeemed, and shall state that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures of such series in principal amount equal to the unredeemed portion thereof will be issued. (b) In the event of a partial redemption of a series of Debentures, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Debentures of the series to be redeemed and the other information set forth in the immediately preceding paragraph, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion and which may provide for the selection of a portion or portions (equal to $10 or any integral multiple thereof) of the principal amount of such Debentures of a denomination larger than $10, the Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Debentures to be redeemed, in whole or in part. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures shall relate, in the case of any Debenture redeemed or to be redeemed only in part, to the portion of the principal amount of such Debenture which has been or is to be redeemed. If the Company shall so direct, Debentures registered in the name of the Company, any Affiliate or any Subsidiary thereof shall not be included in the Debentures selected for redemption. The Company may, if and whenever it shall so elect, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Debentures of a particular series for redemption and to give notice of redemption in the manner set forth in this Section, such notice to be in the name of the Company 19 or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Debenture Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section. SECTION 3.03. PAYMENT UPON REDEMPTION. (a) If the giving of notice of redemption shall have been completed as above provided and funds deposited as required, the Debentures or portions of Debentures of the series to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and interest on such Debentures or portions of Debentures shall cease to accrue on and after the date fixed for redemption, unless the Company shall default in the payment of such redemption price and accrued interest with respect to any such Debenture or portion thereof. On presentation and surrender of such Debentures on or after the date fixed for redemption at the place of payment specified in the notice, said Debentures shall be paid and redeemed at the applicable redemption price for such series, together with interest accrued thereon to, but excluding, the date fixed for redemption (but if the date fixed for redemption is an interest payment date, the interest installment payable on such date shall be payable to the registered holder at the close of business on the applicable record date pursuant to Section 2.03). (b) Upon presentation of any Debenture of such series which is to be redeemed in part only, the Company shall execute and the Trustee shall authenticate and the office or agency where the Debenture is presented shall make available for delivery to the holder thereof, at the expense of the Company, a new Debenture or Debentures of the same series, of authorized denominations in principal amount equal to the unredeemed portion of the Debenture so presented. SECTION 3.04. SINKING FUNDS FOR DEBENTURES. The provisions of Sections 3.04, 3.05 and 3.06 shall be applicable to any sinking fund for the retirement of Debentures of a series, except as otherwise specified as contemplated by Section 2.01 for Debentures of such series. The minimum amount of any sinking fund payment provided for by the terms of Debentures of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of Debentures of any series is herein referred to as an "optional sinking fund payment." If provided for by the terms of Debentures for any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 3.05. Each sinking fund payment shall be applied to the redemption of Debentures of any series as provided for by the terms of Debentures of such series. SECTION 3.05. SATISFACTION OF SINKING FUND PAYMENTS WITH DEBENTURES. The Company (i) may deliver outstanding Debentures of a series (other than 20 any previously called for redemption) and (ii) may apply as a credit Debentures of a series which have been redeemed either at the election of the Company pursuant to the terms of such Debentures or through the application of permitted optional sinking fund payments pursuant to the terms of such Debentures, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Debentures of such series required to be made pursuant to the terms of such Debentures as provided for by the terms of such series; provided that such Debentures have not been previously so credited. Such Debentures shall be received and credited for such purpose by the Trustee at the redemption price specified in such Debentures for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 3.06. REDEMPTION OF DEBENTURES FOR SINKING FUND. Not less than 45 days prior to each sinking fund payment date for any series of Debentures, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms for that series, the portion thereof, if any, which is to be satisfied by delivering and crediting Debentures of that series pursuant to Section 3.05 and the basis for such credit and will, together with such Officers' Certificate, deliver to the Trustee any Debentures to be so delivered. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Debentures to be redeemed upon such sinking fund payment date in the manner specified in Section 3.02 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.02. Such notice having been duly given, the redemption of such Debentures shall be made upon the terms and in the manner stated in Section 3.03. ARTICLE 4 PARTICULAR COVENANTS OF THE COMPANY The Company covenants and agrees for each series of the Debentures as follows: SECTION 4.01. PAYMENT OF PRINCIPAL OF (AND PREMIUM, IF ANY) AND INTEREST ON DEBENTURES. The Company will duly and punctually pay or cause to be paid the principal of (and premium, if any) and interest on the Debentures of that series at the time and place and in the manner provided herein and established with respect to such Debentures. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENT FOR PAYMENT OF DEBENTURES, DESIGNATION OF OFFICE OR AGENCY FOR PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE OF DEBENTURES. So long as any series of the Debentures remain outstanding, the Company agrees to maintain an office or agency in each Place of Payment, with respect to each such series and at such other location or locations as may be designated as provided in this Section 4.02, where (i) Debentures of that series may be presented for payment, (ii) Debentures of that series may be presented as hereinabove authorized for registration of transfer and exchange, and (iii) notices and demands to or upon the Company in respect of the Debentures of that series and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written 21 notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. SECTION 4.03. DUTIES OF PAYING AGENT; COMPANY AS PAYMENT AGENT; AND HOLDING SUMS IN TRUST. (a) If the Company shall appoint one or more paying agents for all or any series of the Debentures, other than the Trustee, the Company will cause each such paying agency to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section: (1) that it will hold all sums held by it as such agent for the payment of the principal of (and premium, if any) or interest on the Debentures of that series (whether such sums have been paid to it by the Company or by any other obligor of such Debentures) in trust for the benefit of the persons entitled thereto; (2) that it will give the Trustee written notice of any failure by the Company (or by any other obligor of such Debentures) to make any payment of the principal of (and premium, if any) or interest on the Debentures of that series when the same shall be due and payable; (3) that it will, at any time during the continuance of any failure referred to in the preceding paragraph (a)(2) above, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such paying agent; and (4) that it will perform all other duties of paying agent as set forth in this Indenture. (b) If the Company shall act as its own paying agent with respect to any series of the Debentures, it will on or before each due date of the principal of (and premium, if any) or interest on Debentures of that series, set aside, segregate and hold in trust for the benefit of the persons entitled thereto a sum sufficient to pay such principal (and premium, if any) or interest so becoming due on Debentures of that series until such sums shall be paid to such persons or otherwise disposed of as herein provided and will promptly notify in writing the Trustee of such action, or any failure (by it or any other obligor on such Debentures) to take such action. Whenever the Company shall have one or more paying agents for any series of Debentures, it will, prior to 11:00 a.m. New York City time on each due date of the principal of (and premium, if any) or interest on any Debentures of that series, deposit with the paying agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the persons entitled to such principal, premium or interest, and (unless 22 such paying agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. (c) Anything in this Section to the contrary notwithstanding, (i) the agreement to hold sums in trust as provided in this Section is subject to the provisions of Section 11.05, and (ii) the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or direct any paying agent to pay, to the Trustee all sums held in trust by the Company or such paying agent, such sums to be held by the Trustee upon the same terms and conditions as those upon which such sums were held by the Company or such paying agent; and, upon such payment by any paying agent to the Trustee, such paying agent shall be released from all further liability with respect to such money. SECTION 4.04. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 7.10, a Trustee, so that there shall at all times be a Trustee hereunder. ARTICLE 5 DEBENTUREHOLDERS LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 5.01. COMPANY TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND ADDRESSES OF DEBENTUREHOLDERS. The Company will furnish or cause to be furnished to the Trustee (a) on each regular record date (as defined in Section 2.03) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of each series of Debentures as of such regular record date, provided, that the Company shall not be obligated to furnish or cause to be furnished such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company and (b) at such other times as the Trustee may request in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, no such list need be furnished for any series for which the Trustee shall be the Debenture Registrar. SECTION 5.02. TRUSTEE TO PRESERVE INFORMATION AS TO NAMES AND ADDRESSES OF DEBENTUREHOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 5.01 and as to the names and addresses of holders of Debentures received by the Trustee in its capacity as Debenture Registrar (if acting in such capacity). (b) The Trustee may destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished. 23 (c) In case three or more holders of Debentures of a series (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Debentures of such series or holders of all Debentures with respect to their rights under this Indenture or under such Debentures, and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall within five Business Days after the receipt of such application, at its election, either: (1) afford to such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 5.02; or (2) inform such applicants as to the approximate number of holders of Debentures of such series or of all Debentures, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee, in accordance with the provisions of subsection (a) of this Section 5.02, and as to the approximate cost of mailing to such Debentureholders the form of proxy or other communication, if any, specified in such application. (d) If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each holder of such series or of all Debentures, as the case may be, whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 5.02, a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants and file with the Securities and Exchange Commission (the "Commission"), together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Debentures of such series or of all Debentures, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Debentureholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise, the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. (e) Each and every holder of the Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Debentures in accordance with the provisions of subsection (c) of this Section 5.02, regardless of the source 24 from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (c). SECTION 5.03. ANNUAL AND OTHER REPORTS TO BE FILED BY COMPANY WITH THE TRUSTEE. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit by mail, first class postage prepaid, or reputable over-night delivery service which provides for evidence of receipt, to the Debentureholders, as their names and addresses appear upon the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. (d) The Company covenants and agrees to furnish to the Trustee, on or before May 15 in each calendar year in which any of the Debentures are outstanding, or on or before such other day in each calendar year as the Company and the Trustee may from time to time agree upon, a Certificate as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this subsection (d), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. 25 (e) The Company shall deliver to the Trustee, as soon as possible and in any event within five days after the Company becomes aware of the occurrence of any Event of Default, an Officers' Certificate setting forth the details of such Event of Default and the action which the Company proposes to take with respect thereto. SECTION 5.04. TRUSTEE TO TRANSMIT ANNUAL REPORT TO DEBENTUREHOLDERS. (a) The Trustee shall transmit to Debentureholders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within 60 days after each January 15 following the date of this Indenture, commencing January 15, 2000, deliver to Debentureholders a brief report, dated as of such January 15, which complies with the provisions of such Section 313(a). (b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with the Company, with each stock exchange upon which any Debentures are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Debentures become listed on any stock exchange and of any delisting thereof. ARTICLE 6 REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 6.01. EVENTS OF DEFAULT DEFINED. (a) Whenever used herein with respect to Debentures of a particular series, "Event of Default" means any one or more of the following events which has occurred and is continuing: (1) default in the payment of any installment of interest upon any of the Debentures of that series, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of any indenture supplemental hereto, shall not constitute a default in the payment of interest for this purpose; (2) default (i) in the payment of the principal of (and premium, if any, on) any of the Debentures of that series as and when the same shall become due and payable whether at maturity, upon redemption, by declaring or otherwise, or (ii) in any payment required by any sinking or analogous fund established with respect to that series, and in the case of this clause (ii) only, continuance of such default for a period of 30 days; 26 (3) failure on the part of the Company duly to observe or perform, in any material respect, any other of the covenants or agreements on the part of the Company with respect to that series contained in such Debentures or otherwise established with respect to that series of Debentures pursuant to Section 2.01 hereof or contained in this Indenture (other than a covenant or agreement which has been expressly included in this Indenture solely for the benefit of one or more series of Debentures other than such series) for a period of 90 days after the date on which written notice of such failure, requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee, by registered or certified mail, or to the Company and the Trustee by the holders of at least 25% in principal amount of the Debentures of that series at the time Outstanding; (4) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company as bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of the Company under the Federal Bankruptcy Code or any other similar applicable Federal or State law, and such decree or order shall have continued unvacated and unstayed for a period of 90 days; or an involuntary case shall be commenced under such Code in respect of the Company and shall continue undismissed for a period of 90 days or an order for relief in such case shall have been entered; or a decree or order of a court having jurisdiction in the premises shall have been entered for the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days; (5) the Company shall institute proceedings to be adjudicated a voluntary bankrupt or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking liquidation or reorganization under the Federal Bankruptcy Code or any other similar applicable Federal or State law, or shall consent to the filing of any such petition, or shall consent to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of it or of its property, or shall make an assignment for the benefit of creditors; or (6) any other Event of Default provided with respect to Debentures of that series. (b) In each and every such case, unless the principal of all the Debentures of that series shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures of that series then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Debentureholders), may declare the principal of all the Debentures of that series to be due and payable immediately and upon any such declaration the same shall become and shall be immediately due and payable, anything contained in this Indenture or in the Debentures of that series or established with respect to that series pursuant to Section 2.01 hereof to the contrary notwithstanding. Payment of principal and interest on such Debentures shall remain subordinated 27 to the extent provided in Article 14 notwithstanding that such amount shall become immediately due and payable as herein provided. (c) Section 6.01(b), however, is subject to the condition that if, at any time after the principal of the Debentures of that series shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures of that series and the principal of (and premium, if any, on) any and all Debentures of that series which shall have become due otherwise than by acceleration (with interest upon such principal and premium if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate per annum expressed in the Debentures of that series to the date of such payment or deposit) and the amount payable to the Trustee under Section 7.06, and any and all defaults under the Indenture, other than the nonpayment of principal on Debentures of that series which shall not have become due by their terms, shall have been remedied or waived as provided in Section 6.06 then and in every such case the holders of a majority in aggregate principal amount of the Debentures of that series then outstanding (subject to, in the case of any series of Debentures held as trust assets of a Litchfield Capital Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of the holders of the Preferred Securities and the Common Securities of such Litchfield Capital Trust as may be required under the Declaration of Trust of such Litchfield Capital Trust), by written notice to the Company and to the Trustee, may rescind and annul such declaration and its consequences with respect to that series of Debentures; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. (d) In case the Trustee shall have proceeded to enforce any right with respect to Debentures of that series under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. (e) If, prior to a Security Exchange with respect to the Debentures of any series, a Default with respect to the Debentures of such series shall have occurred, the Company expressly acknowledges that under the circumstances set forth in the applicable Declaration of Trust, any holder of Preferred Securities of the applicable Litchfield Capital Trust may, to the fullest extent permitted by law, enforce directly against the Company the applicable Property Trustee's rights hereunder. In furtherance of the foregoing and for the avoidance of any doubt, the Company acknowledges that, under the circumstances described in the applicable Declaration of Trust, any such holder of Preferred Securities, in its own name, in the name of the applicable Litchfield Capital Trust or in the name of the holders of the Preferred Securities issued by such Litchfield Capital Trust, may institute or cause to be instituted a proceeding, including, without limitation, any suit in equity, an action at law or other judicial or administrative proceeding, to enforce the applicable Property Trustee's rights hereunder directly against the Company as issuer of the 28 applicable series of Debentures, and may prosecute such proceeding to judgment or final decree, and enforce the same against the Company. SECTION 6.02. COVENANT OF COMPANY TO PAY TO TRUSTEE WHOLE AMOUNT DUE ON DEBENTURES ON DEFAULT IN PAYMENT OF INTEREST OR PRINCIPAL (AND PREMIUMS, IF ANY). (a) The Company covenants that (1) in case default shall be made in the payment of any installment of interest on any of the Debentures of a series, or any payment required by any sinking or analogous fund established with respect to that series as and when the same shall have become due and payable, and such default shall have continued for a period of 30 days, or (2) in case default shall be made in the payment of the principal of (or premium, if any, on) any of the Debentures of a series when the same shall have become due and payable, whether upon maturity of the Debentures of a series or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debentures of that series, the whole amount that then shall have become due and payable on all such Debentures for principal (and premium, if any) or interest, or both, as the case may be, with interest upon the overdue principal (and premium, if any) and (to the extent that payment of such interest is enforceable under applicable law and without duplication of any other amounts paid by the Company or the applicable Litchfield Capital Trust in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Debentures of that series; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 7.06. (b) In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Debentures of that series and collect in the manner provided by law out of the property of the Company or other obligor upon the Debentures of that series wherever situated the moneys adjudged or decreed to be payable. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or other judicial proceedings affecting the Company, any other obligor on such Debentures, or the creditors or property of either, the Trustee shall have the power to intervene in such proceedings and take any action therein that may be permitted by the court and shall (except as may be otherwise provided by law) be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of Debentures of such series allowed for the entire amount due and payable by the Company or such other obligor under the Indenture at the date of institution of such proceedings and for any additional amount which may become due and payable by the Company or such other obligor after such date, and to collect and receive any moneys or other property payable or deliverable on any such claim, and to distribute the same after the deduction of the amount payable to the Trustee under Section 7.06; and any receiver, 29 assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of Debentures of such series to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to such Debentureholders, to pay to the Trustee any amount due it under Section 7.06. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Debentures of that series, may be enforced by the Trustee without the possession of any of such Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 7.06, be for the ratable benefit of the holders of the Debentures of such series. In case of an Event of Default hereunder, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures of that series or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. SECTION 6.03. APPLICATION OF MONEYS COLLECTED BY TRUSTEE. Any moneys collected by the Trustee pursuant to this Article with respect to a particular series of Debentures shall be applied in the order following, at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal (or premium, if any) or interest, upon presentation of the several Debentures of that series, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 7.06; SECOND: To the payment of all Senior Debt of the Company if and to the extent required by Article 14; THIRD: To the payment of the amounts then due and unpaid upon Debentures of such series for principal (and premium, if any) and interest in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal (and premium, if any) and interest, respectively; and 30 FOURTH: The balance, if any, to the Person or Persons entitled thereto. SECTION 6.04. LIMITATION ON SUITS BY HOLDERS OF DEBENTURES. No holder of any Debenture of any series shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to Debentures of such series specifying such Event of Default, as hereinbefore provided, (ii) the holders of not less than 25% in aggregate principal amount of the Debentures of such series then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder, (iii) shall have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding; and (v) during such 60 day period, the holders of a majority in principal amount of the Debentures of that series do not give the Trustee a direction inconsistent with the request; it being understood and intended, and being expressly covenanted by the taker and holder of every Debenture of such series with every other such taker and holder and Trustee, that no one or more holders of Debentures of such series shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures of such series. For the protection and enforcement of the provisions of this Section, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provisions of this Indenture, however, the right of any holder of any Debenture to receive payment of the principal of (and premium, if any) and interest on such Debenture, as therein provided, on or after the respective due dates expressed in such Debenture (or in the case of redemption, on the redemption date), or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without the consent of such holder. SECTION 6.05. REMEDIES CUMULATIVE; DELAY OR OMISSION IN EXERCISE OF RIGHTS NOT WAIVER OF DEFAULT. (a) All powers and remedies given by this Article 6 to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any others thereof or of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Debentures. 31 (b) No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 6.04, every power and remedy given by this Article or by law to the Trustee or to the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. SECTION 6.06. RIGHTS OF HOLDERS OF MAJORITY IN PRINCIPAL AMOUNT OF DEBENTURES TO DIRECT TRUSTEE AND TO WAIVE DEFAULTS. The holders of a majority in aggregate principal amount of the Debentures of any series at the time Outstanding, determined in accordance with Section 8.04 (with, in the case of any series of Debentures held as trust assets of a Litchfield Capital Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Litchfield Capital Trust as may be required under the Declaration of Trust of such Litchfield Capital Trust), shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to such series; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture or unduly prejudicial to the rights of holders of Debentures of any other series at the time Outstanding determined in accordance with Section 8.04 not parties thereto. Subject to the provisions of Section 7.01, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures of any series at the time Outstanding affected thereby, determined in accordance with section 8.04 (with, in the case of any series of Debentures held as trust assets of a Litchfield Capital Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Litchfield Capital Trust as may be required under the Declaration of Trust of such Litchfield Capital Trust), may on behalf of the holders of all of the Debentures of such series waive any past default in the performance of any of the covenants contained herein or established pursuant to Section 2.01 with respect to such series and its consequences, except a default in the payment of the principal of, or premium, if any, or interest on, any of the Debentures of that series as and when the same shall become due by the terms of such Debentures otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal and any premium has been deposited with the Trustee (in accordance with Section 6.01(c)), or a call for redemption of Debentures of that series. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 6.07. TRUSTEE TO GIVE NOTICE OF DEFAULTS KNOWN TO IT, BUT MAY WITHHOLD IN CERTAIN CIRCUMSTANCES. The Trustee shall, within 90 days after 32 the occurrence of a default with respect to a particular series, transmit by mail, first class postage prepaid, to the holders of Debentures of that series, as their names and addresses appear upon the Debenture Register, notice of all defaults with respect to that series known to the Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purposes of this Section being hereby defined to be the events specified in subsections (1), (2), (3), (4) and (5) of Section 6.01(a), not including any periods of grace provided for therein and irrespective of the giving of notice provided for by subsection (3) of Section 6.01(a)); provided, that, except in the case of default in the payment of the principal of (or premium, if any) or interest on any of the Debentures of that series or in the payment of any sinking fund installment established with respect to that series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Trustee in good faith determine that the withholding of such notice is in the interests of the holders of Debentures of that series; provided further, that in the case of any default of the character specified in Section 6.01(a)(3) with respect to Debentures of such series no such notice to the holders of the Debentures of that series shall be given until at least 30 days after the occurrence thereof. The Trustee shall not be deemed to have knowledge of any default, except (i) a default under subsection (a)(1) or (a)(2) of Section 6.01 as long as the Trustee is acting as paying agent for such series of Debentures or (ii) any default as to which a Responsible Officer of the Trustee shall have received written notice. SECTION 6.08. REQUIREMENTS OF AN UNDERTAKING TO PAY COSTS IN CERTAIN SUITS UNDER INDENTURE OR AGAINST TRUSTEE. All parties to this Indenture agree, and each holder of any Debentures by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders, holding more than 10% in aggregate principal amount of the outstanding Debentures of any series, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Debenture of such series, on or after the respective due dates expressed in such Debenture or established pursuant to this Indenture. ARTICLE 7 CONCERNING THE TRUSTEE SECTION 7.01. UPON EVENT OF DEFAULT OCCURRING AND CONTINUING, TRUSTEE SHALL EXERCISE POWERS VESTED IN IT, AND USE SAME DEGREE OF CARE AND SKILL IN THEIR EXERCISE, AS PRUDENT INDIVIDUAL WOULD USE. 33 (a) The Trustee, prior to the occurrence of an Event of Default with respect to Debentures of a series and after the curing of all Events of Default with respect to Debentures of that series which may have occurred, shall undertake to perform with respect to Debentures of such series such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default with respect to Debentures of a series has occurred (which has not been cured or waived), the Trustee shall exercise with respect to Debentures of that series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) prior to the occurrence of an Event of Default with respect to Debentures of a series and after the curing or waiving of all such Events of Default with respect to that series which may have occurred: (i) the duties and obligations of the Trustee shall with respect to Debentures of such series be determined solely by the express provisions of this Indenture and the Trust Indenture Act and the Trustee shall not be liable with respect to Debentures of such series except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may with respect to Debentures of such series conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Debentures of any series at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Debentures of that series; 34 (4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it; and (5) whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article 7. SECTION 7.02. CERTAIN RIGHTS OF THE TRUSTEE. Except as otherwise provided in Section 7.01: (a) The Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by a Board Resolution or an instrument signed in the name of the Company by the President or any Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer (unless other evidence in respect thereof is specifically prescribed herein); (c) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon; (d) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; nothing herein contained shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default with respect to a series of the Debentures (which has not been cured or waived) to exercise with respect to Debentures of that series such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (e) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; nothing herein contained shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default with respect to a series of the Debentures (which has not been cured or waived) to exercise with respect to Debentures of that 35 series such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security, or other papers or documents, unless requested in writing so to do by the holders of not less than a majority in principal amount of the outstanding Debentures of the particular series affected thereby (determined as provided in Section 8.04); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require indemnity satisfactory to it against such costs, expenses or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; and (h) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 7.03. TRUSTEE NOT LIABLE FOR RECITALS IN INDENTURE OR IN DEBENTURES. (a) The recitals contained herein and in the Debentures (other than the Certificate of Authentication on the Debentures) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture or established pursuant to Section 2.01, or for the use or application of any moneys received by any paying agent other than the Trustee. SECTION 7.04. TRUSTEE, PAYING AGENT OR DEBENTURE REGISTRAR MAY OWN DEBENTURES. The Trustee or any paying agent or Debenture Registrar, in its individual 36 or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 7.08 and 7.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, paying agent or Debenture Registrar. SECTION 7.05. MONEYS RECEIVED BY TRUSTEE TO BE HELD IN TRUST WITHOUT INTEREST. Subject to the provisions of Section 11.05, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree in writing to pay thereon. SECTION 7.06. TRUSTEE ENTITLED TO COMPENSATION, REIMBURSEMENT AND INDEMNITY. (a) The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as the Company and the Trustee shall from time to time agree in writing (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify each of the Trustee or any predecessor Trustee and their officers, agents, directors and employees for, and to hold them harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Company, any Debentureholder or any other Person) of liability in the premises. The provisions of this Section 7.06 shall survive the termination of this Indenture and resignation or removal of the Trustee. (b) The obligations of the Company under this Section to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 6.01(4) or Section 6.01(5), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. 37 SECTION 7.07. RIGHT OF TRUSTEE TO RELY ON CERTIFICATE OF OFFICERS OF COMPANY WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED. Except as otherwise provided in Sections 7.01 and 7.02, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof. SECTION 7.08. DISQUALIFICATION; CONFLICTING INTERESTS. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of said Section 310(b). SECTION 7.09. REQUIREMENTS FOR ELIGIBILITY OF TRUSTEE. There shall at all times be a Trustee with respect to the Debentures issued hereunder which shall at all times be a corporation or banking association organized and doing business under the laws of the United States of America or any state or territory thereof or of the District of Columbia, or a corporation or other Person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars, and subject to supervision or examination by Federal, State, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any person directly or indirectly controlling, controlled by, or under common control with the Company, serve as a Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 7.10. SECTION 7.10. RESIGNATION OF TRUSTEE AND APPOINTMENT OF SUCCESSOR. (a) The Trustee or any successor hereafter appointed, may at any time resign with respect to the Debentures of one or more series by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Debentureholders of such series, as their names and addresses appear upon the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to Debentures of such series by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the 38 successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 60 days after the mailing of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures of such series, or any Debentureholder of that series who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 6.08, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with the provisions of Section 7.08 after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months; or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.09 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (3) the Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee with respect to all Debentures and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of removal, the Trustee so removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures of such series, or any Debentureholder of that series who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 6.08, on behalf of himself and all others similarly situated, petition any such court for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures of any series at the time outstanding may at any time remove the Trustee with respect to such series and appoint a successor trustee. If no successor Trustee shall have been so appointed and have accepted appointment within 60 days after the mailing of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. 39 (d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Debentures of a series pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.11. (e) Any successor trustee appointed pursuant to this Section may be appointed with respect to the Debentures of one or more series or all of such series, and at any time there shall be only one Trustee with respect to the Debentures of any particular series. SECTION 7.11. ACCEPTANCE BY SUCCESSOR TO TRUSTEE. (a) In case of the appointment hereunder of a successor trustee with respect to all Debentures, every such successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor trustee with respect to the Debentures of one or more (but not all) series, the Company, the retiring Trustee and each successor trustee with respect to the Debentures of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor trustee shall accept such appointment and which shall (1) contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series to which the appointment of such successor trustee relates, (2) contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any act or failure to act on the part of any other Trustee hereunder; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, such retiring Trustee shall with respect to the Debentures of that or those series to which the appointment of such successor trustee relates have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture, and each such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, 40 trusts and duties of the retiring Trustee with respect to the Debentures of that or those series to which the appointment of such successor trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Debentures of that or those series to which the appointment of such successor trustee relates. (c) Upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, power and trusts referred to in paragraph (a) or (b) of this Section 7.11, as the case may be. (d) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article. (e) Upon acceptance of appointment by a successor trustee as provided in this Section 7.11, the successor trustee shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. SECTION 7.12. SUCCESSOR TO TRUSTEE BY MERGER, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation or banking association into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case any Debentures shall have been authenticated, but not made available for delivery, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and make available for delivery the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 7.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein as though such resignation or removal, as the case may be, had not occurred. ARTICLE 8 CONCERNING THE DEBENTURES 41 SECTION 8.01. EVIDENCE OF ACTION BY DEBENTUREHOLDERS. Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Debentures of a particular series may take any action (including the making of any demand or request, the giving of any notice consent or waiver or the taking of any other action) the fact that at the time of taking any such action the holders of such majority or specified percentage of that series have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Debentures of that series in person or by agent or proxy appointed in writing. If the Company shall solicit from the Debentureholders of any series any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for such series for the determination of Debentureholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Debentureholders of record at the close of business on the record date shall be deemed to be Debentureholders for the purposes of determining whether Debentureholders of the requisite proportion of Outstanding Debentures of that series have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Debentures of that series shall be computed as of the record date; provided that no such authorization, agreement or consent by such Debentureholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 8.02. PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF DEBENTURES. Subject to the provisions of Sections 7.01 and 7.02, proof of the execution of any instrument by a Debentureholder (such proof will not require notarization) or his agent or proxy and proof of the holding by any person of any of the Debentures shall be sufficient if made in the following manner; (a) The fact and date of the execution by any such person of any instrument may be proved in any reasonable manner acceptable to the Trustee. (b) The ownership of Debentures shall be proved by the Debenture Register of such Debentures or by a certificate of the Debenture Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. SECTION 8.03. WHO MAY BE DEEMED OWNERS OF DEBENTURES. Prior to the due presentment for registration of transfer of any Debenture, the Company, the Trustee, any paying agent and any Debenture Registrar may deem and treat the person in whose name such Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of 42 ownership or writing thereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal of, premium, if any, and (subject to Section 2.03) interest on such Debenture and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. SECTION 8.04. DEBENTURES OWNED BY THE COMPANY OR CONTROLLED OR CONTROLLING COMPANIES DISREGARDED FOR CERTAIN PURPOSES. In determining whether the holders of the requisite aggregate principal amount of Debentures of a particular series have concurred in any direction, consent or waiver under this Indenture, Debentures of that series which are owned by the Company or any other obligor on the Debentures of that series or by any Subsidiary of the Company or of such other obligor on the Debentures of that series shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures of such series which a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 8.05. INSTRUMENTS EXECUTED BY DEBENTUREHOLDERS BIND FUTURE HOLDERS. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.01, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Debentures of a particular series specified in this Indenture in connection with such action, any holder of a Debenture of that series which is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 8.02, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures of a particular series specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures of that series. ARTICLE 9 SUPPLEMENTAL INDENTURES SECTION 9.01. PURPOSES FOR WHICH SUPPLEMENTAL INDENTURE MAY BE ENTERED INTO WITHOUT CONSENT OF DEBENTUREHOLDERS. In addition to any supplemental indenture otherwise authorized by this Indenture, the Company and the Trustee 43 may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Debentureholders, for one or more of the following purposes: (a) to evidence the succession of another corporation or other entity to the Company, and the assumption by any such successor of the obligations of the Company contained herein or otherwise established with respect to the Debentures; (b) to add further covenants, restrictions, conditions or provisions for the protection of the holders of the Debentures of all or any series as the Board of Directors and the Trustee shall consider to be for the protection of the holders of Debentures of all or any series, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions, conditions or provisions a default or an Event of Default with respect to such series permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction, condition or provision such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default or may limit the right of the holders of a majority in aggregate principal amount of the Debentures of such series to waive such default; (c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture or to make such other provisions in regard to matters or questions arising under this Indenture as shall not be inconsistent with the provisions of this Indenture and shall not materially adversely affect the interests of the holders of the Debentures of any series; (d) to add to, change or eliminate any of the provisions of this Indenture, provided that any such addition, change or elimination shall become effective only when there is no Debenture outstanding of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; (e) to provide for the issuance under this Indenture of Debentures in coupon form (including Debentures registrable as to principal only) and to provide for exchangeability of such Debentures with the Debentures issued hereunder in fully registered form and to make all appropriate changes for such purposes; (f) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to the Debentures; (g) to qualify or maintain qualification of this Indenture under the Trust Indenture Act; 44 (h) to establish the form or terms of Debentures of any series as permitted by Section 2.01; or (i) to make any addition, change or elimination of any provision of this Indenture that does not adversely affect the rights of any Debentureholder in any material respect. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to, but may in its discretion, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 9.02. SECTION 9.02. MODIFICATION OF INDENTURE WITH CONSENT OF DEBENTUREHOLDERS. With the consent (evidenced as provided in Section 8.01) of the holders of not less than a majority in aggregate principal amount of the Debentures of each series affected by such supplemental indenture or indentures at the time outstanding (and, in the case of any series of Debentures held as trust assets of a Litchfield Capital Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Litchfield Capital Trust as may be required under the Declaration of Trust of such Litchfield Capital Trust), the Company and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures of such series under this Indenture; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Debentures of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Debenture so affected or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture (and, in the case of any series of Debentures held as trust assets of a Litchfield Capital Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of the holders of the Preferred Securities and the Common Securities of such Litchfield Capital Trust as may be required under the Declaration of Trust of such Litchfield Capital Trust) then outstanding and affected thereby. Upon the request of the Company, and upon the filing with the Trustee of evidence of the consent of Debentureholders (and, in the case of any series of Debentures held as trust assets of a Litchfield Capital Trust and with respect to which a Security Exchange has not theretofore occurred, such consent of holders of the Preferred Securities and the Common Securities of such Litchfield Capital Trust as may be required under the Declaration of Trust of such Litchfield 45 Capital Trust) required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. It shall not be necessary for the consent of the Debentureholders of any series affected thereby under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Trustee shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Debentureholders of all series affected thereby as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture pursuant to the provisions of this Article or of Section 10.01, this Indenture shall, with respect to such series, be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures of the series affected thereby shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 9.04. DEBENTURES MAY BEAR NOTATION OF CHANGES BY SUPPLEMENTAL INDENTURES. Debentures of any series, affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article or of Section 10.01, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which such series may be listed or traded, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures of that series so modified as to conform, in the opinion of the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures of that series then outstanding. SECTION 9.05. OPINION OF COUNSEL. The Trustee, subject to the provisions of Sections 7.01 and 7.02, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article 9. ARTICLE 10 CONSOLIDATION, MERGER, SALE OR CONVEYANCE 46 SECTION 10.01. COMPANY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any other Person, and the Company shall not permit any other Person to consolidate with or merge into the Company, unless: (a) either the Company shall be the continuing corporation, or the corporation (if other than the Company) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company substantially as an entity are transferred or leased shall be a corporation, limited liability company, partnership or trust organized and existing under the laws of the United States of America or any state thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Debentures and this Indenture; and (b) immediately after giving effect to such transaction no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. SECTION 10.02. SUCCESSOR CORPORATION SUBSTITUTED. The successor corporation formed by such consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein, and thereafter (except in the case of a lease to another Person) the predecessor corporation shall be relieved of all obligations and covenants under the Indenture and the Debentures and, in the event of such conveyance, or transfer, any such predecessor corporation may be dissolved and liquidated. SECTION 10.03. OPINION OF COUNSEL. The Trustee, subject to the provisions of Sections 7.01 and 7.02, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article. ARTICLE 11 SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 11.01. SATISFACTION AND DISCHARGE OF INDENTURE. (A) If at any time (a) the Company shall have paid or caused to be paid the principal of, premium, if any, and interest on all the Debentures of any series Outstanding hereunder (other than Debentures of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.07) as and when the same shall have become due and payable, or (b) the Company shall have delivered to the Trustee for cancellation all Debentures of any series theretofore authenticated (other than any Debentures of such series which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 47 2.07) or (c) (i) all the Debentures of any series not theretofore delivered to the Trustee for cancellation shall have become due and payable, or by their terms will become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (ii) the Company shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds the entire amount in cash (other than moneys repaid by the Trustee or any paying agent to the Company in accordance with Section 11.04) or Government Obligations, maturing as to principal and interest at such times and in such amounts as will insure the availability of cash, or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal of, premium, if any, and interest on all Debentures of such series on each date that such principal or interest is due and payable and (B) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Debentures of such series; and if, in any such case, the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange of Debentures of such series and the Company's right of optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed lost or stolen Debentures, (iii) rights of holders of Debentures to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration), and remaining rights of the Debentureholders to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, (v) the rights of the holders of Debentures of such series as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them and (vi) the obligations of the Company under Section 4.02) and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture; provided, that the rights of the Debentureholders to receive amounts in respect of principal of, premium, if any, and interest on the Debentures held by them shall not be delayed longer than required by then-applicable mandatory rules or policies of any securities exchange or automated quotation system upon which the Debentures are listed or traded. The Company agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Debentures of such series. (B) The following provisions shall apply to the Debentures of each series unless specifically otherwise provided in a Board Resolution or indenture supplemental hereto provided pursuant to Section 2.01. In addition to discharge of the Indenture pursuant to the next preceding paragraph, the Company shall be deemed to have paid and discharged the entire indebtedness on all the Debentures of a series on the date of the deposit referred to in subparagraph (a) below, and the provisions of this Indenture with respect to the Debentures of such series shall no longer be in effect (except as to (i) rights of registration of transfer and exchange of Debentures of such series and the Company's right of optional redemption, if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen Debentures, (iii) rights of holders of Debentures to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon 48 acceleration), and remaining rights of the holders of Debentures to receive mandatory sinking fund payments, if any, (iv) the rights, obligations, duties and immunities of the Trustee hereunder, (v) the rights of the Holders of Debentures as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them and (vi) the obligations of the Company under Section 4.02) and the Trustee, at the expense of the Company, shall at the Company's request, execute proper instruments acknowledging the same, if (a) with reference to this provision the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the Debentures of such series (i) cash in an amount, or (ii) Governmental Obligations maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay (A) the principal of, premium, if any, and interest on all Debentures of such series on each date that such principal or interest is due and payable and (B) any mandatory sinking fund payments on the dates on which such payments are due and payable in accordance with the terms of the Indenture and the Debentures of such series; (b) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound; (c) the Company has delivered to the Trustee an Opinion of Counsel based on the fact that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date hereof, there has been a change in the applicable Federal income tax law, in either case to the effect that, and such opinion shall confirm that, the holders of the Debentures of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred; (d) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this provision have been complied with; and (e) no event or condition shall exist that, pursuant to the provisions of Section 14.02 or 14.03, would prevent the Company from making payments of the principal of, premium, if any, or interest on the Debentures of such series on the date of such deposit. SECTION 11.02. APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF DEBENTURES. Subject to Section 11.04, all moneys deposited with the Trustee (or other trustee) pursuant to Section 11.01 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company acting as its own paying agent), to the Holders of the particular Debentures of such series for the payment or 49 redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. SECTION 11.03. REPAYMENT OF MONEYS HELD BY THE PAYING AGENT. In connection with the satisfaction and discharge of this Indenture with respect to Debentures of any series, all moneys then held by any paying agent under the provisions of this Indenture with respect to such series of Debentures shall, upon demand of the Company, be repaid to it or paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 11.04. REPAYMENT OF MONEYS HELD BY THE TRUSTEE. Any moneys deposited with or paid to the Trustee or any paying agent for the payment of the principal of or interest on any Debenture of any series and not applied but remaining unclaimed for two years after the date upon which such principal or interest shall have become due and payable, shall, upon the written request of the Company and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee for such series or such paying agent, and the Holder of the Debentures of such series shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease; provided, however, that the Trustee or such paying agent, before being required to make any such repayment with respect to moneys deposited with it for any payment series, shall at the expense of the Company, mail by first-class mail to holders of such Debentures at their addresses as they shall appear on the Debenture Register, notice, that such moneys remain and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 11.05. INDEMNIFICATION RELATING TO GOVERNMENTAL OBLIGATIONS. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Governmental Obligations deposited pursuant to Section 11.01 or the principal or interest received in respect of such obligations. ARTICLE 12 IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 12.01. INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF COMPANY EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood 50 that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures. ARTICLE 13 MISCELLANEOUS PROVISIONS SECTION 13.01. SUCCESSORS AND ASSIGNS OF COMPANY BOUND BY INDENTURE. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. SECTION 13.02. ACTS OF BOARD, COMMITTEE OR OFFICER OF SUCCESSOR COMPANY VALID. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 13.03. SURRENDER OF POWERS OF THE COMPANY. The Company by instrument in writing executed by authority of two-thirds of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company and thereupon such power so surrendered shall terminate both as to the Company and as to any successor corporation. SECTION 13.04. REQUIRED NOTICES OR DEMANDS MAY BE SERVED BY MAIL. Except as otherwise expressly provided herein, any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: Litchfield Financial Corporation, 430 Main Street, P.O. Box 488, Williamstown, Massachusetts 01267, Attention: Corporate Secretary. Any notice, election, request or demand by the Company or any Debentureholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office of the Trustee. 51 SECTION 13.05. INDENTURE AND DEBENTURES TO BE CONSTRUED IN ACCORDANCE WITH LAWS OF THE STATE OF NEW YORK. This Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State (without regard to principles of conflicts of laws thereof). SECTION 13.06. OFFICER'S CERTIFICATE AND OPINION OF COUNSEL TO BE FURNISHED UPON APPLICATION OR DEMANDS BY COMPANY; STATEMENTS TO BE INCLUDED IN EACH CERTIFICATE OR OPINION WITH RESPECT TO COMPLIANCE WITH CONDITION OR COVENANT. (a) Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. (b) Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture (other than the certificate provided pursuant to Section 5.03(d) of this Indenture) shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 13.07. PAYMENTS DUE ON SUNDAYS OR HOLIDAYS. Except as provided pursuant to Section 2.01 pursuant to a Board Resolution, and as set forth in an Officers' Certificate, or established in one or more indentures supplemental to the Indenture, in any case where the date of maturity of interest or principal of any Debenture or the date of redemption of any Debenture shall not be a Business Day then payment of interest or principal (and premium, if any) may be made on the next succeeding Business Day, with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. SECTION 13.08. PROVISIONS REQUIRED BY TRUST INDENTURE ACT OF 1939 TO CONTROL. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. 52 SECTION 13.09. INDENTURE MAY BE EXECUTED BY ITS COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 13.10. SEPARABILITY OF INDENTURE PROVISIONS. In case any one or more of the provisions contained in this Indenture or in the Debentures of any series shall 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 Indenture or of such Debentures, but this Indenture and such Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 13.11. ASSIGNMENT BY COMPANY TO A SUBSIDIARY OR AFFILIATE. The Company will have the right at all times to assign any of its rights or obligations under this Indenture to a Subsidiary or an Affiliate; provided that, in the event of any such assignment, the Company will remain jointly and severally liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties hereto (other than pursuant to Article 10). SECTION 13.12. HOLDERS OF PREFERRED SECURITIES AS THIRD PARTY BENEFICIARIES OF THE INDENTURE; HOLDERS OF PREFERRED SECURITIES MAY INSTITUTE LEGAL PROCEEDINGS AGAINST THE COMPANY IN CERTAIN CASES. The Company acknowledges that, prior to a Security Exchange with respect to Debentures of any series held as trust assets of a Litchfield Capital Trust, if the Property Trustee of such Litchfield Capital Trust fails to enforce its rights under this Indenture as the holder of the Debentures of a series held as trust assets of such Litchfield Capital Trust, any holder of the Preferred Securities of such Litchfield Capital Trust may, to the fullest extent permitted by law, institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property Trustee or any other Person; provided that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a holder of Preferred Securities of such Litchfield Capital Trust may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the Company will be subrogated to the rights of such holder of Preferred Securities to the extent of any payment made by the Company to such holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the holders of Preferred Securities of such Litchfield Capital Trust will not be able to exercise directly any other remedy available to the holders of the Debentures. ARTICLE 14 SUBORDINATION OF DEBENTURES 53 SECTION 14.01. AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and each Debentureholder issued hereunder by his acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article 14; and each person holding any Debenture, whether upon original issue or upon transfer, assignment or exchange thereof accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, premium, if any, and interest on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to all Senior Debt, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 14 shall prevent the occurrence of any Default or Event of Default hereunder. SECTION 14.02. DEFAULT ON SENIOR DEBT. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Debt, or in the event that the maturity of any Senior Debt has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption payments) of or premium, if any, or interest on the Debentures until such default shall have been cured or waived in writing or shall have ceased to exist or such Senior Debt shall have been discharged or paid in full. In the event of the acceleration of the maturity of the Debentures, then no payment shall be made by the Company with respect to the principal (including redemption payments) of or premium, if any, or interest on the Debentures until the holders of all Senior Debt outstanding at the time of such acceleration shall receive payment in full of such Senior Debt (including any amounts due upon acceleration). In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Debentureholder when such payment is prohibited by the preceding paragraphs of this Section 14.02, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear. SECTION 14.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, receivership, reorganization, assignment for the benefit of creditors, marshaling of assets and liabilities or any bankruptcy, insolvency or similar proceedings of the Company, all amounts due or to become due upon all Senior Debt shall first be paid in full, in cash or cash equivalents, or payment thereof provided for in accordance with its terms, before any payment is made on account of the principal of, premium, if any, or interest on the indebtedness evidenced by the Debentures, and upon any such liquidation, dissolution, winding up, receivership, reorganization, 54 assignment, marshaling or proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Debentureholders or the Trustee under this Indenture would be entitled, except for the provisions of this Article 14, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Debentureholders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Debt in full (including, without limitation, except to the extent, if any, prohibited by mandatory provisions of law, post-petition interest, in any such proceedings), after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt, before any payment or distribution is made to the holders of the indebtedness evidenced by the Debentures or to the Trustee under this Indenture. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee under this Indenture or the holders of the Debentures before all Senior Debt is paid in full or provision is made for such payment in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Senior Debt remaining unpaid until all such Senior Debt shall have been paid in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt. For purposes of this Article 14, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of arrangement, reorganization or readjustment, the payment of which is subordinated (at least to the extent provided in this Article 14 with respect to the Debentures) to the payment of all Senior Debt which may at the time be outstanding; provided, that (i) the Senior Debt is assumed by the new corporation, if any, resulting from any such arrangement, reorganization or readjustment, and (ii) the rights of the holders of the Senior Debt are not, without the consent of such holders, altered by such arrangement, reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article 10 shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article 10. Nothing in Section 14.02 or this Section 14.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Article 7, except as provided therein. This Section shall be subject to the further provisions of Section 14.06. 55 SECTION 14.04. SUBROGATION OF DEBENTURES. Subject to the payment in full of all Senior Debt, the rights of the holders of the Debentures shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the principal of, premium, if any, and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the holders of the Debentures or the Trustee on their behalf would be entitled except for the provisions of this Article 14 and no payment over pursuant to the provisions of this Article 14 to the holders of Senior Debt by holders of the Debentures or the Trustee on their behalf shall, as between the Company, its creditors other than holders of Senior Debt and the holders of the Debentures, be deemed to be a payment by the Company to or on account of the Senior Debt; and no payments or distributions of cash, property or securities to or for the benefit of the Debentureholders pursuant to the subrogation provisions of this Article, which would otherwise have been paid to the holders of Senior Debt shall be deemed to be a payment by the Company to or for the account of the Debentures. It is understood that the provisions of this Article 14 are and are intended solely for the purpose of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of the Senior Debt, on the other hand. Nothing contained in this Article 14 or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Debt, and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of, premium, if any, and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the holder of any Debenture or the Trustee on his behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 14 of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article 14, the Trustee, subject to the provisions of Article 7, and the holders of the Debentures shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such liquidation, dissolution, winding up, receivership, reorganization, assignment or marshaling proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the holders of the Debentures, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 14. SECTION 14.05. AUTHORIZATION BY DEBENTUREHOLDERS. Each holder of a Debenture by his acceptance thereof authorizes and directs the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article 14 and appoints the Trustee his attorney- in-fact for any and all such purposes. 56 SECTION 14.06. NOTICE TO TRUSTEE. The Company shall give prompt written notice to the Trustee and to any paying agent of any fact known to the Company which would prohibit the making of any payment of moneys to or by the Trustee or any paying agent in respect of the Debentures pursuant to the provisions of this Article 14. Regardless of anything to the contrary contained in this Article 14 or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any Senior Debt or of any default or event of default with respect to any Senior Debt or of any other facts which would prohibit the making of any payment of moneys to or by the Trustee, unless and until the Trustee shall have received notice in writing at its principal Corporate Trust Office to that effect signed by an officer of the Company, or by a holder or agent of a holder of Senior Debt who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder or agent, or by the trustee under any indenture pursuant to which Senior Debt shall be outstanding, and, prior to the receipt of any such written notice, the Trustee shall, subject to the provisions of Article 7, be entitled to assume that no such facts exist; provided, however, that if on a date at least three Business Days prior to the date upon which by the terms hereof any such moneys shall become payable for any purpose (including, without limitation, the payment of the principal of, or interest on any Debenture) the Trustee shall not have received with respect to such moneys the notice provided for in this Section 14.06, then, regardless of anything herein to the contrary, the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. The Trustee shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of Senior Debt or a trustee on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article 14, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 14, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 14.07. TRUSTEE'S RELATION TO SENIOR DEBT. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article 14 with respect to any Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Debt and nothing in this Indenture shall deprive the Trustee or any such agent, of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Article 7. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 14, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary 57 > duty to the holders of Senior Debt and, subject to the provisions of Article 7, the Trustee shall not be liable to any holder of Senior Debt if it shall pay over or deliver to holders of Debentures, the Company or any other person moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article 14 or otherwise. Nothing in this Article 14 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.06. SECTION 14.08. NO IMPAIRMENT TO SUBORDINATION. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the Debentureholders, without incurring responsibility to the Debentureholders and without impairing or releasing the subordination provided in this Article 14 or the obligations hereunder of the holders of the Debentures to the holders of such Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt, or otherwise amend or supplement in any manner such Senior Debt or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (iii) release any Person liable in any manner for the collection of such Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company, as the case may be, and any other Person. SECTION 14.09. ARTICLE APPLICABLE TO PAYING AGENTS. In case at any time any paying agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such paying agent within its meaning as fully for all intents and purposes as if such paying agent were named in this Article in addition to or in place of the Trustee. SECTION 14.10. TRUST MONEYS NOT SUBORDINATED. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Section 11.02 of this Indenture by the Trustee for the payment of principal of and interest on the Debentures shall not be subordinated to the prior payment of any Senior Debt or subject to the restrictions set forth in this Article 14, and none of the Debentureholders shall be obligated to pay over any such amount to the Company or any holder of Senior Debt of the Company or any other creditor of the Company. 58 The Bank of New York, a New York banking corporation, as Trustee, hereby accepts the trust in this Indenture declared and provided, upon the terms and conditions herein above set forth. 59 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. LITCHFIELD FINANCIAL CORPORATION /s/ Ronald E. Rabidou By: ______________________________ Ronald E. Rabidou Executive Vice President and Chief Financial Officer THE BANK OF NEW YORK, as TRUSTEE By: /s/ Michael Culhane ------------------------------ Michael Culhane Vice President STATE OF Massachusetts COUNTY OF Berkshire BEFORE ME, the undersigned authority, on this day of May 19, 1999, personally appeared Ronald Rabidou on behalf of Litchfield Financial Corporation, known to me (or proved to me by introduction upon the oath of a person known to me) to be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged to me that he or she executed the same as the act of such corporation and for the purposes and consideration herein expressed and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL THIS 19th day of May, 1999. /s/ Losha M. Daub ------------------------------ Notary Public My Commission Expires: April 21, 2000 STATE OF COUNTY OF BEFORE ME, the undersigned authority, on this day of May 19, 1999, personally appeared Michael Culhane of The Bank of New York, a New York banking corporation, known to me (or proved to me by introduction upon the oath of a person known to me) to be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged to me that 60 he or she executed the same as the act of such trust for the purposes and consideration herein expressed and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL THIS 19th day of May, 1999. /s/ William J. Cassels ------------------------------ Notary Public My Commission Expires: May 16, 2000 HWD2: 551485-1 61 EX-4 6 Exhibit 4.13 LITCHFIELD FINANCIAL CORPORATION AND THE BANK OF NEW YORK, as Trustee SUPPLEMENTAL INDENTURE NO. 1 Dated as of May 19, 1999 TO JUNIOR SUBORDINATED INDENTURE Dated as of May 19, 1999 10% Series A Junior Subordinated Debentures Due 2029 $25,773,200 SUPPLEMENTAL INDENTURE NO. 1, dated as of the 19th day of May, 1999, between Litchfield Financial Corporation, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts (the "Company"), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). RECITALS The Company has heretofore executed and delivered to the Trustee a Junior Subordinated Indenture, dated as of May 19, 1999 (the "Indenture"), providing for the issuance from time to time of one or more series of its unsecured junior subordinated debentures (the "Debentures"). Pursuant to the terms of the Indenture, the Company desires to provide for the establishment of a new series of Debentures to be designated as the 10% Junior Subordinated Debentures due 2029 (the "Series A Debentures"), the form and substance of such Series A Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Indenture and this Supplemental Indenture No. 1. The Company has caused Litchfield Capital Trust I ("Litchfield Capital Trust I") to be created as a statutory business trust under the Business Trust Act of the State of Delaware (12 Del. Code ss.3801 et seq.) pursuant to a Declaration of Trust, dated as of April 12, 1999 (as amended by an Amendment of the Declaration of Trust, dated as of May 19, 1999, the "Original Declaration"), and the filing of a Certificate of Trust with the Secretary of State of the State of Delaware on April 12, 1999. The Original Declaration is to be amended and restated in its entirety pursuant to an Amended and Restated Declaration of Trust dated as of May 19, 1999 (such Amended and Restated Declaration of Trust, as amended from time to time, the "Declaration of Trust"). Litchfield Capital Trust I desires to issue its 10% Series A Trust Preferred Securities (the "Preferred Securities") and sell such Preferred Securities to the underwriters set forth in that certain Underwriting Agreement dated May 13, 1999 by and among the Company, Litchfield Capital Trust I and the underwriters named therein. In connection with such purchases of Preferred Securities and the related purchase by the Company of the Common Securities (as defined in the Declaration of Trust) of Litchfield Capital Trust I, Litchfield Capital Trust I will purchase and hold as trust assets the Series A Debentures. Pursuant to the Declaration of Trust, the legal title to the Series A Debentures shall be owned and held of record in the name of The Bank of New York or its successor under the Declaration of Trust, as Property Trustee (the "Property Trustee"), in trust for the benefit of holders of the Preferred Securities and the Common Securities. Upon written direction of the Company or any subsequent holder of the Common Securities, the Regular Trustees (as defined in the Declaration of Trust) of Litchfield Capital Trust I shall, unless the Series A Debentures are redeemed as described herein, dissolve Litchfield Capital Trust I and cause to be distributed to the holders of the Preferred Securities and the Common Securities, on a Pro Rata basis (determined as provided in the terms of the Preferred Securities and Common Securities attached as Exhibits B and C to the Declaration of Trust), Series A Debentures and, in connection with a Liquidation Distribution (as defined in the Declaration of Trust), the Regular Trustees may cause to be distributed to holders of Preferred Securities and Common Securities, on a Pro Rata basis, Series A Debentures (each a "Dissolution Event"). Section 2.01 of the Indenture provides that various matters with respect to any series of Debentures issued under the Indenture may be established in an indenture supplemental to the Indenture. Subparagraph (h) of Section 9.01 of the Indenture provides that the Company and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Debentures of any series as permitted by Section 2.01 of the Indenture. For and in consideration of the premises and the issuance of the series of Debentures provided for herein, it is mutually covenanted and agreed, for the equal and proportionate benefit of the holders of the Debentures of such series, as follows: ARTICLE ONE Relation to Indenture; Additional Definitions SECTION 1.01. Relation to Indenture. This Supplemental Indenture No.1 constitutes an integral part of the Indenture. SECTION 1.02. Additional Definitions. For all purposes of this Supplemental Indenture No. 1: (1) Capitalized terms used herein shall have the meanings specified herein or in the Indenture, as the case may be; (2) "Additional Interest" has the meaning set forth in Section 2.05(d) hereof; (3) "Change in Investment Company Act Law" has the meaning set forth in the definition of Investment Company Event; (4) "Common Securities" has the meaning set forth in the Recitals herein; (5) "Compounded Interest" has the meaning set forth in Section 2.05(a) hereof; (6) "Debentures" has the meaning set forth in the Recitals herein; 3 (7) "Declaration of Trust" has the meaning set forth in the Recitals herein; (8) "Dissolution Event" has the meaning set forth in the Recitals herein; (9) "Extended Interest Payment Period" has the meaning set forth in Section 4.01(a) hereof; (10) "Guarantee Payments" has the meaning set forth in Section 5.01 hereof; (11) "Indenture" has the meaning set forth in the Recitals herein; (12) "Interest Payment Date" has the meaning set forth in Section 2.05(a) hereof; (13) "Investment Company Act" means the Investment Company Act of 1940, as amended; (14) "Investment Company Event" means that the Company and the Regular Trustees shall have received an opinion of counsel, who may be counsel for Litchfield Capital Trust I, the Trustee or the Company, who may be an employee of the Company but not an employee of Litchfield Capital Trust I or the Trustee, and who shall be reasonably acceptable to the Trustee, experienced in practice under the Investment Company Act that as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in Investment Company Act Law"), there is more than an insubstantial risk that Litchfield Capital Trust I is or will be considered an "investment company" which is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after June 30, 2004; (15) "Liquidation Distribution" has the meaning set forth in the Recitals herein; (16) "Maturity Date" has the meaning set forth in Section 2.03 hereof; (17) "Non Book-Entry Preferred Securities" has the meaning set forth in Section 2.04(b)(ii) hereof; (18) "Optional Redemption Price" has the meaning set forth in Section 3.01(a) hereof; (19) "Original Declaration" has the meaning set forth in the Recitals herein; (20) "Preferred Securities" has the meaning set forth in the Recitals herein; 4 (21) "Preferred Securities Guarantee" means the Guarantee Agreement, dated as of May 19, 1999, between the Company and The Bank of New York as the initial Guarantee Trustee thereunder, in respect of the Preferred Securities; (22) "Property Account" has the meaning set forth in Section 2.04(a) hereof; (23) "Property Trustee" has the meaning set forth in the Recitals herein; (24) "Regular Trustees" has the meaning set forth in the Recitals herein; (25) "Litchfield Capital Trust I" has the meaning set forth in the Recitals herein; (26) "Series A Debentures" has the meaning set forth in the Recitals herein and Section 2.01 hereof; (27) "Special Event" means either a Tax Event or an Investment Company Event; (28) "Tax Event" means that the Company and the Regular Trustees shall have received an opinion of counsel, who may be counsel for Litchfield Capital Trust I, the Trustee or the Company, who may be an employee of the Company but not an employee of Litchfield Capital Trust I or the Trustee, and who shall be reasonably acceptable to the Trustee, experienced in such matters to the effect that on or after May 19, 1999 as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement by any legislative body, court, governmental agency or regulatory authority that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after May 19, 1999, there is more than an insubstantial risk that (i) Litchfield Capital Trust I is, or will be within 90 days of the date thereof, subject to federal income tax with respect to income accrued or received on the Series A Debentures, (ii) Litchfield Capital Trust I is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by the Company to Litchfield Capital Trust I on the Series A Debentures is not, or within 90 days of the date thereof will not be, deductible by the Company for federal income tax purposes; (29) All references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 1; and 5 (30) The terms "herein," "hereof," "hereunder" and other words of similar import refer to this Supplemental Indenture No. 1. ARTICLE TWO General Terms and Conditions of the Series 10% Series A Debentures SECTION 2.01. Title of Debentures. There shall be and is hereby authorized a series of Debentures designated as the "10% Junior Subordinated Debentures due 2029" (the "Series A Debentures"). SECTION 2.02. Limitation on Aggregate Principal Amount. The aggregate principal amount of the Series A Debentures shall be limited to $25,773,200; provided, however, that the authorized aggregate principal amount of the Series A Debentures may be increased above such amount by a Board Resolution to such effect. Each Series A Debenture shall be dated the date of its authentication. SECTION 2.03. Maturity Date. The Series A Debentures shall mature and the principal amount thereof shall be due and payable together with all accrued and unpaid interest thereon, including Additional Interest and Compounded Interest, if any, on June 30, 2029 (the "Maturity Date"); provided, if a Tax Event occurs, then the Company will have the right (a) prior to the dissolution of Litchfield Capital Trust I, to shorten the Maturity Date of the Series A Debentures, to the minimum extent required, but not earlier than September 30, 2018, or (b) to direct the Property Trustee to dissolve Litchfield Capital Trust I (if not previously dissolved) and shorten the Maturity Date of the Series A Debentures, to the minimum extent required, but not earlier than September 30, 2018, in each case such that in the opinion of counsel to the Company, who may be an employee of the Company, experienced in such matters, after shortening the Maturity Date, interest paid on the Series A Debentures will be deductible for federal income tax purposes. SECTION 2.04. Place of Payment, Registration or Exchange. (a) Except as provided in Section 2.04(b), the Series A Debentures shall be issued in fully registered certificated form without interest coupons in denominations of $10 or integral multiples thereof. Principal and interest on the Series A Debentures issued in certificated form will be payable, the transfer of such Series A Debentures will be registrable and such Series A Debentures will be exchangeable for Series A Debentures bearing identical terms and provisions at the Corporate Trust Office of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holders at such addresses as shall appear in the Debenture Register and that the payment of principal with respect to the Series A Debentures will only be made upon surrender of the Series A Debentures to the Trustee. Notwithstanding the foregoing, so long as the Property Trustee is the legal owner and record holder of the Series A Debentures, the payment of the principal of and interest (including Additional Interest and Compounded Interest, if any) on the Series A Debentures held by the 6 Property Trustee will be made by the Company in immediately available funds on the payment date therefor at such place and to the Property Account (as defined in the Declaration of Trust) established and maintained by the Property Trustee pursuant to the Declaration of Trust. (b) In connection with a Dissolution Event: (i) Series A Debentures in certificated form may be presented to the Trustee by the Property Trustee in exchange for one or more Global Debentures representing the Series A Debentures in an aggregate principal amount equal to all Outstanding Series A Debentures, to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Regular Trustees. The Company upon any such presentation shall execute one or more Global Debentures representing the Series A Debentures in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Indenture and this Supplemental Indenture No. 1. Payments on the Series A Debentures issued as a Global Debenture will be made to the Depositary; and (ii) if any Preferred Securities are held in non book-entry certificated form, Series A Debentures in certificated form may be presented to the Trustee by the Property Trustee and any Definitive Preferred Security Certificate (as defined in the Declaration of Trust) which represents Preferred Securities other than Preferred Securities held by the Clearing Agency (as defined in the Declaration of Trust) or its nominee ("Non Book- Entry Preferred Securities") will be deemed to represent beneficial interests in Series A Debentures presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Preferred Securities until such Definitive Preferred Security Certificate is presented to the Debenture Registrar for transfer or reissuance at which time such Preferred Security Certificate will be canceled and a Series A Debenture, registered in the name of the holder of the Preferred Security Certificate or the transferee of the holder of such Preferred Security Certificate, as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Definitive Preferred Security Certificate canceled will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Indenture and this Supplemental Indenture No. 1. Upon issuance of such Series A Debentures, Series A Debentures with an equivalent aggregate amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled. SECTION 2.05. Interest and Interest Rates. (a) Each Series A Debenture will bear interest at the rate of 10% per annum from May 19, 1999 until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum (10%), compounded quarterly ("Compounded Interest"), payable (subject to the provisions of Article Four) quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each an "Interest Payment Date"), 7 commencing on June 30, 1999, to the person in whose name such Series A Debenture or any predecessor Series A Debenture is registered, at the close of business on the regular record date for such interest installment, which, except as set forth below, shall be, in respect of any Series A Debentures of which the Property Trustee is the registered holder or a Global Debenture, the close of business on the Business Day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if the Preferred Securities are no longer in book-entry only form or if pursuant to the provisions of Section 2.11(c) of the Indenture the Series A Debentures are not represented by a Global Debenture, the regular record dates for such interest installment shall be the close of business on the fifteenth day of the month in which that Interest Payment Date occurs. (b) Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and shall instead be paid to the person in whose name the Series A Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of the Series A Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or quotation system on which the Series A Debentures may be listed or traded, and upon such notice as may be required by such exchange or quotation system, all as more fully provided in Section 2.03 of the Indenture. (c) The amount of interest payable for any full quarterly interest period will be computed on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly interest period for which interest is computed, interest shall be computed on the basis of the actual number of days elapsed per 90-day quarter. In the event that any date on which interest is payable on the Series A Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. (d) If at any time Litchfield Capital Trust I shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States of America or any other taxing authority, then, in any such case, the Company shall pay as additional interest ("Additional Interest") on the Series A Debentures such additional amounts as shall be required so that the net amounts received and retained by Litchfield Capital Trust I after paying any such taxes, duties, assessments or other governmental charges shall be equal to the amounts Litchfield Capital Trust I would have received had no such taxes, duties, assessments or other governmental charges been imposed. 8 SECTION 2.06. Denomination of Debentures. The Series A Debentures shall be in registered form without coupons and shall be issuable in denominations of $10 and integral multiples thereof. SECTION 2.07. Currency. Payment of principal and interest on the Series A Debentures shall be payable in U.S. dollars. SECTION 2.08. Paying Agent. The Trustee shall initially serve as paying agent of the Series A Debentures. SECTION 2.09. Sinking Fund Obligations. The Company has no obligation to redeem or purchase any Series A Debentures pursuant to any sinking fund or analogous provisions (including payments made in cash in anticipation of future sinking fund obligations) or at the option of a holder thereof. ARTICLE THREE Optional Redemption of the Series A Debentures SECTION 3.01. Optional Redemption on or after June 30, 2004. (a) Except as provided in Section 3.02 hereof and subject to the provisions below, Series A Debentures shall not be redeemed by the Company prior to June 30, 2004. Subject to the terms of Article 3 of the Indenture, the Company shall have the right to redeem the Series A Debentures, without premium or penalty, in whole or in part, at any time from time to time on or after June 30, 2004, upon not less than 30 nor more than 60 days' notice to each holder of the Series A Debentures, at a redemption price of 100% of the principal amount of the Series A Debentures, together with any accrued and unpaid interest thereon, including Compounded Interest and Additional Interest, if any, to, but excluding, the date of such redemption (the "Optional Redemption Price"). (b) If the Series A Debentures are redeemed on any Interest Payment Date, accrued and unpaid interest shall be payable to holders of record on the relevant record date. (c) The Company shall not redeem any Series A Debentures unless all accrued and unpaid interest thereon, including Compounded Interest and Additional Interest, if any, has been paid for all quarterly interest periods terminating on or prior to the date of notice of redemption. (d) If the Company gives a notice of redemption in respect of Series A Debentures (which notice will be irrevocable), then by 10:00 a.m., New York City time, on the redemption date, the Company shall deposit irrevocably with the Trustee funds sufficient to pay the applicable Optional Redemption Price and shall give irrevocable instructions and authority to pay such Optional Redemption Price to the holders of the Series A Debentures. If notice of redemption shall have been given and funds deposited as required, then immediately prior to the 9 close of business on the redemption date interest shall cease to accrue on the Series A Debentures called for redemption, such Series A Debentures shall no longer be deemed to be outstanding and all rights of holders of such Series A Debentures so called for redemption shall cease, except the right of the holders of such Series A Debentures to receive the Optional Redemption Price but without interest on such Optional Redemption Price. (e) If any date fixed for redemption of any Series A Debentures is not a Business Day, then payment of the Optional Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calender year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If the Company fails to repay the Series A Debentures on maturity or the date fixed for redemption or if payment of the Optional Redemption Price in respect of the Series A Debentures is improperly withheld or refused and not paid by the Company, interest on such Series A Debentures shall continue to accrue from the original redemption date to the date of payment, in which case the actual payment date shall be considered the date fixed for redemption for purposes of calculating the Optional Redemption Price. (f) In the event of any redemption in part, the Company shall not be required to (i) issue, register the transfer of or exchange any Series A Debentures during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Series A Debentures and ending at the close of business on the date of such mailing and (ii) register the transfer of or exchange any Series A Debentures so selected for redemption, in whole or in part, except the unredeemed portion of any Series A Debentures being redeemed in part. SECTION 3.02. Optional Redemption upon the Occurrence of a Special Event. If a Special Event shall occur and be continuing, the Company shall have the right at any time to redeem the Series A Debentures in whole, but not in part, for cash at the Optional Redemption Price within 90 days following the occurrence of such Special Event. SECTION 3.03. Partial Redemption. If the Series A Debentures are only partially redeemed pursuant to this Article Three, the Series A Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee. Notwithstanding the foregoing, if a partial redemption of the Series A Debentures would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed or traded, the Company shall not be permitted to effect such partial redemption and will only redeem the Series A Debentures in whole. 10 ARTICLE FOUR Extension of Interest Payment Period SECTION 4.01. Option to Extend Interest Payment Period. (a) So long as the Company is not in default in the payment of interest on the Series A Debentures, the Company shall have the right to defer payments of interest on the Series A Debentures by extending the interest payment period of the Series A Debentures at any time and from time to time for up to 20 consecutive quarterly interest periods (each such period an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest accrued and unpaid thereon (together with Compounded Interest and Additional Interest, if any); provided that no Extended Interest Payment Period may extend beyond the Maturity Date or redemption date of the Series A Debentures. (b) During any Extended Interest Payment Period, the Company shall not (i) declare or pay any dividend on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its capital stock, other than: (A) dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of, the Company's common stock; (B) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (C) as a result of a reclassification of the Company's capital stock or the exchange or the conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock; (D) the payment of accrued dividends and the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (E) purchases of the Company's common stock related to the issuance of the Company's common stock or rights under any of the Company's benefit plans for its directors, officers, employees, any of the Company's dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of the Company's Affiliates for such Affiliates' directors, officers or employees; (ii) make any payment of principal or of interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that, ranks pari passu with or junior in interest to the Series A Debentures; or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company (other than the Preferred 11 Securities Guarantee) if such guarantee ranks pari passu with or junior in interest to the Series A Debentures. (c) Prior to the termination of any Extended Interest Payment Period, the Company may pay all or any portion of the interest accrued on the Series A Debentures on any Interest Payment Date to holders of record on the regular record date for such Interest Payment Date or from time to time further extend such Extended Interest Payment Period; provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extended Interest Payment Period and the payment of all accrued and unpaid interest, including any Additional Interest and Compounded Interest, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof. On the Interest Payment Date occurring at the end of the Extended Interest Payment Period, the Company shall pay all accrued and unpaid interest on the Series A Debentures, including any Additional Interest and Compounded Interest, to the holders of the Series A Debentures in whose names the Series A Debentures are registered in the Debenture Register (regardless of who the holders of record may have been on other dates during the Extended Interest Payment Period) on the record date for such Interest Payment Date. SECTION 4.02. Notice of Extension of Interest Payment Period. (a) So long as the Property Trustee is the legal owner and sole holder of record of the Series A Debentures, at the time the Company elects to begin an Extended Interest Payment Period, the Company shall give both the Property Trustee and the Trustee notice of its election to begin such Extended Interest Payment Period one Business Day prior to the earlier of (i) the next succeeding date on which Distributions (as defined in the Declaration of Trust) on the Preferred Securities are payable or (ii) the date Litchfield Capital Trust I is required to give notice of the record date or the date such Distributions are payable to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Preferred Securities, but in any event not less than one Business Day prior to such record date. (b) If as a result of a Dissolution Event Series A Debentures have been distributed to holders of Trust Securities, the Company shall give the holders of the Series A Debentures and the Trustee notice of its election to begin an Extended Interest Payment Period at least 10 Business Days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice of the record or payment date of such related interest payment to the New York Stock Exchange (if the Series A Debentures are then listed thereon) or other applicable self-regulatory organization or to holders of the Series A Debentures. (c) The quarter in which any notice is given pursuant to Section 4.02 shall be counted as one of the quarters permitted in the maximum Extended Interest Payment Period permitted under this Article Four. 12 ARTICLE FIVE Covenants Applicable to the Series A Debentures SECTION 5.01. Prohibited Actions while Preferred Securities are Outstanding. So long as any Preferred Securities issued by Litchfield Capital Trust I remain outstanding, the Company shall not (i) declare or pay any dividends on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its capital stock (other than (a) dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of, common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) as a result of a reclassification of the Company's capital stock or the exchange or the conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (d) the payment of accrued dividends and the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, or (e) purchases of the Company's common stock related to the issuance of the Company's common stock or rights under any of the Company's benefit plans for its directors, officers, employees, any of the Company's dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of the Company's Affiliates for such Affiliates' directors, officers or employees), (ii) make any payment of principal or of interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that, ranks pari passu with or junior in interest to the Series A Debentures or (iii) make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company (other than pursuant to the Preferred Securities Guarantee) if such guarantee ranks pari passu with or junior in interest to the Series A Debentures, if at such time (x) the Company shall be in default with respect to its Guarantee Payments (as defined in the Preferred Securities Guarantee) or other payment obligations under the Preferred Securities Guarantee, (y) there shall have occurred any Event of Default with respect to the Series A Debentures or (z) the Company shall have given notice of its election to defer payments of interest on the Series A Debentures by extending the interest payment period in accordance with Article Four hereof. SECTION 5.02. Listing on NASDAQ. In connection with the distribution of the Series A Debentures to the holders of the Preferred Securities upon a Dissolution Event, the Company will use its best efforts to list such Series A Debentures on the Nasdaq National Market or on such other exchange or quotation system as the Preferred Securities are then listed and traded. SECTION 5.03. Compliance With the Declaration of Trust. The Company covenants and agrees for the benefit of the holders of the Preferred Securities to comply fully with all of its obligations and agreements under the Declaration of Trust, including, without limitation, its obligations under Article 4 thereof. 13 SECTION 5.04. Covenants with Respect to Litchfield Capital Trust I. Prior to the distribution of Series A Debentures to the holders of Preferred Securities upon a Dissolution Event, the Company covenants and agrees for the benefit of the holders of the Preferred Securities (i) to remain the sole direct or indirect owner of all of the outstanding Common Securities and not to cause or permit the Common Securities to be transferred except as permitted by the Declaration of Trust, provided that any permitted successor of the Company under the Indenture may succeed to the Company's ownership of the Common Securities, and (ii) use reasonable efforts to cause Litchfield Capital Trust I to continue to be treated as a grantor trust for United States federal income tax purposes, except in connection with a Dissolution Event. ARTICLE SIX Form of Series A Debentures SECTION 6.01. The Series A Debentures and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the following forms: (FORM OF FACE OF DEBENTURE) [IF THE NOTE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in limited circumstances. Unless this Debenture is presented by an authorized representative to The Depository Trust Company (55 Water Street, New York, New York) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] 14 No. $ [CUSIP NO. ____________] LITCHFIELD FINANCIAL CORPORATION __% JUNIOR SUBORDINATED DEBENTURE DUE 2029 LITCHFIELD FINANCIAL CORPORATION, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts (herein referred to as the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _____________________________, or registered assigns, the principal sum of ___________________ Dollars on __________, 2029, provided, if a Tax Event occurs, then the Company will have the right (a) prior to the dissolution of Litchfield Capital Trust I, to shorten the Maturity Date of this series of Debentures to the minimum extent required, but not earlier than _______________, or (b) to direct the Property Trustee to dissolve Litchfield Capital Trust I (if not previously dissolved) and shorten the Maturity Date of this series of Debentures to the minimum extent required, but not earlier than _______________, in each case such that in the opinion of counsel to the Company, experienced in such matters, after shortening the Maturity Date, interest paid on this series of Debentures will be deductible for federal income tax purposes, and to pay interest on said principal sum from __________, 1999 or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing __________, 1999 at the rate of __% per annum plus Additional Interest and Compounded Interest, if any, until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any. So long as the Company is not in default in the payment of interest on this series of Debentures, the Company shall have the right to defer payments of interest on this series of Debentures by extending the interest payment period of this series of Debentures at any time from time to time for up to 20 consecutive quarterly interest periods (each such period an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest accrued and unpaid thereon (together with Compounded Interest and Additional Interest, if any); provided that no Extended Interest Payment Period may extend beyond the Maturity Date or redemption date of this series of Debentures. Prior to the termination of any Extended Interest Payment Period, the Company may pay all or any portion of the interest accrued on this series of Debentures on any Interest Payment Date to holders of record on the regular record date for such Interest Payment Date or prepay at any time all or any portion of the interest accrued during an Extension Period or from time to time further extend such Extended Interest Payment Period; provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarterly interest periods or extend beyond the Maturity Date or redemption date of this series of Debentures. Upon the termination of any Extended Interest Payment Period and the payment of all accrued and unpaid interest, including any 15 Additional Interest and Compounded Interest, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof. On the Interest Payment Date occurring at the end of the Extended Interest Payment Period, the Company shall pay all accrued and unpaid interest on this series of Debentures, including any Additional Interest and Compounded Interest, to the holders of this series of Debentures in whose names this series of Debentures are registered in the Debenture Register (regardless of who the holders of record may have been on other dates during the Extended Interest Payment Period) on the record date for such Interest Payment Date. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly interest period for which interest is computed, interest shall be computed on the basis of the actual number of days elapsed per 90-day quarter. In the event that any date on which interest is payable on this series of Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, [IF LITCHFIELD CAPITAL TRUST I OR ITS PROPERTY TRUSTEE IS THE HOLDER OF RECORD OF THIS DEBENTURE -- which shall be the close of business on the Business Day next preceding such Interest Payment Date, provided if the Preferred Securities of Litchfield Capital Trust I are no longer in book-entry only form, the regular record dates shall be the close of business on the fifteenth (15th) day of the month in which such Interest Payment Date occurs] [IF PURSUANT TO THE PROVISIONS OF SECTION 2.11(c) OF THE INDENTURE THIS series of Debentures IS NOT REPRESENTED BY A GLOBAL DEBENTURE -- which shall be the close of business on the fifteenth (15th) day of the month in which such Interest Payment Date occurs.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered holders on such regular record date, and shall instead be paid to the person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered holders of this series of Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or quotation system on which the Debentures of this series may be listed or traded, and upon such notice as may be required by such exchange or quotation system, all as more fully provided in Section 2.03 of the Indenture. The principal of and the interest on this Debenture shall be payable at the Corporate Trust Office of the Trustee, in any coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts; 16 provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such addresses as shall appear in the Debenture Register and that the payment of principal will only be made upon the surrender of this Debenture to the Trustee. Notwithstanding the foregoing, so long as the owner and record holder of this Debenture is the Property Trustee (as defined in the Indenture), the payment of the principal of and interest (including Additional Interest and Compounded Interest, if any) on this Debenture will be made by the Company in immediately available funds on the payment date therefor at such place and to the Property Account (as defined in the Indenture) established and maintained by the Property Trustee pursuant to the Declaration of Trust (as defined in the Indenture). The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Debt (as defined in the Indenture), and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each holder hereof, by his acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this Instrument to be executed. Dated: LITCHFIELD FINANCIAL CORPORATION By: /s/ R.A. Stratton Name: Richard A. Stratton Title: President and Chief Executive Officer Attest: By: /s/ Heather A. Sica Name: Heather A. Sica Title: Executive Vice President 17 CERTIFICATE OF AUTHENTICATION This is one of the Debentures of the series of Debentures described in the within-mentioned Indenture. as Trustee or as Authentication Agent By:______________________________ By:______________________________ Authorized Signatory Authorized Signatory 18 (FORM OF REVERSE OF DEBENTURE) This Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "Debentures"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of __________, 1999 duly executed and delivered between the Company and The Bank of New York, a New York banking corporation, as Trustee (herein referred to as the "Trustee"), as supplemented by the Supplemental Indenture No. 1 dated as of __________, 1999 between the Company and the Trustee (said Indenture as so supplemented being hereinafter referred to as the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures, and, to the extent specifically set forth in the Indenture, the holders of Senior Debt and Preferred Securities. By the terms of the Indenture, the Debentures are issuable in series which may vary as to amount, date of maturity, rate of interest and in other respects as in the Indenture provided. This series of Debentures is designated the __% Junior Subordinated Debentures due 2029 and is limited in aggregate principal amount as specified in said Supplemental Indenture No. 1. Except as provided in the next paragraph, the Debentures of this series shall not be redeemed by the Company prior to __________, 2004. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part, at any time from time to time on or after __________, 2004 (an "Optional Redemption"), upon not less than 30 nor more than 60 days' notice to the holders of the Debentures of this series, at the redemption price of 100% of the principal amount of the Debentures, together with any accrued but unpaid interest thereon, including Compounded Interest and Additional Interest, if any, to, but excluding, the date of such redemption (the "Optional Redemption Price"). If the Debentures of this series are redeemed on any Interest Payment Date, accrued and unpaid interest shall be payable to holders of record on the relevant record date. The Company shall not redeem any Debentures of this series unless all accrued and unpaid interest thereon, including Compounded Interest and Additional Interest, if any, has been paid for all quarterly interest periods terminating on or prior to the date of notice of redemption. If a Tax Event or an Investment Company Event (each, a "Special Event") shall occur or be continuing, the Company shall have the right at any time to redeem the Debentures of this series in whole, but not in part, for cash at the Optional Redemption Price within 90 days following the occurrence of such Special Event. "Tax Event" means that the Company and the Regular Trustees shall have received an opinion of counsel experienced in such matters to the effect that on or after __________, 1999 as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing 19 authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement by any legislative body, court, governmental agency or regulatory authority that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after __________, 1999, there is more than an insubstantial risk that (i) Litchfield Capital Trust I is, or will be within 90 days of the date thereof, subject to federal income tax with respect to income accrued or received on the Debentures of this series, (ii) Litchfield Capital Trust I is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by the Company to Litchfield Capital Trust I on the Debentures of this series is not, or within 90 days of the date thereof will not be, deductible by the Company for federal income tax purposes; "Investment Company Event" means that the Company and the Regular Trustees shall have received an opinion of counsel experienced in practice under the Investment Company Act that as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in Investment Company Act Law"), there is more than an insubstantial risk that Litchfield Capital Trust I is or will be considered an "investment company" which is required to be registered under the Investment Company Act, which Change in Investment Company Act Law becomes effective on or after __________, 1999. If the Debentures of this series are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro rata or by lot or in some other equitable manner determined by the Trustee; provided if, at the time of redemption, the Debentures of this series are registered as a Global Debenture, the Depository shall determine the principal amount of such Debentures of this series held by each holder of Debentures to be redeemed in accordance with its customary procedures. Notwithstanding the foregoing, if a partial redemption of the Debentures of this series would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed or traded, the Company shall not be permitted to effect such partial redemption and will only redeem the Debentures of this series in whole. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for unredeemed portion hereof will be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures of this series may be declared, and upon such 20 declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Debenture upon compliance by the Company with certain conditions set forth therein. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures of each series affected at the time outstanding, as defined in the Indenture (and, if this Debenture is held as a trust asset of Litchfield Capital Trust I, such consent of holders of the Preferred Securities and the Common Securities as may be required under the Declaration of Trust), to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of the Debentures of this series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Debenture so affected or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture (and, if this Debenture is held as a trust asset of Litchfield Capital Trust I, such consent of the holders of the Preferred Securities and the Common Securities as may be required under the Declaration of Trust) then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debentures of a series at the time Outstanding affected thereby (subject, in the case of a Debenture held as a trust asset of Litchfield Capital Trust I and with respect to which a Securities Exchange has not theretofore occurred, to such consent of holders of Preferred Securities and Common Securities as may be required under the Declaration of Trust), on behalf of the holders of the Debentures of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Debentures of such series as and when the same shall become due by the terms of the Debentures of such series otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal and any premium has been deposited with the Trustee), or a call for redemption of the Debentures of such series. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. Subject to Section 13.11 of the Indenture, no reference herein to the Indenture (other than such Section) and no provision of this Debenture or of the Indenture shall alter or impair the 21 obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the time and place at the rate and in the money herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register, upon surrender of this Debenture for registration of transfer at the Corporate Trust Office of the Trustee accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and any Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, shareholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. [If certificated Debentures -- The Debentures of this series are issuable only in registered form without coupons in denominations of $10 and any integral multiple thereto.] [If Global Debenture -- This Global Debenture is exchangeable for Debentures in definitive form under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $10 or any integral multiple thereof.] As provided in the Indenture and subject to certain limitations [If Global Debenture -- herein and] therein set forth, Debentures of this series [If Global Debenture -- so issued] are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the holder surrendering the same. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 22 The Company and, by its acceptance of this Debenture or a beneficial interest therein, the holder of, and any Person that acquires a beneficial interest in, this Debenture agree that for United States federal, state and local tax purposes it is intended that this Debenture constitute indebtedness. THE INDENTURE AND THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. ARTICLE SEVEN Miscellaneous Provisions SECTION 7.01. The Indenture, as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed. This Supplemental Indenture No. 1 shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. SECTION 7.02. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture No. 1. SECTION 7.03. This Supplemental Indenture No. 1 may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 7.04. THIS SUPPLEMENTAL INDENTURE NO. 1 AND EACH SERIES A DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 1 to be duly executed, and their respective corporate seals to be hereunto affixed and attested, on the date or dates indicated in the acknowledgments and as of the day and year first above written. Attest: LITCHFIELD FINANCIAL CORPORATION By: /s/ Heather A. Sica By: /s/ R.A. Stratton Name: Heather A. Sica Name: Richard A. Stratton Title: Executive Vice President Title: President and Chief Executive Officer 23 Attest: THE BANK OF NEW YORK, as Trustee By: /s/ Robert A. Massimillo By: /s/ Michael Culhane Name: Robert A. Massimillo Name: Michael Culhane Title: Assistant Vice President Title: Vice President HWD2: 554670-1 24 EX-4 7 Exhibit 4.14 AMENDED AND RESTATED DECLARATION OF TRUST OF LITCHFIELD CAPITAL TRUST I DATED AS OF MAY 19, 1999 TABLE OF CONTENTS (This Table of Contents does not constitute part of the Amended and Restated Declaration of Trust and should not have any bearing upon the interpretation of any of its terms or provisions.)
Page ARTICLE 1 Definitions Section 1.01. Definitions............................................................. 2 Affiliate......................................................................... 2 Book Entry Interest............................................................... 2 Business Day...................................................................... 2 Business Trust Act................................................................ 2 Certificate....................................................................... 2 Certificate of Trust.............................................................. 3 Clearing Agency................................................................... 3 Clearing Agency Participant....................................................... 3 Closing Date...................................................................... 3 Code.............................................................................. 3 Commission........................................................................ 3 Common Securities................................................................. 3 Common Security Certificate....................................................... 3 Covered Person.................................................................... 3 Creditor.......................................................................... 3 Debenture Trustee................................................................. 3 Debentures........................................................................ 3 Definitive Preferred Security Certificates........................................ 3 Delaware Trustee.................................................................. 4 Depositary Agreement.............................................................. 4 Distribution...................................................................... 4 DTC............................................................................... 4 Event of Default.................................................................. 4 Exchange.......................................................................... 4 Exchange Act...................................................................... 4 Fiscal Year....................................................................... 4 Global Certificate................................................................ 4 Holder............................................................................ 4 Holder Direct Action.............................................................. 4 Litchfield Financial.............................................................. 4 Sponsor........................................................................... 4 Indemnified Person................................................................ 4 Indenture......................................................................... 4 Indenture Event of Default........................................................ 4 Investment Company................................................................ 5 Investment Company Act............................................................ 5 Legal Action...................................................................... 5 Liquidation Distribution.......................................................... 5 List of Holders................................................................... 5 Majority in liquidation amount of the Securities.................................. 5 NASD.............................................................................. 5 Nasdaq............................................................................ 5 1933 Act Registration Statement................................................... 5 1934 Act Registration Statement................................................... 5 Officers' Certificate............................................................. 5 Opinion of Counsel................................................................ 6 Original Declaration.............................................................. 6 Paying Agent...................................................................... 6 Payment Amount.................................................................... 6 Person............................................................................ 6 Preferred Guarantee............................................................... 6 Preferred Securities.............................................................. 6 Preferred Security Beneficial Owner............................................... 6 Preferred Security Certificate.................................................... 6 Property Trustee.................................................................. 7 Property Account.................................................................. 7 Quorum............................................................................ 7 Regular Trustee................................................................... 7 Related Party..................................................................... 7 Resignation Request............................................................... 7 Responsible Officer............................................................... 7 Rule 3a-7......................................................................... 7 Securities........................................................................ 7 Securities Act.................................................................... 7 Special Event..................................................................... 7 Successor Delaware Trustee........................................................ 7 Successor Entity.................................................................. 7 Successor Property Trustee........................................................ 7 Successor Securities.............................................................. 7 Super Majority.................................................................... 8 Supplemental Indenture............................................................ 8 10% in liquidation amount of the Securities....................................... 8 Treasury Regulations.............................................................. 8 Trust............................................................................. 8 Trustee........................................................................... 8 Trustees.......................................................................... 8 Trust Indenture Act............................................................... 8 Underwriting Agreement............................................................ 8 ARTICLE 2 Trust Indenture Act Section 2.01. Trust Indenture Act; Application......................................... 8 Section 2.02. Lists of Holders of Preferred Securities................................. 9 Section 2.03. Reports by the Property Trustee.......................................... 9 Section 2.04. Periodic Reports to the Property Trustee................................. 10 Section 2.05. Evidence of Compliance with Conditions Precedent......................... 10 Section 2.06. Events of Default; Waiver................................................ 10 Section 2.07. Disclosure of Information................................................ 12 ARTICLE 3 Organization Section 3.01. Name..................................................................... 12 Section 3.02. Office................................................................... 12 Section 3.03. Issuance of the Securities............................................... 12 Section 3.04. Purchase of Debentures................................................... 13 Section 3.05. Purpose.................................................................. 13 Section 3.06. Authority................................................................ 14 Section 3.07. Title to Property of the Trust........................................... 14 Section 3.08. Powers and Duties of the Regular Trustees................................ 14 Section 3.09. Prohibition of Actions by the Trust and the Trustees..................... 17 Section 3.10. Powers and Duties of the Property Trustee................................ 18 Section 3.11. Delaware Trustee......................................................... 21 Section 3.12. Certain Rights and Duties of the Property Trustee........................ 21 Section 3.13. Registration Statement and Related Matters............................... 25 Section 3.14. Filing of Amendments to Certificate of Trust............................. 26 Section 3.15. Execution of Documents by the Regular Trustees........................... 26 Section 3.16. Trustees Not Responsible for Recitals or Issuance of Securities............................................................... 26 Section 3.17. Duration of the Trust.................................................... 26 Section 3.18. Mergers.................................................................. 26 Section 3.19. Property Trustee May File Proofs of Claim................................ 38 ARTICLE 4 Sponsor Section 4.01. Purchase of Common Securities by the Sponsor............................. 29 Section 4.02. Expenses................................................................. 29 ARTICLE 5 Trustees Section 5.01. Number of Trustees; Qualifications....................................... 30 Section 5.02. Appointment, Removal and Resignation of the Trustees..................... 32 Section 5.03. Vacancies among the Trustees............................................. 33 Section 5.04. Effect of Vacancies...................................................... 33 Section 5.05. Meetings................................................................. 34 Section 5.06. Delegation of Power...................................................... 34 Section 5.07. Merger, Conversion, Consolidation or Succession to Business................................................................. 34 ARTICLE 6 Distributions Section 6.01. Distributions............................................................ 35 ARTICLE 7 Issuance of the Securities Section 7.01. General Provisions Regarding the Securities.............................. 35 ARTICLE 8 Dissolution of the Trust Section 8.01. Dissolution of the Trust................................................. 37 ARTICLE 9 Transfer of Interests Section 9.01. Transfer of Securities................................................... 37 Section 9.02. Transfer of Certificates................................................. 38 Section 9.03. Deemed Security Holders.................................................. 38 Section 9.04. Book Entry Interests..................................................... 38 Section 9.05. Notices to Holders of Certificates....................................... 39 Section 9.06. Appointment of Successor Clearing Agency................................. 39 Section 9.07. Definitive Preferred Securities Certificates............................. 40 Section 9.08. Mutilated, Destroyed, Lost or Stolen Certificates........................ 40 ARTICLE 10 Limitation of Liability; Indemnification Section 10.01. Exculpation............................................................. 40 Section 10.02. Indemnification......................................................... 41 Section 10.03. Outside Business........................................................ 41 ARTICLE 11 Accounting Section 11.01. Fiscal Year............................................................. 42 Section 11.02. Certain Accounting Matters.............................................. 42 Section 11.03. Banking................................................................. 43 Section 11.04. Withholding............................................................. 43 ARTICLE 12 Amendments and Meetings Section 12.01. Amendments.............................................................. 43 Section 12.02. Meetings of the Holders of Securities; Action by Written Consent......................................................... 44 ARTICLE 13 Representations of the Property Trustee and the Delaware Trustee Section 13.01. Representations and Warranties of the Property Trustee................................................................. 46 Section 13.02. Representations and Warranties of the Delaware Trustee................................................................. 46 ARTICLE 14 Miscellaneous Section 14.01. Notices................................................................. 47 Section 14.02. Undertaking for Costs................................................... 48 Section 14.03. Governing Law........................................................... 49 Section 14.04. Headings................................................................ 49 Section 14.05. Partial Enforceability.................................................. 49 Section 14.06. Counterparts............................................................ 49 Section 14.07. Intention of the Parties................................................ 49 Section 14.08. Successors and Assigns.................................................. 49 Section 14.09. No Recourse............................................................. 49 SIGNATURES AND SEALS EXHIBIT A: CERTIFICATE OF TRUST EXHIBIT B: TERMS OF THE PREFERRED SECURITIES EXHIBIT C: TERMS OF THE COMMON SECURITIES
AMENDED AND RESTATED DECLARATION OF TRUST OF LITCHFIELD CAPITAL TRUST I AMENDED AND RESTATED DECLARATION OF TRUST (this "Declaration") dated and effective as of May 19, 1999, by John J. Malloy, an individual, Heather A. Sica, an individual, and Ronald E. Rabidou, an individual, as Regular Trustees (the "Regular Trustees"), The Bank of New York, a New York banking corporation, as Property Trustee (the "Property Trustee") and The Bank of New York (Delaware), a Delaware banking corporation, as Delaware Trustee (the "Delaware Trustee") (together with all other Persons from time to time duly appointed and serving as trustees in accordance with the provisions of this Declaration, the "Trustees"), Litchfield Financial Corporation, a Massachusetts corporation, as trust sponsor ("Litchfield Financial" or the "Sponsor"), and by the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS, the Sponsor and certain of the Trustees entered into a Declaration of Trust dated as of May 19, 1999 (the "Original Declaration") in order to establish Litchfield Capital Trust I, a statutory business trust (the "Trust"), under the Business Trust Act (as hereinafter defined); WHEREAS, the Certificate of Trust (the "Certificate of Trust") of the Trust was filed with the office of the Secretary of State of the State of Delaware on April 12, 1999; and WHEREAS, the Trustees and the Sponsor desire to continue the Trust pursuant to the Business Trust Act for the purpose of, as described more fully in Sections 303 and 304 hereof, (i) issuing and selling Preferred Securities (as hereinafter defined) representing preferred undivided beneficial interests in the assets of the Trust for cash and investing the proceeds thereof in Debentures (as hereinafter defined) of Litchfield Financial issued under the Indenture (as hereinafter defined) to be held as assets of the Trust and (ii) issuing and selling Common Securities (as hereinafter defined) representing common undivided beneficial interests in the assets of the Trust to Litchfield Financial in exchange for cash and investing the proceeds thereof in additional Debentures issued under the Indenture to be held as assets of the Trust; NOW, THEREFORE, it being the intention of the parties hereto that the Trust constitute a business trust under the Business Trust Act, that the Original Declaration be amended and restated in its entirety as provided herein and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all Debentures referred to in clauses (i) and (ii) of the previous paragraph purchased by the Trust will be held for the benefit of the Holders (as hereinafter defined) from time to time, of the Certificates (as hereinafter defined) representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE 1 Definitions Section 1.01. Definitions. (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Amended and Restated Declaration of Trust (including Exhibits A, B and C hereto (the "Exhibits")) as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles, Sections and Exhibits are to Articles and Sections of and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Book Entry Interest" means a beneficial interest in a Global Certificate registered in the name of a Clearing Agency or a nominee thereof, ownership and transfers of which shall be maintained and made through book entries by such Clearing Agency as described in Section 9.04. "Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in the Borough of Manhattan, The City and State of New York or Boston, Massachusetts are authorized or required by law to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code (S) 3801 et seq., as it may be amended from time to time, or any successor legislation. "Certificate" means a Common Security Certificate or a Preferred Security Certificate. 2 "Certificate of Trust" has the meaning set forth in the second WHEREAS clause above. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depository for the Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the Closing Date as specified in the Underwriting Agreement, which date is also the date of execution and delivery of this Declaration. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. A reference to a specific section (Sec.) of the Code refers not only to such specific section but also to any corresponding provision of any Federal tax statute enacted after the date of this Declaration, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Declaration containing such reference. "Commission" means the Securities and Exchange Commission. "Common Securities" has the meaning specified in Section 7.01(b). "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex I to Exhibit C. "Covered Person" means (i) any officer, director, shareholder, partner, member, representative, employee or agent of the Trust or of any of its Affiliates, (ii) any officer, director, shareholder, employee, representative or agent of Litchfield Financial or of any of its Affiliates and (iii) the Holders from time to time of the Securities. "Creditor" has the meaning specified in Section 4.02(c). "Debenture Trustee" means The Bank of New York, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder and thereafter means such successor trustee. "Debentures" means the series of junior subordinated debentures issued by Litchfield Financial under the Indenture to the Property Trustee and entitled the "10% Series A Junior Subordinated Debentures due 2029." "Definitive Preferred Security Certificates" has the meaning set forth in Section 9.04. 3 "Delaware Trustee" has the meaning set forth in Section 5.01(a)(3). "Depositary Agreement" means the agreement among the Trust, the Property Trustee and DTC dated as of the Closing Date, as the same may be amended or supplemented from time to time. "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.01. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Event of Default" in respect of the Securities means that an Indenture Event of Default has occurred and is continuing with respect to the Debentures. "Exchange" has the meaning specified in Section 3.13. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "Fiscal Year" has the meaning specified in Section 11.01. "First Closing Date" means the First Closing Date as specified in the Underwriting Agreement. "Global Certificate" has the meaning set forth in Section 9.04. "Holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Holder Direct Action" has the meaning specified in Section 3.10(e). "Indemnified Person" means any Trustee, any Affiliate of any Trustee, any Paying Agent, any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee or Paying Agent, or any employee or agent of the Trust or of any of its Affiliates. "Indenture" means the Junior Subordinated Indenture dated as of May 19, 1999, between Litchfield Financial and the Debenture Trustee as supplemented by the Supplemental Indenture No. 1 thereto dated as of May 19, 1999, pursuant to which the Debentures are to be issued. "Indenture Event of Default" means that an event or condition defined as an "Event of Default" with respect to the Debentures under Section 6.01(a) of the Indenture has occurred and is continuing. 4 "Investment Company" means an "investment company" as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "Legal Action" has the meaning specified in Section 3.08(g). "Liquidation Distribution" has the meaning set forth in Exhibits B and C hereto establishing the terms of the Securities. "List of Holders" has the meaning specified in Section 2.02(a). "Litchfield Financial" or " Sponsor" means Litchfield Financial Corporation, a Massachusetts corporation, or any successor entity resulting from any merger, consolidation, amalgamation or other business combination, in its capacity as sponsor of the Trust. "Majority in liquidation amount of the Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities voting separately as a class, who are the record owners of a relevant class of Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) represents more than 50% of the liquidation amount of all outstanding Securities of such class. "NASD" has the meaning specified in Section 3.13. "Nasdaq" has the meaning specified in Section 3.13. "1933 Act Registration Statement" has the meaning specified in Section 3.13. "1934 Act Registration Statement" has the meaning specified in Section 3.13. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the Comptroller, the Secretary or an Assistant Secretary of the Sponsor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 2.04 shall be the principal executive, financial or accounting officer of the Sponsor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: 5 (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee or the Sponsor, which may be an employee of the Sponsor but not an employee of the Trust or the Property Trustee, and who shall be reasonably acceptable to the Property Trustee. Any Opinion of Counsel pertaining to Federal income tax matters may rely on published rulings of the Internal Revenue Service. "Option Closing Date" means the Option Closing Date as specified in the Underwriting Agreement. "Original Declaration" has the meaning set forth in the first WHEREAS clause above. "Paying Agent" has the meaning specified in Section 3.10(i). "Payment Amount" has the meaning specified in Section 6.01. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee" means the Guarantee Agreement dated as of May 19, 1999, of Litchfield Financial in respect of the Preferred Securities. "Preferred Securities" has the meaning specified in Section 7.01(b). "Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Security Certificate" means a definitive certificate in fully registered form representing a Preferred Security substantially in the form of Annex I to Exhibit B. 6 "Property Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.01(c) and having the duties set forth for the Property Trustee herein. "Property Account" has the meaning specified in Section 3.10(c)(i). "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both such Regular Trustees. "Regular Trustee" means any Trustee other than the Property Trustee and the Delaware Trustee. "Related Party" means any direct or indirect wholly owned subsidiary of Litchfield Financial or any other Person which owns, directly or indirectly, 100% of the outstanding voting securities of Litchfield Financial. "Resignation Request" has the meaning specified in Section 5.02(d). "Responsible Officer" means, when used with respect to the Property Trustee, any officer within the corporate trust department of the Property Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Property Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Declaration. "Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any successor rule thereunder. "Securities" means the Common Securities and the Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Special Event" has the meaning set forth in the terms of the Securities as set forth in paragraph 4 of Exhibits B and C hereto. "Successor Delaware Trustee" has the meaning specified in Section 5.02(b)(ii). "Successor Entity" has the meaning specified in Section 3.18(b)(i). "Successor Property Trustee" has the meaning specified in Section 5.02(b)(i). "Successor Securities" has the meaning specified in Section 3.18(b)(i)(B). 7 "Super Majority" has the meaning specified in Section 2.06(a)(ii). "Supplemental Indenture" means the Supplemental Indenture No. 1 dated as of May 19, 1999, between Litchfield Financial and the Debenture Trustee, pursuant to which the Debentures are to be issued. "10% in liquidation amount of the Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities, voting separately as a class, who are the record owners of a relevant class of Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) represents 10% or more of the liquidation amount of all outstanding Securities of such class. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trust" has the meaning set forth in the first WHEREAS clause above. "Trustee" or " Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "Underwriting Agreement" means the Underwriting Agreement dated as of May 13, 1999, among the Trust, the Sponsor and Tucker Anthony Incorporated, as representatives of the several underwriters named therein. ARTICLE 2 Trust Indenture Act Section 2.01. Trust Indenture Act; Application. 8 (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; (c) the Property Trustee, to the extent permitted by applicable law and/or the rules and regulations of the Commission, shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act; and (d) the application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 2.02. Lists of Holders of Preferred Securities. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee unless the Property Trustee is registrar for the Securities, (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of such record date, provided that neither the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time that the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with its obligations under (S)(S) 310(b), 311 and 312(b) of the Trust Indenture Act. Section 2.03. Reports by the Property Trustee. Within 60 days after January 15 of each year, the Property Trustee shall provide to the Holders of the Securities such reports as are required by (S) 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by (S) 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of (S) 313(d) of the Trust Indenture Act. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with the Company, with each stock exchange upon which any Preferred 9 Securities are listed (if so listed) and also with the Commission. The Company agrees to notify the Property Trustee when any Preferred Securities become listed on any stock exchange and of any delisting thereof. Section 2.04. Periodic Reports to the Property Trustee. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee, the Commission and the Holders of the Securities, as applicable, such documents, reports and information as required by (S) 314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance certificates required by (S) 314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by (S) 314(a)(4) and (c) of the Trust Indenture Act (provided that any certificate to be provided pursuant to (S) 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each Fiscal Year). Delivery of such reports, information and documents to the Property Trustee is for informational purposes only and the Property Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Property Trustee is entitled to rely exclusively on Officers' Certificates). Section 2.05. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent provided for in this Declaration which relate to any of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to (S) 314(c) may be given in the form of an Officers' Certificate. Section 2.06. Events of Default; Waiver. (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default in respect of the Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of the holders of greater than a majority in aggregate principal amount of the Debentures (a "Super Majority") to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate liquidation amount of the Preferred Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. 10 The foregoing provisions of this Section 2.06(a) shall be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided above in Section 2.06(a) or below in this Section 2.06(b), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided above in Section 2.06(a) or below in this Section 2.06(b), the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided, further, that the Holders of Common Securities will be deemed to have waived any such Event of Default and all Events of Defaults with respect to the Common Securities and their consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.06(b) shall be in lieu of (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in the Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under the Declaration without any further 11 act, vote or consent of the Holders of the Common Securities. Subject to the foregoing provisions of this Section 2.06(b), upon waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee, at the direction of the Holders of Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.06(c) shall be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Section 2.07. Disclosure of Information. The disclosure of information as to the names and addresses of the Holders of the Securities in accordance with (S) 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to (S) 312 of the Trust Indenture Act, nor shall the Property Trustee be held accountable by reason of mailing any material pursuant to a request made under (S) 312(b) of the Trust Indenture Act. ARTICLE 3 Organization Section 3.01. Name. The Trust continued by this Declaration is named "Litchfield Capital Trust I" as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of the Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. Section 3.02. Office. The address of the principal office of the Trust is c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, Massachusetts 01267. Upon ten days' written notice to the Holders, the Regular Trustees may change the location of the Trust's principal office. Section 3.03. Issuance of the Securities. 12 The Sponsor, on behalf of the Trust and pursuant to the Original Declaration, executed and delivered the Underwriting Agreement. On the First Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall execute and deliver (i) one or more Global Certificates, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04 for the benefit of the underwriters named in the Underwriting Agreement, in an aggregate amount of 2,500,000 Preferred Securities having an aggregate liquidation amount of $25,000,000, against receipt of the aggregate purchase price of such Preferred Securities of $25,000,000, and (ii) to the Sponsor, one or more Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of 71,320 Common Securities having an aggregate liquidation amount of $773,200, against receipt of the aggregate purchase price of such Common Securities of $773,200. On the Option Closing Date, if any, the Regular Trustees, on behalf of the Trust, shall execute and deliver (i) one or more Global Certificates, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04 for the benefit of the underwriters named in the Underwiting Agreement, in an aggregate amount of up to 375,000 Preferred Securities having an aggregate liquidation amount of up to $3,750,000, against receipt of the aggregate purchase price of such Preferred Securities of up to $3,750,000 plus accrued interest from the First Closing Date, and (ii) to the Sponsor, one or more Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of up to 11,598 Common Securities having an aggregate liquidation amount of up to $115,980, against receipt of the aggregate purchase price of such Common Securities of up to $115,980. Section 3.04. Purchase of Debentures. On the First Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof, Debentures, registered in the name of the Property Trustee and having an aggregate principal amount equal to $25,773,200, and, in satisfaction of the purchase price for such Debentures, the Regular Trustee, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor the sum of $25,773,200. On the Option Closing Date, if any, the Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof plus accrued interest from the First Closing Date, Debentures, registered in the name of the Property Trustee and having an aggregate principal amount equal to up to $3,750,000, and, in satisfaction of the purchase price for such Debentures, the Regular Trustee, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor the sum of up to $3,750,000. Section 3.05. Purpose. The exclusive purposes and functions of the Trust are: (a)(i) to issue and sell Preferred Securities for cash and use the proceeds of such sales to acquire from Litchfield Financial Debentures issued under the Indenture having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities so issued and sold; (ii) to enter into such agreements and arrangements as may be necessary in connection with the sale of Preferred Securities to the initial purchasers thereof (including the Underwriting Agreement) and to take all action, and exercise such discretion, as may be necessary or desirable in connection therewith and to file such registration statements or make such other filings under the Securities Act, the Exchange Act or state securities or "Blue Sky" laws as may be necessary or desirable in connection therewith and the issuance of the Preferred Securities; and (iii) to issue and sell Common Securities to Litchfield Financial for cash and use the proceeds of such sale to purchase as trust assets an equal aggregate principal amount of Debentures issued under the Indenture; and (b) except as otherwise limited herein, to engage in only those other activities necessary, convenient or incidental thereto, including such other activities specifically authorized in this Declaration. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, mortgage or pledge any of its assets or at any time while the Securities are outstanding, otherwise undertake (or permit to be undertaken) any activity that would result in or cause the Trust not to be classified for United States Federal income tax purposes as a grantor trust. 13 Section 3.06. Authority. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. Section 3.07. Title to Property of the Trust. Except as provided in Section 3.10 with respect to the Debentures and the Property Account or unless otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have undivided beneficial interests in the assets of the Trust. Section 3.08. Powers and Duties of the Regular Trustees. The Regular Trustees shall have the exclusive power, authority and duty to cause the Trust, and shall cause the Trust, to engage in the following activities: (a) to issue Preferred Securities and Common Securities, in each case in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities and the issuance of Securities shall be limited to a one-time, simultaneous issuance of both Preferred Securities and Common Securities on the Closing Date; (b) in connection with the issuance of the Preferred Securities, at the direction of the Sponsor, to effect or cause to be effected the filings, and to execute or cause to be executed, the documents, set forth in Section 3.13 and to execute, deliver and perform on behalf of the Trust the Depositary Agreement; (c) to acquire as trust assets Debentures with the proceeds of the sale of the Preferred Securities and the Common Securities; provided, however, that the Regular Trustees shall cause legal title to all of the Debentures to be vested in, and the Debentures to be held of record 14 in the name of, the Property Trustee for the benefit of the Holders of the Preferred Securities and the Common Securities; (d) if and to the extent that the Sponsor on behalf of the Trust has not already done so, to cause the Trust to enter into the Underwriting Agreement and such other agreements and arrangements as may be necessary or desirable in connection with the sale of the Preferred Securities to the initial purchasers thereof and the consummation thereof, and to take all action, and exercise all discretion, as may be necessary or desirable in connection with the consummation thereof; (e) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; provided that the Regular Trustees shall consult with the Sponsor and the Property Trustee before taking or refraining to take any Ministerial Action in relation to a Special Event; (f) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including for the purposes of (S) 316(c) of the Trust Indenture Act and with respect to Distributions, voting rights, redemptions, and exchanges, and to issue relevant notices to Holders of the Preferred Securities and Common Securities as to such actions and applicable record dates; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.10(e), the Property Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants and pay reasonable compensation for such services; (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate to the Property Trustee required by (S) 314(a)(4) of the Trust Indenture Act, which certificate may be executed by any Regular Trustee; (k) to incur expenses which are necessary or incidental to carrying out any of the purposes of the Trust; (l) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities, the Regular Trustees hereby initially appointing the Property Trustee for such purposes; (m) to take all actions and perform such duties as may be required of the Regular Trustee pursuant to the terms of the Securities set forth in Exhibits B and C hereto; 15 (n) to take all actions which may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Securities or to enable the Trust to effect the purposes for which the Trust has been created; (o) to take all actions, not inconsistent with this Declaration or with applicable law, which the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the purposes of the Trust and the activities of the Trust as set out in this Section 3.08, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States Federal income tax purposes as a grantor trust; and (iii) cooperating with the Sponsor to ensure that the Debentures will be treated as indebtedness of the Sponsor for United States Federal income tax purposes; (p) to take all actions necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust, and to comply with any requirements imposed by any taxing authority on holders of instruments treated as indebtedness for United States Federal income tax purposes; (q) subject to the requirements of Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) and (S) 317(b) of the Trust Indenture Act, to appoint one or more Paying Agents in addition to the Property Trustee; and (r) to execute all documents or instruments, perform all duties and powers and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing. The Regular Trustees must exercise the powers set forth in this Section 3.08 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.05, and the Regular Trustees shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.05. Subject to this Section 3.08, the Regular Trustees shall have none of the powers or any of the authority of the Property Trustee set forth in Section 3.10. The Regular Trustees shall take all actions on behalf of the Trust that are not specifically required by this Declaration to be taken by any other Trustee. 16 Any expenses incurred by the Regular Trustees pursuant to this Section 3.08 shall be reimbursed by the Sponsor. Section 3.09. Prohibition of Actions by the Trust and the Trustees. The Trust shall not, and the Trustees (including the Property Trustee) shall cause the Trust not to, engage in any activity other than in connection with the purposes of the Trust or other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Property Trustee) shall not cause the Trust to: (a) invest any proceeds received by the Trust from holding the Debentures but shall promptly distribute from the Property Account all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (b) acquire any assets other than as expressly provided herein; (c) possess Trust property for other than a Trust purpose; (d) make any loans, other than loans represented by the Debentures; (e) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever, except as otherwise expressly provided herein; (f) issue any securities or other evidences of beneficial ownership of, or beneficial interests in, the Trust other than the Securities; (g) incur any indebtedness for borrowed money; (h) (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee or exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture, or (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures, without, in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of all outstanding Securities; (i) revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities except by subsequent vote of such Holders; (j) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, unless in the case of this clause (j) the Property Trustee shall have received an Opinion of Counsel experienced in such matters to the effect that such 17 amendment, modification or termination will not cause more than an insubstantial risk that for United States Federal income tax purposes the Trust will not be classified as a grantor trust; (k) take or consent to any action that would result in the placement of a lien, pledge, charge, mortgage or other encumbrance on any of the Trust property; (l) vary the investment (within the meaning of Treasury Regulation Section 301.7701-4(c)) of the Trust or of the Holders of Securities; or (m) after the date hereof, enter into any contract or agreement (other than any depositary agreement or any agreement with any securities exchange or automated quotation system) that does not expressly provide that the Holders of Preferred Securities, in their capacities as such, have limited liability (in accordance with the provisions of the Business Trust Act) for the liabilities and obligations of the Trust, which express provision shall be in substantially the following form, "The Holders of the Preferred Securities, in their capacities as such, shall not be personally liable for any liabilities or obligations of the Trust arising out of this Agreement, and the parties hereto hereby agree that the Holders of the Preferred Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware." Section 3.10. Powers and Duties of the Property Trustee. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Securities. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Article 5. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Regular Trustees or, if the Property Trustee does not also act as the Delaware Trustee, the Delaware Trustee. (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing bank account (the "Property Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Securities and on the receipt of payments of funds made in respect of the Debentures held by the Property Trustee, deposit such funds into the Property Account and, without any further acts of the Property Trustee or the Regular Trustees, promptly make payments to the Holders of the Preferred Securities and Common Securities from the Property Account in accordance with Section 6.01. Funds in the Property Account shall be held 18 uninvested, and without liability for interest thereon, until disbursed in accordance with this Declaration. The Property Account shall be an account which is maintained with a banking institution whose long term unsecured indebtedness is rated by a "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, at least investment grade; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect promptly the redemption of the Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; (iii) upon notice of distribution issued by the Regular Trustees in accordance with the terms of the Preferred Securities and the Common Securities, engage in such ministerial activities as shall be necessary or appropriate to effect promptly pursuant to terms of the Securities the distribution of Debentures to Holders of Securities upon the election of the Holder of Common Securities to distribute the Debentures to Holders of Securities and dissolve the Trust; and (iv) have the legal power to exercise all of the rights, powers and privileges of a holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee, subject to Section 3.10(e), shall for the benefit of the Holders of the Securities, enforce its rights as holder of the Debentures under the Indenture, subject to the rights of the Holders of the Preferred Securities pursuant to the terms of this Declaration, the Business Trust Act and the Trust Indenture Act. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities set forth in Exhibits B and C hereto. (e) If an Event of Default has occurred and is continuing, then the Holders of a Majority in liquidation amount of the Preferred Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Debentures. If the Property Trustee fails to enforce its rights under the Debentures, a Holder of Preferred Securities, to the extent permitted by applicable law, may, after a period of 30 days has elapsed since such Holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against the Sponsor to enforce the Property Trustee's rights under the Debentures without first instituting any legal proceeding against the Property Trustee or any other Person; provided further, that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Sponsor to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate 19 liquidation amount of the Preferred Securities of such Holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Sponsor to such Holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures. (f) All moneys deposited in the Property Account and all Debentures held by the Property Trustee for the benefit of the Holders of the Securities will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of the Property Trustee or its agents or their creditors. (g) The Property Trustee shall, within 90 days after the occurrence of a default with respect to the Securities actually known to a Responsible Officer of the Property Trustee, transmit by mail, first class postage prepaid, to the holders of the Securities, as their names and addresses appear upon the register, notice of such defaults with respect to the Securities known 20 to the Property Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 3.10(g) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for in the Indenture and irrespective of the giving of any notice provided therein); provided, that, except in the case of default in the payment of the principal of (or premium, if any) or interest on any of the Debentures, the Property Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers, of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. The Property Trustee shall not be deemed to have knowledge of any default, except (i) a default in the payment of principal, premium or interest on the Debentures or (ii) any default as to which the Property Trustee shall have received written notice or a Responsible Officer charged with the administration of this Declaration shall have obtained written notice. (h) The Property Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds thereof distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and accepted that appointment in accordance with Article 5. (i) The Property Trustee shall act as paying agent in respect of the Common Securities and, if the Preferred Securities are not in book entry only form, the Preferred Securities and, subject to Section 3.08(q), may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect 20 to the Preferred Securities. Any such Paying Agent shall comply with (S) 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Property Trustee, after consultation with the Regular Trustees, at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee, subject to Section 3.08(q). (j) The Property Trustee shall give prompt written notice to the Holders of the Securities of any notice received by it from Litchfield Financial of its election to defer payments of interest on the Debentures by extending the interest payment period with respect thereto. (k) Subject to this Section 3.10, the Property Trustee shall have none of the powers or the authority of the Regular Trustees set forth in Section 3.08. (l) The Property Trustee shall exercise the powers, duties and rights set forth in this Section 3.10 and Section 3.12 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.05, and the Property Trustee shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.05. Section 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 5.01(a)(3), the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Trustees described in this Declaration. Except as set forth in Section 5.01(a)(3), the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of (S) 3807(a) of the Business Trust Act. No implied covenants or obligations shall be read into this Declaration against the Delaware Trustee. Section 3.12. Certain Rights and Duties of the Property Trustee. (a) The Property Trustee, before the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration, and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: 21 (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee hereunder or under the Indenture, or exercising any trust or power conferred upon the Property Trustee under this Declaration; and (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.12(a) and (b): (i) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part and, if the Trust is excluded from the definition of Investment Company solely by means of Rule 3a-7, subject to the requirements of Rule 3a-7, 22 request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (ii) the Property Trustee (A) may consult with counsel (which may be counsel to the Sponsor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (iii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; (iv) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have offered to the Property Trustee security and indemnity satisfactory to the Property Trustee against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Property Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Declaration, and to use the same degree of care and skill in this exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and (v) any action taken by the Property Trustee or its agents hereunder shall bind the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Property Trustee to so act, or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action. (d) The recitals contained herein shall be taken as the statements of the Sponsor, and the Property Trustee assumes no responsibility for the correctness of the same. The Property Trustee makes no representations as to the validity or sufficiency of this Declaration. (e) The Property Trustee, in its individual or any other capacity, may become the owner or pledgee of Preferred Securities and may otherwise deal with the Sponsor with the same rights it would have if it were not the Property Trustee. 23 (f) All moneys received by the Property Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Property Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree in writing to pay thereon. (g) (i) The Sponsor covenants and agrees to pay to the Property Trustee from time to time, and the Property Trustee shall be entitled to, such compensation as the Sponsor and the Property Trustee shall from time to time agree in writing (which shall not be limited by any provision of law in regard to the compensation of a Property Trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Property Trustee, and the Sponsor will pay or reimburse the Property Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Property Trustee in accordance with any of the provisions of this Declaration (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Sponsor also covenants to indemnify each of the Property Trustee or any predecessor Property Trustee and their officers, agents, directors and employees for, and to hold them harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based upon, measured by or determined by the income of the Property Trustee) incurred without negligence or bad faith on the part of the Property Trustee and arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Sponsor, any Holder or any other Person) of liability in the premises. The provisions of this subpart (g) of this Section 3.12 shall survive the termination of this Declaration and resignation or removal of the Property Trustee. (ii) The obligations of the Sponsor under this subpart (g) of this Section 3.12 to compensate and indemnify the Property Trustee and to pay or reimburse the Property Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Property Trustee as such, except funds held in trust for the benefit of the holders of particular Securities. (h) Except as otherwise provided in this Section 3.12, whenever in the administration of the provisions of this Declaration the Property Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Property Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Property Trustee and such certificate, in the absence of negligence or bad faith on the part of the Property Trustee, shall be full warrant to the Property Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Declaration upon the faith thereof. 24 (i) Whether or not expressly stated, every provision of this Declaration pertaining to the Property Trustee shall be subject to this Section 3.12. Section 3.13. Registration Statement and Related Matters. In accordance with the Original Declaration, Litchfield Financial, as the sponsor of the Trust, was authorized (i) to file with the Commission and execute, in each case on behalf of the Trust, (a) the Registration Statement on Form S-3 (File Nos. 333-76285, 333-76285-01, and 333- 76285-02) (the "1933 Act Registration Statement") including any pre-effective or post-effective amendments thereto, relating to the registration under the Securities Act of the Preferred Securities and (b) if Litchfield Financial shall deem it desirable, a Registration Statement on Form 8-A or other appropriate form (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) relating to the registration of the Preferred Securities under Section 12 of the Exchange Act; (ii) if Litchfield Financial shall deem it desirable, to prepare and file with the New York Stock Exchange or one or more national securities exchange(s) (each, an "Exchange") or the National Association of Securities Dealers, Inc. (the "NASD") and execute on behalf of the Trust a listing application or applications and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on any such Exchange or The Nasdaq Stock Market's National Market ("Nasdaq"); (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and all other papers and documents as Litchfield Financial, on behalf of the Trust, may deem necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as Litchfield Financial on behalf of the Trust, may deem necessary or desirable; and (iv) to negotiate the terms and execute on behalf of the Trust the Underwriting Agreement. In the event that any filing referred to in clauses (i)- (iii) above is required by the rules and regulations of the Commission, any Exchange, Nasdaq, the NASD or state securities or blue sky laws, to be executed on behalf of the Trust by one or more Trustees, the Regular Trustees, in their capacities as Trustees of the Trust, and Litchfield Financial are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing. In connection with all of the foregoing, Litchfield Financial and each Trustee, solely in its capacity as Trustee of the Trust, have constituted and appointed, and hereby confirm the appointment of, Richard A. Stratton, Ronald E. Rabidou, and Heather A. Sica and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact, and agents, with full power of substitution and resubstitution, for Litchfield Financial or such Trustee or in Litchfield Financial' or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as Litchfield Financial or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and 25 agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Section 3.14. Filing of Amendments to Certificate of Trust. The Certificate of Trust as filed with the Secretary of State of the State of Delaware on April 12, 1999, is attached hereto as Exhibit A. On or after the date of execution of this Declaration, the Trustees shall cause the filing with the Secretary of State of the State of Delaware of such amendments, if any, to the Certificate of Trust as the Trustees shall deem necessary or desirable. Section 3.15. Execution of Documents by the Regular Trustees. Except as otherwise required by the Business Trust Act with respect to the Certificate of Trust or otherwise and except as provided in Sections 7.01(c) and 9.08, any Regular Trustee, or if there is only one, such Regular Trustee is authorized to execute and deliver on behalf of the Trust any documents which the Regular Trustees have the power and authority to execute or deliver pursuant to this Declaration. Section 3.16. Trustees Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. Section 3.17. Duration of the Trust. The Trust, absent dissolution pursuant to the provisions of Article 8 hereof, shall continue without dissolution until June 30, 2029. Section 3.18. Mergers. (a) The Trust may not merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.18(b) and (c) of this Declaration or Section 3 of Exhibit B or Exhibit C. (b) The Trust may, at the request of the Sponsor, with the consent of the Regular Trustees or, if there are more than two, a majority of the Regular Trustees and without the consent of the Holders, the Delaware Trustee or the Property Trustee, merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets 26 as an entirety or substantially as an entirety to, a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities and this Declaration; or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Sponsor expressly appoints a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization in which the Preferred Securities are then listed or quoted, if any; (iv) if the Preferred Securities (including any Successor Securities) are rated by any nationally recognized statistical rating organization prior to such transaction, such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities), or if the Debentures are so rated, the Debentures, to be downgraded by any nationally recognized statistical rating organization; (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders (including the holders of any Successor Securities) in any material respect (other than with respect to any dilution of such Holders' interests in the new entity); (vi) such Successor Entity has a purpose substantially identical to that of the Trust; (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an Opinion of Counsel experienced in such matters that: (A) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders (including the holders of any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); 27 (B) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust (or the Successor Entity) will continue to be classified as a grantor trust for United States Federal income tax purposes; (viii) the Sponsor or any permitted successor or assignee owns all of the common securities of such Successor Entity and guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Guarantee; and (ix) there shall have been furnished to the Property Trustee an Officers' Certificate and an Opinion of Counsel, each to the effect that all conditions precedent in this Declaration to such transaction have been satisfied. (c) Notwithstanding Section 3.18(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, convert into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, conversion, replacement, conveyance, transfer or lease would cause the Trust or the Successor Entity not to be classified as a grantor trust for United States Federal income tax purposes or would cause the Holders of the Securities not to be treated as owning an undivided interest in the Debentures. Section 3.19. Property Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Securities (or, if the Securities are original issue discount Securities, such portion of the liquidation amount as may be specified in the terms of such Securities) and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, 28 disbursements and advances of the Property Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee. Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or compensation affecting the Securities or the rights of any Holder thereof to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. ARTICLE 4 Sponsor Section 4.01. Purchase of Common Securities by the Sponsor. On the Closing Date, the Sponsor will purchase all of the Common Securities issued by the Trust at the same time as the Preferred Securities to be issued on such date are issued, such purchase to be in an amount equal to 3% of the total capital of the Trust. Section 4.02. Expenses. (a) In connection with the purchase of the Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a Holder, shall be responsible for and shall pay for all debts and obligations (other than with respect to the Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the issuance of the Preferred Securities to initial purchasers thereof, the fees and expenses (including reasonable counsel fees and expenses) of the Trustees (including any amounts payable under Article 10), the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the disposition of Trust assets). 29 (b) In connection with the purchase of the Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a Holder, will pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. (c) The Sponsor's obligations under this Section 4.02 shall be for the benefit of, and shall be enforceable by, any Person to whom any such debts, obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor has received notice hereof. Any such Creditor may enforce the Sponsor's obligations under this Section 4.02 directly against the Sponsor and the Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Sponsor. (d) The Sponsor shall be subrogated to all (if any) rights of the Trust in respect of any amounts paid to any Creditor by the Sponsor under this Section 4.02. ARTICLE 5 Trustees Section 5.01. Number of Trustees; Qualifications. (a) The number of Trustees initially shall be five (5). At any time (i) before the issuance of the Securities, the Sponsor may, by written instrument, increase or decrease the number of, and appoint, remove and replace, the Trustees, and (ii) after the issuance of the Securities the number of Trustees may be increased or decreased solely by, and Trustees may be appointed, removed or replaced solely by, vote of Holders of Common Securities representing a Majority in liquidation amount of the Common Securities voting as a class; provided that in any case: (1) the number of Trustees shall be at least five (5) unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee, in which case the number of Trustees shall be at least four (4); (2) at least a majority of the Trustees shall at all times be officers, directors or employees of Litchfield Financial; (3) if required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be either a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, except that if the Property Trustee has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application; and 30 (4) there shall at all times be a Property Trustee hereunder which shall satisfy the requirements of Section 5.01(c). Each Trustee shall be either a natural person at least 21 years of age or a legal entity which shall act through one or more duly appointed representatives. (b) The initial Regular Trustees shall be: John J. Malloy, Heather A. Sica and Ronald E. Rabidou c/o LITCHFIELD FINANCIAL CORPORATION, 430 Main Street, Williamstown, Massachusetts 01267 (c) There shall at all times be one Trustee which shall act as the Property Trustee. In order to act as the Property Trustee hereunder, such Trustee shall: (i) not be an Affiliate of the Sponsor; (ii) be a corporation or national banking association organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation, national banking association or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.01(c)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published; and (iii) if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7 and to the extent Rule 3a-7 requires a trustee having certain qualifications to hold title to the "eligible assets" (as defined in Rule 3a-7) of the Trust, the Property Trustee shall possess those qualifications. If at any time the Property Trustee shall cease to satisfy the requirements of clauses (i)-(iii) above, the Property Trustee shall immediately resign in the manner and with the effect set out in Section 5.02(d). If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the Property Trustee and the Holders of the Common Securities (as if such Holders were the obligor referred to in (S) 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of (S) 310(b) of the Trust Indenture Act. The 31 Preferred Guarantee and the Indenture shall be deemed to be specifically described in this Declaration for the purposes of clause (i) of the first proviso contained in (S) 310(b) of the Trust Indenture Act. The initial Trustee which shall serve as the Property Trustee is The Bank of New York, a New York banking corporation, whose address is as set forth in Section 14.01(b). (d) The initial Trustee which shall serve as the Delaware Trustee is The Bank of New York (Delaware), a Delaware banking corporation, whose address is as set forth in Section 14.01(c). (e) Any action taken by the Holders of Common Securities pursuant to this Article 5 shall be taken at a meeting of the Holders of Common Securities convened for such purpose or by written consent as provided in Section 12.02. (f) No amendment may be made to this Section 501 which would change any rights with respect to the number, existence or appointment and removal of Trustees, except with the consent of each Holder of Common Securities. Section 5.02. Appointment, Removal and Resignation of the Trustees. (a) Subject to Section 5.02(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of the Securities, by written instrument executed by the Sponsor; and (ii) after the issuance of the Securities by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class. (b) (i) The Trustee that acts as the Property Trustee shall not be removed in accordance with Section 5.02(a) until a successor Trustee possessing the qualifications to act as the Property Trustee under Section 5.01(c) (a "Successor Property Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Regular Trustees, the Sponsor and the Property Trustee being removed; and (ii) the Trustee that acts as the Delaware Trustee shall not be removed in accordance with Section 5.02(a) until a successor Trustee possessing the qualifications to act as the Delaware Trustee under Section 5.01(a)(3) (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees, the Sponsor and the Delaware Trustee being removed. (c) A Trustee appointed to office shall hold such office until his successor shall have been appointed or until his death, removal or resignation. 32 (d) Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) no such resignation of the Trustee that acts as the Property Trustee shall be effective until: (A) a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Regular Trustees, the Sponsor and the resigning Property Trustee; or (B) if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7, until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees, the Sponsor and the resigning Delaware Trustee. (e) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.02 within 60 days after delivery of a notice of removal or a Resignation Request, the Property Trustee or Delaware Trustee being removed or resigning as the case may be may petition, at the expense of the Sponsor, any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee, as the case may be. Such court may thereupon after prescribing such notice, if any, as it may deem proper and prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. Section 5.03. Vacancies among the Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.01 or if the number of Trustees is increased pursuant to Section 5.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with the requirements of this Article 5. Section 5.04. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee, or any one of them, shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur until such vacancy is filled as provided in this Article 5, the Regular Trustees in office, regardless 33 of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. Section 5.05. Meetings. Meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in- person meeting of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meeting of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before such meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless otherwise provided in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. Section 5.06. Delegation of Power. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any registration statement or amendment thereto or other document or schedule filed with the Commission or making any other governmental filing (including, without limitation, the filings referred to in Section 3.13). (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. Section 5.07. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Property Trustee or the Delaware Trustee or any Regular Trustee that is not a natural person, as the case may be, may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the 34 Property Trustee or the Delaware Trustee or the Regular Trustees, as the case may be, shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Property Trustee or the Delaware Trustee or the Regular Trustee, as the case may be, shall be the successor of the Property Trustee or the Delaware Trustee or the Regular Trustees, as the case may be, hereunder, provided that such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE 6 Distributions Section 6.01. Distributions. Holders shall receive periodic distributions, redemption payments and liquidation distributions in accordance with the applicable terms of the relevant Holder's Securities as set forth in Exhibits B and C hereto ("Distributions"). If and to the extent that Litchfield Financial makes a payment of interest (including Additional Interest (as defined in the Indenture)), premium and/or principal on the Debentures held by the Property Trustee (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to promptly make a Distribution of the Payment Amount to Holders in accordance with the terms of the Securities as set forth in Exhibits B and C hereto. ARTICLE 7 Issuance of the Securities Section 7.01. General Provisions Regarding the Securities. (a) The Regular Trustees shall issue on behalf of the Trust Securities in fully registered form representing undivided beneficial interests in the assets of the Trust in accordance with Section 7.01(b) and for the consideration specified in Section 3.03. (b) The Regular Trustees shall issue on behalf of the Trust one class of preferred securities representing preferred undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit B (the "Preferred Securities") hereto, which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein, and one class of common securities representing common undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit C (the "Common Securities") hereto, which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein. The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. 35 (c) The Certificates shall be signed on behalf of the Trust by the Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees). Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee who shall have signed any of the Certificates shall cease to be such Regular Trustee before the Certificate so signed shall be delivered by the Trust, such Certificate nevertheless may be delivered as though the person who signed such Certificate had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons as, at the actual date of the execution of such Certificate, shall be the Regular Trustees, although at the date of the execution and delivery of this Declaration any such person was not a Regular Trustee. Certificates shall be typewritten, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or automated quotation system on which Securities may be listed or traded, or with any rule or regulation of the Clearing Agency, or to conform to usage. Pending the preparation of definitive Certificates, the Regular Trustees on behalf of the Trust may execute temporary Certificates (printed, lithographed or typewritten), in substantially the form of the definitive Certificates in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Certificates, all as may be determined by the Regular Trustees. Each temporary Certificate shall be executed by the Regular Trustees (or, if there are more than two Regular Trustees, by any two of the Regular Trustees) on behalf of the Trust upon the same conditions and in substantially the same manner, and with like effect, as definitive Certificates. Without unnecessary delay, the Regular Trustees on behalf of the Trust will execute and furnish definitive Certificates and thereupon any or all temporary Certificates may be surrendered to the transfer agent and registrar in exchange therefor (without charge to the Holders). Each Preferred Security Certificate whether in temporary or definitive form shall be countersigned, upon receipt of a written order of the Trust signed by one Regular Trustee, by the manual signature of an authorized signatory of the Person acting as registrar and transfer agent for the Preferred Securities, which shall initially be the Property Trustee. (d) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (e) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non- assessable. (f) Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by this Declaration. 36 (g) Upon issuance of the Securities as provided in this Declaration, the Regular Trustees on behalf of the Trust shall return to Litchfield Financial the $10 constituting initial trust assets as set forth in the Original Declaration. ARTICLE 8 Dissolution of the Trust Section 8.01. Dissolution of the Trust. The Trust shall dissolve: (i) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders of the Securities in accordance with the terms of the Securities; or (ii) when all of the Debentures shall have been distributed to the Holders of the Securities in exchange for all of the Securities in accordance with the terms of the Securities; (iii) upon the expiration of the term of the Trust as set forth in Section 3.17; or (iv) upon a decree of judicial dissolution. Upon dissolution and the completion of the winding up of the affairs of the Trust, the Trust and this Declaration shall terminate when a certificate of cancellation is filed by the Trustees with the Secretary of State of the State of Delaware. The Trustees shall so file such a certificate as soon as practicable after the occurrence of an event referred to in this Section 8.01. The provisions of Sections 3.12 and 4.02 and Article 10 shall survive the termination of the Trust and this Declaration. ARTICLE 9 Transfer of Interests Section 9.01. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. To the fullest extent permitted by law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article 9, Preferred Securities shall be freely transferable. 37 (c) The Holder of the Common Securities may not transfer the Common Securities except (a) in connection with transactions permitted under Section 10.01 of the Indenture, or (b) to the Sponsor or an Affiliate thereof in compliance with applicable law (including the Securities Act and applicable state securities and blue sky laws). To the fullest extent permitted by law, any attempted transfer of the Common Securities other than as set forth in the immediately preceding sentence shall be void. Section 9.02. Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other government charges which may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. Section 9.03. Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trustees shall have actual or other notice thereof. Section 9.04. Book Entry Interests. Unless otherwise specified in the terms of the Preferred Securities, the Preferred Security Certificates, on original issuance, will be issued in the form of one or more, fully registered, global Preferred Security Certificates (each a "Global Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Preferred Security Beneficial Owner will receive a definitive Preferred Security Certificate representing such Preferred Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.07. Unless and until definitive, fully registered Preferred Security 38 Certificates (the "Definitive Preferred Security Certificates") have been issued to the Preferred Security Beneficial Owners pursuant to Section 9.07: (i) the provisions of this Section 9.04 shall be in full force and effect; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of the Preferred Securities and the sole holder of the Global Certificates and, except as set forth herein in Section 9.07 or in Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) with respect to the Property Trustee, shall have no obligation to the Preferred Security Beneficial Owners; (iii) to the extent that the provisions of this Section 9.04 conflict with any other provisions of this Declaration, the provisions of this Section 9.04 shall control; and (iv) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants, provided, that solely for the purposes of determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Declaration, so long as definitive Preferred Security Certificates have not been issued (pursuant to Section 9.07 hereof), the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Preferred Security Beneficial Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part. Section 9.05. Notices to Holders of Certificates. Whenever a notice or other communication to the Holders is required to be given under this Declaration, unless and until Definitive Preferred Security Certificates shall have been issued pursuant to Section 9.07, the relevant Trustees shall give all such notices and communications, specified herein to be given to Holders of Preferred Securities, to the Clearing Agency and, with respect to any Preferred Security Certificate registered in the name of a Clearing Agency or the nominee of a Clearing Agency, the Trustees shall, except in Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) with respect to the Property Trustee, have no notice obligations to the Preferred Security Beneficial Owners. Section 9.06. Appointment of Successor Clearing Agency. 39 If any Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to the Preferred Securities. Section 9.07. Definitive Preferred Securities Certificates. If (i) a Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.06 or (ii) the Regular Trustees elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Preferred Securities, then (x) Definitive Preferred Security Certificates shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Preferred Securities and (y) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause Definitive Preferred Security Certificates to be delivered to Preferred Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on, and shall be protected in relying on, such instructions. Section 9.08. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, the Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees) on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.08, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE 10 Limitation of Liability; Indemnification Section 10.01. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or 40 omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. (c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of Securities, in their capacities as Holders, shall be entitled to the same limitation of liability that is extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. Section 10.02. Indemnification. (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) The provisions of this Section 10.02 shall survive the termination of this Declaration or the resignation or removal of any Trustee. Section 10.03. Outside Business. The Sponsor and any Trustee (in the case of the Property Trustee, subject to Section 5.01(c)) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or 41 improper. Neither the Sponsor nor any Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Sponsor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or any of its Affiliates. ARTICLE 11 Accounting Section 11.01. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. Section 11.02. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States Federal income tax purposes. (b) If required by applicable law, the Regular Trustees shall, as soon as available after the end of each Fiscal Year of the Trust, cause to be prepared and mailed to each Holder of Securities unaudited financial statements of the Trust for such Fiscal Year, prepared in accordance with generally accepted accounting principles; provided that if the Trust is required to comply with the periodic reporting requirements of Section 13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal Year shall be examined and reported on by a firm of independent certified public accountants selected by the Regular Trustees (which firm may be the firm used by the Sponsor). (c) The Regular Trustees shall cause to be duly prepared and mailed to each Holder of Securities any annual United States Federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. 42 (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority an annual United States Federal income tax return, on such form as is required by the Code, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. Section 11.03. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Account and no other funds from the Trust shall be deposited in the Property Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Account. Section 11.04. Withholding. The Trust and the Trustees shall comply with all withholding requirements under United States Federal, State and local law. The Regular Trustees shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Regular Trustees to assist them in determining the extent of, and in fulfilling, the Trust's withholding obligations. The Trust shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to Distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount to be withheld was not withheld from a Distribution, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE 12 Amendments and Meetings Section 12.01. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may be amended by, and only by, a written instrument executed by a majority of the Regular Trustees; provided, however, that (i) no amendment or modification to this Declaration shall be made, and any such purported amendment shall be void and ineffective: (A) unless the Regular Trustees shall have first received: (x) an Officers' Certificate that such amendment is permitted by, and conforms to, the terms of this Declaration; and 43 (y) an Opinion of Counsel that such amendment is permitted by, and conforms to, the terms of this Declaration and that all conditions precedent, if any, in this Declaration to the execution and delivery of such amendment have been satisfied; and (B) to the extent the result of such amendment would be to: (x) cause the Trust to fail to continue to be classified for purposes of United States Federal income taxation as a grantor trust; (y) reduce or otherwise adversely affect the rights or powers of the Property Trustee in contravention of the Trust Indenture Act; or (z) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) at such time after the Trust has issued any Securities which remain outstanding, any amendment which would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (iii) Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended without the consent of all of the Holders of the Securities; (iv) no amendment which adversely affects the rights, powers and privileges of the Property Trustee or the Delaware Trustee shall be made without the consent of the Property Trustee or the Delaware Trustee, respectively; (v) Article 4 shall not be amended without the consent of the Sponsor; and (vi) the rights of the Holders of Common Securities under Article 5 to increase or decrease the number of, and to appoint, replace or remove, Trustees shall not be amended without the consent of each Holder of Common Securities. (b) Notwithstanding Section 12.02(a), this Declaration may be amended without the consent of the Holders of the Securities to (i) cure any ambiguity, (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration, (iii) add to the covenants, restrictions or obligations of the Sponsor, (iv) conform to any changes in Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) or any change in interpretation or application of Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) by the Commission, (v) make any other provisions with respect to matters or questions arising under this Declaration which shall not be inconsistent with the other provisions of this Declaration, (vi) modify, eliminate or add to any provisions of this Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act, and (vii) pursuant to Section 5.02, evidence the acceptance of the appointment of a successor Trustee or fill a vacancy created by an increase in the number of Regular Trustees, which amendment does not adversely affect in any material respect the rights, preferences or privileges of the Holders. Section 12.02. Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of Preferred Securities and/or Common Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which the Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted. The Regular Trustees shall call a meeting of the Holders of Preferred Securities or Common Securities, if 44 directed to do so by Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more notices in writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those specified Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provision shall apply to meetings of the Holders of Securities: (i) Notice of any such meeting shall be given by mail to all the Holders of Securities having a right to vote thereat not less than seven (7) days nor more than sixty (60) days prior to the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken is signed by Holders of Securities owning not less than the minimum aggregate liquidation amount of Securities that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Holders of Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees. (ii) Each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of a Security is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Security executing it. Except as otherwise provided herein or in the terms of the Securities, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation. (iii) Each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate. (iv) Unless otherwise provided in the Business Trust Act, this Declaration or the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted, the Regular Trustees, in their sole discretion, shall establish all other provisions 45 relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE 13 Representations of the Property Trustee and the Delaware Trustee Section 13.01. Representations and Warranties of the Property Trustee. The Trustee which acts as the initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as the Property Trustee that: (i) The Property Trustee is a national banking association or a banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the United States or the laws of the state of its incorporation, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (ii) The execution, delivery and performance by the Property Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee, and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) The execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of the charter or by-laws of the Property Trustee. (iv) No consent, approval or authorization of, or registration with or notice to, any banking authority which supervises or regulates the Property Trustee is required for the execution, delivery or performance by the Property Trustee of this Declaration. (v) The Property Trustee satisfies the qualifications set forth in Section 5.01(c). Section 13.02. Representations and Warranties of the Delaware Trustee. 46 The Trustee which acts as the initial Delaware Trustee represents and warrants to the Trust and the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as the Delaware Trustee, that: (i) The Delaware Trustee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with corporate power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (ii) The execution, delivery and performance by the Delaware Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) No consent, approval or authorization of, or registration with or notice to, any banking authority which supervises or regulates the Delaware Trustee, if any, is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. (iv) The Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and is a Person that satisfies for the Trust (S) 3807(a) of the Business Trust Act. ARTICLE 14 Miscellaneous Section 14.01. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Regular Trustees on behalf of the Trust may give notice of to the Holders of the Securities): Litchfield Capital Trust I c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, MA 01267 Attention: Treasurer, Telecopy: (413) 458-1020 47 (b) if given to the Property Trustee, at the mailing address of the Property Trustee set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Securities): 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Telecopy: (212) 815-5915 (c) if given to the Delaware Trustee, at the mailing address of the Delaware Trustee set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities): White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust): Litchfield Financial Corporation, 430 Main Street, Williamstown, Massachusetts 01267, Attention: Treasurer, Telecopy: (413) 458-1020 (e) if given to any other Holder, at the address set forth on the books and records of the Trust. A copy of any notice to the Property Trustee or the Delaware Trustee shall also be sent to the Trust. All notices shall be deemed to have been given, when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 14.02. Undertaking for Costs. All parties to this Declaration agree, and each Holder of any Securities by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Declaration, or in any suit against the Property Trustee for any action taken or omitted by it as Property Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 1402 shall not apply to any suit instituted by the Property Trustee, to any suit instituted by any Holder of Preferred Securities, or group of Holders of Preferred Securities, holding more than 10% in aggregate liquidation amount of the outstanding Preferred Securities, or to any suit instituted by any Holder of Preferred Securities for the enforcement of the payment of the principal of (or premium, if any) or interest on the Debentures, on or after the respective due dates expressed in such Debentures. 48 Section 14.03. Governing Law. This Declaration, the Securities and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. Section 14.04. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. Section 14.05. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 14.06. Counterparts. This Declaration may contain more than one counterpart of the signature pages and this Declaration may be executed by the affixing of the signature of the Sponsor and each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. Section 14.07. Intention of the Parties. It is the intention of the parties hereto that the Trust not be classified for United States Federal income tax purposes as an association taxable as a corporation or partnership but that the Trust be treated as a grantor trust for United States federal income tax purposes. The provisions of this Declaration shall be interpreted to further this intention of the parties. Section 14.08. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. Section 14.09. No Recourse. 49 The Trust's obligations hereunder are intended to be the obligations of the Trust and no recourse for the payment of Distributions, or for any claim upon the Securities or otherwise in respect thereof, shall be had against any Holder of Securities or any Affiliate of a Holder of Securities, solely by reason of such Person's being a Holder of Securities or an Affiliate of a Holder of Securities, it being understood that the Holder of Securities, solely by reason of being a Holder of Securities, has limited liability (in accordance with the provisions of the Business Trust Act) for the liabilities and obligations of the Trust. Nothing contained in this Section 14.09 shall be construed to limit the exercise or enforcement, in accordance with the terms of this Declaration, the Preferred Guarantee and the Indenture, of the rights and remedies against the Trust or the Sponsor. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. LITCHFIELD FINANCIAL CORPORATION, as Sponsor By: /s/ R.A. Stratton Name: Richard A. Stratton Title: President and Chief Executive Officer /s/ Ronald E. Rabidou Ronald E. Rabidou, as Regular Trustee /s/ Heather A. Sica Heather A. Sica, as Regular Trustee /s/ John J. Malloy John J. Malloy, as Regular Trustee THE BANK OF NEW YORK, as Property Trustee By: /s/ Michael Culhane Name: Michael Culhane Title: Vice President THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ Walter N. Gitlin Name: Walter N. Gitlin Title: Authorized Signatory 50 EXHIBIT A CERTIFICATE OF TRUST OF LITCHFIELD CAPITAL TRUST I THIS CERTIFICATE OF TRUST of Litchfield Capital Trust I (the "Trust"), dated as of April ___, 1999, is being duly executed and filed by the undersigned, as trustees, with the Secretary of State of the State of Delaware to form a business trust under the Delaware Business Trust Act (12 Del. Code (S) 3801 et seq.). 1. Name. The name of the business trust being formed hereby is Litchfield Capital Trust I. 2. Delaware Trustee. The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware are The Bank of New York (Delaware), a Delaware banking corporation, White Clay Center, Route 273, Newark, Delaware 19711. 3. Effective Date. This Certificate of Trust shall be effective at the time of its filing with the Secretary of State of the State of Delaware. IN WITNESS WHEREOF, the undersigned, being all of the trustees of the Trust at the time of filing this Certificate of Trust, have executed this Certificate of Trust as of the date first above written. LITCHFIELD FINANCIAL CORPORATION, as Sponsor By:______________________________ Name: Title: - -------------------------------- John J. Malloy, not in his individual capacity, but solely as Regular Trustee - -------------------------------- Heather A. Sica, not in her individual capacity, but solely as Regular Trustee - -------------------------------- Ronald E. Rabidou, not in his individual capacity, but solely as Regular Trustee THE BANK OF NEW YORK, not in its individual capacity, but solely as Property Trustee By:______________________________ Name: Title: THE BANK OF NEW YORK (DELAWARE), not in its individual capacity, but solely as Delaware Trustee By:______________________________ Name: Title: 51 EXHIBIT B TERMS OF PREFERRED SECURITIES Pursuant to Section 7.01(b) of the Amended and Restated Declaration of Trust of Litchfield Capital Trust I dated as of May 19, 1999 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): 1. DESIGNATION AND NUMBER. 10% Series A Preferred Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Twenty-Five Million Dollars ($25,000,000) and 375,000 Preferred Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000), each with a liquidation amount with respect to the assets of the Trust of $10 per Preferred Security, are hereby designated as "10% Series A Trust Preferred Securities,." The Preferred Security Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted. In connection with the issuance and sale of the Preferred Securities and the Common Securities, the Trust will purchase as trust assets Debentures of Litchfield Financial having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities so issued and bearing interest at an annual rate equal to the annual Distribution rate on the Preferred Securities and the Common Securities and having payment and redemption provisions which correspond to the payment and redemption provisions of the Preferred Securities and the Common Securities. 2. DISTRIBUTIONS. (a) Distributions payable on each Preferred Security will be fixed at a rate per annum of ____% (the "Coupon Rate") of the stated liquidation amount of $10 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one calendar quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. (b) Distributions on the Preferred Securities will accumulate from May 19, 1999, and will be payable quarterly in arrears, on June 30, September 30, December 31, and March 31 of each year, commencing 52 on June 30, 1999, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each, an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Preferred Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. (c) Distributions on the Preferred Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates shall be one business day prior to the relevant Distribution date, and if the Preferred Securities are no longer in book-entry only form, the relevant record dates will be the fifteenth (15th) day of the month prior to the relevant Distribution date, which record and payment dates correspond to the record and interest payment dates on the Debentures. Distributions payable on any Preferred Securities that are not punctually paid on any Distribution payment date as a result of Litchfield Financial' having failed to make the corresponding interest payment on the Debentures will forthwith cease to be payable to the person in whose name such Preferred Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Preferred Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture; provided, however, that Distributions shall not be considered payable on any Distribution payment date falling within an Extension Period unless Litchfield Financial has elected to make a full or partial payment of interest accrued on the Debentures on such Distribution payment date. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Preferred Securities will be made as described in paragraph 8 hereof. If any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such 53 payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. (d) All Distributions paid with respect to the Preferred Securities and the Common Securities will be paid Pro Rata (as defined below) to the Holders thereof entitled thereto. If an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to Distributions. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration, such money or property shall be distributed Pro Rata among the Holders of the Preferred Securities and the Common Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. (a) In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Preferred Securities and the Common Securities will be entitled to receive Pro Rata solely out of the assets of the Trust legally available for distribution to Holders of Preferred Securities and Common Securities after satisfaction of liabilities to the creditors of the Trust, an amount equal to the aggregate of the stated liquidation amount of $10 per Preferred Security and Common Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, and after satisfaction of liabilities to the creditors of the Trust, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Preferred Securities and the Common Securities and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on, such Preferred Securities and the Common Securities, shall be distributed Pro Rata to the Holders of the Preferred Securities and the Common Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities and the Common Securities shall be paid, subject to the next paragraph, on a Pro Rata basis. Holders of Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution Pro Rata with Holders of Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to such Liquidation Distribution. (b) The Holder of the Common Securities shall have the right to direct the Property Trustee in writing at any time to dissolve the Trust and to distribute Debentures to Holders in exchange for Securities (which direction is optional and wholly within the discretion of the Holder of the Common Securities). Upon the receipt of any such written direction, the Property Trustee shall promptly (i) distribute Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of the Preferred Securities and the Common Securities held by each Holder, which Debentures bear accrued and unpaid interest in an amount equal to the accumulated and 54 unpaid Distributions on the Preferred Securities and the Common Securities of such Holder, in exchange for the Preferred Securities and Common Securities of such Holder and (ii) dissolve the Trust. (c) On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Preferred Securities will no longer be deemed to be outstanding and may be canceled by the Regular Trustees, and (ii) Certificates representing Preferred Securities will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Preferred Securities until such Certificates are presented to Litchfield Financial or its agent for transfer or reissuance. (d) If Debentures are distributed to Holders of the Preferred Securities, Litchfield Financial, pursuant to the terms of the Indenture, will use its best efforts to have the Debentures listed on the New York Stock Exchange or on such other exchange as the Preferred Securities were listed immediately prior to the distribution of the Debentures. 4. REDEMPTION OF DEBENTURES. The Preferred Securities may be redeemed only if Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities are repaid or redeemed as set forth below: (a) Upon the repayment of the Debentures, in whole or in part, whether at maturity, upon redemption at any time or from time to time on or after June 30, 2004, the proceeds of such repayment will be promptly applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption price of $10 per Preferred Security and Common Security plus an amount equal to accumulated and unpaid Distributions thereon to, but excluding, the date of redemption, payable in cash (the "Redemption Price"). The date of any such repayment or redemption of Preferred Securities and Common Securities shall be established to coincide with the repayment or redemption date of the Debentures. (b) If fewer than all the outstanding Preferred Securities and Common Securities are to be so redeemed, the Preferred Securities and the Common Securities will be redeemed Pro Rata and the Preferred Securities will be redeemed as described in paragraph 4(f)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed or traded, Litchfield Financial pursuant to the Indenture will redeem Debentures only in whole and, as a result, the Trust may redeem the Preferred Securities only in whole. (c) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each a "Special Event") shall occur and be continuing, Litchfield Financial shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole 55 or in part for cash at the Redemption Price within 90 days following the occurrence of such Special Event, and promptly following such redemption, Preferred Securities and Common Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed will be redeemed by the Trust at the Redemption Price on a Pro Rata basis. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Sponsor and the Regular Trustees shall have obtained an Opinion of Counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after May 19, 1999, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after May 19, 1999, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States Federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by Litchfield Financial to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by Litchfield Financial for United States Federal income tax purposes. "Investment Company Event" means that the Sponsor and the Regular Trustees shall have received an Opinion of Counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after May 19, 1999. (d) The Trust may not redeem fewer than all the outstanding Preferred Securities unless all accumulated and unpaid Distributions have been paid on all Preferred Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) [Intentionally omitted.] 56 (f) (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Preferred Securities and the Common Securities (a "Redemption/Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 30 nor more than 60 days prior to the date fixed for redemption or exchange thereof. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first- class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Preferred Securities are to be redeemed, the Preferred Securities to be redeemed will be redeemed Pro Rata from each Holder of Preferred Securities, it being understood that, in respect of Preferred Securities registered in the name of and held of record by DTC (or successor Clearing Agency) or any other nominee, the Preferred Securities will be redeemed from, and the distribution of the proceeds of such redemption will be made to, DTC (or successor Clearing Agency). (iii) Subject to paragraph 8 hereof, if the Trust gives a Redemption/Distribution Notice in respect of a redemption of Preferred Securities as provided in this paragraph 4 then (A) while the Preferred Securities are in book-entry only form, with respect to the Preferred Securities, by 10:00 a.m., New York City time, on the redemption date, provided that Litchfield Financial has paid the Property Trustee, in immediately available funds, a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will deposit irrevocably with DTC (or successor Clearing Agency) funds sufficient to pay the applicable Redemption Price with respect to the Preferred Securities and will give DTC (or successor Clearing Agency) irrevocable instructions and authority to pay the Redemption Price to the Holders of the Preferred Securities and (B) if the Preferred Securities are issued in definitive form, with respect to the Preferred Securities and provided that Litchfield Financial has paid the Property Trustee, in immediately available funds, a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will pay the relevant Redemption Price to the Holders of such Preferred Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the redemption date, Distributions will cease to accumulate on the Preferred Securities called for redemption, such Preferred Securities will no longer be deemed to be outstanding and all rights of Holders of such Preferred Securities so called for redemption will cease, except the right of the Holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Preferred Securities which have been so called for redemption. If any 57 date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and not paid either by the Property Trustee or by Litchfield Financial pursuant to the Preferred Guarantee, Distributions on such Preferred Securities will continue to accumulate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to DTC or its nominee (or any successor Clearing Agency or its nominee) if the Global Certificates have been issued or, if Definitive Preferred Security Certificates have been issued, to the Holders of the Preferred Securities. (v) Subject to the foregoing and applicable law (including, without limitation, United States Federal securities laws), Litchfield Financial or any of its Affiliates may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS. (a) Except as provided under paragraph 5(b) below and as otherwise required by law and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration, other than as described in Section 12.01(b) of the Declaration, or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.01 of the Declaration, then the Holders of outstanding Securities will be entitled to vote on such amendment or proposal as a single class and such amendment or proposal shall not be effective except with the approval of the Holders of Securities of at least a Majority in liquidation amount of the Securities, voting together as a single class; provided, however, that (A) if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class of Securities will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a Majority in liquidation amount of such class of Securities and (B) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. In the event the consent of the Property Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities 58 with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where such amendment, modification or termination of the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Securities representing such specified percentage of the aggregate liquidation amount of the Securities, or, in the case of clause (2) above, each Holder of Securities; and provided, further, that the Property Trustee shall be under no obligation to take any action in accordance with the directions of the Holders of Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an Opinion of Counsel experienced in such matters to the effect that the Trust will not be classified for United States Federal income tax purposes as other than a grantor trust on account of such action. So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee of the Indenture (the "Debenture Trustee"), or exercising any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture or (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures, without, in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of all outstanding Preferred Securities and Common Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Preferred Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Preferred Securities and Common Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect that for United States Federal income tax purposes the Trust will not be classified as other than a grantor trust on account of such action. If an Event of Default has occurred and is continuing, then the Holders of a Majority in liquidation amount of the Preferred Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Debentures. If the Property Trustee fails to enforce its rights under the Debentures, a Holder of Preferred Securities, to the extent permitted by applicable law, may, after a period of 30 days has elapsed since such Holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against the Sponsor to enforce the Property Trustee's rights under the Debentures without first instituting any legal proceeding against the Property Trustee or any other Person; provided further, that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Sponsor to pay interest or principal on the Debentures on the date such 59 interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Sponsor to such Holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures. A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Securities. Any required approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Debentures in accordance with the Declaration. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities at such time that are owned by Litchfield Financial or by any Affiliate of Litchfield Financial shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. Except as provided in this paragraph 5, Holders of the Preferred Securities will have no rights to increase or decrease the number of Trustees or to appoint, remove or replace a Trustee, which voting rights are vested exclusively in the Holders of the Common Securities. 6. PRO RATA TREATMENT. A reference in these terms of the Preferred Securities to any payment, Distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities 60 pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 7. RANKING. The Preferred Securities rank pari passu and payment thereon will be made Pro Rata with the Common Securities, except that when an Event of Default occurs and is continuing, the rights of Holders of Preferred Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise rank in priority to the rights of Holders of the Common Securities. 8. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and payments on redemption of the Preferred Securities will be payable, the transfer of the Preferred Securities will be registrable, and Preferred Securities will be exchangeable for Preferred Securities of other denominations of a like aggregate liquidation amount, at the corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Preferred Security will be made only upon surrender of such Preferred Security to the Property Trustee. 9. ACCEPTANCE OF INDENTURE AND PREFERRED GUARANTEE. Each Holder of Preferred Securities, by the acceptance thereof, agrees to the provisions of (i) the Preferred Guarantee, including the subordination provisions therein, and (ii) the Indenture and the Debentures, including the subordination provisions of the Indenture. 10. NO PREEMPTIVE RIGHTS. The Holders of Preferred Securities shall have no preemptive or similar rights to subscribe to any additional Preferred Securities or Common Securities. 11. MISCELLANEOUS. These terms shall constitute a part of the Declaration. The Trust will provide a copy of the Declaration and the Indenture to a Holder of Preferred Securities without charge on written request to the Trust at its principal place of business. 61 Annex I FORM OF PREFERRED SECURITY CERTIFICATE [IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - THIS PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR A NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO LITCHFIELD CAPITAL TRUST I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] Certificate Number Number of Preferred Securities: ____________ __________________ Aggregate Liquidation Amount: $____________ CUSIP NO. ____________ Certificate Evidencing Preferred Securities of Litchfield Capital Trust I ____% Series A Trust Preferred Securities (liquidation amount $10 per Preferred Security) Litchfield Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that _________ (the "Holder") is the registered owner of _____ 62 (______) preferred securities of the Trust representing preferred undivided beneficial interests in the assets of the Trust and designated the ____% Series A Trust Preferred Securities (liquidation amount $10 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this Certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of ___________, ____, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Preferred Securities as set forth in Exhibit B thereto. The Preferred Securities and the Common Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Debentures (as defined in the Declaration) issued by Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield Financial"), to the Trust pursuant to the Indenture referred to in the Declaration. The Holder is entitled to the benefits of the Guarantee Agreement of Litchfield Financial dated as of __________, ____, as the same may be amended from time to time (the "Guarantee") to the extent provided therein. The Trust will furnish a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have (i) agreed to the terms of the Indenture and the Debentures, including that the Debentures are subordinate and junior in right of payment to all Senior Debt (as defined in the Indenture) as and to the extent provided in the Indenture, and (ii) agreed to the terms of the Guarantee, including that the Guarantee is subordinate and junior in right of payment to all other liabilities of Litchfield Financial, including the Debentures, except those made pari passu or subordinate by their terms, and senior to all capital stock (other than the most senior preferred stock issued, from time to time, if any, by Litchfield Financial, which preferred stock will rank pari passu with the Guarantee) now or hereafter issued by Litchfield Financial and to any guarantee now or hereafter entered into by Litchfield Financial in respect of any of its capital stock (other than the most senior preferred stock issued, from time to time, if any, by Litchfield Financial). Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, Trustees of the Trust have executed this Certificate. LITCHFIELD CAPITAL TRUST I -------------------------------- Ronald E. Rabidou, as Regular Trustee 63 -------------------------------- Heather A. Sica, as Regular Trustee -------------------------------- John J. Malloy, as Regular Trustee Dated: Countersigned and Registered: Transfer Agent and Registrar By:___________________________ Authorized Signatory 64 [FORM OF REVERSE OF SECURITY] Distributions payable on each Preferred Security will be fixed at a rate per annum of ___ % (the "Coupon Rate") of the stated liquidation amount of $10 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. Distributions on the Preferred Securities will accumulate from _________, ____, and will be payable quarterly in arrears, on ______, ______, ______ and ______ of each year, commencing on ________, ____, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Preferred Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. The Preferred Securities shall be redeemable as provided in the Declaration. 65 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ______________________________________ Signature: _________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THIS PREFERRED SECURITY CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 66 EXHIBIT C TERMS OF COMMON SECURITIES Pursuant to Section 7.01(b) of the Amended and Restated Declaration of Trust of Litchfield Capital Trust I dated as of May 19, 1999 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): 1. DESIGNATION AND NUMBER. 10% Series A Common Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Seven Hundred Seventy-Three Thousand Two Hundred Dollars ($773,200), and each with a liquidation amount with respect to the assets of the Trust of $10 per Common Security, and 77,320 Common Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Seven Hundred Seventy-Three Thousand Two Hundred Dollars ($773,200), and each with a liquidation amount with respect to the assets of the Trust of $10 per Common Security for issuance upon the exercise of the option granted to the Underwriters, solely to cover over-allotments, if any, are hereby designated as "10% Series A Trust Common Securities." The Common Security Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. The Common Securities are to be issued and sold to Litchfield Financial in consideration of $773,200 in cash. In connection with the issuance and sale of the Preferred Securities and the Common Securities, the Trust will purchase as trust assets Debentures of Litchfield Financial having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities so issued, and bearing interest at an annual rate equal to the annual Distribution rate on the Preferred Securities and the Common Securities and having payment and redemption provisions which correspond to the payment and redemption provisions of the Preferred Securities and the Common Securities. 2. DISTRIBUTIONS. (a) Distributions payable on each Common Security will be fixed at a rate per annum of 10% (the "Coupon Rate") of the stated liquidation amount of $10 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one calendar quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. 67 (b) Distributions on the Common Securities will accumulate from May 19, 1999, and will be payable quarterly in arrears, on June 30, September 30, December 31, and March 31 of each year commencing on June 30, 1999, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each, an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Common Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. (c) Distributions on the Common Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates for the Common Securities shall be one business day prior to the relevant Distribution date, and if the Preferred Securities are no longer in book-entry only form, the relevant record dates for the Common Securities will be the fifteenth (15th) day of the month prior to the relevant Distribution date, which record and payment dates correspond to the record and interest payment dates on the Debentures. Distributions payable on any Common Securities that are not punctually paid on any Distribution payment date as a result of Litchfield Financial' having failed to make the corresponding interest payment on the Debentures will forthwith cease to be payable to the person in whose name such Common Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Common Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture; provided, however, that Distributions shall not be considered payable on any Distribution payment date falling within an Extension Period unless Litchfield Financial has elected to make a full or partial payment of interest accrued on the Debentures on such Distribution payment date. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Common Securities will be made as described in paragraph 8 hereof. If any date on which Distributions are payable on the Common Securities is not a Business Day, then payment of the 68 Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. (d) All Distributions paid with respect to the Common Securities and the Preferred Securities will be paid Pro Rata (as defined below) to the Holders thereof entitled thereto. If an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to Distributions. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration, such money or property shall be distributed Pro Rata among the Holders of the Preferred Securities and the Common Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. (a) In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Preferred Securities and the Common Securities will be entitled to receive Pro Rata solely out of the assets of the Trust legally available for distribution to Holders of Preferred Securities and Common Securities after satisfaction of liabilities to the creditors of the Trust, an amount equal to the aggregate of the stated liquidation amount of $10 per Preferred Security and Common Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, and after satisfaction of liabilities to the creditors of the Trust, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Preferred Securities and the Common Securities and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on, such Preferred Securities and the Common Securities, shall be distributed Pro Rata to the Holders of the Preferred Securities and the Common Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities and the Common Securities shall be paid, subject to the next paragraph, on a Pro Rata basis. Holders of Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution Pro Rata with Holders of Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to such Liquidation Distribution. (b) The Holder of the Common Securities shall have the right to direct the Property Trustee in writing at any time to dissolve the Trust and to distribute Debentures to Holders in exchange for Securities (which direction is optional and wholly within the discretion of the Holder of the Common Securities). Upon the receipt of any such written direction, the Property Trustee shall promptly (i) distribute Debentures in an aggregate principal amount 69 equal to the aggregate stated liquidation amount of the Preferred Securities and the Common Securities held by each Holder, which Debentures bear accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on the Preferred Securities and the Common Securities of such Holder, in exchange for the Preferred Securities and Common Securities of such Holder and (ii) dissolve the Trust. (c) On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Common Securities will no longer be deemed to be outstanding and may be canceled by the Regular Trustees, and (ii) Certificates representing Common Securities will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Common Securities until such Certificates are presented to Litchfield Financial or its agent for transfer or reissuance. 4. REDEMPTION OF DEBENTURES. The Common Securities may be redeemed only if Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities are repaid or redeemed as set forth below: (a) Upon the repayment of the Debentures, in whole or in part, whether at maturity, upon redemption at any time or from time to time on or after June 30, 2004, the proceeds of such repayment will be promptly applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption price of $10 per Preferred Security and Common Security plus an amount equal to accumulated and unpaid Distributions thereon to, but excluding, the date of redemption, payable in cash (the "Redemption Price"). The date of any such repayment or redemption of Preferred Securities and Common Securities shall be established to coincide with the repayment or redemption date of the Debentures. (b) If fewer than all the outstanding Preferred Securities and Common Securities are to be so redeemed, the Preferred Securities and the Common Securities will be redeemed Pro Rata and the Common Securities will be redeemed as described in paragraph 4(e)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed or traded, Litchfield Financial pursuant to the Indenture will redeem Debentures only in whole and, as a result, the Trust may redeem the Common Securities only in whole. (c) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each, a "Special Event") shall occur and be continuing, Litchfield Financial shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole or in part for cash at the Redemption Price within 90 days following the occurrence of such Special Event, and promptly following such redemption, Preferred Securities and Common 70 Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed will be redeemed by the Trust at the Redemption Price on a Pro Rata basis. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Sponsor and the Regular Trustees shall have obtained an Opinion of Counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after May 19, 1999, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after May 19, 1999, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States Federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by Litchfield Financial to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by Litchfield Financial for United States Federal income tax purposes. "Investment Company Event" means that the Sponsor and the Regular Trustees shall have received an Opinion of Counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after May 19, 1999. (d) The Trust may not redeem fewer than all the outstanding Common Securities unless all accumulated and unpaid Distributions have been paid on all Common Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Preferred Securities and the Common Securities (a "Redemption/Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 30 nor more than 60 days prior to the date fixed for redemption or exchange thereof. For purposes of the calculation of the date 71 of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first- class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Common Securities are to be redeemed, the Common Securities to be redeemed will be redeemed Pro Rata from each Holder of Common Securities (subject to adjustment to eliminate fractional Common Securities). (iii) If the Trust gives a Redemption/Distribution Notice in respect of a redemption of Common Securities as provided in this paragraph 4 (which notice will be irrevocable), then immediately prior to the close of business on the redemption date, provided that Litchfield Financial has paid to the Property Trustee in immediately available funds a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, Distributions will cease to accumulate on the Common Securities called for redemption, such Common Securities will no longer be deemed to be outstanding and all rights of Holders of such Common Securities so called for redemption will cease, except the right of the Holders of such Common Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Common Securities which have been so called for redemption. If any date fixed for redemption of Common Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Common Securities is improperly withheld or refused and not paid by the Property Trustee, Distributions on such Common Securities will continue to accumulate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to Holders of the Common Securities. 5. VOTING RIGHTS. (a) Except as provided under paragraph 5(b) below and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. 72 (b) Holders of Common Securities have the sole right under the Declaration to increase or decrease the number of Trustees, and to appoint, remove or replace a Trustee, any such increase, decrease, appointment, removal or replacement to be approved by Holders of Common Securities representing a Majority in liquidation amount of the Common Securities. If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration, other than as described in Section 12.01(b) of the Declaration, or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.01 of the Declaration or Section 3 of this Exhibit C or Section 3 of Exhibit B, then the Holders of outstanding Securities will be entitled to vote on such amendment or proposal as a single class and such amendment or proposal shall not be effective except with the approval of the Holders of Securities of at least a Majority in liquidation amount of the Securities, voting together as a single class; provided, however, that (A) if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class of Securities will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a Majority in liquidation amount of such class of Securities, (B) the rights of Holders of Common Securities under Section 5.02 of the Declaration to increase or decrease the number of, and to appoint, replace or remove, Trustees shall not be amended without the consent of each Holder of Common Securities, and (C) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. In the event the consent of the Property Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where such amendment, modification or termination of the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Securities representing such specified percentage of the aggregate liquidation amount of the Securities, or, in the case of clause (2) above, each Holder of Securities; and provided, further, that the Property Trustee shall be under no obligation to take any action in accordance with the directions of the Holders of Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an Opinion of Counsel experienced in such matters to the effect that the Trust will not be classified for United States Federal income tax purposes as other than a grantor trust on account of such action. So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee of the 73 Indenture (the "Debenture Trustee"), or exercising any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture or (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures, without, in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of all outstanding Common Securities and Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Common Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Common Securities and Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect that for United States Federal income tax purposes the Trust will not be classified as other than a grantor trust on account of such action. Notwithstanding any other provision of these terms, each Holder of Common Securities will be deemed to have waived any Event of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived by the Holders of Preferred Securities as provided in the Declaration or otherwise eliminated, and until all Events of Default with respect to the Preferred Securities have been so cured, waived by the Holders of Preferred Securities or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Declaration or of the Securities. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in the Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under the Declaration without any further act, vote or consent of the Holders of the Common Securities. A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Securities. Any required approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration. 74 6. PRO RATA TREATMENT. A reference in these terms of the Common Securities to any payment, Distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 7. RANKING. The Common Securities rank pari passu and payment thereon will be made Pro Rata with the Preferred Securities, except that when an Event of Default occurs and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise are subordinate to the rights of Holders of the Preferred Securities. 8. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and payments on redemption of the Common Securities will be payable, the transfer of the Common Securities will be registrable, and Common Securities will be exchangeable for Common Securities of other denominations of a like aggregate liquidation amount, at the principal corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Common Security will be made only upon surrender of such Common Security to the Property Trustee. Notwithstanding the foregoing, transfers of Common Securities are subject to conditions set forth in Section 9.01(c) of the Declaration. 9. ACCEPTANCE OF INDENTURE. Each Holder of Common Securities, by the acceptance thereof, agrees to the provisions of Indenture and the Debentures, including the subordination provisions of the Indenture. 10. NO PREEMPTIVE RIGHTS. The Holders of Common Securities shall have no preemptive or similar rights to subscribe to any additional Common Securities or Preferred Securities. 11. MISCELLANEOUS. These terms shall constitute a part of the Declaration. The Trust will provide a copy of the Declaration and the Indenture to a Holder of Common Securities without charge on written request to the Trust at its principal place of business. 75 Annex I FORM OF COMMON SECURITY CERTIFICATE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW Certificate Number Number of Common Securities Certificate Evidencing Common Securities of Litchfield Capital Trust I ____% Series A Trust Common Securities (liquidation amount $10 per Common Security) Litchfield Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that ______________ (the "Holder") is the registered owner of ____________________________ (_________) common securities of the Trust representing common undivided beneficial interests in the assets of the Trust and designated the "____% Series A Trust Common Securities" (liquidation amount $10 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer and satisfaction of the other conditions set forth in the Declaration (as defined below) including, without limitation, Section 9.01(c) thereof. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this Certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of __________, ____, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Common Securities as set forth in Exhibit C thereto. The Common Securities and the Preferred Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Debentures (as defined in the Declaration) issued by Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield Financial"), to the Trust pursuant to the Indenture referred to in the Declaration. The Trust will furnish a copy of the Declaration and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have agreed to the terms of the Indenture and the Debentures, including that the Debentures are subordinate and junior in right 76 of payment to all Senior Debt (as defined in the Supplemental Indenture) as and to the extent provided in the Indenture. Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, the Trustees of the Trust have executed this Certificate this ___ day of -------------, ----. LITCHFIELD CAPITAL TRUST I -------------------------------- John J. Malloy, as Regular Trustee -------------------------------- Heather A. Sica, as Regular Trustee -------------------------------- Ronald E. Rabidou, as Regular Trustee [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of ___ % (the "Coupon Rate") of the stated liquidation amount of $10 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law) compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. Distributions on the Common Securities will accumulate from _________, ____ and will be payable quarterly in arrears, on _____________, ____________, _____________ and _____________ of each year, commencing on ________, ____, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not 77 exceeding 20 consecutive quarterly interest periods (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Common Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. The Common Securities shall be redeemable as provided in the Declaration. 78 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints _____________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ________________________ Signature: _________________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) HWD2: 517541-1 79 EX-4 8 Exhibit 4.15 AMENDED AND RESTATED DECLARATION OF TRUST OF LITCHFIELD CAPITAL TRUST I DATED AS OF MAY 19, 1999 TABLE OF CONTENTS (This Table of Contents does not constitute part of the Amended and Restated Declaration of Trust and should not have any bearing upon the interpretation of any of its terms or provisions.)
Page ARTICLE 1 Definitions Section 1.01. Definitions............................................................. 2 Affiliate......................................................................... 2 Book Entry Interest............................................................... 2 Business Day...................................................................... 2 Business Trust Act................................................................ 2 Certificate....................................................................... 2 Certificate of Trust.............................................................. 3 Clearing Agency................................................................... 3 Clearing Agency Participant....................................................... 3 Closing Date...................................................................... 3 Code.............................................................................. 3 Commission........................................................................ 3 Common Securities................................................................. 3 Common Security Certificate....................................................... 3 Covered Person.................................................................... 3 Creditor.......................................................................... 3 Debenture Trustee................................................................. 3 Debentures........................................................................ 3 Definitive Preferred Security Certificates........................................ 3 Delaware Trustee.................................................................. 4 Depositary Agreement.............................................................. 4 Distribution...................................................................... 4 DTC............................................................................... 4 Event of Default.................................................................. 4 Exchange.......................................................................... 4 Exchange Act...................................................................... 4 Fiscal Year....................................................................... 4 Global Certificate................................................................ 4 Holder............................................................................ 4 Holder Direct Action.............................................................. 4 Litchfield Financial.............................................................. 4 Sponsor........................................................................... 4 Indemnified Person................................................................ 4 Indenture......................................................................... 4 Indenture Event of Default........................................................ 4 Investment Company................................................................ 5 Investment Company Act............................................................ 5 Legal Action...................................................................... 5 Liquidation Distribution.......................................................... 5 List of Holders................................................................... 5 Majority in liquidation amount of the Securities.................................. 5 NASD.............................................................................. 5 Nasdaq............................................................................ 5 1933 Act Registration Statement................................................... 5 1934 Act Registration Statement................................................... 5 Officers' Certificate............................................................. 5 Opinion of Counsel................................................................ 6 Original Declaration.............................................................. 6 Paying Agent...................................................................... 6 Payment Amount.................................................................... 6 Person............................................................................ 6 Preferred Guarantee............................................................... 6 Preferred Securities.............................................................. 6 Preferred Security Beneficial Owner............................................... 6 Preferred Security Certificate.................................................... 6 Property Trustee.................................................................. 7 Property Account.................................................................. 7 Quorum............................................................................ 7 Regular Trustee................................................................... 7 Related Party..................................................................... 7 Resignation Request............................................................... 7 Responsible Officer............................................................... 7 Rule 3a-7......................................................................... 7 Securities........................................................................ 7 Securities Act.................................................................... 7 Special Event..................................................................... 7 Successor Delaware Trustee........................................................ 7 Successor Entity.................................................................. 7 Successor Property Trustee........................................................ 7 Successor Securities.............................................................. 7 Super Majority.................................................................... 8 Supplemental Indenture............................................................ 8 10% in liquidation amount of the Securities....................................... 8 Treasury Regulations.............................................................. 8 Trust............................................................................. 8 Trustee........................................................................... 8 Trustees.......................................................................... 8 Trust Indenture Act............................................................... 8 Underwriting Agreement............................................................ 8 ARTICLE 2 Trust Indenture Act Section 2.01. Trust Indenture Act; Application......................................... 8 Section 2.02. Lists of Holders of Preferred Securities................................. 9 Section 2.03. Reports by the Property Trustee.......................................... 9 Section 2.04. Periodic Reports to the Property Trustee................................. 10 Section 2.05. Evidence of Compliance with Conditions Precedent......................... 10 Section 2.06. Events of Default; Waiver................................................ 10 Section 2.07. Disclosure of Information................................................ 12 ARTICLE 3 Organization Section 3.01. Name..................................................................... 12 Section 3.02. Office................................................................... 12 Section 3.03. Issuance of the Securities............................................... 12 Section 3.04. Purchase of Debentures................................................... 13 Section 3.05. Purpose.................................................................. 13 Section 3.06. Authority................................................................ 14 Section 3.07. Title to Property of the Trust........................................... 14 Section 3.08. Powers and Duties of the Regular Trustees................................ 14 Section 3.09. Prohibition of Actions by the Trust and the Trustees..................... 17 Section 3.10. Powers and Duties of the Property Trustee................................ 18 Section 3.11. Delaware Trustee......................................................... 21 Section 3.12. Certain Rights and Duties of the Property Trustee........................ 21 Section 3.13. Registration Statement and Related Matters............................... 25 Section 3.14. Filing of Amendments to Certificate of Trust............................. 26 Section 3.15. Execution of Documents by the Regular Trustees........................... 26 Section 3.16. Trustees Not Responsible for Recitals or Issuance of Securities............................................................... 26 Section 3.17. Duration of the Trust.................................................... 26 Section 3.18. Mergers.................................................................. 26 Section 3.19. Property Trustee May File Proofs of Claim................................ 38 ARTICLE 4 Sponsor Section 4.01. Purchase of Common Securities by the Sponsor............................. 29 Section 4.02. Expenses................................................................. 29 ARTICLE 5 Trustees Section 5.01. Number of Trustees; Qualifications....................................... 30 Section 5.02. Appointment, Removal and Resignation of the Trustees..................... 32 Section 5.03. Vacancies among the Trustees............................................. 33 Section 5.04. Effect of Vacancies...................................................... 33 Section 5.05. Meetings................................................................. 34 Section 5.06. Delegation of Power...................................................... 34 Section 5.07. Merger, Conversion, Consolidation or Succession to Business................................................................. 34 ARTICLE 6 Distributions Section 6.01. Distributions............................................................ 35 ARTICLE 7 Issuance of the Securities Section 7.01. General Provisions Regarding the Securities.............................. 35 ARTICLE 8 Dissolution of the Trust Section 8.01. Dissolution of the Trust................................................. 37 ARTICLE 9 Transfer of Interests Section 9.01. Transfer of Securities................................................... 37 Section 9.02. Transfer of Certificates................................................. 38 Section 9.03. Deemed Security Holders.................................................. 38 Section 9.04. Book Entry Interests..................................................... 38 Section 9.05. Notices to Holders of Certificates....................................... 39 Section 9.06. Appointment of Successor Clearing Agency................................. 39 Section 9.07. Definitive Preferred Securities Certificates............................. 40 Section 9.08. Mutilated, Destroyed, Lost or Stolen Certificates........................ 40 ARTICLE 10 Limitation of Liability; Indemnification Section 10.01. Exculpation............................................................. 40 Section 10.02. Indemnification......................................................... 41 Section 10.03. Outside Business........................................................ 41 ARTICLE 11 Accounting Section 11.01. Fiscal Year............................................................. 42 Section 11.02. Certain Accounting Matters.............................................. 42 Section 11.03. Banking................................................................. 43 Section 11.04. Withholding............................................................. 43 ARTICLE 12 Amendments and Meetings Section 12.01. Amendments.............................................................. 43 Section 12.02. Meetings of the Holders of Securities; Action by Written Consent......................................................... 44 ARTICLE 13 Representations of the Property Trustee and the Delaware Trustee Section 13.01. Representations and Warranties of the Property Trustee................................................................. 46 Section 13.02. Representations and Warranties of the Delaware Trustee................................................................. 46 ARTICLE 14 Miscellaneous Section 14.01. Notices................................................................. 47 Section 14.02. Undertaking for Costs................................................... 48 Section 14.03. Governing Law........................................................... 49 Section 14.04. Headings................................................................ 49 Section 14.05. Partial Enforceability.................................................. 49 Section 14.06. Counterparts............................................................ 49 Section 14.07. Intention of the Parties................................................ 49 Section 14.08. Successors and Assigns.................................................. 49 Section 14.09. No Recourse............................................................. 49 SIGNATURES AND SEALS EXHIBIT A: CERTIFICATE OF TRUST EXHIBIT B: TERMS OF THE PREFERRED SECURITIES EXHIBIT C: TERMS OF THE COMMON SECURITIES
AMENDED AND RESTATED DECLARATION OF TRUST OF LITCHFIELD CAPITAL TRUST I AMENDED AND RESTATED DECLARATION OF TRUST (this "Declaration") dated and effective as of May 19, 1999, by John J. Malloy, an individual, Heather A. Sica, an individual, and Ronald E. Rabidou, an individual, as Regular Trustees (the "Regular Trustees"), The Bank of New York, a New York banking corporation, as Property Trustee (the "Property Trustee") and The Bank of New York (Delaware), a Delaware banking corporation, as Delaware Trustee (the "Delaware Trustee") (together with all other Persons from time to time duly appointed and serving as trustees in accordance with the provisions of this Declaration, the "Trustees"), Litchfield Financial Corporation, a Massachusetts corporation, as trust sponsor ("Litchfield Financial" or the "Sponsor"), and by the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS, the Sponsor and certain of the Trustees entered into a Declaration of Trust dated as of May 19, 1999 (the "Original Declaration") in order to establish Litchfield Capital Trust I, a statutory business trust (the "Trust"), under the Business Trust Act (as hereinafter defined); WHEREAS, the Certificate of Trust (the "Certificate of Trust") of the Trust was filed with the office of the Secretary of State of the State of Delaware on April 12, 1999; and WHEREAS, the Trustees and the Sponsor desire to continue the Trust pursuant to the Business Trust Act for the purpose of, as described more fully in Sections 303 and 304 hereof, (i) issuing and selling Preferred Securities (as hereinafter defined) representing preferred undivided beneficial interests in the assets of the Trust for cash and investing the proceeds thereof in Debentures (as hereinafter defined) of Litchfield Financial issued under the Indenture (as hereinafter defined) to be held as assets of the Trust and (ii) issuing and selling Common Securities (as hereinafter defined) representing common undivided beneficial interests in the assets of the Trust to Litchfield Financial in exchange for cash and investing the proceeds thereof in additional Debentures issued under the Indenture to be held as assets of the Trust; NOW, THEREFORE, it being the intention of the parties hereto that the Trust constitute a business trust under the Business Trust Act, that the Original Declaration be amended and restated in its entirety as provided herein and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all Debentures referred to in clauses (i) and (ii) of the previous paragraph purchased by the Trust will be held for the benefit of the Holders (as hereinafter defined) from time to time, of the Certificates (as hereinafter defined) representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE 1 Definitions Section 1.01. Definitions. (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Amended and Restated Declaration of Trust (including Exhibits A, B and C hereto (the "Exhibits")) as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles, Sections and Exhibits are to Articles and Sections of and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Book Entry Interest" means a beneficial interest in a Global Certificate registered in the name of a Clearing Agency or a nominee thereof, ownership and transfers of which shall be maintained and made through book entries by such Clearing Agency as described in Section 9.04. "Business Day" means any day other than a Saturday or Sunday or a day on which banking institutions in the Borough of Manhattan, The City and State of New York or Boston, Massachusetts are authorized or required by law to close. "Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code (S) 3801 et seq., as it may be amended from time to time, or any successor legislation. "Certificate" means a Common Security Certificate or a Preferred Security Certificate. 2 "Certificate of Trust" has the meaning set forth in the second WHEREAS clause above. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depository for the Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the Closing Date as specified in the Underwriting Agreement, which date is also the date of execution and delivery of this Declaration. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. A reference to a specific section (Sec.) of the Code refers not only to such specific section but also to any corresponding provision of any Federal tax statute enacted after the date of this Declaration, as such specific section or corresponding provision is in effect on the date of application of the provisions of this Declaration containing such reference. "Commission" means the Securities and Exchange Commission. "Common Securities" has the meaning specified in Section 7.01(b). "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex I to Exhibit C. "Covered Person" means (i) any officer, director, shareholder, partner, member, representative, employee or agent of the Trust or of any of its Affiliates, (ii) any officer, director, shareholder, employee, representative or agent of Litchfield Financial or of any of its Affiliates and (iii) the Holders from time to time of the Securities. "Creditor" has the meaning specified in Section 4.02(c). "Debenture Trustee" means The Bank of New York, a New York banking corporation, as trustee under the Indenture until a successor is appointed thereunder and thereafter means such successor trustee. "Debentures" means the series of junior subordinated debentures issued by Litchfield Financial under the Indenture to the Property Trustee and entitled the "10% Series A Junior Subordinated Debentures due 2029." "Definitive Preferred Security Certificates" has the meaning set forth in Section 9.04. 3 "Delaware Trustee" has the meaning set forth in Section 5.01(a)(3). "Depositary Agreement" means the agreement among the Trust, the Property Trustee and DTC dated as of the Closing Date, as the same may be amended or supplemented from time to time. "Distribution" means a distribution payable to Holders of Securities in accordance with Section 6.01. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Event of Default" in respect of the Securities means that an Indenture Event of Default has occurred and is continuing with respect to the Debentures. "Exchange" has the meaning specified in Section 3.13. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "Fiscal Year" has the meaning specified in Section 11.01. "First Closing Date" means the First Closing Date as specified in the Underwriting Agreement. "Global Certificate" has the meaning set forth in Section 9.04. "Holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "Holder Direct Action" has the meaning specified in Section 3.10(e). "Indemnified Person" means any Trustee, any Affiliate of any Trustee, any Paying Agent, any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee or Paying Agent, or any employee or agent of the Trust or of any of its Affiliates. "Indenture" means the Junior Subordinated Indenture dated as of May 19, 1999, between Litchfield Financial and the Debenture Trustee as supplemented by the Supplemental Indenture No. 1 thereto dated as of May 19, 1999, pursuant to which the Debentures are to be issued. "Indenture Event of Default" means that an event or condition defined as an "Event of Default" with respect to the Debentures under Section 6.01(a) of the Indenture has occurred and is continuing. 4 "Investment Company" means an "investment company" as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "Legal Action" has the meaning specified in Section 3.08(g). "Liquidation Distribution" has the meaning set forth in Exhibits B and C hereto establishing the terms of the Securities. "List of Holders" has the meaning specified in Section 2.02(a). "Litchfield Financial" or " Sponsor" means Litchfield Financial Corporation, a Massachusetts corporation, or any successor entity resulting from any merger, consolidation, amalgamation or other business combination, in its capacity as sponsor of the Trust. "Majority in liquidation amount of the Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities voting separately as a class, who are the record owners of a relevant class of Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) represents more than 50% of the liquidation amount of all outstanding Securities of such class. "NASD" has the meaning specified in Section 3.13. "Nasdaq" has the meaning specified in Section 3.13. "1933 Act Registration Statement" has the meaning specified in Section 3.13. "1934 Act Registration Statement" has the meaning specified in Section 3.13. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the Comptroller, the Secretary or an Assistant Secretary of the Sponsor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 2.04 shall be the principal executive, financial or accounting officer of the Sponsor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: 5 (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee or the Sponsor, which may be an employee of the Sponsor but not an employee of the Trust or the Property Trustee, and who shall be reasonably acceptable to the Property Trustee. Any Opinion of Counsel pertaining to Federal income tax matters may rely on published rulings of the Internal Revenue Service. "Option Closing Date" means the Option Closing Date as specified in the Underwriting Agreement. "Original Declaration" has the meaning set forth in the first WHEREAS clause above. "Paying Agent" has the meaning specified in Section 3.10(i). "Payment Amount" has the meaning specified in Section 6.01. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee" means the Guarantee Agreement dated as of May 19, 1999, of Litchfield Financial in respect of the Preferred Securities. "Preferred Securities" has the meaning specified in Section 7.01(b). "Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Security Certificate" means a definitive certificate in fully registered form representing a Preferred Security substantially in the form of Annex I to Exhibit B. 6 "Property Trustee" means the Trustee meeting the eligibility requirements set forth in Section 5.01(c) and having the duties set forth for the Property Trustee herein. "Property Account" has the meaning specified in Section 3.10(c)(i). "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both such Regular Trustees. "Regular Trustee" means any Trustee other than the Property Trustee and the Delaware Trustee. "Related Party" means any direct or indirect wholly owned subsidiary of Litchfield Financial or any other Person which owns, directly or indirectly, 100% of the outstanding voting securities of Litchfield Financial. "Resignation Request" has the meaning specified in Section 5.02(d). "Responsible Officer" means, when used with respect to the Property Trustee, any officer within the corporate trust department of the Property Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Property Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Declaration. "Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any successor rule thereunder. "Securities" means the Common Securities and the Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Special Event" has the meaning set forth in the terms of the Securities as set forth in paragraph 4 of Exhibits B and C hereto. "Successor Delaware Trustee" has the meaning specified in Section 5.02(b)(ii). "Successor Entity" has the meaning specified in Section 3.18(b)(i). "Successor Property Trustee" has the meaning specified in Section 5.02(b)(i). "Successor Securities" has the meaning specified in Section 3.18(b)(i)(B). 7 "Super Majority" has the meaning specified in Section 2.06(a)(ii). "Supplemental Indenture" means the Supplemental Indenture No. 1 dated as of May 19, 1999, between Litchfield Financial and the Debenture Trustee, pursuant to which the Debentures are to be issued. "10% in liquidation amount of the Securities" means, except as otherwise required by the Trust Indenture Act and except as provided in the penultimate paragraph of paragraph 6 of Exhibit B hereto, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holder(s) of outstanding Preferred Securities or Common Securities, voting separately as a class, who are the record owners of a relevant class of Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) represents 10% or more of the liquidation amount of all outstanding Securities of such class. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trust" has the meaning set forth in the first WHEREAS clause above. "Trustee" or " Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. "Underwriting Agreement" means the Underwriting Agreement dated as of May 13, 1999, among the Trust, the Sponsor and Tucker Anthony Incorporated, as representatives of the several underwriters named therein. ARTICLE 2 Trust Indenture Act Section 2.01. Trust Indenture Act; Application. 8 (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by (S)(S) 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; (c) the Property Trustee, to the extent permitted by applicable law and/or the rules and regulations of the Commission, shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act; and (d) the application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 2.02. Lists of Holders of Preferred Securities. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee unless the Property Trustee is registrar for the Securities, (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of such record date, provided that neither the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time that the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with its obligations under (S)(S) 310(b), 311 and 312(b) of the Trust Indenture Act. Section 2.03. Reports by the Property Trustee. Within 60 days after January 15 of each year, the Property Trustee shall provide to the Holders of the Securities such reports as are required by (S) 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by (S) 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of (S) 313(d) of the Trust Indenture Act. A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with the Company, with each stock exchange upon which any Preferred 9 Securities are listed (if so listed) and also with the Commission. The Company agrees to notify the Property Trustee when any Preferred Securities become listed on any stock exchange and of any delisting thereof. Section 2.04. Periodic Reports to the Property Trustee. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee, the Commission and the Holders of the Securities, as applicable, such documents, reports and information as required by (S) 314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance certificates required by (S) 314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by (S) 314(a)(4) and (c) of the Trust Indenture Act (provided that any certificate to be provided pursuant to (S) 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each Fiscal Year). Delivery of such reports, information and documents to the Property Trustee is for informational purposes only and the Property Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Property Trustee is entitled to rely exclusively on Officers' Certificates). Section 2.05. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent provided for in this Declaration which relate to any of the matters set forth in (S) 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to (S) 314(c) may be given in the form of an Officers' Certificate. Section 2.06. Events of Default; Waiver. (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default in respect of the Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of the holders of greater than a majority in aggregate principal amount of the Debentures (a "Super Majority") to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate liquidation amount of the Preferred Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. 10 The foregoing provisions of this Section 2.06(a) shall be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided above in Section 2.06(a) or below in this Section 2.06(b), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided above in Section 2.06(a) or below in this Section 2.06(b), the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in aggregate liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided, further, that the Holders of Common Securities will be deemed to have waived any such Event of Default and all Events of Defaults with respect to the Common Securities and their consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.06(b) shall be in lieu of (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such (S)(S) 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in the Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under the Declaration without any further 11 act, vote or consent of the Holders of the Common Securities. Subject to the foregoing provisions of this Section 2.06(b), upon waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee, at the direction of the Holders of Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.06(c) shall be in lieu of (S) 316(a)(1)(B) of the Trust Indenture Act and such (S) 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Section 2.07. Disclosure of Information. The disclosure of information as to the names and addresses of the Holders of the Securities in accordance with (S) 312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to (S) 312 of the Trust Indenture Act, nor shall the Property Trustee be held accountable by reason of mailing any material pursuant to a request made under (S) 312(b) of the Trust Indenture Act. ARTICLE 3 Organization Section 3.01. Name. The Trust continued by this Declaration is named "Litchfield Capital Trust I" as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of the Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. Section 3.02. Office. The address of the principal office of the Trust is c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, Massachusetts 01267. Upon ten days' written notice to the Holders, the Regular Trustees may change the location of the Trust's principal office. Section 3.03. Issuance of the Securities. 12 The Sponsor, on behalf of the Trust and pursuant to the Original Declaration, executed and delivered the Underwriting Agreement. On the First Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall execute and deliver (i) one or more Global Certificates, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04 for the benefit of the underwriters named in the Underwriting Agreement, in an aggregate amount of 2,500,000 Preferred Securities having an aggregate liquidation amount of $25,000,000, against receipt of the aggregate purchase price of such Preferred Securities of $25,000,000, and (ii) to the Sponsor, one or more Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of 71,320 Common Securities having an aggregate liquidation amount of $773,200, against receipt of the aggregate purchase price of such Common Securities of $773,200. On the Option Closing Date, if any, the Regular Trustees, on behalf of the Trust, shall execute and deliver (i) one or more Global Certificates, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04 for the benefit of the underwriters named in the Underwiting Agreement, in an aggregate amount of up to 375,000 Preferred Securities having an aggregate liquidation amount of up to $3,750,000, against receipt of the aggregate purchase price of such Preferred Securities of up to $3,750,000 plus accrued interest from the First Closing Date, and (ii) to the Sponsor, one or more Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of up to 11,598 Common Securities having an aggregate liquidation amount of up to $115,980, against receipt of the aggregate purchase price of such Common Securities of up to $115,980. Section 3.04. Purchase of Debentures. On the First Closing Date and contemporaneously with the execution and delivery of this Declaration, the Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof, Debentures, registered in the name of the Property Trustee and having an aggregate principal amount equal to $25,773,200, and, in satisfaction of the purchase price for such Debentures, the Regular Trustee, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor the sum of $25,773,200. On the Option Closing Date, if any, the Regular Trustees, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof plus accrued interest from the First Closing Date, Debentures, registered in the name of the Property Trustee and having an aggregate principal amount equal to up to $3,750,000, and, in satisfaction of the purchase price for such Debentures, the Regular Trustee, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor the sum of up to $3,750,000. Section 3.05. Purpose. The exclusive purposes and functions of the Trust are: (a)(i) to issue and sell Preferred Securities for cash and use the proceeds of such sales to acquire from Litchfield Financial Debentures issued under the Indenture having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities so issued and sold; (ii) to enter into such agreements and arrangements as may be necessary in connection with the sale of Preferred Securities to the initial purchasers thereof (including the Underwriting Agreement) and to take all action, and exercise such discretion, as may be necessary or desirable in connection therewith and to file such registration statements or make such other filings under the Securities Act, the Exchange Act or state securities or "Blue Sky" laws as may be necessary or desirable in connection therewith and the issuance of the Preferred Securities; and (iii) to issue and sell Common Securities to Litchfield Financial for cash and use the proceeds of such sale to purchase as trust assets an equal aggregate principal amount of Debentures issued under the Indenture; and (b) except as otherwise limited herein, to engage in only those other activities necessary, convenient or incidental thereto, including such other activities specifically authorized in this Declaration. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, mortgage or pledge any of its assets or at any time while the Securities are outstanding, otherwise undertake (or permit to be undertaken) any activity that would result in or cause the Trust not to be classified for United States Federal income tax purposes as a grantor trust. 13 Section 3.06. Authority. Subject to the limitations provided in this Declaration and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. Section 3.07. Title to Property of the Trust. Except as provided in Section 3.10 with respect to the Debentures and the Property Account or unless otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have undivided beneficial interests in the assets of the Trust. Section 3.08. Powers and Duties of the Regular Trustees. The Regular Trustees shall have the exclusive power, authority and duty to cause the Trust, and shall cause the Trust, to engage in the following activities: (a) to issue Preferred Securities and Common Securities, in each case in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Preferred Securities and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities and the issuance of Securities shall be limited to a one-time, simultaneous issuance of both Preferred Securities and Common Securities on the Closing Date; (b) in connection with the issuance of the Preferred Securities, at the direction of the Sponsor, to effect or cause to be effected the filings, and to execute or cause to be executed, the documents, set forth in Section 3.13 and to execute, deliver and perform on behalf of the Trust the Depositary Agreement; (c) to acquire as trust assets Debentures with the proceeds of the sale of the Preferred Securities and the Common Securities; provided, however, that the Regular Trustees shall cause legal title to all of the Debentures to be vested in, and the Debentures to be held of record 14 in the name of, the Property Trustee for the benefit of the Holders of the Preferred Securities and the Common Securities; (d) if and to the extent that the Sponsor on behalf of the Trust has not already done so, to cause the Trust to enter into the Underwriting Agreement and such other agreements and arrangements as may be necessary or desirable in connection with the sale of the Preferred Securities to the initial purchasers thereof and the consummation thereof, and to take all action, and exercise all discretion, as may be necessary or desirable in connection with the consummation thereof; (e) to give the Sponsor and the Property Trustee prompt written notice of the occurrence of a Special Event; provided that the Regular Trustees shall consult with the Sponsor and the Property Trustee before taking or refraining to take any Ministerial Action in relation to a Special Event; (f) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including for the purposes of (S) 316(c) of the Trust Indenture Act and with respect to Distributions, voting rights, redemptions, and exchanges, and to issue relevant notices to Holders of the Preferred Securities and Common Securities as to such actions and applicable record dates; (g) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.10(e), the Property Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors and consultants and pay reasonable compensation for such services; (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate to the Property Trustee required by (S) 314(a)(4) of the Trust Indenture Act, which certificate may be executed by any Regular Trustee; (k) to incur expenses which are necessary or incidental to carrying out any of the purposes of the Trust; (l) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities, the Regular Trustees hereby initially appointing the Property Trustee for such purposes; (m) to take all actions and perform such duties as may be required of the Regular Trustee pursuant to the terms of the Securities set forth in Exhibits B and C hereto; 15 (n) to take all actions which may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Securities or to enable the Trust to effect the purposes for which the Trust has been created; (o) to take all actions, not inconsistent with this Declaration or with applicable law, which the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the purposes of the Trust and the activities of the Trust as set out in this Section 3.08, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States Federal income tax purposes as a grantor trust; and (iii) cooperating with the Sponsor to ensure that the Debentures will be treated as indebtedness of the Sponsor for United States Federal income tax purposes; (p) to take all actions necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust, and to comply with any requirements imposed by any taxing authority on holders of instruments treated as indebtedness for United States Federal income tax purposes; (q) subject to the requirements of Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) and (S) 317(b) of the Trust Indenture Act, to appoint one or more Paying Agents in addition to the Property Trustee; and (r) to execute all documents or instruments, perform all duties and powers and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing. The Regular Trustees must exercise the powers set forth in this Section 3.08 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.05, and the Regular Trustees shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.05. Subject to this Section 3.08, the Regular Trustees shall have none of the powers or any of the authority of the Property Trustee set forth in Section 3.10. The Regular Trustees shall take all actions on behalf of the Trust that are not specifically required by this Declaration to be taken by any other Trustee. 16 Any expenses incurred by the Regular Trustees pursuant to this Section 3.08 shall be reimbursed by the Sponsor. Section 3.09. Prohibition of Actions by the Trust and the Trustees. The Trust shall not, and the Trustees (including the Property Trustee) shall cause the Trust not to, engage in any activity other than in connection with the purposes of the Trust or other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Property Trustee) shall not cause the Trust to: (a) invest any proceeds received by the Trust from holding the Debentures but shall promptly distribute from the Property Account all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (b) acquire any assets other than as expressly provided herein; (c) possess Trust property for other than a Trust purpose; (d) make any loans, other than loans represented by the Debentures; (e) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever, except as otherwise expressly provided herein; (f) issue any securities or other evidences of beneficial ownership of, or beneficial interests in, the Trust other than the Securities; (g) incur any indebtedness for borrowed money; (h) (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee or exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture, or (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures, without, in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of all outstanding Securities; (i) revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities except by subsequent vote of such Holders; (j) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, unless in the case of this clause (j) the Property Trustee shall have received an Opinion of Counsel experienced in such matters to the effect that such 17 amendment, modification or termination will not cause more than an insubstantial risk that for United States Federal income tax purposes the Trust will not be classified as a grantor trust; (k) take or consent to any action that would result in the placement of a lien, pledge, charge, mortgage or other encumbrance on any of the Trust property; (l) vary the investment (within the meaning of Treasury Regulation Section 301.7701-4(c)) of the Trust or of the Holders of Securities; or (m) after the date hereof, enter into any contract or agreement (other than any depositary agreement or any agreement with any securities exchange or automated quotation system) that does not expressly provide that the Holders of Preferred Securities, in their capacities as such, have limited liability (in accordance with the provisions of the Business Trust Act) for the liabilities and obligations of the Trust, which express provision shall be in substantially the following form, "The Holders of the Preferred Securities, in their capacities as such, shall not be personally liable for any liabilities or obligations of the Trust arising out of this Agreement, and the parties hereto hereby agree that the Holders of the Preferred Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware." Section 3.10. Powers and Duties of the Property Trustee. (a) The legal title to the Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Securities. The right, title and interest of the Property Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Article 5. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Debentures to the Regular Trustees or, if the Property Trustee does not also act as the Delaware Trustee, the Delaware Trustee. (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing bank account (the "Property Account") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Securities and on the receipt of payments of funds made in respect of the Debentures held by the Property Trustee, deposit such funds into the Property Account and, without any further acts of the Property Trustee or the Regular Trustees, promptly make payments to the Holders of the Preferred Securities and Common Securities from the Property Account in accordance with Section 6.01. Funds in the Property Account shall be held 18 uninvested, and without liability for interest thereon, until disbursed in accordance with this Declaration. The Property Account shall be an account which is maintained with a banking institution whose long term unsecured indebtedness is rated by a "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act, at least investment grade; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect promptly the redemption of the Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; (iii) upon notice of distribution issued by the Regular Trustees in accordance with the terms of the Preferred Securities and the Common Securities, engage in such ministerial activities as shall be necessary or appropriate to effect promptly pursuant to terms of the Securities the distribution of Debentures to Holders of Securities upon the election of the Holder of Common Securities to distribute the Debentures to Holders of Securities and dissolve the Trust; and (iv) have the legal power to exercise all of the rights, powers and privileges of a holder of the Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee, subject to Section 3.10(e), shall for the benefit of the Holders of the Securities, enforce its rights as holder of the Debentures under the Indenture, subject to the rights of the Holders of the Preferred Securities pursuant to the terms of this Declaration, the Business Trust Act and the Trust Indenture Act. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Securities set forth in Exhibits B and C hereto. (e) If an Event of Default has occurred and is continuing, then the Holders of a Majority in liquidation amount of the Preferred Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Debentures. If the Property Trustee fails to enforce its rights under the Debentures, a Holder of Preferred Securities, to the extent permitted by applicable law, may, after a period of 30 days has elapsed since such Holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against the Sponsor to enforce the Property Trustee's rights under the Debentures without first instituting any legal proceeding against the Property Trustee or any other Person; provided further, that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Sponsor to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate 19 liquidation amount of the Preferred Securities of such Holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Sponsor to such Holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures. (f) All moneys deposited in the Property Account and all Debentures held by the Property Trustee for the benefit of the Holders of the Securities will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of the Property Trustee or its agents or their creditors. (g) The Property Trustee shall, within 90 days after the occurrence of a default with respect to the Securities actually known to a Responsible Officer of the Property Trustee, transmit by mail, first class postage prepaid, to the holders of the Securities, as their names and addresses appear upon the register, notice of such defaults with respect to the Securities known 20 to the Property Trustee, unless such defaults shall have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 3.10(g) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for in the Indenture and irrespective of the giving of any notice provided therein); provided, that, except in the case of default in the payment of the principal of (or premium, if any) or interest on any of the Debentures, the Property Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers, of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. The Property Trustee shall not be deemed to have knowledge of any default, except (i) a default in the payment of principal, premium or interest on the Debentures or (ii) any default as to which the Property Trustee shall have received written notice or a Responsible Officer charged with the administration of this Declaration shall have obtained written notice. (h) The Property Trustee shall continue to serve as a Trustee until either: (i) the Trust has been completely liquidated and the proceeds thereof distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Property Trustee has been appointed and accepted that appointment in accordance with Article 5. (i) The Property Trustee shall act as paying agent in respect of the Common Securities and, if the Preferred Securities are not in book entry only form, the Preferred Securities and, subject to Section 3.08(q), may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect 20 to the Preferred Securities. Any such Paying Agent shall comply with (S) 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the Property Trustee, after consultation with the Regular Trustees, at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee, subject to Section 3.08(q). (j) The Property Trustee shall give prompt written notice to the Holders of the Securities of any notice received by it from Litchfield Financial of its election to defer payments of interest on the Debentures by extending the interest payment period with respect thereto. (k) Subject to this Section 3.10, the Property Trustee shall have none of the powers or the authority of the Regular Trustees set forth in Section 3.08. (l) The Property Trustee shall exercise the powers, duties and rights set forth in this Section 3.10 and Section 3.12 in a manner which is consistent with the purposes and functions of the Trust set out in Section 3.05, and the Property Trustee shall not take any action which is inconsistent with the purposes and functions of the Trust set forth in Section 3.05. Section 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 5.01(a)(3), the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Trustees described in this Declaration. Except as set forth in Section 5.01(a)(3), the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of (S) 3807(a) of the Business Trust Act. No implied covenants or obligations shall be read into this Declaration against the Delaware Trustee. Section 3.12. Certain Rights and Duties of the Property Trustee. (a) The Property Trustee, before the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration, and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: 21 (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; provided, however, that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee hereunder or under the Indenture, or exercising any trust or power conferred upon the Property Trustee under this Declaration; and (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.12(a) and (b): (i) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part and, if the Trust is excluded from the definition of Investment Company solely by means of Rule 3a-7, subject to the requirements of Rule 3a-7, 22 request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (ii) the Property Trustee (A) may consult with counsel (which may be counsel to the Sponsor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (iii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; (iv) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have offered to the Property Trustee security and indemnity satisfactory to the Property Trustee against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Property Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Declaration, and to use the same degree of care and skill in this exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and (v) any action taken by the Property Trustee or its agents hereunder shall bind the Holders of the Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Property Trustee to so act, or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action. (d) The recitals contained herein shall be taken as the statements of the Sponsor, and the Property Trustee assumes no responsibility for the correctness of the same. The Property Trustee makes no representations as to the validity or sufficiency of this Declaration. (e) The Property Trustee, in its individual or any other capacity, may become the owner or pledgee of Preferred Securities and may otherwise deal with the Sponsor with the same rights it would have if it were not the Property Trustee. 23 (f) All moneys received by the Property Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Property Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree in writing to pay thereon. (g) (i) The Sponsor covenants and agrees to pay to the Property Trustee from time to time, and the Property Trustee shall be entitled to, such compensation as the Sponsor and the Property Trustee shall from time to time agree in writing (which shall not be limited by any provision of law in regard to the compensation of a Property Trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Property Trustee, and the Sponsor will pay or reimburse the Property Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Property Trustee in accordance with any of the provisions of this Declaration (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Sponsor also covenants to indemnify each of the Property Trustee or any predecessor Property Trustee and their officers, agents, directors and employees for, and to hold them harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based upon, measured by or determined by the income of the Property Trustee) incurred without negligence or bad faith on the part of the Property Trustee and arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Sponsor, any Holder or any other Person) of liability in the premises. The provisions of this subpart (g) of this Section 3.12 shall survive the termination of this Declaration and resignation or removal of the Property Trustee. (ii) The obligations of the Sponsor under this subpart (g) of this Section 3.12 to compensate and indemnify the Property Trustee and to pay or reimburse the Property Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Securities upon all property and funds held or collected by the Property Trustee as such, except funds held in trust for the benefit of the holders of particular Securities. (h) Except as otherwise provided in this Section 3.12, whenever in the administration of the provisions of this Declaration the Property Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Property Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Property Trustee and such certificate, in the absence of negligence or bad faith on the part of the Property Trustee, shall be full warrant to the Property Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Declaration upon the faith thereof. 24 (i) Whether or not expressly stated, every provision of this Declaration pertaining to the Property Trustee shall be subject to this Section 3.12. Section 3.13. Registration Statement and Related Matters. In accordance with the Original Declaration, Litchfield Financial, as the sponsor of the Trust, was authorized (i) to file with the Commission and execute, in each case on behalf of the Trust, (a) the Registration Statement on Form S-3 (File Nos. 333-76285, 333-76285-01, and 333- 76285-02) (the "1933 Act Registration Statement") including any pre-effective or post-effective amendments thereto, relating to the registration under the Securities Act of the Preferred Securities and (b) if Litchfield Financial shall deem it desirable, a Registration Statement on Form 8-A or other appropriate form (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) relating to the registration of the Preferred Securities under Section 12 of the Exchange Act; (ii) if Litchfield Financial shall deem it desirable, to prepare and file with the New York Stock Exchange or one or more national securities exchange(s) (each, an "Exchange") or the National Association of Securities Dealers, Inc. (the "NASD") and execute on behalf of the Trust a listing application or applications and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on any such Exchange or The Nasdaq Stock Market's National Market ("Nasdaq"); (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and all other papers and documents as Litchfield Financial, on behalf of the Trust, may deem necessary or desirable to register the Preferred Securities under the securities or "Blue Sky" laws of such jurisdictions as Litchfield Financial on behalf of the Trust, may deem necessary or desirable; and (iv) to negotiate the terms and execute on behalf of the Trust the Underwriting Agreement. In the event that any filing referred to in clauses (i)- (iii) above is required by the rules and regulations of the Commission, any Exchange, Nasdaq, the NASD or state securities or blue sky laws, to be executed on behalf of the Trust by one or more Trustees, the Regular Trustees, in their capacities as Trustees of the Trust, and Litchfield Financial are hereby authorized and directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing. In connection with all of the foregoing, Litchfield Financial and each Trustee, solely in its capacity as Trustee of the Trust, have constituted and appointed, and hereby confirm the appointment of, Richard A. Stratton, Ronald E. Rabidou, and Heather A. Sica and each of them, as his, her or its, as the case may be, true and lawful attorneys-in-fact, and agents, with full power of substitution and resubstitution, for Litchfield Financial or such Trustee or in Litchfield Financial' or such Trustee's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as Litchfield Financial or such Trustee might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and 25 agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Section 3.14. Filing of Amendments to Certificate of Trust. The Certificate of Trust as filed with the Secretary of State of the State of Delaware on April 12, 1999, is attached hereto as Exhibit A. On or after the date of execution of this Declaration, the Trustees shall cause the filing with the Secretary of State of the State of Delaware of such amendments, if any, to the Certificate of Trust as the Trustees shall deem necessary or desirable. Section 3.15. Execution of Documents by the Regular Trustees. Except as otherwise required by the Business Trust Act with respect to the Certificate of Trust or otherwise and except as provided in Sections 7.01(c) and 9.08, any Regular Trustee, or if there is only one, such Regular Trustee is authorized to execute and deliver on behalf of the Trust any documents which the Regular Trustees have the power and authority to execute or deliver pursuant to this Declaration. Section 3.16. Trustees Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. Section 3.17. Duration of the Trust. The Trust, absent dissolution pursuant to the provisions of Article 8 hereof, shall continue without dissolution until June 30, 2029. Section 3.18. Mergers. (a) The Trust may not merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.18(b) and (c) of this Declaration or Section 3 of Exhibit B or Exhibit C. (b) The Trust may, at the request of the Sponsor, with the consent of the Regular Trustees or, if there are more than two, a majority of the Regular Trustees and without the consent of the Holders, the Delaware Trustee or the Property Trustee, merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets 26 as an entirety or substantially as an entirety to, a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Securities and this Declaration; or (B) substitutes for the Securities other securities having substantially the same terms as the Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Sponsor expressly appoints a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization in which the Preferred Securities are then listed or quoted, if any; (iv) if the Preferred Securities (including any Successor Securities) are rated by any nationally recognized statistical rating organization prior to such transaction, such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities), or if the Debentures are so rated, the Debentures, to be downgraded by any nationally recognized statistical rating organization; (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders (including the holders of any Successor Securities) in any material respect (other than with respect to any dilution of such Holders' interests in the new entity); (vi) such Successor Entity has a purpose substantially identical to that of the Trust; (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Sponsor has received an Opinion of Counsel experienced in such matters that: (A) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders (including the holders of any Successor Securities) in any material respect (other than with respect to any dilution of the Holders' interest in the new entity); 27 (B) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (C) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Trust (or the Successor Entity) will continue to be classified as a grantor trust for United States Federal income tax purposes; (viii) the Sponsor or any permitted successor or assignee owns all of the common securities of such Successor Entity and guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Guarantee; and (ix) there shall have been furnished to the Property Trustee an Officers' Certificate and an Opinion of Counsel, each to the effect that all conditions precedent in this Declaration to such transaction have been satisfied. (c) Notwithstanding Section 3.18(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, convert into, or be replaced by, or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, conversion, replacement, conveyance, transfer or lease would cause the Trust or the Successor Entity not to be classified as a grantor trust for United States Federal income tax purposes or would cause the Holders of the Securities not to be treated as owning an undivided interest in the Debentures. Section 3.19. Property Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Trust or any other obligor upon the Securities or the property of the Trust or of such other obligor or their creditors, the Property Trustee (irrespective of whether any Distributions on the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Property Trustee shall have made any demand on the Trust for the payment of any past due Distributions) shall be entitled and empowered, to the fullest extent permitted by law, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of any Distributions owing and unpaid in respect of the Securities (or, if the Securities are original issue discount Securities, such portion of the liquidation amount as may be specified in the terms of such Securities) and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Property Trustee (including any claim for the reasonable compensation, expenses, 28 disbursements and advances of the Property Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Property Trustee and, in the event the Property Trustee shall consent to the making of such payments directly to the Holders to pay to the Property Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Property Trustee, its agents and counsel, and any other amounts due the Property Trustee. Nothing herein contained shall be deemed to authorize the Property Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or compensation affecting the Securities or the rights of any Holder thereof to authorize the Property Trustee to vote in respect of the claim of any Holder in any such proceeding. ARTICLE 4 Sponsor Section 4.01. Purchase of Common Securities by the Sponsor. On the Closing Date, the Sponsor will purchase all of the Common Securities issued by the Trust at the same time as the Preferred Securities to be issued on such date are issued, such purchase to be in an amount equal to 3% of the total capital of the Trust. Section 4.02. Expenses. (a) In connection with the purchase of the Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a Holder, shall be responsible for and shall pay for all debts and obligations (other than with respect to the Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the issuance of the Preferred Securities to initial purchasers thereof, the fees and expenses (including reasonable counsel fees and expenses) of the Trustees (including any amounts payable under Article 10), the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the disposition of Trust assets). 29 (b) In connection with the purchase of the Debentures by the Trust, the Sponsor, in its capacity as Sponsor and not as a Holder, will pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. (c) The Sponsor's obligations under this Section 4.02 shall be for the benefit of, and shall be enforceable by, any Person to whom any such debts, obligations, costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor has received notice hereof. Any such Creditor may enforce the Sponsor's obligations under this Section 4.02 directly against the Sponsor and the Sponsor irrevocably waives any right or remedy to require that any such Creditor take any action against the Trust or any other Person before proceeding against the Sponsor. (d) The Sponsor shall be subrogated to all (if any) rights of the Trust in respect of any amounts paid to any Creditor by the Sponsor under this Section 4.02. ARTICLE 5 Trustees Section 5.01. Number of Trustees; Qualifications. (a) The number of Trustees initially shall be five (5). At any time (i) before the issuance of the Securities, the Sponsor may, by written instrument, increase or decrease the number of, and appoint, remove and replace, the Trustees, and (ii) after the issuance of the Securities the number of Trustees may be increased or decreased solely by, and Trustees may be appointed, removed or replaced solely by, vote of Holders of Common Securities representing a Majority in liquidation amount of the Common Securities voting as a class; provided that in any case: (1) the number of Trustees shall be at least five (5) unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee, in which case the number of Trustees shall be at least four (4); (2) at least a majority of the Trustees shall at all times be officers, directors or employees of Litchfield Financial; (3) if required by the Business Trust Act, one Trustee (the "Delaware Trustee") shall be either a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, except that if the Property Trustee has its principal place of business in the State of Delaware and otherwise is permitted to act as a Trustee hereunder under the laws of the State of Delaware, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application; and 30 (4) there shall at all times be a Property Trustee hereunder which shall satisfy the requirements of Section 5.01(c). Each Trustee shall be either a natural person at least 21 years of age or a legal entity which shall act through one or more duly appointed representatives. (b) The initial Regular Trustees shall be: John J. Malloy, Heather A. Sica and Ronald E. Rabidou c/o LITCHFIELD FINANCIAL CORPORATION, 430 Main Street, Williamstown, Massachusetts 01267 (c) There shall at all times be one Trustee which shall act as the Property Trustee. In order to act as the Property Trustee hereunder, such Trustee shall: (i) not be an Affiliate of the Sponsor; (ii) be a corporation or national banking association organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation, national banking association or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.01(c)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published; and (iii) if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7 and to the extent Rule 3a-7 requires a trustee having certain qualifications to hold title to the "eligible assets" (as defined in Rule 3a-7) of the Trust, the Property Trustee shall possess those qualifications. If at any time the Property Trustee shall cease to satisfy the requirements of clauses (i)-(iii) above, the Property Trustee shall immediately resign in the manner and with the effect set out in Section 5.02(d). If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of (S) 310(b) of the Trust Indenture Act, the Property Trustee and the Holders of the Common Securities (as if such Holders were the obligor referred to in (S) 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of (S) 310(b) of the Trust Indenture Act. The 31 Preferred Guarantee and the Indenture shall be deemed to be specifically described in this Declaration for the purposes of clause (i) of the first proviso contained in (S) 310(b) of the Trust Indenture Act. The initial Trustee which shall serve as the Property Trustee is The Bank of New York, a New York banking corporation, whose address is as set forth in Section 14.01(b). (d) The initial Trustee which shall serve as the Delaware Trustee is The Bank of New York (Delaware), a Delaware banking corporation, whose address is as set forth in Section 14.01(c). (e) Any action taken by the Holders of Common Securities pursuant to this Article 5 shall be taken at a meeting of the Holders of Common Securities convened for such purpose or by written consent as provided in Section 12.02. (f) No amendment may be made to this Section 501 which would change any rights with respect to the number, existence or appointment and removal of Trustees, except with the consent of each Holder of Common Securities. Section 5.02. Appointment, Removal and Resignation of the Trustees. (a) Subject to Section 5.02(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of the Securities, by written instrument executed by the Sponsor; and (ii) after the issuance of the Securities by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class. (b) (i) The Trustee that acts as the Property Trustee shall not be removed in accordance with Section 5.02(a) until a successor Trustee possessing the qualifications to act as the Property Trustee under Section 5.01(c) (a "Successor Property Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Property Trustee and delivered to the Regular Trustees, the Sponsor and the Property Trustee being removed; and (ii) the Trustee that acts as the Delaware Trustee shall not be removed in accordance with Section 5.02(a) until a successor Trustee possessing the qualifications to act as the Delaware Trustee under Section 5.01(a)(3) (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees, the Sponsor and the Delaware Trustee being removed. (c) A Trustee appointed to office shall hold such office until his successor shall have been appointed or until his death, removal or resignation. 32 (d) Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) no such resignation of the Trustee that acts as the Property Trustee shall be effective until: (A) a Successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Property Trustee and delivered to the Regular Trustees, the Sponsor and the resigning Property Trustee; or (B) if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7, until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees, the Sponsor and the resigning Delaware Trustee. (e) If no Successor Property Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.02 within 60 days after delivery of a notice of removal or a Resignation Request, the Property Trustee or Delaware Trustee being removed or resigning as the case may be may petition, at the expense of the Sponsor, any court of competent jurisdiction for appointment of a Successor Property Trustee or Successor Delaware Trustee, as the case may be. Such court may thereupon after prescribing such notice, if any, as it may deem proper and prescribe, appoint a Successor Property Trustee or Successor Delaware Trustee, as the case may be. Section 5.03. Vacancies among the Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.01 or if the number of Trustees is increased pursuant to Section 5.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with the requirements of this Article 5. Section 5.04. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee, or any one of them, shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur until such vacancy is filled as provided in this Article 5, the Regular Trustees in office, regardless 33 of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. Section 5.05. Meetings. Meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in- person meeting of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meeting of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before such meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless otherwise provided in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. Section 5.06. Delegation of Power. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any registration statement or amendment thereto or other document or schedule filed with the Commission or making any other governmental filing (including, without limitation, the filings referred to in Section 3.13). (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. Section 5.07. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Property Trustee or the Delaware Trustee or any Regular Trustee that is not a natural person, as the case may be, may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the 34 Property Trustee or the Delaware Trustee or the Regular Trustees, as the case may be, shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Property Trustee or the Delaware Trustee or the Regular Trustee, as the case may be, shall be the successor of the Property Trustee or the Delaware Trustee or the Regular Trustees, as the case may be, hereunder, provided that such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE 6 Distributions Section 6.01. Distributions. Holders shall receive periodic distributions, redemption payments and liquidation distributions in accordance with the applicable terms of the relevant Holder's Securities as set forth in Exhibits B and C hereto ("Distributions"). If and to the extent that Litchfield Financial makes a payment of interest (including Additional Interest (as defined in the Indenture)), premium and/or principal on the Debentures held by the Property Trustee (the amount of any such payment being a "Payment Amount"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to promptly make a Distribution of the Payment Amount to Holders in accordance with the terms of the Securities as set forth in Exhibits B and C hereto. ARTICLE 7 Issuance of the Securities Section 7.01. General Provisions Regarding the Securities. (a) The Regular Trustees shall issue on behalf of the Trust Securities in fully registered form representing undivided beneficial interests in the assets of the Trust in accordance with Section 7.01(b) and for the consideration specified in Section 3.03. (b) The Regular Trustees shall issue on behalf of the Trust one class of preferred securities representing preferred undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit B (the "Preferred Securities") hereto, which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein, and one class of common securities representing common undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit C (the "Common Securities") hereto, which terms are incorporated by reference in, and made a part of, this Declaration as if specifically set forth herein. The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. 35 (c) The Certificates shall be signed on behalf of the Trust by the Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees). Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee who shall have signed any of the Certificates shall cease to be such Regular Trustee before the Certificate so signed shall be delivered by the Trust, such Certificate nevertheless may be delivered as though the person who signed such Certificate had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons as, at the actual date of the execution of such Certificate, shall be the Regular Trustees, although at the date of the execution and delivery of this Declaration any such person was not a Regular Trustee. Certificates shall be typewritten, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or automated quotation system on which Securities may be listed or traded, or with any rule or regulation of the Clearing Agency, or to conform to usage. Pending the preparation of definitive Certificates, the Regular Trustees on behalf of the Trust may execute temporary Certificates (printed, lithographed or typewritten), in substantially the form of the definitive Certificates in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Certificates, all as may be determined by the Regular Trustees. Each temporary Certificate shall be executed by the Regular Trustees (or, if there are more than two Regular Trustees, by any two of the Regular Trustees) on behalf of the Trust upon the same conditions and in substantially the same manner, and with like effect, as definitive Certificates. Without unnecessary delay, the Regular Trustees on behalf of the Trust will execute and furnish definitive Certificates and thereupon any or all temporary Certificates may be surrendered to the transfer agent and registrar in exchange therefor (without charge to the Holders). Each Preferred Security Certificate whether in temporary or definitive form shall be countersigned, upon receipt of a written order of the Trust signed by one Regular Trustee, by the manual signature of an authorized signatory of the Person acting as registrar and transfer agent for the Preferred Securities, which shall initially be the Property Trustee. (d) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (e) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non- assessable. (f) Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by this Declaration. 36 (g) Upon issuance of the Securities as provided in this Declaration, the Regular Trustees on behalf of the Trust shall return to Litchfield Financial the $10 constituting initial trust assets as set forth in the Original Declaration. ARTICLE 8 Dissolution of the Trust Section 8.01. Dissolution of the Trust. The Trust shall dissolve: (i) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders of the Securities in accordance with the terms of the Securities; or (ii) when all of the Debentures shall have been distributed to the Holders of the Securities in exchange for all of the Securities in accordance with the terms of the Securities; (iii) upon the expiration of the term of the Trust as set forth in Section 3.17; or (iv) upon a decree of judicial dissolution. Upon dissolution and the completion of the winding up of the affairs of the Trust, the Trust and this Declaration shall terminate when a certificate of cancellation is filed by the Trustees with the Secretary of State of the State of Delaware. The Trustees shall so file such a certificate as soon as practicable after the occurrence of an event referred to in this Section 8.01. The provisions of Sections 3.12 and 4.02 and Article 10 shall survive the termination of the Trust and this Declaration. ARTICLE 9 Transfer of Interests Section 9.01. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. To the fullest extent permitted by law, any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article 9, Preferred Securities shall be freely transferable. 37 (c) The Holder of the Common Securities may not transfer the Common Securities except (a) in connection with transactions permitted under Section 10.01 of the Indenture, or (b) to the Sponsor or an Affiliate thereof in compliance with applicable law (including the Securities Act and applicable state securities and blue sky laws). To the fullest extent permitted by law, any attempted transfer of the Common Securities other than as set forth in the immediately preceding sentence shall be void. Section 9.02. Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other government charges which may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. Section 9.03. Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trustees shall have actual or other notice thereof. Section 9.04. Book Entry Interests. Unless otherwise specified in the terms of the Preferred Securities, the Preferred Security Certificates, on original issuance, will be issued in the form of one or more, fully registered, global Preferred Security Certificates (each a "Global Certificate"), to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Preferred Security Beneficial Owner will receive a definitive Preferred Security Certificate representing such Preferred Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.07. Unless and until definitive, fully registered Preferred Security 38 Certificates (the "Definitive Preferred Security Certificates") have been issued to the Preferred Security Beneficial Owners pursuant to Section 9.07: (i) the provisions of this Section 9.04 shall be in full force and effect; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of the Preferred Securities and the sole holder of the Global Certificates and, except as set forth herein in Section 9.07 or in Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) with respect to the Property Trustee, shall have no obligation to the Preferred Security Beneficial Owners; (iii) to the extent that the provisions of this Section 9.04 conflict with any other provisions of this Declaration, the provisions of this Section 9.04 shall control; and (iv) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will make book entry transfers among the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants, provided, that solely for the purposes of determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Declaration, so long as definitive Preferred Security Certificates have not been issued (pursuant to Section 9.07 hereof), the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Preferred Security Beneficial Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part. Section 9.05. Notices to Holders of Certificates. Whenever a notice or other communication to the Holders is required to be given under this Declaration, unless and until Definitive Preferred Security Certificates shall have been issued pursuant to Section 9.07, the relevant Trustees shall give all such notices and communications, specified herein to be given to Holders of Preferred Securities, to the Clearing Agency and, with respect to any Preferred Security Certificate registered in the name of a Clearing Agency or the nominee of a Clearing Agency, the Trustees shall, except in Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) with respect to the Property Trustee, have no notice obligations to the Preferred Security Beneficial Owners. Section 9.06. Appointment of Successor Clearing Agency. 39 If any Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to the Preferred Securities. Section 9.07. Definitive Preferred Securities Certificates. If (i) a Clearing Agency elects to discontinue its services as securities depository with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.06 or (ii) the Regular Trustees elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Preferred Securities, then (x) Definitive Preferred Security Certificates shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Preferred Securities and (y) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause Definitive Preferred Security Certificates to be delivered to Preferred Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on, and shall be protected in relying on, such instructions. Section 9.08. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, the Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees) on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.08, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE 10 Limitation of Liability; Indemnification Section 10.01. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or 40 omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. (c) Pursuant to (S) 3803(a) of the Business Trust Act, the Holders of Securities, in their capacities as Holders, shall be entitled to the same limitation of liability that is extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. Section 10.02. Indemnification. (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) The provisions of this Section 10.02 shall survive the termination of this Declaration or the resignation or removal of any Trustee. Section 10.03. Outside Business. The Sponsor and any Trustee (in the case of the Property Trustee, subject to Section 5.01(c)) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or 41 improper. Neither the Sponsor nor any Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Sponsor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or any of its Affiliates. ARTICLE 11 Accounting Section 11.01. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. Section 11.02. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States Federal income tax purposes. (b) If required by applicable law, the Regular Trustees shall, as soon as available after the end of each Fiscal Year of the Trust, cause to be prepared and mailed to each Holder of Securities unaudited financial statements of the Trust for such Fiscal Year, prepared in accordance with generally accepted accounting principles; provided that if the Trust is required to comply with the periodic reporting requirements of Section 13(a) or 15(d) of the Exchange Act, such financial statements for such Fiscal Year shall be examined and reported on by a firm of independent certified public accountants selected by the Regular Trustees (which firm may be the firm used by the Sponsor). (c) The Regular Trustees shall cause to be duly prepared and mailed to each Holder of Securities any annual United States Federal income tax information statement required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. 42 (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority an annual United States Federal income tax return, on such form as is required by the Code, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. Section 11.03. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Property Trustee shall be made directly to the Property Account and no other funds from the Trust shall be deposited in the Property Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Account. Section 11.04. Withholding. The Trust and the Trustees shall comply with all withholding requirements under United States Federal, State and local law. The Regular Trustees shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Regular Trustees to assist them in determining the extent of, and in fulfilling, the Trust's withholding obligations. The Trust shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to Distributions or allocations to any Holder, the amount withheld shall be deemed to be a Distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount to be withheld was not withheld from a Distribution, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE 12 Amendments and Meetings Section 12.01. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may be amended by, and only by, a written instrument executed by a majority of the Regular Trustees; provided, however, that (i) no amendment or modification to this Declaration shall be made, and any such purported amendment shall be void and ineffective: (A) unless the Regular Trustees shall have first received: (x) an Officers' Certificate that such amendment is permitted by, and conforms to, the terms of this Declaration; and 43 (y) an Opinion of Counsel that such amendment is permitted by, and conforms to, the terms of this Declaration and that all conditions precedent, if any, in this Declaration to the execution and delivery of such amendment have been satisfied; and (B) to the extent the result of such amendment would be to: (x) cause the Trust to fail to continue to be classified for purposes of United States Federal income taxation as a grantor trust; (y) reduce or otherwise adversely affect the rights or powers of the Property Trustee in contravention of the Trust Indenture Act; or (z) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) at such time after the Trust has issued any Securities which remain outstanding, any amendment which would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities; (iii) Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended without the consent of all of the Holders of the Securities; (iv) no amendment which adversely affects the rights, powers and privileges of the Property Trustee or the Delaware Trustee shall be made without the consent of the Property Trustee or the Delaware Trustee, respectively; (v) Article 4 shall not be amended without the consent of the Sponsor; and (vi) the rights of the Holders of Common Securities under Article 5 to increase or decrease the number of, and to appoint, replace or remove, Trustees shall not be amended without the consent of each Holder of Common Securities. (b) Notwithstanding Section 12.02(a), this Declaration may be amended without the consent of the Holders of the Securities to (i) cure any ambiguity, (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration, (iii) add to the covenants, restrictions or obligations of the Sponsor, (iv) conform to any changes in Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) or any change in interpretation or application of Rule 3a-7 (if the Trust is excluded from the definition of an Investment Company solely by reason of Rule 3a-7) by the Commission, (v) make any other provisions with respect to matters or questions arising under this Declaration which shall not be inconsistent with the other provisions of this Declaration, (vi) modify, eliminate or add to any provisions of this Declaration to such extent as shall be necessary to ensure that the Trust will be classified for United States federal income tax purposes as a grantor trust at all times that any Securities are outstanding or to ensure that the Trust will not be required to register as an Investment Company under the Investment Company Act, and (vii) pursuant to Section 5.02, evidence the acceptance of the appointment of a successor Trustee or fill a vacancy created by an increase in the number of Regular Trustees, which amendment does not adversely affect in any material respect the rights, preferences or privileges of the Holders. Section 12.02. Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of Preferred Securities and/or Common Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which the Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted. The Regular Trustees shall call a meeting of the Holders of Preferred Securities or Common Securities, if 44 directed to do so by Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more notices in writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those specified Certificates shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provision shall apply to meetings of the Holders of Securities: (i) Notice of any such meeting shall be given by mail to all the Holders of Securities having a right to vote thereat not less than seven (7) days nor more than sixty (60) days prior to the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting and without prior notice if a consent in writing setting forth the action so taken is signed by Holders of Securities owning not less than the minimum aggregate liquidation amount of Securities that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Holders of Securities for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees. (ii) Each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of a Security is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of the Security executing it. Except as otherwise provided herein or in the terms of the Securities, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation. (iii) Each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate. (iv) Unless otherwise provided in the Business Trust Act, this Declaration or the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted, the Regular Trustees, in their sole discretion, shall establish all other provisions 45 relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE 13 Representations of the Property Trustee and the Delaware Trustee Section 13.01. Representations and Warranties of the Property Trustee. The Trustee which acts as the initial Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Property Trustee's acceptance of its appointment as the Property Trustee that: (i) The Property Trustee is a national banking association or a banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the United States or the laws of the state of its incorporation, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (ii) The execution, delivery and performance by the Property Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Property Trustee. The Declaration has been duly executed and delivered by the Property Trustee, and constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) The execution, delivery and performance of this Declaration by the Property Trustee does not conflict with or constitute a breach of the charter or by-laws of the Property Trustee. (iv) No consent, approval or authorization of, or registration with or notice to, any banking authority which supervises or regulates the Property Trustee is required for the execution, delivery or performance by the Property Trustee of this Declaration. (v) The Property Trustee satisfies the qualifications set forth in Section 5.01(c). Section 13.02. Representations and Warranties of the Delaware Trustee. 46 The Trustee which acts as the initial Delaware Trustee represents and warrants to the Trust and the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as the Delaware Trustee, that: (i) The Delaware Trustee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with corporate power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration. (ii) The execution, delivery and performance by the Delaware Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) No consent, approval or authorization of, or registration with or notice to, any banking authority which supervises or regulates the Delaware Trustee, if any, is required for the execution, delivery or performance by the Delaware Trustee of this Declaration. (iv) The Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and is a Person that satisfies for the Trust (S) 3807(a) of the Business Trust Act. ARTICLE 14 Miscellaneous Section 14.01. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Regular Trustees on behalf of the Trust may give notice of to the Holders of the Securities): Litchfield Capital Trust I c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, MA 01267 Attention: Treasurer, Telecopy: (413) 458-1020 47 (b) if given to the Property Trustee, at the mailing address of the Property Trustee set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Securities): 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Telecopy: (212) 815-5915 (c) if given to the Delaware Trustee, at the mailing address of the Delaware Trustee set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Securities): White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice of to the Trust): Litchfield Financial Corporation, 430 Main Street, Williamstown, Massachusetts 01267, Attention: Treasurer, Telecopy: (413) 458-1020 (e) if given to any other Holder, at the address set forth on the books and records of the Trust. A copy of any notice to the Property Trustee or the Delaware Trustee shall also be sent to the Trust. All notices shall be deemed to have been given, when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 14.02. Undertaking for Costs. All parties to this Declaration agree, and each Holder of any Securities by his or her acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Declaration, or in any suit against the Property Trustee for any action taken or omitted by it as Property Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 1402 shall not apply to any suit instituted by the Property Trustee, to any suit instituted by any Holder of Preferred Securities, or group of Holders of Preferred Securities, holding more than 10% in aggregate liquidation amount of the outstanding Preferred Securities, or to any suit instituted by any Holder of Preferred Securities for the enforcement of the payment of the principal of (or premium, if any) or interest on the Debentures, on or after the respective due dates expressed in such Debentures. 48 Section 14.03. Governing Law. This Declaration, the Securities and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. Section 14.04. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. Section 14.05. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 14.06. Counterparts. This Declaration may contain more than one counterpart of the signature pages and this Declaration may be executed by the affixing of the signature of the Sponsor and each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. Section 14.07. Intention of the Parties. It is the intention of the parties hereto that the Trust not be classified for United States Federal income tax purposes as an association taxable as a corporation or partnership but that the Trust be treated as a grantor trust for United States federal income tax purposes. The provisions of this Declaration shall be interpreted to further this intention of the parties. Section 14.08. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. Section 14.09. No Recourse. 49 The Trust's obligations hereunder are intended to be the obligations of the Trust and no recourse for the payment of Distributions, or for any claim upon the Securities or otherwise in respect thereof, shall be had against any Holder of Securities or any Affiliate of a Holder of Securities, solely by reason of such Person's being a Holder of Securities or an Affiliate of a Holder of Securities, it being understood that the Holder of Securities, solely by reason of being a Holder of Securities, has limited liability (in accordance with the provisions of the Business Trust Act) for the liabilities and obligations of the Trust. Nothing contained in this Section 14.09 shall be construed to limit the exercise or enforcement, in accordance with the terms of this Declaration, the Preferred Guarantee and the Indenture, of the rights and remedies against the Trust or the Sponsor. IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. LITCHFIELD FINANCIAL CORPORATION, as Sponsor By: /s/ R.A. Stratton Name: Richard A. Stratton Title: President and Chief Executive Officer /s/ Ronald E. Rabidou Ronald E. Rabidou, as Regular Trustee /s/ Heather A. Sica Heather A. Sica, as Regular Trustee /s/ John J. Malloy John J. Malloy, as Regular Trustee THE BANK OF NEW YORK, as Property Trustee By: /s/ Michael Culhane Name: Michael Culhane Title: Vice President THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ Walter N. Gitlin Name: Walter N. Gitlin Title: Authorized Signatory 50 EXHIBIT A CERTIFICATE OF TRUST OF LITCHFIELD CAPITAL TRUST I THIS CERTIFICATE OF TRUST of Litchfield Capital Trust I (the "Trust"), dated as of April ___, 1999, is being duly executed and filed by the undersigned, as trustees, with the Secretary of State of the State of Delaware to form a business trust under the Delaware Business Trust Act (12 Del. Code (S) 3801 et seq.). 1. Name. The name of the business trust being formed hereby is Litchfield Capital Trust I. 2. Delaware Trustee. The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware are The Bank of New York (Delaware), a Delaware banking corporation, White Clay Center, Route 273, Newark, Delaware 19711. 3. Effective Date. This Certificate of Trust shall be effective at the time of its filing with the Secretary of State of the State of Delaware. IN WITNESS WHEREOF, the undersigned, being all of the trustees of the Trust at the time of filing this Certificate of Trust, have executed this Certificate of Trust as of the date first above written. LITCHFIELD FINANCIAL CORPORATION, as Sponsor By:______________________________ Name: Title: - -------------------------------- John J. Malloy, not in his individual capacity, but solely as Regular Trustee - -------------------------------- Heather A. Sica, not in her individual capacity, but solely as Regular Trustee - -------------------------------- Ronald E. Rabidou, not in his individual capacity, but solely as Regular Trustee THE BANK OF NEW YORK, not in its individual capacity, but solely as Property Trustee By:______________________________ Name: Title: THE BANK OF NEW YORK (DELAWARE), not in its individual capacity, but solely as Delaware Trustee By:______________________________ Name: Title: 51 TERMS OF PREFERRED SECURITIES Pursuant to Section 7.01(b) of the Amended and Restated Declaration of Trust of Litchfield Capital Trust I dated as of May 19, 1999 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): 1. DESIGNATION AND NUMBER. 10% Series A Preferred Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Twenty-Five Million Dollars ($25,000,000) and 375,000 Preferred Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000), each with a liquidation amount with respect to the assets of the Trust of $10 per Preferred Security, are hereby designated as "10% Series A Trust Preferred Securities,." The Preferred Security Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange or automated quotation system on which the Preferred Securities are then listed, traded or quoted. In connection with the issuance and sale of the Preferred Securities and the Common Securities, the Trust will purchase as trust assets Debentures of Litchfield Financial having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities so issued and bearing interest at an annual rate equal to the annual Distribution rate on the Preferred Securities and the Common Securities and having payment and redemption provisions which correspond to the payment and redemption provisions of the Preferred Securities and the Common Securities. 2. DISTRIBUTIONS. (a) Distributions payable on each Preferred Security will be fixed at a rate per annum of ____% (the "Coupon Rate") of the stated liquidation amount of $10 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one calendar quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. (b) Distributions on the Preferred Securities will accumulate from May 19, 1999, and will be payable quarterly in arrears, on June 30, September 30, December 31, and March 31 of each year, commencing 52 on June 30, 1999, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each, an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Preferred Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. (c) Distributions on the Preferred Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates shall be one business day prior to the relevant Distribution date, and if the Preferred Securities are no longer in book-entry only form, the relevant record dates will be the fifteenth (15th) day of the month prior to the relevant Distribution date, which record and payment dates correspond to the record and interest payment dates on the Debentures. Distributions payable on any Preferred Securities that are not punctually paid on any Distribution payment date as a result of Litchfield Financial' having failed to make the corresponding interest payment on the Debentures will forthwith cease to be payable to the person in whose name such Preferred Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Preferred Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture; provided, however, that Distributions shall not be considered payable on any Distribution payment date falling within an Extension Period unless Litchfield Financial has elected to make a full or partial payment of interest accrued on the Debentures on such Distribution payment date. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Preferred Securities will be made as described in paragraph 8 hereof. If any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such 53 > payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. (d) All Distributions paid with respect to the Preferred Securities and the Common Securities will be paid Pro Rata (as defined below) to the Holders thereof entitled thereto. If an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to Distributions. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration, such money or property shall be distributed Pro Rata among the Holders of the Preferred Securities and the Common Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. (a) In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Preferred Securities and the Common Securities will be entitled to receive Pro Rata solely out of the assets of the Trust legally available for distribution to Holders of Preferred Securities and Common Securities after satisfaction of liabilities to the creditors of the Trust, an amount equal to the aggregate of the stated liquidation amount of $10 per Preferred Security and Common Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, and after satisfaction of liabilities to the creditors of the Trust, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Preferred Securities and the Common Securities and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on, such Preferred Securities and the Common Securities, shall be distributed Pro Rata to the Holders of the Preferred Securities and the Common Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities and the Common Securities shall be paid, subject to the next paragraph, on a Pro Rata basis. Holders of Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution Pro Rata with Holders of Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to such Liquidation Distribution. (b) The Holder of the Common Securities shall have the right to direct the Property Trustee in writing at any time to dissolve the Trust and to distribute Debentures to Holders in exchange for Securities (which direction is optional and wholly within the discretion of the Holder of the Common Securities). Upon the receipt of any such written direction, the Property Trustee shall promptly (i) distribute Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of the Preferred Securities and the Common Securities held by each Holder, which Debentures bear accrued and unpaid interest in an amount equal to the accumulated and 54 unpaid Distributions on the Preferred Securities and the Common Securities of such Holder, in exchange for the Preferred Securities and Common Securities of such Holder and (ii) dissolve the Trust. (c) On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Preferred Securities will no longer be deemed to be outstanding and may be canceled by the Regular Trustees, and (ii) Certificates representing Preferred Securities will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Preferred Securities until such Certificates are presented to Litchfield Financial or its agent for transfer or reissuance. (d) If Debentures are distributed to Holders of the Preferred Securities, Litchfield Financial, pursuant to the terms of the Indenture, will use its best efforts to have the Debentures listed on the New York Stock Exchange or on such other exchange as the Preferred Securities were listed immediately prior to the distribution of the Debentures. 4. REDEMPTION OF DEBENTURES. The Preferred Securities may be redeemed only if Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities are repaid or redeemed as set forth below: (a) Upon the repayment of the Debentures, in whole or in part, whether at maturity, upon redemption at any time or from time to time on or after June 30, 2004, the proceeds of such repayment will be promptly applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption price of $10 per Preferred Security and Common Security plus an amount equal to accumulated and unpaid Distributions thereon to, but excluding, the date of redemption, payable in cash (the "Redemption Price"). The date of any such repayment or redemption of Preferred Securities and Common Securities shall be established to coincide with the repayment or redemption date of the Debentures. (b) If fewer than all the outstanding Preferred Securities and Common Securities are to be so redeemed, the Preferred Securities and the Common Securities will be redeemed Pro Rata and the Preferred Securities will be redeemed as described in paragraph 4(f)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed or traded, Litchfield Financial pursuant to the Indenture will redeem Debentures only in whole and, as a result, the Trust may redeem the Preferred Securities only in whole. (c) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each a "Special Event") shall occur and be continuing, Litchfield Financial shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole 55 or in part for cash at the Redemption Price within 90 days following the occurrence of such Special Event, and promptly following such redemption, Preferred Securities and Common Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed will be redeemed by the Trust at the Redemption Price on a Pro Rata basis. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Sponsor and the Regular Trustees shall have obtained an Opinion of Counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after May 19, 1999, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after May 19, 1999, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States Federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by Litchfield Financial to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by Litchfield Financial for United States Federal income tax purposes. "Investment Company Event" means that the Sponsor and the Regular Trustees shall have received an Opinion of Counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after May 19, 1999. (d) The Trust may not redeem fewer than all the outstanding Preferred Securities unless all accumulated and unpaid Distributions have been paid on all Preferred Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) [Intentionally omitted.] 56 (f) (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Preferred Securities and the Common Securities (a "Redemption/Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 30 nor more than 60 days prior to the date fixed for redemption or exchange thereof. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first- class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Preferred Securities are to be redeemed, the Preferred Securities to be redeemed will be redeemed Pro Rata from each Holder of Preferred Securities, it being understood that, in respect of Preferred Securities registered in the name of and held of record by DTC (or successor Clearing Agency) or any other nominee, the Preferred Securities will be redeemed from, and the distribution of the proceeds of such redemption will be made to, DTC (or successor Clearing Agency). (iii) Subject to paragraph 8 hereof, if the Trust gives a Redemption/Distribution Notice in respect of a redemption of Preferred Securities as provided in this paragraph 4 then (A) while the Preferred Securities are in book-entry only form, with respect to the Preferred Securities, by 10:00 a.m., New York City time, on the redemption date, provided that Litchfield Financial has paid the Property Trustee, in immediately available funds, a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will deposit irrevocably with DTC (or successor Clearing Agency) funds sufficient to pay the applicable Redemption Price with respect to the Preferred Securities and will give DTC (or successor Clearing Agency) irrevocable instructions and authority to pay the Redemption Price to the Holders of the Preferred Securities and (B) if the Preferred Securities are issued in definitive form, with respect to the Preferred Securities and provided that Litchfield Financial has paid the Property Trustee, in immediately available funds, a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Property Trustee will pay the relevant Redemption Price to the Holders of such Preferred Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the redemption date, Distributions will cease to accumulate on the Preferred Securities called for redemption, such Preferred Securities will no longer be deemed to be outstanding and all rights of Holders of such Preferred Securities so called for redemption will cease, except the right of the Holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Preferred Securities which have been so called for redemption. If any 57 date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Preferred Securities is improperly withheld or refused and not paid either by the Property Trustee or by Litchfield Financial pursuant to the Preferred Guarantee, Distributions on such Preferred Securities will continue to accumulate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to DTC or its nominee (or any successor Clearing Agency or its nominee) if the Global Certificates have been issued or, if Definitive Preferred Security Certificates have been issued, to the Holders of the Preferred Securities. (v) Subject to the foregoing and applicable law (including, without limitation, United States Federal securities laws), Litchfield Financial or any of its Affiliates may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS. (a) Except as provided under paragraph 5(b) below and as otherwise required by law and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration, other than as described in Section 12.01(b) of the Declaration, or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.01 of the Declaration, then the Holders of outstanding Securities will be entitled to vote on such amendment or proposal as a single class and such amendment or proposal shall not be effective except with the approval of the Holders of Securities of at least a Majority in liquidation amount of the Securities, voting together as a single class; provided, however, that (A) if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class of Securities will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a Majority in liquidation amount of such class of Securities and (B) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. In the event the consent of the Property Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities 58 with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where such amendment, modification or termination of the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Securities representing such specified percentage of the aggregate liquidation amount of the Securities, or, in the case of clause (2) above, each Holder of Securities; and provided, further, that the Property Trustee shall be under no obligation to take any action in accordance with the directions of the Holders of Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an Opinion of Counsel experienced in such matters to the effect that the Trust will not be classified for United States Federal income tax purposes as other than a grantor trust on account of such action. So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee of the Indenture (the "Debenture Trustee"), or exercising any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture or (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures, without, in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of all outstanding Preferred Securities and Common Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Preferred Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Preferred Securities and Common Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect that for United States Federal income tax purposes the Trust will not be classified as other than a grantor trust on account of such action. If an Event of Default has occurred and is continuing, then the Holders of a Majority in liquidation amount of the Preferred Securities will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee or to direct the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including the right to direct the Property Trustee to exercise the remedies available to it as a holder of the Debentures. If the Property Trustee fails to enforce its rights under the Debentures, a Holder of Preferred Securities, to the extent permitted by applicable law, may, after a period of 30 days has elapsed since such Holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against the Sponsor to enforce the Property Trustee's rights under the Debentures without first instituting any legal proceeding against the Property Trustee or any other Person; provided further, that, if an Event of Default has occurred and is continuing and such event is attributed to the failure of the Sponsor to pay interest or principal on the Debentures on the date such 59 interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder (a "Holder Direct Action") on or after the respective due date specified in the Debentures. In connection with such Holder Direct Action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Sponsor to such Holders of Preferred Securities in such Holder Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures. A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Securities. Any required approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Debentures in accordance with the Declaration. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities at such time that are owned by Litchfield Financial or by any Affiliate of Litchfield Financial shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. Except as provided in this paragraph 5, Holders of the Preferred Securities will have no rights to increase or decrease the number of Trustees or to appoint, remove or replace a Trustee, which voting rights are vested exclusively in the Holders of the Common Securities. 6. PRO RATA TREATMENT. A reference in these terms of the Preferred Securities to any payment, Distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities 60 pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 7. RANKING. The Preferred Securities rank pari passu and payment thereon will be made Pro Rata with the Common Securities, except that when an Event of Default occurs and is continuing, the rights of Holders of Preferred Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise rank in priority to the rights of Holders of the Common Securities. 8. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and payments on redemption of the Preferred Securities will be payable, the transfer of the Preferred Securities will be registrable, and Preferred Securities will be exchangeable for Preferred Securities of other denominations of a like aggregate liquidation amount, at the corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Preferred Security will be made only upon surrender of such Preferred Security to the Property Trustee. 9. ACCEPTANCE OF INDENTURE AND PREFERRED GUARANTEE. Each Holder of Preferred Securities, by the acceptance thereof, agrees to the provisions of (i) the Preferred Guarantee, including the subordination provisions therein, and (ii) the Indenture and the Debentures, including the subordination provisions of the Indenture. 10. NO PREEMPTIVE RIGHTS. The Holders of Preferred Securities shall have no preemptive or similar rights to subscribe to any additional Preferred Securities or Common Securities. 11. MISCELLANEOUS. These terms shall constitute a part of the Declaration. The Trust will provide a copy of the Declaration and the Indenture to a Holder of Preferred Securities without charge on written request to the Trust at its principal place of business. 61 Annex I FORM OF PREFERRED SECURITY CERTIFICATE [IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - THIS PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR A NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO LITCHFIELD CAPITAL TRUST I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] Certificate Number Number of Preferred Securities: ____________ __________________ Aggregate Liquidation Amount: $____________ CUSIP NO. ____________ Certificate Evidencing Preferred Securities of Litchfield Capital Trust I ____% Series A Trust Preferred Securities (liquidation amount $10 per Preferred Security) Litchfield Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that _________ (the "Holder") is the registered owner of _____ 62 (______) preferred securities of the Trust representing preferred undivided beneficial interests in the assets of the Trust and designated the ____% Series A Trust Preferred Securities (liquidation amount $10 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities are set forth in, and this Certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of ___________, ____, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Preferred Securities as set forth in Exhibit B thereto. The Preferred Securities and the Common Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Debentures (as defined in the Declaration) issued by Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield Financial"), to the Trust pursuant to the Indenture referred to in the Declaration. The Holder is entitled to the benefits of the Guarantee Agreement of Litchfield Financial dated as of __________, ____, as the same may be amended from time to time (the "Guarantee") to the extent provided therein. The Trust will furnish a copy of the Declaration, the Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have (i) agreed to the terms of the Indenture and the Debentures, including that the Debentures are subordinate and junior in right of payment to all Senior Debt (as defined in the Indenture) as and to the extent provided in the Indenture, and (ii) agreed to the terms of the Guarantee, including that the Guarantee is subordinate and junior in right of payment to all other liabilities of Litchfield Financial, including the Debentures, except those made pari passu or subordinate by their terms, and senior to all capital stock (other than the most senior preferred stock issued, from time to time, if any, by Litchfield Financial, which preferred stock will rank pari passu with the Guarantee) now or hereafter issued by Litchfield Financial and to any guarantee now or hereafter entered into by Litchfield Financial in respect of any of its capital stock (other than the most senior preferred stock issued, from time to time, if any, by Litchfield Financial). Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, Trustees of the Trust have executed this Certificate. LITCHFIELD CAPITAL TRUST I -------------------------------- Ronald E. Rabidou, as Regular Trustee 63 -------------------------------- Heather A. Sica, as Regular Trustee -------------------------------- John J. Malloy, as Regular Trustee Dated: Countersigned and Registered: Transfer Agent and Registrar By:___________________________ Authorized Signatory 64 [FORM OF REVERSE OF SECURITY] Distributions payable on each Preferred Security will be fixed at a rate per annum of ___ % (the "Coupon Rate") of the stated liquidation amount of $10 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. Distributions on the Preferred Securities will accumulate from _________, ____, and will be payable quarterly in arrears, on ______, ______, ______ and ______ of each year, commencing on ________, ____, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Preferred Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. The Preferred Securities shall be redeemable as provided in the Declaration. 65 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ______________________________________ Signature: _________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THIS PREFERRED SECURITY CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. 66 TERMS OF COMMON SECURITIES Pursuant to Section 7.01(b) of the Amended and Restated Declaration of Trust of Litchfield Capital Trust I dated as of May 19, 1999 (as amended from time to time, the "Declaration"), the designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth below (each capitalized term used but not defined herein having the meaning set forth in the Declaration): 1. DESIGNATION AND NUMBER. 10% Series A Common Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Seven Hundred Seventy-Three Thousand Two Hundred Dollars ($773,200), and each with a liquidation amount with respect to the assets of the Trust of $10 per Common Security, and 77,320 Common Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of Seven Hundred Seventy-Three Thousand Two Hundred Dollars ($773,200), and each with a liquidation amount with respect to the assets of the Trust of $10 per Common Security for issuance upon the exercise of the option granted to the Underwriters, solely to cover over-allotments, if any, are hereby designated as "10% Series A Trust Common Securities." The Common Security Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. The Common Securities are to be issued and sold to Litchfield Financial in consideration of $773,200 in cash. In connection with the issuance and sale of the Preferred Securities and the Common Securities, the Trust will purchase as trust assets Debentures of Litchfield Financial having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities so issued, and bearing interest at an annual rate equal to the annual Distribution rate on the Preferred Securities and the Common Securities and having payment and redemption provisions which correspond to the payment and redemption provisions of the Preferred Securities and the Common Securities. 2. DISTRIBUTIONS. (a) Distributions payable on each Common Security will be fixed at a rate per annum of 10% (the "Coupon Rate") of the stated liquidation amount of $10 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one calendar quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law), compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution will be made by the Property Trustee only to the extent that interest payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. 67 (b) Distributions on the Common Securities will accumulate from May 19, 1999, and will be payable quarterly in arrears, on June 30, September 30, December 31, and March 31 of each year commencing on June 30, 1999, except as otherwise described below, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly interest periods (each, an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Common Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. (c) Distributions on the Common Securities will be payable promptly by the Property Trustee (or other Paying Agent) upon receipt of immediately available funds to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. While the Preferred Securities remain in book-entry only form, the relevant record dates for the Common Securities shall be one business day prior to the relevant Distribution date, and if the Preferred Securities are no longer in book-entry only form, the relevant record dates for the Common Securities will be the fifteenth (15th) day of the month prior to the relevant Distribution date, which record and payment dates correspond to the record and interest payment dates on the Debentures. Distributions payable on any Common Securities that are not punctually paid on any Distribution payment date as a result of Litchfield Financial' having failed to make the corresponding interest payment on the Debentures will forthwith cease to be payable to the person in whose name such Common Security is registered on the relevant record date, and such defaulted Distribution will instead be payable to the person in whose name such Common Security is registered on the special record date established by the Regular Trustees, which record date shall correspond to the special record date or other specified date determined in accordance with the Indenture; provided, however, that Distributions shall not be considered payable on any Distribution payment date falling within an Extension Period unless Litchfield Financial has elected to make a full or partial payment of interest accrued on the Debentures on such Distribution payment date. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment in respect of the Common Securities will be made as described in paragraph 8 hereof. If any date on which Distributions are payable on the Common Securities is not a Business Day, then payment of the 68 Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. (d) All Distributions paid with respect to the Common Securities and the Preferred Securities will be paid Pro Rata (as defined below) to the Holders thereof entitled thereto. If an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to Distributions. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for under the Declaration, such money or property shall be distributed Pro Rata among the Holders of the Preferred Securities and the Common Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. (a) In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Preferred Securities and the Common Securities will be entitled to receive Pro Rata solely out of the assets of the Trust legally available for distribution to Holders of Preferred Securities and Common Securities after satisfaction of liabilities to the creditors of the Trust, an amount equal to the aggregate of the stated liquidation amount of $10 per Preferred Security and Common Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, in connection with such dissolution, and after satisfaction of liabilities to the creditors of the Trust, Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Preferred Securities and the Common Securities and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on, such Preferred Securities and the Common Securities, shall be distributed Pro Rata to the Holders of the Preferred Securities and the Common Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets on hand legally available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Preferred Securities and the Common Securities shall be paid, subject to the next paragraph, on a Pro Rata basis. Holders of Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution Pro Rata with Holders of Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities with respect to such Liquidation Distribution. (b) The Holder of the Common Securities shall have the right to direct the Property Trustee in writing at any time to dissolve the Trust and to distribute Debentures to Holders in exchange for Securities (which direction is optional and wholly within the discretion of the Holder of the Common Securities). Upon the receipt of any such written direction, the Property Trustee shall promptly (i) distribute Debentures in an aggregate principal amount 69 equal to the aggregate stated liquidation amount of the Preferred Securities and the Common Securities held by each Holder, which Debentures bear accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on the Preferred Securities and the Common Securities of such Holder, in exchange for the Preferred Securities and Common Securities of such Holder and (ii) dissolve the Trust. (c) On the date fixed for any distribution of Debentures, upon dissolution of the Trust, (i) the Common Securities will no longer be deemed to be outstanding and may be canceled by the Regular Trustees, and (ii) Certificates representing Common Securities will be deemed to represent beneficial interests in the Debentures having an aggregate principal amount equal to the stated liquidation amount of, and bearing accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Common Securities until such Certificates are presented to Litchfield Financial or its agent for transfer or reissuance. 4. REDEMPTION OF DEBENTURES. The Common Securities may be redeemed only if Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities and the Common Securities are repaid or redeemed as set forth below: (a) Upon the repayment of the Debentures, in whole or in part, whether at maturity, upon redemption at any time or from time to time on or after June 30, 2004, the proceeds of such repayment will be promptly applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at a redemption price of $10 per Preferred Security and Common Security plus an amount equal to accumulated and unpaid Distributions thereon to, but excluding, the date of redemption, payable in cash (the "Redemption Price"). The date of any such repayment or redemption of Preferred Securities and Common Securities shall be established to coincide with the repayment or redemption date of the Debentures. (b) If fewer than all the outstanding Preferred Securities and Common Securities are to be so redeemed, the Preferred Securities and the Common Securities will be redeemed Pro Rata and the Common Securities will be redeemed as described in paragraph 4(e)(ii) below. If a partial redemption would result in the delisting of the Preferred Securities by any national securities exchange or other organization on which the Preferred Securities are then listed or traded, Litchfield Financial pursuant to the Indenture will redeem Debentures only in whole and, as a result, the Trust may redeem the Common Securities only in whole. (c) If, at any time, a Tax Event or an Investment Company Event (each as hereinafter defined, and each, a "Special Event") shall occur and be continuing, Litchfield Financial shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole or in part for cash at the Redemption Price within 90 days following the occurrence of such Special Event, and promptly following such redemption, Preferred Securities and Common 70 Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed will be redeemed by the Trust at the Redemption Price on a Pro Rata basis. The Common Securities will be redeemed Pro Rata with the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities with respect to payment of the Redemption Price. "Tax Event" means that the Sponsor and the Regular Trustees shall have obtained an Opinion of Counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after May 19, 1999, as a result of (a) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any amendment to, or change in, an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (d) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated, issued or announced or which interpretation or pronouncement is issued or announced or which action is taken, in each case on or after May 19, 1999, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of the date thereof, subject to United States Federal income tax with respect to income accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges or (iii) interest payable by Litchfield Financial to the Trust on the Debentures is not, or within 90 days of the date thereof will not be, deductible by Litchfield Financial for United States Federal income tax purposes. "Investment Company Event" means that the Sponsor and the Regular Trustees shall have received an Opinion of Counsel experienced in practice under the Investment Company Act that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk that the Trust is or will be considered an Investment Company which is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after May 19, 1999. (d) The Trust may not redeem fewer than all the outstanding Common Securities unless all accumulated and unpaid Distributions have been paid on all Common Securities for all quarterly Distribution periods terminating on or prior to the date of redemption. (e) (i) Notice of any redemption of, or notice of distribution of Debentures in exchange for, the Preferred Securities and the Common Securities (a "Redemption/Distribution Notice") will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Preferred Securities and Common Securities to be redeemed or exchanged not less than 30 nor more than 60 days prior to the date fixed for redemption or exchange thereof. For purposes of the calculation of the date 71 of redemption or exchange and the dates on which notices are given pursuant to this paragraph 4(e)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first- class mail, postage prepaid, to Holders of Preferred Securities and Common Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Preferred Securities and Common Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Common Securities are to be redeemed, the Common Securities to be redeemed will be redeemed Pro Rata from each Holder of Common Securities (subject to adjustment to eliminate fractional Common Securities). (iii) If the Trust gives a Redemption/Distribution Notice in respect of a redemption of Common Securities as provided in this paragraph 4 (which notice will be irrevocable), then immediately prior to the close of business on the redemption date, provided that Litchfield Financial has paid to the Property Trustee in immediately available funds a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, Distributions will cease to accumulate on the Common Securities called for redemption, such Common Securities will no longer be deemed to be outstanding and all rights of Holders of such Common Securities so called for redemption will cease, except the right of the Holders of such Common Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Common Securities which have been so called for redemption. If any date fixed for redemption of Common Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of Common Securities is improperly withheld or refused and not paid by the Property Trustee, Distributions on such Common Securities will continue to accumulate, from the original redemption date to the date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to Holders of the Common Securities. 5. VOTING RIGHTS. (a) Except as provided under paragraph 5(b) below and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. 72 (b) Holders of Common Securities have the sole right under the Declaration to increase or decrease the number of Trustees, and to appoint, remove or replace a Trustee, any such increase, decrease, appointment, removal or replacement to be approved by Holders of Common Securities representing a Majority in liquidation amount of the Common Securities. If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration, other than as described in Section 12.01(b) of the Declaration, or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.01 of the Declaration or Section 3 of this Exhibit C or Section 3 of Exhibit B, then the Holders of outstanding Securities will be entitled to vote on such amendment or proposal as a single class and such amendment or proposal shall not be effective except with the approval of the Holders of Securities of at least a Majority in liquidation amount of the Securities, voting together as a single class; provided, however, that (A) if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or the Common Securities, then only the affected class of Securities will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of at least a Majority in liquidation amount of such class of Securities, (B) the rights of Holders of Common Securities under Section 5.02 of the Declaration to increase or decrease the number of, and to appoint, replace or remove, Trustees shall not be amended without the consent of each Holder of Common Securities, and (C) amendments to the Declaration shall be subject to such further requirements as are set forth in Sections 12.01 and 12.02 of the Declaration. In the event the consent of the Property Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Property Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination. The Property Trustee shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where such amendment, modification or termination of the Indenture requires the consent or vote of (1) holders of Debentures representing a specified percentage greater than a majority in principal amount of the Debentures or (2) each holder of Debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by, in the case of clause (1) above, the vote of Holders of Securities representing such specified percentage of the aggregate liquidation amount of the Securities, or, in the case of clause (2) above, each Holder of Securities; and provided, further, that the Property Trustee shall be under no obligation to take any action in accordance with the directions of the Holders of Securities unless the Property Trustee shall have received, at the expense of the Sponsor, an Opinion of Counsel experienced in such matters to the effect that the Trust will not be classified for United States Federal income tax purposes as other than a grantor trust on account of such action. So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Trustee of the 73 Indenture (the "Debenture Trustee"), or exercising any trust or power conferred on such Debenture Trustee with respect to the Debentures, (ii) waive any past default that is waivable under Section 6.06 of the Indenture or (iii) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the Debentures, without, in each case, obtaining the prior approval of the Holders of a Majority in liquidation amount of all outstanding Common Securities and Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities except by subsequent vote of such Holders. The Property Trustee shall notify each Holder of Common Securities of any notice of default with respect to the Debentures. In addition to obtaining the foregoing approvals of such Holders of the Common Securities and Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an Opinion of Counsel experienced in such matters to the effect that for United States Federal income tax purposes the Trust will not be classified as other than a grantor trust on account of such action. Notwithstanding any other provision of these terms, each Holder of Common Securities will be deemed to have waived any Event of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived by the Holders of Preferred Securities as provided in the Declaration or otherwise eliminated, and until all Events of Default with respect to the Preferred Securities have been so cured, waived by the Holders of Preferred Securities or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Declaration or of the Securities. In the event that any Event of Default with respect to the Preferred Securities is waived by the Holders of Preferred Securities as provided in the Declaration, the Holders of Common Securities agree that such waiver shall also constitute the waiver of such Event of Default with respect to the Common Securities for all purposes under the Declaration without any further act, vote or consent of the Holders of the Common Securities. A waiver of an Indenture Event of Default by the Property Trustee at the direction of the Holders of the Preferred Securities will constitute a waiver of the corresponding Event of Default under the Declaration in respect of the Securities. Any required approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote and (iii) instructions for the delivery of proxies. No vote or consent of the Holders of Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration. 74 6. PRO RATA TREATMENT. A reference in these terms of the Common Securities to any payment, Distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 7. RANKING. The Common Securities rank pari passu and payment thereon will be made Pro Rata with the Preferred Securities, except that when an Event of Default occurs and is continuing, the rights of Holders of Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise are subordinate to the rights of Holders of the Preferred Securities. 8. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and payments on redemption of the Common Securities will be payable, the transfer of the Common Securities will be registrable, and Common Securities will be exchangeable for Common Securities of other denominations of a like aggregate liquidation amount, at the principal corporate trust office of the Property Trustee in The City of New York; provided that payment of Distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the persons entitled thereto and that the payment on redemption of any Common Security will be made only upon surrender of such Common Security to the Property Trustee. Notwithstanding the foregoing, transfers of Common Securities are subject to conditions set forth in Section 9.01(c) of the Declaration. 9. ACCEPTANCE OF INDENTURE. Each Holder of Common Securities, by the acceptance thereof, agrees to the provisions of Indenture and the Debentures, including the subordination provisions of the Indenture. 10. NO PREEMPTIVE RIGHTS. The Holders of Common Securities shall have no preemptive or similar rights to subscribe to any additional Common Securities or Preferred Securities. 11. MISCELLANEOUS. These terms shall constitute a part of the Declaration. The Trust will provide a copy of the Declaration and the Indenture to a Holder of Common Securities without charge on written request to the Trust at its principal place of business. 75 Annex I FORM OF COMMON SECURITY CERTIFICATE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN THE DECLARATION REFERRED TO BELOW Certificate Number Number of Common Securities Certificate Evidencing Common Securities of Litchfield Capital Trust I ____% Series A Trust Common Securities (liquidation amount $10 per Common Security) Litchfield Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that ______________ (the "Holder") is the registered owner of ____________________________ (_________) common securities of the Trust representing common undivided beneficial interests in the assets of the Trust and designated the "____% Series A Trust Common Securities" (liquidation amount $10 per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this Certificate duly endorsed and in proper form for transfer and satisfaction of the other conditions set forth in the Declaration (as defined below) including, without limitation, Section 9.01(c) thereof. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this Certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Declaration of Trust of the Trust dated as of __________, ____, as the same may be amended from time to time (the "Declaration") including the designation of the terms of Common Securities as set forth in Exhibit C thereto. The Common Securities and the Preferred Securities issued by the Trust pursuant to the Declaration represent undivided beneficial interests in the assets of the Trust, including the Debentures (as defined in the Declaration) issued by Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield Financial"), to the Trust pursuant to the Indenture referred to in the Declaration. The Trust will furnish a copy of the Declaration and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business or registered office. The Holder of this Certificate, by accepting this Certificate, is deemed to have agreed to the terms of the Indenture and the Debentures, including that the Debentures are subordinate and junior in right 76 of payment to all Senior Debt (as defined in the Supplemental Indenture) as and to the extent provided in the Indenture. Upon receipt of this Certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. IN WITNESS WHEREOF, the Trustees of the Trust have executed this Certificate this ___ day of -------------, ----. LITCHFIELD CAPITAL TRUST I -------------------------------- John J. Malloy, as Regular Trustee -------------------------------- Heather A. Sica, as Regular Trustee -------------------------------- Ronald E. Rabidou, as Regular Trustee [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of ___ % (the "Coupon Rate") of the stated liquidation amount of $10 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarter will accumulate additional distributions thereon at the Coupon Rate per annum (to the extent permitted by applicable law) compounded quarterly. The term "Distributions" as used herein means such periodic cash distributions and any such additional distributions payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Trust has funds on hand legally available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 90-day quarter. Distributions on the Common Securities will accumulate from _________, ____ and will be payable quarterly in arrears, on _____________, ____________, _____________ and _____________ of each year, commencing on ________, ____, but only if and to the extent that interest payments are made in respect of the Debentures held by the Property Trustee. So long as Litchfield Financial shall not be in default in the payment of interest on the Debentures, Litchfield Financial has the right under the Indenture for the Debentures to defer payments of interest on the Debentures by extending the interest payment period at any time and from time to time on the Debentures for a period not 77 exceeding 20 consecutive quarterly interest periods (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures. As a consequence of such deferral, Distributions shall also be deferred. Despite such deferral, Distributions will continue to accumulate with additional distributions thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Coupon Rate compounded quarterly during any such Extension Period; provided that no Extension Period shall extend beyond the stated maturity of the Debentures. Prior to the termination of any such Extension Period, Litchfield Financial may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarterly interest periods. Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield Financial may commence a new Extension Period, subject to the above requirements. Payments of accumulated Distributions will be payable to Holders of Common Securities as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. The Common Securities shall be redeemable as provided in the Declaration. 78 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints _____________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ________________________ Signature: _________________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) HWD2: 517541-1 79 EX-4 9 Exhibit 4.16 LITCHFIELD FINANCIAL CORPORATION GUARANTEE AGREEMENT LITCHFIELD CAPITAL TRUST I DATED AS OF MAY 19, 1999 TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS SECTION 1.01 DEFINITIONS................................................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION..........................................................6 SECTION 2.02. LISTS OF HOLDERS OF PREFERRED SECURITIES..................................................6 SECTION 2.03. REPORTS BY THE GUARANTEE TRUSTEE..........................................................6 SECTION 2.04. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE.................................................7 SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT ...............................................................................................7 SECTION 2.06. EVENTS OF DEFAULT; WAIVER.................................................................7 SECTION 2.07. DISCLOSURE OF INFORMATION..................................................................7 SECTION 2.08. CONFLICTING INTEREST......................................................................8 ARTICLE 3 POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE SECTION 3.01. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE................................................9 SECTION 3.02. CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE TRUSTEE............................................................................9 SECTION 3.03 .NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.........................................................................11 SECTION 3.04. GUARANTEE TRUSTEE MAY OWN PREFERRED SECURITIES .......................................................................11 SECTION 3.05. MONEYS RECEIVED BY GUARANTEE TRUSTEE TO BE HELD IN TRUST WITHOUT INTEREST.................................................11 SECTION 3.06. GUARANTEE TRUSTEE ENTITLED TO COMPENSATION, REIMBURSEMENT AND INDEMNITY.........................................12 SECTION 3.07. RIGHT OF GUARANTEE TRUSTEE TO RELY ON CERTIFICATE OF OFFICERS OF GUARANTOR WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED........................................12 ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. QUALIFICATIONS...........................................................................12 SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE TRUSTEE...........................................................13 -i- ARTICLE 5 GUARANTEE SECTION 5.01. GUARANTEE................................................................................13 SECTION 5.02. WAIVER OF NOTICE.........................................................................14 SECTION 5.03. OBLIGATIONS NOT AFFECTED.................................................................14 SECTION 5.04. ENFORCEMENT OF GUARANTEE.................................................................15 SECTION 5.05. GUARANTEE OF PAYMENT.....................................................................15 SECTION 5.06. SUBROGATION..............................................................................15 SECTION 5.07. INDEPENDENT OBLIGATIONS..................................................................16 ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. LIMITATION OF TRANSACTIONS...............................................................16 SECTION 6.02. SUBORDINATION............................................................................16 ARTICLE 7 TERMINATION SECTION 7.01. TERMINATION..............................................................................17 ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 8.01. EXCULPATION..............................................................................17 SECTION 8.02. INDEMNIFICATION..........................................................................18 SECTION 8.03. SURVIVE TERMINATION......................................................................18 ARTICLE 9 MISCELLANEOUS SECTION 9.01. SUCCESSORS AND ASSIGNS...................................................................18 SECTION 9.02. AMENDMENTS...............................................................................18 SECTION 9.03. NOTICES..................................................................................18 SECTION 9.04. GENDERS..................................................................................19 SECTION 9.05. BENEFIT..................................................................................19 SECTION 9.06. GOVERNING LAW............................................................................19 SECTION 9.07. COUNTERPARTS.............................................................................19 SECTION 9.08. LIMITED LIABILITY........................................................................19
-ii- GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of May 19, 1999, is executed and delivered by Litchfield Financial Corporation, a Massachusetts corporation (the "Guarantor"), and The Bank of New York, a New York banking corporation, as the initial Guarantee Trustee (as defined herein) for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of Litchfield Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of May 19, 1999 among the trustees of the Issuer named therein, Litchfield Financial Corporation, as Sponsor, and the Holders from time to time of preferred undivided beneficial interests in the assets of the Issuer, the Issuer may issue up to $25,000,000 aggregate liquidation amount of its 10% Series A Trust Preferred Securities (the "Preferred Securities") representing preferred undivided beneficial interests in the assets of the Issuer and having the terms set forth in Exhibit B to the Declaration, of which $25,000,000 aggregate liquidation amount of Preferred Securities is being issued as of the date hereof; and WHEREAS, as incentive for the Holders to purchase Preferred Securities, the Guarantor desires to irrevocably and unconditionally agree, to the extent set forth herein, to pay to the Holders the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the purchase by the initial purchasers thereof of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time. ARTICLE 1 DEFINITIONS SECTION 1.0. DEFINITIONS. (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; -2- (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Commission" means the Securities and Exchange Commission. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer, having the terms set forth in Exhibit C to the Declaration. "Debentures" means the series of unsecured junior subordinated debentures issued by the Guarantor under the Indenture to the Property Trustee and entitled the "10% Series A Junior Subordinated Debentures due 2029." "Declaration" has the meaning set forth in the first WHEREAS clause above. "Distributions" means the periodic distributions and other payments payable to Holders in accordance with the terms of the Preferred Securities set forth in Exhibit B to the Declaration. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payment, any such default shall constitute an Event of Default only if the Guarantor shall have received notice of such default and shall not have cured such default within 60 days after receipt of such notice. "Guarantee Payments" shall mean the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accumulated and unpaid Distributions and the Redemption Price, including all accumulated and unpaid Distributions to, but excluding, the date of redemption, with respect to the Preferred Securities called for redemption by the Issuer but only if and to the extent that in each case the Guarantor has made a payment to the Property Trustee of interest or principal or premium, if any, on the Debentures and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to Holders in exchange for Preferred Securities or the redemption of all the Preferred Securities upon the maturity or redemption of the Debentures as provided in the -3- Declaration), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer has funds on hand legally available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer as required by applicable law (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means The Bank of New York, a New York banking corporation, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Guarantee Trustee. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Guarantee Trustee, any Affiliate of the Guarantee Trustee, and any officers, directors, shareholders, members, partners, employees, representatives or agents of the Guarantee Trustee. "Indenture" means the Junior Subordinated Indenture dated as of May 19, 1999 between the Guarantor and The Bank of New York, as trustee, as supplemented by the Supplemental Indenture No. 1 thereto dated as of May 19, 1999 (the "Supplemental Indenture"), pursuant to which the Debentures are to be issued to the Property Trustee. "Liquidation Distribution" has the meaning specified in the definition of Guarantee Payments. "Majority in liquidation amount of the Preferred Securities" means, except as otherwise required by the Trust Indenture Act, Holder(s) of outstanding Preferred Securities voting together as a single class, who are the record owners of Preferred Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) represents more than 50% of the liquidation amount of all outstanding Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the Comptroller, the Secretary or an Assistant Secretary, of such Person, and delivered to the Guarantee Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 2.04 shall be the principal executive, financial or accounting officer of the Guarantor. Any Officers' Certificate delivered with respect -4- to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (i) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (ii) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (iii) a statement that each officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Securities" has the meaning set forth in the first WHEREAS clause above. "Property Trustee" means the Person acting as Property Trustee under the Declaration. "Redemption Price" means the amount payable on redemption of the Preferred Securities in accordance with the terms of the Preferred Securities. "Responsible Officer" means, when used with respect to the Guarantee Trustee, any officer within the corporate trust department of the Guarantee Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Guarantee Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Guarantee Agreement. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as a Guarantee Trustee under Section 4.01. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. -5- ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by ss.ss.310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; and (c) the application of the Trust Indenture Act to this Guarantee Agreement shall not affect the nature of the Preferred Securities as equity securities representing preferred undivided beneficial interests in the assets of the Issuer. SECTION 2.02. LISTS OF HOLDERS OF PREFERRED SECURITIES. (a) The Guarantor shall provide the Guarantee Trustee (unless the Guarantee Trustee is otherwise the registrar of the Preferred Securities) (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of such date, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Guarantee Trustee; provided that the Guarantor shall not be obligated to provide such List of Holders at any time that the List of Holders does not differ from the most recent List of Holders given to the Guarantee Trustee by the Guarantor. The Guarantee Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in the List of Holders given to it; provided, that the Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) the Guarantee Trustee shall comply with its obligations under ss.ss.310(b), 311 and 312(b) of the Trust Indenture Act. SECTION 2.03. REPORTS BY THE GUARANTEE TRUSTEE. Within 60 days after January 15 of each year, commencing January 15, 2000, the Guarantee Trustee shall provide to the Holders such reports as are required by ss.313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by ss.313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the other requirements of ss.313 of the Trust Indenture Act. A copy of each such report shall, at the time of such transmission to the Holders, be filed by the Guarantee Trustee with the Company, with each stock exchange upon which any Preferred Securities are listed (if -6- so listed) and also with the Commission. The Company agrees to notify the Guarantee Trustee when any Preferred Securities become listed on any stock exchange and any delisting thereof. SECTION 2.04. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE. The Guarantor shall provide to the Guarantee Trustee, the Commission and the Holders, as applicable, such documents, reports and information as required by ss.314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance certificates required by ss.314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by ss.314(a)(4) and (c) of the Trust Indenture Act (provided that any certificate to be provided pursuant to ss.314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each fiscal year of the Issuer). Delivery of such reports, information and documents to the Guarantee Trustee is for informational purposes only and the Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement which relate to any of the matters set forth in ss.314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to ss.314(c) may be given in the form of an Officers' Certificate. SECTION 2.06. EVENTS OF DEFAULT; WAIVER. (a) The Holders of a Majority in liquidation amount of the Preferred Securities may, by vote, on behalf of the Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default, or impair any right consequent thereon. (b) The right of any Holder to receive payment of the Guarantee Payments in accordance with this Guarantee Agreement, or to institute suit for the enforcement of any such payment, shall not be impaired without the consent of each such Holder. SECTION 2.07. DISCLOSURE OF INFORMATION. The disclosure of information as to the names and addresses of the Holders in accordance with ss.312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to ss.312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held accountable by reason of mailing any material pursuant to a request made under ss.312(b) of the Trust Indenture Act. SECTION 2.08. CONFLICTING INTEREST. The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in ss.310(b) of the Trust Indenture Act. -7- ARTICLE 3 POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE SECTION 3.01. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE. (a) This Guarantee Agreement shall be held by the Guarantee Trustee in trust for the benefit of the Holders. The Guarantee Trustee shall not transfer its right, title and interest in this Guarantee Agreement to any Person except a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Guarantee Trustee or to a Holder exercising his or her rights pursuant to Section 5.04(iv). The right, title and interest of the Guarantee Trustee to this Guarantee Agreement shall vest automatically in each Person who may hereafter be appointed as Guarantee Trustee in accordance with Article 4. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders. (c) This Guarantee Agreement and all moneys received by the Property Trustee in respect of the Guarantee Payments will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of, the Guarantee Trustee or its agents or their creditors. (d) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default known to a Responsible Officer of the Guarantee Trustee, transmit by mail, first class postage prepaid, to the Holders, as their names and addresses appear upon the List of Holders, notice of all such Events of Default, unless such defaults shall have been cured before the giving of such notice; provided, that, the Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders. The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default except any Event of Default as to which the Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice of such Event of Default. (e) The Guarantee Trustee shall continue to serve as a trustee until a Successor Guarantee Trustee has been appointed and accepted that appointment in accordance with Article 4. -8- SECTION 3.02. CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE TRUSTEE. (a) The Guarantee Trustee, before the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Guarantee Trustee; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof or the Trust Indenture Act are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement or the Trust Indenture Act, as the case may be; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a Majority in liquidation amount of Preferred Securities relating to the time, method and place of -9- conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.02(a) and (b): (i) whenever in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate, which, upon receipt of such request, shall be promptly delivered by the Guarantor; (ii) the Guarantee Trustee (A) may consult with counsel (which may be counsel to the Guarantor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction; (iii) the Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; (iv) the Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have offered to the Guarantee Trustee security and indemnity satisfactory to the Guarantee Trustee against the costs, expenses (including its attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Guarantee Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Guarantee Agreement, and to use the same degree of care and skill in this exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and -10- (v) any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Guarantee Trustee to so act, or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action. SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The recitals contained in this Guarantee Agreement shall be taken as the statements of the Guarantor and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee Agreement. SECTION 3.04. GUARANTEE TRUSTEE MAY OWN PREFERRED SECURITIES. The Guarantee Trustee, in its individual or any other capacity, may become the owner or pledgee of Preferred Securities and may otherwise deal with the Guarantor with the same rights it would have if it were not Guarantee Trustee. SECTION 3.05. MONEYS RECEIVED BY GUARANTEE TRUSTEE TO BE HELD IN TRUST WITHOUT INTEREST. All moneys received by the Guarantee Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Guarantee Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree in writing to pay thereon. SECTION 3.06. GUARANTEE TRUSTEE ENTITLED TO COMPENSATION, REIMBURSEMENT AND INDEMNITY. (a) The Guarantor covenants and agrees to pay to the Guarantee Trustee from time to time, and the Guarantee Trustee shall be entitled to, such compensation as the Guarantor and the Guarantee Trustee shall from time to time agree in writing (which shall not be limited by any provision of law in regard to the compensation of a Guarantee Trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Guarantee Trustee, and the Guarantor will pay or reimburse the Guarantee Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Guarantee Trustee in accordance with any of the provisions of this Guarantee Agreement (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Guarantor also covenants to indemnify each of the Guarantee Trustee or any predecessor Guarantee Trustee and their officers, agents, directors and employees for, and to hold them harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based upon, measured by or determined by the income of the Guarantee -11- Trustee) incurred without negligence or bad faith on the part of the Guarantee Trustee and arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Guarantor, any Holder or any other Person) of liability in the premises. The provisions of this Section 3.06 shall survive the termination of this Guarantee Agreement and resignation or removal of the Guarantee Trustee. (b) The obligations of the Guarantor under this Section 3.06 to compensate and indemnify the Guarantee Trustee and to pay or reimburse the Guarantee Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Preferred Securities upon all property and funds held or collected by the Guarantee Trustee as such, except funds held in trust for the benefit of the holders of particular Preferred Securities. SECTION 3.07. RIGHT OF GUARANTEE TRUSTEE TO RELY ON CERTIFICATE OF OFFICERS OF GUARANTOR WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED. Except as otherwise provided in Section 3.02, whenever in the administration of the provisions of this Guarantee Agreement the Guarantee Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Guarantee Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Guarantee Trustee and such certificate, in the absence of negligence or bad faith on the part of the Guarantee Trustee, shall be full warrant to the Guarantee Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Guarantee Agreement upon the faith thereof. ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. QUALIFICATIONS. There shall at all times be a Guarantee Trustee that shall: (i) not be an Affiliate of the Guarantor; and (ii) be a national banking association or corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this clause (ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. -12- If at any time the Guarantee Trustee shall cease to satisfy the requirements of clauses (i) and (ii) above, the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02. If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of ss.310(b) of the Trust Indenture Act, the Guarantee Trustee and the Guarantor shall in all respects comply with the provisions of ss.310(b) of the Trust Indenture Act. SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE TRUSTEE. (a) Subject to Section 4.02(b), the Guarantee Trustee may be appointed or removed without cause by the Guarantor upon 60 days' prior written notice. (b) The Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01 has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and the Guarantee Trustee being removed. (c) The Guarantee Trustee appointed to office shall hold office until its successor shall have been appointed or until its removal or resignation. (d) The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that no such resignation of the Guarantee Trustee shall be effective until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01 has been appointed and has accepted such appointment by instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (e) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of a notice of removal or a Resignation Request, the Guarantee Trustee being removed or resigning as the case may be may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01. ARTICLE 5 GUARANTEE SECTION 5.01. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid -13- by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.02. WAIVER OF NOTICE. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Notwithstanding anything to the contrary herein, the Guarantor retains all of its rights under the Indenture to extend the interest payment period on the Debentures and the Guarantor shall not be obligated hereunder to make any Guarantee Payment during any Extended Interest Payment Period (as defined in the Supplemental Indenture) with respect to the Distributions on the Preferred Securities. SECTION 5.03. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions (other than an extension of time for payment of Distributions that result from any Extended Interest Payment Period), Redemption Price, Liquidation Distribution (as defined in the Declaration) or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions that result from any Extended Interest Payment Period); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; -14- (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.03 that the obligations of the Guarantor with respect to the Guarantee Payments shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.04. ENFORCEMENT OF GUARANTEE. The Guarantor and the Guarantee Trustee expressly acknowledge that (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) Holders representing not less than a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or other power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) if the Guarantee Trustee fails to enforce this Guarantee Agreement as provided in clauses (ii) and (iii) above, any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. Notwithstanding the foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder may directly institute a proceeding against the Guarantor for enforcement of this Guarantee Agreement for such payment without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. SECTION 5.05. GUARANTEE OF PAYMENT. This Guarantee Agreement creates a guarantee of payment and not merely of collection. This Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer) or upon the distribution of the Debentures to the Holders as provided in the Declaration. SECTION 5.06. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Issuer in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. -15- SECTION 5.07. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof. ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. LIMITATION OF TRANSACTIONS. So long as any Preferred Securities remain outstanding, the Guarantor agrees that it will not declare or pay dividends on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock or preferred stock (other than (a) dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of, common stock of the Guarantor, (b) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) as a result of a reclassification of the Guarantor's capital stock or the exchange or the conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (d) the payment of accrued dividends and the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, or (e) purchases of the Guarantor's common stock related to the issuance of the Guarantor's common stock or rights under any of the Guarantor's benefit plans for its directors, officers or employees, any of the Guarantor's dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of the Guarantor's Affiliates, for such Affiliate's directors, officers or employees) or make any guarantee payment with respect thereto, if at such time (i) the Guarantor shall be in default with respect to its Guarantee Payments or other payment obligations hereunder, (ii) there shall have occurred any event of default under the Declaration or (iii) the Guarantor shall have given notice of its election of an Extended Interest Payment Period and such period, or any extension thereof, is continuing. In addition, so long as any Preferred Securities remain outstanding, the Guarantor agrees that it (i) will remain the sole direct or indirect owner of all of the outstanding Common Securities and shall not cause or permit the Common Securities to be transferred except to the extent such transfer is permitted under Section 9.01 of the Declaration; provided that any permitted successor of the Guarantor under the Indenture may succeed to the Guarantor's ownership of the Common Securities and (ii) will use reasonable efforts to cause the Issuer to continue to be treated as a grantor trust for United States federal income tax purposes except in connection with a distribution of Debentures as provided in the Declaration. SECTION 6.02. SUBORDINATION. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, including the Debentures, except those made pari passu or -16- subordinate by their terms, and (ii) senior to all capital stock (other than the most senior preferred stock issued, from time to time, if any, by the Guarantor, which preferred stock will rank pari passu with this Guarantee Agreement) now or hereafter issued by the Guarantor and to any guarantee now or hereafter entered into by the Guarantor in respect of any of its capital stock (other than the most senior preferred stock issued, from time to time, if any, by the Guarantor). The Guarantor's obligations under this Guarantee Agreement will rank pari passu with respect to obligations under other guarantee agreements which it may enter into from time to time to the extent that (i) such agreements shall be entered into in substantially the form hereof and provide for comparable guarantees by the Guarantor of payment on preferred securities issued by other trusts, partnerships or other entities affiliated with the Guarantor that are financing vehicles of the Guarantor and (ii) the debentures or other evidences of indebtedness of the Guarantor relating to such preferred securities are junior subordinated, unsecured indebtedness of the Guarantor. ARTICLE 7 TERMINATION SECTION 7.01. TERMINATION. This Guarantee Agreement shall terminate and be of no further force and effect (i) upon full payment of the Redemption Price of all Preferred Securities, (ii) upon the distribution of Debentures to Holders and holders of Common Securities in exchange for all of the Preferred Securities and Common Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Preferred Securities or under this Guarantee Agreement. ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 8.01. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Holder for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable -17- care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders might properly be paid. SECTION 8.02. INDEMNIFICATION. To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. SECTION 8.03. SURVIVE TERMINATION. The provisions of Sections 8.01 and 8.02 shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee. ARTICLE 9 MISCELLANEOUS SECTION 9.01. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assignees, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article Ten of the Indenture, the Guarantor shall not assign its obligations hereunder. SECTION 9.02. AMENDMENTS. Except with respect to any changes which do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Guarantor and the Holders of not less than a Majority in liquidation amount of the Preferred Securities. The provisions of Section 12.02 of the Declaration concerning meetings of Holders shall apply to the giving of such approval. SECTION 9.03. NOTICES. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address as the Guarantor may give notice of to the Holders: Litchfield Financial Corporation, 430 Main Street, P.O. Box 488, Williamstown, MA 01267, Telecopy: (413) 458-1020 -18- (b) if given to the Guarantee Trustee, to the address set forth below or such other address as the Guarantee Trustee may give notice of to the Holders: The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Telecopy: (212) 815-5915 (c) if given to any Holder, at the address set forth on the books and records of the Issuer. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04. GENDERS. The masculine, feminine and neuter genders used herein shall include the masculine, feminine and neuter genders. SECTION 9.05. BENEFIT. This Guarantee Agreement is solely for the benefit of the Holders and subject to Section 3.01(a) is not separately transferable from the Preferred Securities. SECTION 9.06. GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS). SECTION 9.07. COUNTERPARTS. This Guarantee Agreement may be executed in counterparts, each of which shall be an original; but such counterparts shall together constitute one and the same instrument. SECTION 9.08. LIMITED LIABILITY. The Holders, in their capacities as such, shall not be personally liable for any liabilities or obligations of the Guarantor arising out of this Guarantee Agreement, and the parties hereby agree that the Holders, in their capacities as such, shall be entitled to the same limitation of personal liability extended to the stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. -19- THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. LITCHFIELD FINANCIAL CORPORATION By:/s/ R. A. Stratton Richard A. Stratton President and Chief Executive Officer THE BANK OF NEW YORK, as Guarantee Trustee By:/s/ Michael Culhane Michael Culhane Vice President HWD2: 551489-2 -20- EX-4 10 Exhibit 4.17 LITCHFIELD FINANCIAL CORPORATION GUARANTEE AGREEMENT LITCHFIELD CAPITAL TRUST I DATED AS OF JUNE 8, 1999 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS SECTION 1.01 DEFINITIONS................................................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION..........................................................6 SECTION 2.02. LISTS OF HOLDERS OF PREFERRED SECURITIES..................................................6 SECTION 2.03. REPORTS BY THE GUARANTEE TRUSTEE..........................................................6 SECTION 2.04. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE.................................................7 SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT ...............................................................................................7 SECTION 2.06. EVENTS OF DEFAULT; WAIVER.................................................................7 SECTION 2.07. DISCLOSURE OF INFORMATION..................................................................7 SECTION 2.08. CONFLICTING INTEREST......................................................................8 ARTICLE 3 POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE SECTION 3.01. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE................................................9 SECTION 3.02. CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE TRUSTEE............................................................................9 SECTION 3.03 .NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.........................................................................11 SECTION 3.04. GUARANTEE TRUSTEE MAY OWN PREFERRED SECURITIES .......................................................................11 SECTION 3.05. MONEYS RECEIVED BY GUARANTEE TRUSTEE TO BE HELD IN TRUST WITHOUT INTEREST.................................................11 SECTION 3.06. GUARANTEE TRUSTEE ENTITLED TO COMPENSATION, REIMBURSEMENT AND INDEMNITY.........................................12 SECTION 3.07. RIGHT OF GUARANTEE TRUSTEE TO RELY ON CERTIFICATE OF OFFICERS OF GUARANTOR WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED........................................12 ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. QUALIFICATIONS...........................................................................12 SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE TRUSTEE...........................................................13 -i- ARTICLE 5 GUARANTEE SECTION 5.01. GUARANTEE................................................................................13 SECTION 5.02. WAIVER OF NOTICE.........................................................................14 SECTION 5.03. OBLIGATIONS NOT AFFECTED.................................................................14 SECTION 5.04. ENFORCEMENT OF GUARANTEE.................................................................15 SECTION 5.05. GUARANTEE OF PAYMENT.....................................................................15 SECTION 5.06. SUBROGATION..............................................................................15 SECTION 5.07. INDEPENDENT OBLIGATIONS..................................................................16 ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. LIMITATION OF TRANSACTIONS...............................................................16 SECTION 6.02. SUBORDINATION............................................................................16 ARTICLE 7 TERMINATION SECTION 7.01. TERMINATION..............................................................................17 ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 8.01. EXCULPATION..............................................................................17 SECTION 8.02. INDEMNIFICATION..........................................................................18 SECTION 8.03. SURVIVE TERMINATION......................................................................18 ARTICLE 9 MISCELLANEOUS SECTION 9.01. SUCCESSORS AND ASSIGNS...................................................................18 SECTION 9.02. AMENDMENTS...............................................................................18 SECTION 9.03. NOTICES..................................................................................18 SECTION 9.04. GENDERS..................................................................................19 SECTION 9.05. BENEFIT..................................................................................19 SECTION 9.06. GOVERNING LAW............................................................................19 SECTION 9.07. COUNTERPARTS.............................................................................19 SECTION 9.08. LIMITED LIABILITY........................................................................19
-ii- GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of June 8, 1999, is executed and delivered by Litchfield Financial Corporation, a Massachusetts corporation (the "Guarantor"), and The Bank of New York, a New York banking corporation, as the initial Guarantee Trustee (as defined herein) for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of Litchfield Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration"), dated as of May 19, 1999 among the trustees of the Issuer named therein, Litchfield Financial Corporation, as Sponsor, and the Holders from time to time of preferred undivided beneficial interests in the assets of the Issuer, the Issuer may issue up to $28,750,000 aggregate liquidation amount of its 10% Series A Trust Preferred Securities (the "Preferred Securities") representing preferred undivided beneficial interests in the assets of the Issuer and having the terms set forth in Exhibit B to the Declaration, of which $1,200,000 aggregate liquidation amount of Preferred Securities is being issued as of the date hereof; and WHEREAS, as incentive for the Holders to purchase Preferred Securities, the Guarantor desires to irrevocably and unconditionally agree, to the extent set forth herein, to pay to the Holders the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the purchase by the initial purchasers thereof of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time. ARTICLE 1 DEFINITIONS SECTION 1.0. DEFINITIONS. (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; -2- (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Commission" means the Securities and Exchange Commission. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer, having the terms set forth in Exhibit C to the Declaration. "Debentures" means the series of unsecured junior subordinated debentures issued by the Guarantor under the Indenture to the Property Trustee and entitled the "10% Series A Junior Subordinated Debentures due 2029." "Declaration" has the meaning set forth in the first WHEREAS clause above. "Distributions" means the periodic distributions and other payments payable to Holders in accordance with the terms of the Preferred Securities set forth in Exhibit B to the Declaration. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payment, any such default shall constitute an Event of Default only if the Guarantor shall have received notice of such default and shall not have cured such default within 60 days after receipt of such notice. "Guarantee Payments" shall mean the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accumulated and unpaid Distributions and the Redemption Price, including all accumulated and unpaid Distributions to, but excluding, the date of redemption, with respect to the Preferred Securities called for redemption by the Issuer but only if and to the extent that in each case the Guarantor has made a payment to the Property Trustee of interest or principal or premium, if any, on the Debentures and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with the distribution of Debentures to Holders in exchange for Preferred Securities or the redemption of all the Preferred Securities upon the maturity or redemption of the Debentures as provided in the -3- Declaration), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer has funds on hand legally available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer as required by applicable law (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means The Bank of New York, a New York banking corporation, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Guarantee Trustee. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Guarantee Trustee, any Affiliate of the Guarantee Trustee, and any officers, directors, shareholders, members, partners, employees, representatives or agents of the Guarantee Trustee. "Indenture" means the Junior Subordinated Indenture dated as of May 19, 1999 between the Guarantor and The Bank of New York, as trustee, as supplemented by the Supplemental Indenture No. 1 thereto dated as of May 19, 1999 (the "Supplemental Indenture"), pursuant to which the Debentures are to be issued to the Property Trustee. "Liquidation Distribution" has the meaning specified in the definition of Guarantee Payments. "Majority in liquidation amount of the Preferred Securities" means, except as otherwise required by the Trust Indenture Act, Holder(s) of outstanding Preferred Securities voting together as a single class, who are the record owners of Preferred Securities whose liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) represents more than 50% of the liquidation amount of all outstanding Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the Comptroller, the Secretary or an Assistant Secretary, of such Person, and delivered to the Guarantee Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 2.04 shall be the principal executive, financial or accounting officer of the Guarantor. Any Officers' Certificate delivered with respect -4- to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (i) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (ii) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (iii) a statement that each officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Securities" has the meaning set forth in the first WHEREAS clause above. "Property Trustee" means the Person acting as Property Trustee under the Declaration. "Redemption Price" means the amount payable on redemption of the Preferred Securities in accordance with the terms of the Preferred Securities. "Responsible Officer" means, when used with respect to the Guarantee Trustee, any officer within the corporate trust department of the Guarantee Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Guarantee Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Guarantee Agreement. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as a Guarantee Trustee under Section 4.01. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. -5- ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. TRUST INDENTURE ACT; APPLICATION. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; (b) if and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by ss.ss.310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control; and (c) the application of the Trust Indenture Act to this Guarantee Agreement shall not affect the nature of the Preferred Securities as equity securities representing preferred undivided beneficial interests in the assets of the Issuer. SECTION 2.02. LISTS OF HOLDERS OF PREFERRED SECURITIES. (a) The Guarantor shall provide the Guarantee Trustee (unless the Guarantee Trustee is otherwise the registrar of the Preferred Securities) (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of such date, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Guarantee Trustee; provided that the Guarantor shall not be obligated to provide such List of Holders at any time that the List of Holders does not differ from the most recent List of Holders given to the Guarantee Trustee by the Guarantor. The Guarantee Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in the List of Holders given to it; provided, that the Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) the Guarantee Trustee shall comply with its obligations under ss.ss.310(b), 311 and 312(b) of the Trust Indenture Act. SECTION 2.03. REPORTS BY THE GUARANTEE TRUSTEE. Within 60 days after January 15 of each year, commencing January 15, 2000, the Guarantee Trustee shall provide to the Holders such reports as are required by ss.313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by ss.313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the other requirements of ss.313 of the Trust Indenture Act. A copy of each such report shall, at the time of such transmission to the Holders, be filed by the Guarantee Trustee with the Company, with each stock exchange upon which any Preferred Securities are listed (if -6- so listed) and also with the Commission. The Company agrees to notify the Guarantee Trustee when any Preferred Securities become listed on any stock exchange and any delisting thereof. SECTION 2.04. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE. The Guarantor shall provide to the Guarantee Trustee, the Commission and the Holders, as applicable, such documents, reports and information as required by ss.314(a)(1)-(3) (if any) of the Trust Indenture Act and the compliance certificates required by ss.314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be provided in the form, in the manner and at the times required by ss.314(a)(4) and (c) of the Trust Indenture Act (provided that any certificate to be provided pursuant to ss.314(a)(4) of the Trust Indenture Act shall be provided within 120 days of the end of each fiscal year of the Issuer). Delivery of such reports, information and documents to the Guarantee Trustee is for informational purposes only and the Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Guarantee Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.05. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement which relate to any of the matters set forth in ss.314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to ss.314(c) may be given in the form of an Officers' Certificate. SECTION 2.06. EVENTS OF DEFAULT; WAIVER. (a) The Holders of a Majority in liquidation amount of the Preferred Securities may, by vote, on behalf of the Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default, or impair any right consequent thereon. (b) The right of any Holder to receive payment of the Guarantee Payments in accordance with this Guarantee Agreement, or to institute suit for the enforcement of any such payment, shall not be impaired without the consent of each such Holder. SECTION 2.07. DISCLOSURE OF INFORMATION. The disclosure of information as to the names and addresses of the Holders in accordance with ss.312 of the Trust Indenture Act, regardless of the source from which such information was derived, shall not be deemed to be a violation of any existing law, or any law hereafter enacted which does not specifically refer to ss.312 of the Trust Indenture Act, nor shall the Guarantee Trustee be held accountable by reason of mailing any material pursuant to a request made under ss.312(b) of the Trust Indenture Act. SECTION 2.08. CONFLICTING INTEREST. The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in ss.310(b) of the Trust Indenture Act. -7- ARTICLE 3 POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE SECTION 3.01. POWERS AND DUTIES OF THE GUARANTEE TRUSTEE. (a) This Guarantee Agreement shall be held by the Guarantee Trustee in trust for the benefit of the Holders. The Guarantee Trustee shall not transfer its right, title and interest in this Guarantee Agreement to any Person except a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Guarantee Trustee or to a Holder exercising his or her rights pursuant to Section 5.04(iv). The right, title and interest of the Guarantee Trustee to this Guarantee Agreement shall vest automatically in each Person who may hereafter be appointed as Guarantee Trustee in accordance with Article 4. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered. (b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders. (c) This Guarantee Agreement and all moneys received by the Property Trustee in respect of the Guarantee Payments will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of, the Guarantee Trustee or its agents or their creditors. (d) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default known to a Responsible Officer of the Guarantee Trustee, transmit by mail, first class postage prepaid, to the Holders, as their names and addresses appear upon the List of Holders, notice of all such Events of Default, unless such defaults shall have been cured before the giving of such notice; provided, that, the Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers, of the Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders. The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default except any Event of Default as to which the Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of this Guarantee Agreement shall have obtained written notice of such Event of Default. (e) The Guarantee Trustee shall continue to serve as a trustee until a Successor Guarantee Trustee has been appointed and accepted that appointment in accordance with Article 4. -8- SECTION 3.02. CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE TRUSTEE. (a) The Guarantee Trustee, before the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Guarantee Trustee; and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof or the Trust Indenture Act are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement or the Trust Indenture Act, as the case may be; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a Majority in liquidation amount of Preferred Securities relating to the time, method and place of -9- conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. (c) Subject to the provisions of Section 3.02(a) and (b): (i) whenever in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate, which, upon receipt of such request, shall be promptly delivered by the Guarantor; (ii) the Guarantee Trustee (A) may consult with counsel (which may be counsel to the Guarantor or any of its Affiliates and may include any of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction; (iii) the Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care; (iv) the Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have offered to the Guarantee Trustee security and indemnity satisfactory to the Guarantee Trustee against the costs, expenses (including its attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided that nothing contained in this clause (iv) shall relieve the Guarantee Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Guarantee Agreement, and to use the same degree of care and skill in this exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and -10- (v) any action taken by the Guarantee T rustee or its agents hereunder shall bind the Holders and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Guarantee Trustee to so act, or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action. SECTION 3.03. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The recitals contained in this Guarantee Agreement shall be taken as the statements of the Guarantor and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Guarantee Agreement. SECTION 3.04. GUARANTEE TRUSTEE MAY OWN PREFERRED SECURITIES. The Guarantee Trustee, in its individual or any other capacity, may become the owner or pledgee of Preferred Securities and may otherwise deal with the Guarantor with the same rights it would have if it were not Guarantee Trustee. SECTION 3.05. MONEYS RECEIVED BY GUARANTEE TRUSTEE TO BE HELD IN TRUST WITHOUT INTEREST. All moneys received by the Guarantee Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Guarantee Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree in writing to pay thereon. SECTION 3.06. GUARANTEE TRUSTEE ENTITLED TO COMPENSATION, REIMBURSEMENT AND INDEMNITY. (a) The Guarantor covenants and agrees to pay to the Guarantee Trustee from time to time, and the Guarantee Trustee shall be entitled to, such compensation as the Guarantor and the Guarantee Trustee shall from time to time agree in writing (which shall not be limited by any provision of law in regard to the compensation of a Guarantee Trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Guarantee Trustee, and the Guarantor will pay or reimburse the Guarantee Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Guarantee Trustee in accordance with any of the provisions of this Guarantee Agreement (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Guarantor also covenants to indemnify each of the Guarantee Trustee or any predecessor Guarantee Trustee and their officers, agents, directors and employees for, and to hold them harmless against, any and all loss, liability, damage, claim or expense including taxes (other than taxes based upon, measured by or determined by the income of the Guarantee -11- Trustee) incurred without negligence or bad faith on the part of the Guarantee Trustee and arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim (whether asserted by the Guarantor, any Holder or any other Person) of liability in the premises. The provisions of this Section 3.06 shall survive the termination of this Guarantee Agreement and resignation or removal of the Guarantee Trustee. (b) The obligations of the Guarantor under this Section 3.06 to compensate and indemnify the Guarantee Trustee and to pay or reimburse the Guarantee Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Preferred Securities upon all property and funds held or collected by the Guarantee Trustee as such, except funds held in trust for the benefit of the holders of particular Preferred Securities. SECTION 3.07. RIGHT OF GUARANTEE TRUSTEE TO RELY ON CERTIFICATE OF OFFICERS OF GUARANTOR WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED. Except as otherwise provided in Section 3.02, whenever in the administration of the provisions of this Guarantee Agreement the Guarantee Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Guarantee Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Guarantee Trustee and such certificate, in the absence of negligence or bad faith on the part of the Guarantee Trustee, shall be full warrant to the Guarantee Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Guarantee Agreement upon the faith thereof. ARTICLE 4 GUARANTEE TRUSTEE SECTION 4.01. QUALIFICATIONS. There shall at all times be a Guarantee Trustee that shall: (i) not be an Affiliate of the Guarantor; and (ii) be a national banking association or corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this clause (ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. -12- If at any time the Guarantee Trustee shall cease to satisfy the requirements of clauses (i) and (ii) above, the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02. If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of ss.310(b) of the Trust Indenture Act, the Guarantee Trustee and the Guarantor shall in all respects comply with the provisions of ss.310(b) of the Trust Indenture Act. SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF THE GUARANTEE TRUSTEE. (a) Subject to Section 4.02(b), the Guarantee Trustee may be appointed or removed without cause by the Guarantor upon 60 days' prior written notice. (b) The Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01 has been appointed and has accepted such appointment by written instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and the Guarantee Trustee being removed. (c) The Guarantee Trustee appointed to office shall hold office until its successor shall have been appointed or until its removal or resignation. (d) The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument (a "Resignation Request") in writing signed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that no such resignation of the Guarantee Trustee shall be effective until a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01 has been appointed and has accepted such appointment by instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (e) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of a notice of removal or a Resignation Request, the Guarantee Trustee being removed or resigning as the case may be may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a Successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.01. ARTICLE 5 GUARANTEE SECTION 5.01. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid -13- by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 5.02. WAIVER OF NOTICE. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Notwithstanding anything to the contrary herein, the Guarantor retains all of its rights under the Indenture to extend the interest payment period on the Debentures and the Guarantor shall not be obligated hereunder to make any Guarantee Payment during any Extended Interest Payment Period (as defined in the Supplemental Indenture) with respect to the Distributions on the Preferred Securities. SECTION 5.03. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions (other than an extension of time for payment of Distributions that result from any Extended Interest Payment Period), Redemption Price, Liquidation Distribution (as defined in the Declaration) or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions that result from any Extended Interest Payment Period); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; -14- (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.03 that the obligations of the Guarantor with respect to the Guarantee Payments shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.04. ENFORCEMENT OF GUARANTEE. The Guarantor and the Guarantee Trustee expressly acknowledge that (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) Holders representing not less than a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or other power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) if the Guarantee Trustee fails to enforce this Guarantee Agreement as provided in clauses (ii) and (iii) above, any Holder may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. Notwithstanding the foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder may directly institute a proceeding against the Guarantor for enforcement of this Guarantee Agreement for such payment without first instituting a legal proceeding against the Issuer, the Guarantee Trustee or any other Person. SECTION 5.05. GUARANTEE OF PAYMENT. This Guarantee Agreement creates a guarantee of payment and not merely of collection. This Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer) or upon the distribution of the Debentures to the Holders as provided in the Declaration. SECTION 5.06. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Issuer in respect of any amounts paid to the Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. -15- SECTION 5.07. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof. ARTICLE 6 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01. LIMITATION OF TRANSACTIONS. So long as any Preferred Securities remain outstanding, the Guarantor agrees that it will not declare or pay dividends on, or redeem, purchase, acquire or make a distribution or liquidation payment with respect to, any of its common stock or preferred stock (other than (a) dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of, common stock of the Guarantor, (b) any declaration of a dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) as a result of a reclassification of the Guarantor's capital stock or the exchange or the conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (d) the payment of accrued dividends and the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged, or (e) purchases of the Guarantor's common stock related to the issuance of the Guarantor's common stock or rights under any of the Guarantor's benefit plans for its directors, officers or employees, any of the Guarantor's dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of the Guarantor's Affiliates, for such Affiliate's directors, officers or employees) or make any guarantee payment with respect thereto, if at such time (i) the Guarantor shall be in default with respect to its Guarantee Payments or other payment obligations hereunder, (ii) there shall have occurred any event of default under the Declaration or (iii) the Guarantor shall have given notice of its election of an Extended Interest Payment Period and such period, or any extension thereof, is continuing. In addition, so long as any Preferred Securities remain outstanding, the Guarantor agrees that it (i) will remain the sole direct or indirect owner of all of the outstanding Common Securities and shall not cause or permit the Common Securities to be transferred except to the extent such transfer is permitted under Section 9.01 of the Declaration; provided that any permitted successor of the Guarantor under the Indenture may succeed to the Guarantor's ownership of the Common Securities and (ii) will use reasonable efforts to cause the Issuer to continue to be treated as a grantor trust for United States federal income tax purposes except in connection with a distribution of Debentures as provided in the Declaration. SECTION 6.02. SUBORDINATION. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, including the Debentures, except those made pari passu or -16- subordinate by their terms, and (ii) senior to all capital stock (other than the most senior preferred stock issued, from time to time, if any, by the Guarantor, which preferred stock will rank pari passu with this Guarantee Agreement) now or hereafter issued by the Guarantor and to any guarantee now or hereafter entered into by the Guarantor in respect of any of its capital stock (other than the most senior preferred stock issued, from time to time, if any, by the Guarantor). The Guarantor's obligations under this Guarantee Agreement will rank pari passu with respect to obligations under other guarantee agreements which it may enter into from time to time to the extent that (i) such agreements shall be entered into in substantially the form hereof and provide for comparable guarantees by the Guarantor of payment on preferred securities issued by other trusts, partnerships or other entities affiliated with the Guarantor that are financing vehicles of the Guarantor and (ii) the debentures or other evidences of indebtedness of the Guarantor relating to such preferred securities are junior subordinated, unsecured indebtedness of the Guarantor. ARTICLE 7 TERMINATION SECTION 7.01. TERMINATION. This Guarantee Agreement shall terminate and be of no further force and effect (i) upon full payment of the Redemption Price of all Preferred Securities, (ii) upon the distribution of Debentures to Holders and holders of Common Securities in exchange for all of the Preferred Securities and Common Securities or (iii) upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Preferred Securities or under this Guarantee Agreement. ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION SECTION 8.01. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Holder for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable -17- care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses or any other facts pertinent to the existence and amount of assets from which Distributions to Holders might properly be paid. SECTION 8.02. INDEMNIFICATION. To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, liability, expense, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. SECTION 8.03. SURVIVE TERMINATION. The provisions of Sections 8.01 and 8.02 shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee. ARTICLE 9 MISCELLANEOUS SECTION 9.01. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assignees, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders then outstanding. Except in connection with a consolidation, merger or sale involving the Guarantor that is permitted under Article Ten of the Indenture, the Guarantor shall not assign its obligations hereunder. SECTION 9.02. AMENDMENTS. Except with respect to any changes which do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Guarantor and the Holders of not less than a Majority in liquidation amount of the Preferred Securities. The provisions of Section 12.02 of the Declaration concerning meetings of Holders shall apply to the giving of such approval. SECTION 9.03. NOTICES. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows: (a) if given to the Guarantor, to the address set forth below or such other address as the Guarantor may give notice of to the Holders: Litchfield Financial Corporation, 430 Main Street, P.O. Box 488, Williamstown, MA 01267, Telecopy: (413) 458-1020 -18- (b) if given to the Guarantee Trustee, to the address set forth below or such other address as the Guarantee Trustee may give notice of to the Holders: The Bank of New York 101 Barclay Street Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Telecopy: (212) 815-5915 (c) if given to any Holder, at the address set forth on the books and records of the Issuer. All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04. GENDERS. The masculine, feminine and neuter genders used herein shall include the masculine, feminine and neuter genders. SECTION 9.05. BENEFIT. This Guarantee Agreement is solely for the benefit of the Holders and subject to Section 3.01(a) is not separately transferable from the Preferred Securities. SECTION 9.06. GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS). SECTION 9.07. COUNTERPARTS. This Guarantee Agreement may be executed in counterparts, each of which shall be an original; but such counterparts shall together constitute one and the same instrument. SECTION 9.08. LIMITED LIABILITY. The Holders, in their capacities as such, shall not be personally liable for any liabilities or obligations of the Guarantor arising out of this Guarantee Agreement, and the parties hereby agree that the Holders, in their capacities as such, shall be entitled to the same limitation of personal liability extended to the stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. -19- THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. LITCHFIELD FINANCIAL CORPORATION By:/s/ R. A. Stratton Richard A. Stratton President and Chief Executive Officer THE BANK OF NEW YORK, as Guarantee Trustee By:/s/ Michael Culhane Michael Culhane Vice President HWD2: 555183-1 -20- EX-10 11 Exhibit10.193 AMENDMENT NO. 1 TO INDENTURE OF TRUST (this "Amendment"), dated as of March 1, 1999, by and between LITCHFIELD HYPOTHECATION CORP. 1997-B, a corporation organized under the laws of the State of Delaware (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee (together with its permitted successors in the trusts hereunder, the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and the Trustee are parties to an Indenture of Trust, dated as of August 1, 1997 (the "Indenture"), providing for the issuance by the Issuer from time to time of its Hypothecation Loan Collateralized Notes in an aggregate outstanding principal amount not to exceed $45,295,000 (collectively, the "Notes"); WHEREAS, pursuant to the Indenture, the Issuer has pledged and assigned all of the Issuer's right, title and interest in and to the Trust Estate to the Trustee as security for the Notes; WHEREAS, on the Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $25,465,228.47 which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, the Issuer desires to issue additional Series A Notes in an initial aggregate principal amount of $7,240,512.37 (the "Additional Series A Notes"), to authorize the Trustee to authenticate and deliver the Additional Series A Notes to the Purchaser and to increase the aggregate principal amount of Notes that may be issued pursuant to the Indenture to $61,000,000; WHEREAS, as security for the Additional Series A Notes and all other Notes now or from time to time hereafter outstanding, the Issuer desires to pledge and assign the additional loans specified on Schedule A hereto (the "Additional Loans") and the Loan Collateral and related assets (but excluding Unassigned Rights) relating to the Additional Loans to the Trustee as additional assets comprising the Trust Estate; WHEREAS, the Purchaser, Litchfield Financial Corporation and Berkshire Bank and Green Tree Financial Servicing Corporation, as the Holders of 100% of the aggregate outstanding principal amount of the Notes on the date hereof have consented to the execution and delivery of this Amendment by the parties hereto; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Issuer and the Trustee agree as follows; 1. Amendments. (a) Schedule 1 to the Indenture is hereby amended and restated in its entirety by the revised Schedule 1 attached hereto as Exhibit A, and all references to Schedule 1 in the Indenture and Appendix A incorporated by reference therein shall refer to Schedule 1 as so amended and restated. (b) The Indenture is further amended to provide that each and every Additional Loan shall be deemed a "Loan" for all purposes of the Indenture and Appendix A incorporated by reference therein and all references to a "Loan" and the "Loans" in the Indenture and Appendix A incorporated by reference therein shall include each Additional Loan. (c) Appendix A as incorporated by reference into the Indenture is hereby amended by the addition of the term "Second Closing Date" as follows: "Second Closing Date" shall mean March 23, 1999." (d) Clause (iii) of the definition of "List of Loans" in Appendix A as incorporated by reference into the Indenture is hereby amended by the addition of the following at the end thereof: "(or, with respect to Loans contributed to the Trust Estate after the Closing Date, the first day of the month in which such Loans are contributed to the Trust Estate).". (e) The definition of "Note Limit" in Appendix A as incorporated by reference into the Indenture is hereby amended to read as follows: "'Note Limit' shall mean $61,000,000." (f) Section 2.1 of the Indenture is hereby amended by the addition of the following sentence at the end thereof: "The Trustee is hereby authorized on the Second Closing Date to authenticate and deliver to the Purchaser Series A Notes in the initial principal amount of $7,240,512.37. (f) The first recital and Section 2.3 of the Indenture are hereby amended by deleting the references to "$45,295,000" contained therein and replacing the same with "$61,000,000." (g) Section 2.4(i) of the Indenture is hereby amended by deleting the reference to "$750,000" contained therein and replacing the same with "$100,000." (h) Clause (b) (i) of Section 2.9 of the Indenture is hereby amended to read as follows: "August 28, 1997 in the case of the Series A Notes issued and authenticated on the Closing Date and March 23, 1999, in the case of the Series A Notes issued and authenticated on the Second Closing Date, and." 2. Further Agreements. The parties each agree to execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Amendment. 3. Costs and Expenses. The Issuer shall reimburse the Trustee for the reasonable costs and expenses, including costs and expenses of counsel, incurred by Trustee in connection with this Amendment. 4. Indenture in Full Force and Effect. The amendments set forth herein are limited precisely as written and shall not be deemed to (i) modify any other term or condition of the Indenture or (ii) prejudice any right the Noteholders may have now or in the future under or in connection with the Notes, the Indenture or any related document or agreement. Except as expressly amended hereby, the Indenture shall remain unchanged and in full force and effect. 5. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof. 6. Successors and Assigns. All covenants and agreements in this Amendment by the Issuer shall bind its successors and assigns, whether so expressed or not. 7. Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 8. Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflict-of-law provisions thereof. 9. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Amendment to be duly executed by their duly authorized officers all as of the day and year first above written. THE CHASE MANHATTAN BANK as Trustee By: /s/ Cynthia Kerpen Title: Vice President LITCHFIELD HYPOTHECATION CORP. 1997-B By: /s/ Heather A. Sica Title: Executive Vice President EX-10 12 Exhibit 10.194 AMENDMENT NO. 2 TO INDENTURE OF TRUST (this "Amendment"), dated as of June 1, 1999, by and between LITCHFIELD HYPOTHECATION CORP. 1997-B, a corporation organized under the laws of the State of Delaware (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee (together with its permitted successors in the trusts hereunder, the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and the Trustee are parties to an Indenture of Trust, as amended, dated as of August 1, 1997 (the "Indenture"), providing for the issuance by the Issuer from time to time of its Hypothecation Loan Collateralized Notes in an aggregate outstanding principal amount not to exceed $61,000,000 (collectively, the "Notes"); WHEREAS, pursuant to the Indenture, the Issuer has pledged and assigned all of the Issuer's right, title and interest in and to the Trust Estate to the Trustee as security for the Notes; WHEREAS, on the Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $25,465,228.47 which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, on the Second Closing Date, the Issuer issued Series A Notes in an aggregate principal amount of $7,240,512.37 which Series A Notes were authenticated and delivered by the Trustee to the Union Bank of California, N.A. ("Union Bank"); WHEREAS, the Issuer desires to issue additional Series A Notes in an initial aggregate principal amount of $1,776,419.96 (the "Additional Series A Notes"), to authorize the Trustee to authenticate and deliver the Additional Series A Notes to the Purchaser and to increase the aggregate principal amount of Notes that may be issued pursuant to the Indenture to $64,000,000; WHEREAS, as security for the Additional Series A Notes and all other Notes now or from time to time hereafter outstanding, the Issuer desires to pledge and assign the additional loan specified on Schedule A hereto (the "Additional Loan") and the Loan Collateral and related assets (but excluding Unassigned Rights) relating to the Additional Loan to the Trustee as additional assets comprising the Trust Estate; WHEREAS, the Purchaser, Litchfield Financial Corporation, Berkshire Bank, Green Tree Financial Servicing Corporation and Union Bank, as the Holders of 100% of the aggregate outstanding principal amount of the Notes on the date hereof have consented to the execution and delivery of this Amendment by the parties hereto; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Issuer and the Trustee agree as follows; 10. Amendments. (a) Schedule 1 to the Indenture is hereby amended and restated in its entirety by the revised Schedule 1 attached hereto as Exhibit A, and all references to Schedule 1 in the Indenture and Appendix A incorporated by reference therein shall refer to Schedule 1 as so amended and restated. (c) The Indenture is further amended to provide that the Additional Loan shall be deemed a "Loan" for all purposes of the Indenture and Appendix A incorporated by reference therein and all references to a "Loan" and the "Loans" in the Indenture and Appendix A incorporated by reference therein shall include each Additional Loan. (c) Appendix A as incorporated by reference into the Indenture is hereby amended by the addition of the term "Third Closing Date" as follows: "Third Closing Date" shall mean June 28, 1999." (g) The definition of "Note Limit" in Appendix A as incorporated by reference into the Indenture is hereby amended to read as follows: "'Note Limit' shall mean $64,000,000." (h) Section 2.1 of the Indenture is hereby amended by the addition of the following sentence at the end thereof: "The Trustee is hereby authorized on the Third Closing Date to authenticate and deliver to Union Bank the Series A Notes in the initial principal amount of $1,776,419.96. (f) The first recital and Section 2.3 of the Indenture as amended are hereby amended by deleting the references to "$61,000,000" contained therein and replacing the same with "$64,000,000." (g) Clause (b) (i) of Section 2.9 of the Indenture is hereby amended to read as follows: "August 28, 1997 in the case of the Series A Notes issued and authenticated on the Closing Date, March 23, 1999, in the case of the Series A Notes issued and authenticated on the Second Closing Date, and June 28, 1999, in the case of the Third Closing Date, and. 11. Further Agreements. The parties each agree to execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Amendment. 12. Costs and Expenses. The Issuer shall reimburse the Trustee for the reasonable costs and expenses, including costs and expenses of counsel, incurred by Trustee in connection with this Amendment. 13. Indenture in Full Force and Effect. The amendments set forth herein are limited precisely as written and shall not be deemed to (i) modify any other term or condition of the Indenture or (ii) prejudice any right the Noteholders may have now or in the future under or in connection with the Notes, the Indenture or any related document or agreement. Except as expressly amended hereby, the Indenture shall remain unchanged and in full force and effect. 14. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof. 15. Successors and Assigns. All covenants and agreements in this Amendment by the Issuer shall bind its successors and assigns, whether so expressed or not. 16. Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 17. Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflict-of-law provisions thereof. 18. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Amendment to be duly executed by their duly authorized officers all as of the day and year first above written. THE CHASE MANHATTAN BANK as Trustee By: /s/ Cynthia Kerpen Title: Vice President LITCHFIELD HYPOTHECATION CORP. 1997-B By: /s/ Heather A. Sica Title: Executive Vice President EX-10 13 Exhibit 10.195 AMENDMENT NO. 3 TO INDENTURE OF TRUST (this "Amendment"), dated as of March 1, 1999, by and between LITCHFIELD HYPOTHECATION CORP. 1998-A, a corporation organized under the laws of the State of Delaware (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee (together with its permitted successors in the trusts hereunder, the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and the Trustee are parties to an Indenture of Trust, dated as of June 1, 1998 as amended by Amendment No. 1 thereto dated as of September 1, 1998 and Amendment No. 2 thereto dated as of November 1 1998 (the "Indenture"), providing for the issuance by the Issuer from time to time of its Hypothecation Loan Collateralized Notes in an aggregate outstanding principal amount not to exceed $55,000,000 (collectively, the "Notes"); WHEREAS, pursuant to the Indenture, the Issuer has pledged and assigned all of the Issuer's right, title and interest in and to the Trust Estate to the Trustee as security for the Notes; WHEREAS, on the Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $10,027,636.73 which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, on the Second Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $2,121,981.93, which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, on the Third Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $7,792,239.88, which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, the Issuer desires to issue additional Series A Notes in an initial aggregate principal amount of $5,941,548.14 (the "Additional Series A Notes"), to authorize the Trustee to authenticate and deliver $5,000,000 original principal amount of the Additional Series A Notes to the BSB Bank & Trust and $941,548.14 original principal amount of the Additional Series A Notes to Litchfield Financial Corporation ("Litchfield") and to increase the aggregate principal amount of Notes that may be issued pursuant to the Indenture to $95,000,000; WHEREAS, as security for the Additional Series A Notes and all other Notes now or from time to time hereafter outstanding, the Issuer desires to pledge and assign the additional loans specified on Schedule A hereto (the "Additional Loans") and the Loan Collateral and related assets (but excluding Unassigned Rights) relating to the Additional Loans to the Trustee as additional assets comprising the Trust Estate; WHEREAS, the Purchaser and Litchfield, as the Holders of 100% of the aggregate outstanding principal amount of the Notes on the date hereof have consented to the execution and delivery of this Amendment by the parties hereto; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Issuer and the Trustee agree as follows; 19. Amendments. (a) Schedule 1 to the Indenture is hereby amended and restated in its entirety by the revised Schedule 1 attached hereto as Exhibit A, and all references to Schedule 1 in the Indenture and Appendix A incorporated by reference therein shall refer to Schedule 1 as so amended and restated. (d) The Indenture is further amended to provide that each and every Additional Loan shall be deemed a "Loan" for all purposes of the Indenture and Appendix A incorporated by reference therein and all references to a "Loan" and the "Loans" in the Indenture and Appendix A incorporated by reference therein shall include each Additional Loan. (c) Appendix A as incorporated by reference into the Indenture is hereby amended by the addition of the term "Fourth Closing Date" as follows: "Fourth Closing Date" shall mean March 23, 1999." (i) Clause (iii) of the definition of "List of Loans" in Appendix A as incorporated by reference into the Indenture is hereby amended by the addition of the following at the end thereof: "(or, with respect to Loans contributed to the Trust Estate after the Closing Date, the first day of the month in which such Loans are contributed to the Trust Estate).". (j) The definition of "Note Limit" in Appendix A as incorporated by reference into the Indenture is hereby amended to read as follows: "'Note Limit' shall mean $95,000,000." (k) Section 2.1 of the Indenture is hereby amended by the addition of the following sentence at the end thereof: "The Trustee is hereby authorized on the Fourth Closing Date to authenticate and deliver (i) to BSB Bank & Trust Series A Notes in the initial principal amount of $5,000,000 and (ii) to Litchfield Series A Notes in the initial principal amount of $941,548.14. (g) The first recital and Section 2.3 of the Indenture are hereby amended by deleting the references to "$55,000,000" contained therein and replacing the same with "$95,000,000." (h) Clause (b) (i) of Section 2.9 of the Indenture is hereby amended to read as follows: "June 29, 1998 in the case of the Series A Notes issued and authenticated on the Closing Date, September 13, 1998 in the case of the Series A Notes issued and authenticated on the Second Closing Date, November 20, 1998 in the case of the Series A Notes issued and authenticated on the Third Closing Date, and March 23, 1999 in the case of the Series A Notes issued and authenticated on the Fourth Closing Date ." 20. Further Agreements. The parties each agree to execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Amendment. 21. Costs and Expenses. The Issuer shall reimburse the Trustee for the reasonable costs and expenses, including costs and expenses of counsel, incurred by Trustee in connection with this Amendment. 22. Indenture in Full Force and Effect. The amendments set forth herein are limited precisely as written and shall not be deemed to (i) modify any other term or condition of the Indenture or (ii) prejudice any right the Noteholders may have now or in the future under or in connection with the Notes, the Indenture or any related document or agreement. Except as expressly amended hereby, the Indenture shall remain unchanged and in full force and effect. 23. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof. 24. Successors and Assigns. All covenants and agreements in this Amendment by the Issuer shall bind its successors and assigns, whether so expressed or not. 25. Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 26. Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflict-of-law provisions thereof. 27. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Amendment to be duly executed by their duly authorized officers all as of the day and year first above written. THE CHASE MANHATTAN BANK as Trustee By: /s/ Cynthia Kerpen Title: Vice President LITCHFIELD HYPOTHECATION CORP. 1998-A By: /s/ Heather A. Sica Title: Executive Vice President EX-10 14 Exhibit10.196 AMENDMENT NO. 4 TO INDENTURE OF TRUST (this "Amendment"), dated as of June 1, 1999, by and between LITCHFIELD HYPOTHECATION CORP. 1998-A, a corporation organized under the laws of the State of Delaware (the "Issuer"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee (together with its permitted successors in the trusts hereunder, the "Trustee"). W I T N E S S E T H: WHEREAS, the Issuer and the Trustee are parties to an Indenture of Trust, dated as of June 1, 1998 as amended by Amendment No. 1 thereto dated as of September 1, 1998, Amendment No. 2 thereto dated as of November 1, 1998 and Amendment No. 3 thereto dated as of March 1, 1999 (the "Indenture"), providing for the issuance by the Issuer from time to time of its Hypothecation Loan Collateralized Notes in an aggregate outstanding principal amount not to exceed $95,000,000 (collectively, the "Notes"); WHEREAS, pursuant to the Indenture, the Issuer has pledged and assigned all of the Issuer's right, title and interest in and to the Trust Estate to the Trustee as security for the Notes; WHEREAS, on the Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $10,027,636.73 which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, on the Second Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $2,121,981.93, which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, on the Third Closing Date, the Issuer issued Series A Notes in an initial aggregate principal amount of $7,792,239.88, which Series A Notes were authenticated and delivered by the Trustee to the Purchaser; WHEREAS, on the Fourth Closing Date, the Issuer issued two Series A Notes, one in an initial aggregate principal amount of $941,548.14, which Series A Notes was authenticated and delivered by the Trustee to the Purchaser and a second in an aggregate principal amount of $5,000,000.00, which Series A Note was authenticated and delivered by the Trustee to BSB Bank & Trust; WHEREAS, the Issuer desires to issue additional Series A Notes in an initial aggregate principal amount of $4,850,190.71 (the "Additional Series A Notes"), to authorize the Trustee to authenticate and deliver the Additional Series A Notes to the Purchaser and to increase the aggregate principal amount of Notes that may be issued pursuant to the Indenture to $110,000,000; WHEREAS, as security for the Additional Series A Notes and all other Notes now or from time to time hereafter outstanding, the Issuer desires to pledge and assign the additional loan specified on Schedule A hereto ("the Additional Loan") and the Loan Collateral and related assets (but excluding Unassigned Rights) relating to the Additional Loan to the Trustee as additional assets comprising the Trust Estate; WHEREAS, the Purchaser, Litchfield Financial Corporation, MetroWest Bank and BSB Bank & Trust, as the Holders of 100% of the aggregate outstanding principal amount of the Notes on the date hereof have consented to the execution and delivery of this Amendment by the parties hereto; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Issuer and the Trustee agree as follows; 28. Amendments. (a) Schedule 1 to the Indenture is hereby amended and restated in its entirety by the revised Schedule 1 attached hereto as Exhibit A, and all references to Schedule 1 in the Indenture and Appendix A incorporated by reference therein shall refer to Schedule 1 as so amended and restated. (b) The Indenture is further amended to provide that the Additional Loan shall be deemed a "Loan" for all purposes of the Indenture and Appendix A incorporated by reference therein and all references to a "Loan" and the "Loans" in the Indenture and Appendix A incorporated by reference therein shall include each Additional Loan. (c) Appendix A as incorporated by reference into the Indenture is hereby amended by the addition of the term "Fifth Closing Date" as follows: "Fifth Closing Date" shall mean June 28, 1999." (l) The definition of "Note Limit" in Appendix A as incorporated by reference into the Indenture is hereby amended to read as follows: "'Note Limit' shall mean $110,000,000." (m) Section 2.1 of the Indenture is hereby amended by the addition of the following sentence at the end thereof: "The Trustee is hereby authorized on the Fifth Closing Date to authenticate and deliver (i) to Purchaser the Series A Notes in the initial principal amount of $4,850,190.71." (g) The first recital and Section 2.3 of the Indenture are hereby amended by deleting the references to "$95,000,000" contained therein and replacing the same with "$110,000,000." (h) Clause (b) (i) of Section 2.9 of the Indenture is hereby amended to read as follows: "June 29, 1998 in the case of the Series A Notes issued and authenticated on the Closing Date, September 13, 1998 in the case of the Series A Notes issued and authenticated on the Second Closing Date, November 20, 1998 in the case of the Series A Notes issued and authenticated on the Third Closing Date, March 23, 1999 in the case of the Series A Notes issued and authenticated on the Fourth Closing Date and June 28, 1999 in the case of the Series A Notes issued and authenticated on the Fifth Closing Date." 29. Further Agreements. The parties each agree to execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Amendment. 30. Costs and Expenses. The Issuer shall reimburse the Trustee for the reasonable costs and expenses, including costs and expenses of counsel, incurred by Trustee in connection with this Amendment. 31. Indenture in Full Force and Effect. The amendments set forth herein are limited precisely as written and shall not be deemed to (i) modify any other term or condition of the Indenture or (ii) prejudice any right the Noteholders may have now or in the future under or in connection with the Notes, the Indenture or any related document or agreement. Except as expressly amended hereby, the Indenture shall remain unchanged and in full force and effect. 32. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof. 33. Successors and Assigns. All covenants and agreements in this Amendment by the Issuer shall bind its successors and assigns, whether so expressed or not. 34. Severability. In case any provision in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 35. Governing Law. This Amendment shall be construed in accordance with and governed by the laws of the State of New York, without regard to the conflict-of-law provisions thereof. 36. Counterparts. This Amendment may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Amendment to be duly executed by their duly authorized officers all as of the day and year first above written. THE CHASE MANHATTAN BANK as Trustee By: /s/ Cynthia Kerpen Title: Vice President LITCHFIELD HYPOTHECATION CORP. 1998-A By: /s/ Heather A. Sica Title: Executive Vice President EX-10 15 Exhibit10.197 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") dated as of May 28, 1999 by and between Litchfield Financial Corporation, a Massachusetts corporation having its chief executive offices at 430 Main Street, Williamstown, Massachusetts 01267, LFC Realty, Inc., a Delaware corporation having its chief executive offices at 430 Main Street, Williamstown, Massachusetts 01267 (hereinafter referred to, individually and collectively, as the "Borrower") and MetroWest Bank, a Massachusetts savings bank having its chief executive offices at 15 Park Street, Framingham, Massachusetts 01701 (the "Bank"); W I T N E S S E T H: Recitals On the terms and subject to the conditions set forth in this Agreement, the Bank has agreed to provide to the Borrower a secured revolving credit facility. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: S1. DEFINITIONS AND RULES OF INTERPRETATION. S2. Definitions. In addition to those terms which are defined elsewhere in this Agreement, the following terms contained in this Agreement shall have the meanings set forth below. Agreement has the meaning specified in the Preamble and all amendments, modifications, restatements and supplements hereto. Availability means, at the time of reference, an amount equal to the lesser of (a) the Bank's Credit Commitment, and (b) the Collateral Value of the Borrowing Base. Balance Sheet Date means December 31, 1998. Borrowing Base means the borrowing base amount determined by the Bank pursuant to S3 hereof. Borrowing Base Certificate means a Borrowing Base Certificate in substantially the form of Exhibit B hereto. Business Day means any day which is not a Saturday, Sunday or any other day on which banking institutions in Boston, Massachusetts are permitted or required by law to remain closed. Closing Date means May 28, 1999. Collateral means all property, and all proceeds thereof, from time to time subject to the security interests created hereby securing the indebtedness evidenced by the Note and the other obligations of the Borrower hereunder, including, without limitation, the following: (1) All Mortgage Loans, Mortgage Notes, Mortgages and other Collateral Documents deposited with or possessed by or for the account of the Bank hereunder, or held for delivery to the Bank hereunder, or delivered by the Bank to the Borrower or a purchaser for purposes of correction or sale, and all proceeds thereof; (2) All payments and prepayments of principal, interest and other income due or to become due on all Mortgage Loans, and all proceeds therefrom, and the benefits and proceeds and all the right, title and interest of every nature whatsoever of the Borrower in and to such property including, without limitation, the following: S2.1. All rights, liens and security interests existing with respect to, or as security for, all Mortgage Loans; S2.2. All hazard insurance policies, title insurance policies and condemnation proceeds with respect to any Mortgage Notes and with respect to property securing any Mortgage Loans; and S2.3. All prepayment premiums and late payment charges; (3) All files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records, and other records, information and data of the Borrower relating to Mortgage Loans and necessary or desirable for the Bank to have to administer, service or sell such Mortgage Loans; (4) The Proceeds Account; (5) All other Related Assets; and (6) Any other property and proceeds thereof that may, from time to time hereafter, be subject to the security interests created by the Loan Documents. Collateral Documents means those documents required to be delivered to the Bank in order for Mortgage Loans to be deemed to be Qualified Mortgage Collateral. Collateral Value means, with respect to any Qualified Mortgage Collateral, an amount equal to the aggregate of (a) sixty-five percent (65%) of the Origination Price of any Pre-Sold Mortgage Loans and (b) fifty percent (50%) of the Origination Price of any Spec Mortgage Loans. Credit means the line of credit established by this Agreement. Credit Commitment means the Bank's commitment to make Loans to the Borrower in the maximum aggregate amount of $5,000,000.00, as the same may be reduced from time to time pursuant to the terms of the Agreement. Default has the meaning set forth in S11 hereof. Drawdown Date means the date on which any Loan is made or is to be made. Event of Default has the meaning set forth in S11 hereof. Financing Statements means financing statements for filing under the Uniform Commercial Code necessary to perfect the Bank's security interests in the Collateral. Generally Accepted Accounting Principles or GAAP means, (1) when used in general, principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, as shall be concurred in by independent certified public accountants of recognized standing whose report expresses an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been applied; and (2) when used with reference to the Borrower, such principles shall include (to the extent consistent with such principles) the accounting practices reflected in the financial statements for the year ended on the Balance Sheet Date. Indebtedness means all obligations, contingent and otherwise, that in accordance with generally accepted accounting principles should be classified upon the obligor's balance sheet as liabilities, or to which reference should be made by footnotes thereto, including, in any event and whether or not so classified: (a) all debt and similar monetary obligations, whether direct or indirect; (b) all liabilities secured by any mortgage, pledge, security interest, lien, charge, or other encumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; and (c) all guarantees, endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including any obligation to supply funds to or in any manner to invest in, directly or indirectly, the debtor, to purchase indebtedness, or to assure the owner of indebtedness against loss, through an agreement to purchase goods, supplies, or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and the obligations to reimburse the issuer in respect of any letters of credit. Loan Documents means this Agreement, the Security Documents and the Note. Loan or Loans means the loans made by the Bank to the Borrower pursuant to this Agreement. Loan Request means a written request for a Loan made pursuant to S2.5 of this Agreement, substantially in the form of Exhibit C hereto. Mortgage means a mortgage or deed of trust on a real property. Mortgage Collateral means Mortgage Notes pledged to the Bank by the Borrower pursuant to this Agreement. Mortgage Loan means a loan secured by a Mortgage. Mortgage Note means a note, bond or other evidence of indebtedness secured by a Mortgage. Net Proceeds means the total amount of proceeds realized by the Borrower or seller (as appropriate) on account of any sale or other disposition of any Mortgage Loan or Underlying Property, minus any reasonable customary closing costs, approved by the Bank in each instance (in its reasonable discretion) normally associated with said disposition. Note means the promissory note delivered to the Bank pursuant to this Agreement, substantially in the form of Exhibit D hereto, including all amendments and allonges thereto and any replacements and renewals thereof. Obligations means all indebtedness, obligations and liabilities of the Borrower to the Bank under this Agreement or any of the other Loan Documents or in respect of any of the Loans or the Note or other instruments at any time evidencing any thereof, whether existing on the date of this Agreement or arising or incurred hereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise. Origination Price means the unpaid principal amount of a Mortgage Note. Pre-Sold Mortgage Loan means those Mortgage Loans for which the Underlying Property is the subject of a Purchase and Sale Agreement, to which the Borrower has certified certain terms thereof to the Bank substantially in the form of Exhibit A hereto. Pre-Sold Mortgage Loan Certificate means a Pre-Sold Mortgage Loan Certificate in substantially the form of Exhibit A hereto. Proceeds Account means a non-interest paying demand deposit account established for the Borrower with the Bank in which the Bank is granted a security interest. Such account shall be in the name of the Bank and only the Bank will have the right to withdraw funds from such account. Purchase and Sale Agreement means an arms-length, fair market value agreement between the mortgagor of any Mortgage Loan and a bona-fide third party purchaser of the Underlying Property to which the purchaser has agreed to buy and the mortgagor has agreed to sell. Qualified Mortgage Collateral means a Mortgage Loan satisfying the following requirements: (1) The following documents have been delivered to the Bank: (a) The original Mortgage Note endorsed in blank by the Borrower. (b) A true copy of Mortgage, with evidence of appropriate recording and/or filing. (c) An executed assignment from the Borrower in recordable form of the Mortgage securing the Mortgage Note. All prior and interim assignments of the Mortgage shall have been duly recorded if, in the opinion of the Bank, local requirements require recordation. If a recorded assignment is required but not yet available, the Borrower shall instead deliver a copy of each such assignment and either an Officer's Certificate certifying that such copy is a true copy and that such assignment has been duly recorded or delivered for recordation or evidence of a recorder's receipt. (d) A marked-up title policy or a title insurance binder or title certificate which is in full force and effect and meets the requirements of subsection (ii)(b), below. (2) Within thirty (30) days after initial delivery of such Mortgage Notes a mortgagee title insurance policy insuring that the Mortgage is a valid first lien on the real estate and being otherwise acceptable to the Bank in its discretion as to insurer, form and content shall be delivered to the Bank. (3) Such Mortgage Loan is a binding and valid obligation of the obligor thereon, in full force and effect and enforceable in accordance with its terms. (4) Such Mortgage Loan is free of any default of any party thereto (including the Borrower), counterclaims, offsets and defenses and from any rescission, cancellation or avoidance, and all right thereof, whether by operation of law or otherwise. (5) No payment under such Mortgage Loan is more than thirty (30) days past due. (6) Such Mortgage Loan is in all respects as required by and in accordance with all applicable laws, and regulations governing the same, including, without limitation, Fair Credit Reporting Act and Regulations, the Federal Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the Federal Real Estate Settlement Procedures Act and Regulation X, the Federal Debt Collection Practices Act and any federal or state usury laws and regulations. All disclosures required by law, federal, state or local, were properly made by the Borrower (or, to the best of Borrower's knowledge, by the respective loan originator) prior to the closing of the Mortgage Loan. (7) All advance payments and other deposits on such Mortgage Loan have been paid in cash, and no part of such sums has been loaned, directly or indirectly, by the Borrower to the obligor thereon. (8) At all times such Mortgage Loan will be owned by the Borrower free and clear of all liens, encumbrances, charges, rights and interests of any kind, except pursuant to this Agreement, and the Bank has a perfected security interest in such Mortgage Loan. (9) An appraisal has been obtained by the Borrower as of a date which is no later than ninety (90) days prior to the origination of the subject Mortgage Loan, and such appraisal satisfies all appraisal requirements specified in 12 CFR 34.1 through 34.47 and requirements of other bank regulatory agencies. (10) Such Mortgage Loan is genuine, in all respects as appearing on its face or as represented in the books and records of the Borrower, and all information set forth therein is true and correct, and the current principal balance reflects only proceeds of such Mortgage Loan which have been fully disbursed. (11) The property covered by such Mortgage Loan is insured against loss or damage by fire and all other hazards normally included within standard extended coverage in accordance with the provisions of such Mortgage Loan with the Borrower named as loss payee thereon, and the Borrower has furnished a letter of certification to the Bank (to be renewed annually) indicating that fire and hazard insurance will be held on behalf of the Bank for each Mortgage Loan. (12) The property covered by such Mortgage Loan is free and clear of all liens except in favor of the Borrower (which has assigned any and all such liens to the Bank) and (1) the lien of current real property taxes and assessments not yet due and payable; (2) covenants, conditions and restrictions, rights of way, easements and other matters of the public record, as of the date of recording, acceptable to mortgage lending institutions generally and specifically referred to in a lender's title insurance policy delivered to the Borrower and (i) referred to or otherwise considered in the appraisal made for the Borrower or (ii) which do not materially adversely affect the appraised value of such property as set forth in such appraisal; and (3) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by such Mortgage Loan or the use, enjoyment, value or marketability of the related property. (13) Such Mortgage Loan was underwritten in compliance with the Underwriting Standards set forth on Exhibit F hereto. (14) The Mortgage Note requires monthly payments of principal and/or interest, has a maximum maturity date of thirty years from its origination, and either (A) fully amortizes over the term thereof, or (B) provides for the amortization of principal over no greater than a thirty (30) year schedule. (15) Such Mortgage Loan is otherwise satisfactory to the Bank. (16) There is no agreement with the mortgagor regarding any variation of the interest rate and schedules of payment (except as described in the Mortgage Note and Mortgage) or other terms and conditions of the Mortgage Loan, no mortgagor has been released from liability on the Mortgage Note, and no property has been released from the Mortgage (except in consideration of an appropriate proportionate principal payment which is reflected in the books and records of the Borrower). If the Mortgage Loan is a variable rate loan, the Borrower represents and warrants as of each Drawdown Date that all applicable notices required by law or regulation have been provided to the mortgagor and that the right to future changes in the interest rate and payment schedules has not been waived by the Borrower or any previous holder of the Mortgage Loan. (17) There are no mechanic's lien or similar liens or claims which have been filed for work, labor or material affecting the subject property which are or may be liens prior to or equal with the lien of the Mortgage. (18) The subject property is free of material damage and waste and is in average repair and there is no proceeding pending or threatened for the total or partial condemnation of the subject property, and the subject property is free and clear of all hazardous material to the best of Borrower's knowledge. (19) The Borrower has no knowledge of any fact as to any Mortgage Loan which it has failed to disclose which would materially and adversely affect the value or marketability of such Mortgage Loan. (20) The Borrower has no knowledge of any impediments to title that adversely affect the value, enjoyment or marketability of the Underlying Property. (21) Intentionally omitted. (22) To the best of Borrower's knowledge, no hazardous or toxic materials or wastes or products regulated by law or ordinance or asbestos or asbestos products or materials or polychlorinated biphenyls or urea formaldehyde insulation have ever been used or employed in the construction, use or maintenance of the Underlying Property or have ever been stored, treated at or disposed of on the Underlying Property. However, in the event it has been determined that asbestos or asbestos products or asbestos materials have been used or employed in construction, use, or maintenance of the Underlying Property, a duly qualified appraiser or engineer must state that the material is in good repair or has been removed. (23) To the best of Borrower's knowledge, there has not occurred nor has any person or entity alleged that there has occurred upon the Underlying Property any spillage, leakage, discharge or release into the air, soil or groundwater of any hazardous materials or regulated wastes. (24) All taxes, filing fees and similar fees assessed by any state or local authority in connection with the execution, delivery or recording of the Mortgage have been paid. Related Assets means any and all documents, instruments, collateral agreements and assignments and endorsements for all documents, instruments and collateral agreements, referred to in the Mortgage Notes and/or Mortgages or related thereto, including, without limitation, guaranties, current insurance policies (flood insurance, if applicable; hazard insurance; title insurance and other applicable insurance policies) covering the subject property or relating to the Mortgage Notes and all files, books, papers, ledger cards, reports and records, including, without limitation, loan applications, mortgagor financial statements, credit reports and appraisals, relating to the Mortgage Loans. In all cases, the Related Assets shall be the original documents. Security Documents means all documents delivered to the Bank which evidence the Obligations and Collateral therefor. Spec Mortgage Loans means those Mortgage Loans to which the Underlying Property is not the subject of a Purchase and Sale Agreement. The Borrower agrees that Spec Mortgage Loans will account for not more than 40% of all Qualified Mortgage Loans. In the event that the aggregate of all Spec Mortgage Loans exceeds 40% of the Qualified Mortgage Loans, such additional Spec Mortgage Loans will not be available for inclusion in the Collateral Value. Termination Date means the date which is the earlier to occur of (i) 729 days after the Closing Date or (ii) the date on which the Bank accelerates the Obligations as the result of the occurrences of an Event of Default. Transmittal Letter means a letter from the Borrower to the Bank substantially in the form of Exhibit E hereto. Underlying Property means a parcel or parcels of land and improvement thereon encumbered by a Mortgage. Uniform Commercial Code means the Uniform Commercial Code as enacted in the Commonwealth of Massachusetts, as amended from time to time (M.G.L., c. 106, S9-101 et seq.) S3. Rules of Interpretation. S3.1. A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Agreement. S3.2. The singular includes the plural and the plural includes the singular. S3.3. A reference to any law includes any amendment or modification to such law. S3.4. A reference to any person includes its permitted successors and permitted assigns. S3.5. Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. S3.6. The words "include," "includes" and "including" are not limiting. S3.7. All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in Massachusetts, have the meanings assigned to them therein. S3.8. Reference to a particular "S" refers to that section of this Agreement unless otherwise indicated. S3.9. The words "herein", "hereof", "hereunder" and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement. S1.1. S4. THE CREDIT FACILITY. S5. Commitment to Make Loans. S5.1. Subject to the terms and conditions set forth in this Agreement, the Bank agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Termination Date upon notice by the Borrower to the Bank given in accordance with S2.5, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to the Bank's Credit Commitment; provided, that the sum of the outstanding amount of the Loans (after giving effect to all amounts requested) shall not at any time exceed Availability. S5.2. Upon the occurrence of any Default or Event of Default which is continuing, the Bank shall have no obligation to make any Loans to the Borrower hereunder. S6. Advances in Excess of Availability. The Bank does not have any obligation to make any Loan such that the outstanding principal balance of the Loans exceeds Availability. The making of Loans and the providing of financial accommodations by the Bank in excess of Availability is for the benefit of the Borrower and does not affect the obligations of the Borrower hereunder; such Loans constitute Obligations. The making of any such Loans in excess of Availability on any one occasion shall not obligate the Bank to make any such Loans on any other occasion nor to permit such Loans to remain outstanding. S7. Note. At the time of the making of the first Loan hereunder, the Borrower shall deliver to the Bank its original Note, payable to the order of the Bank in a principal amount equal to the Bank's Credit Commitment, and dated the date of delivery. The Note shall be in the form of Exhibit D hereto, shall mature on the Termination Date, and shall bear interest as set forth herein. S8. Interest on Loans. Prior to the occurrence of an Event of Default, the outstanding principal amount of the Loans shall bear interest at the rate per annum equal to the aggregate of (a) the Bank's Corporate Base Rate (b) plus one percent (1.00%). Interest shall be payable (i) monthly in arrears on the first day of each calendar month of each year, commencing July 1,1999, and (ii) on the Termination Date. As used herein, the Bank's Corporate Base Rate refers to that rate of interest announced from time to time by the Bank as its Corporate Base Rate, with changes in such rate to be effective, for purposes of calculation hereunder, on the same date such changes are made generally effective by the Bank to loans made by it. S9. Requests for Loans. The Borrower shall give to the Bank written notice in the form of Exhibit C hereto (or telephonic notice confirmed in a writing in the form of Exhibit C hereto) of each Loan requested hereunder (a "Loan Request") no less than one (1) Business Day prior to the proposed Drawdown Date of any Loan. Each Loan Request shall be irrevocable and binding on the Borrower and shall obligate the Borrower to accept the Loan requested from the Bank on the proposed Drawdown Date. Each of the representations and warranties made by or on behalf of the Borrower to the Bank in this Agreement or any other Loan Document shall be true and correct in all material respects when made and shall, for all purposes of this Agreement, be deemed to be repeated on and as of the date of the submission of any Loan Request and on and as of the Drawdown Date of such Loan (except to the extent of changes resulting from transactions contemplated or permitted by this Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse and to the extent that such representations and warranties expressly relate to an earlier date). All Loans will be advanced by wire transfer in accordance with procedures approved by the Bank in each instance. S10. Maturity of the Loans. The Loans shall mature and shall be due and payable on the Termination Date. The Borrower promises to pay on the Termination Date, and there shall become absolutely due and payable on the Termination Date, all Loans outstanding on such date, together with any and all accrued and unpaid interest thereon. S11. Mandatory Prepayments. If at any time the outstanding amount of the Loans shall exceed Availability, the Borrower shall immediately pay to the Bank in cash, or deliver to the Bank additional Collateral Documents meeting the requirements of this Agreement, or both, so that the sum of the cash paid and the Collateral Value of the Mortgage Loans related to the Collateral Documents so delivered shall equal or exceed the amount by which the outstanding amount of the Loans exceeds Availability. Any cash so paid shall be deemed to be the payment of principal on the Loans and shall be applied by the Bank in accordance with the provisions of S4.2 hereof. S12. DETERMINATION OF BORROWING BASE; COLLATERAL DOCUMENTS. S13. Inclusion of Qualified Mortgage Collateral in Borrowing Base. The Borrower may, from time to time, transmit to the Bank Collateral Documents together with a Transmittal Letter, in duplicate, in the form of Exhibit E hereto. If the Bank, in its discretion, determines that such Collateral Documents and the related Mortgage Loans meet the requirements of this Agreement and that such Mortgage Loans are Qualified Mortgage Collateral, the Collateral Value of such Qualified Mortgage Collateral shall be included in the Borrowing Base, subject to the limitations set forth in this S3.1. In addition, the Bank reserves the right, in its sole discretion, at any time, to exclude Mortgage Loans from the Borrowing Base, whether or not the Collateral Documents have been delivered and whether or not the Borrowing Base limitations have been met. S14. Custody of Collateral Documents. The Borrower will deliver to the Bank or its custodian, as directed by the Bank, the Mortgage Notes and other Collateral Documents with respect to all Mortgage Collateral included in the Borrowing Base. S15. Pre-Sold Mortgage Loans. In order for any Mortgage Loan to be characterized as a Pre-Sold Mortgage Loan, the Borrower must deliver to the Bank, in addition to any other documents, certificates or other instruments which must be delivered pursuant to this Agreement, a Pre-Sold Mortgage Loan Certificate substantially in the form of Exhibit A hereto. In the event that any Mortgage Loan is not characterized by the Bank as a Pre-Sold Mortgage Loan, then the Mortgage Loan shall be a Spec Mortgage Loan. S16. CERTAIN GENERAL PROVISIONS. S17. Method of Payment. S17.1. All payments and prepayments of principal and all payments of interest and fees shall be made by the Borrower in immediately available funds. S17.2. All payments by the Borrower hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Bank, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Bank to receive the same net amount which the Bank would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Bank certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. S17.3. All payments of interest hereunder shall be by wire transfer to the Bank. S18. Application of Payments. For the purposes of interest calculations, payments of immediately available funds made by the Borrower to the Bank prior to midnight on any Business Day will be credited as of such Business Day. S19. Computations. All computations of interest on the Loans and on any fees shall, unless otherwise expressly provided herein, be based on a 360-day year and paid for the actual number of days elapsed. Any rate of interest which is determined with reference to the Base Rate shall vary from time to time as the Base Rate varies, any change in the rate of interest to become effective on the date of the announcement of the change in the Base Rate. Whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. S20. Interest After Default; Late Fees. S20.1. After the occurrence of an Event of Default (and continuing for so long as an Event of Default continues), principal and (to the extent permitted by applicable law) interest on the Loans and all other amounts payable hereunder or under any of the other Loan Documents shall bear interest, at the Bank's option, compounded monthly and payable on demand at a rate per annum equal to the Bank's Corporate Base Rate plus 5%. In no event, however, shall the interest rate hereunder exceed 18%. S20.2. Without derogating from the right of the Bank to accelerate the Loans in the event of any default in the payment of any amounts due hereunder or under any of the other Loan Documents, if any payment due hereunder or under any of the other Loan Documents is not received by the Bank within fifteen (15) days of the due date for such payment, the Borrower shall pay to the Bank, on demand, a late charge equal to the greater of five percent (5%) of the amount of such payment or Fifteen Dollars ($15.00). S21. Interest Limitation. Notwithstanding any other term of this Agreement or the Note or any other document referred to herein or therein, the maximum amount of interest which may be charged to or collected from any person liable hereunder or under the Note by the Bank shall be absolutely limited to, and shall in no event exceed, the maximum amount of interest which could lawfully be charged or collected under applicable law (including, to the extent applicable, the provisions of Section 5197 of the Revised Statutes of the United States of America, as amended, 12 U.S.C. Section 85, as amended), so that the maximum of all amounts constituting interest under applicable law, howsoever computed, shall never exceed as to any person liable therefor such lawful maximum, and any term of this Agreement, the Note, or any other document referred to herein or therein which could be construed as providing for interest in excess of such lawful maximum shall be and hereby is made expressly subject to and modified by the provisions of this paragraph. S22. Additional Costs, Etc. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to the Bank by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall impose on the Bank any tax, levy, impost, duty, charge fees, deduction or withholdings of any nature or requirements with respect to this Agreement, the other Loan Documents, the Loans, the Bank's Credit Commitment, or any class of loans or commitments of which any of the Loans or the Credit Commitment forms a part, and the result of any of the foregoing is: (1) to increase the cost to the Bank of issuing, renewing, extending or maintaining the Loans or the Bank's Credit Commitment; or (2) to reduce the amount of principal, interest or other amount payable to the Bank hereunder on account of the Bank's Credit Commitment or the Loans; or (3) to require the Bank to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by the Bank from the Borrower hereunder, then, and in each such case, the Borrower will, upon demand made by the Bank at any time and from time to time and as often as the occasion therefor may arise, pay to the Bank the additional amounts as will be sufficient to compensate the Bank for such additional cost, reduction, payment or foregone interest or other sum (after the Bank shall have allocated the same fairly and equitably among all customers of any class generally affected thereby). S23. DELIVERY OF COLLATERAL FOR SALE. S24. Sale of Mortgage Collateral; Delivery to Purchasers. So long as no Event of Default has occurred and is continuing, any Mortgage Loan may be sold upon request of the Borrower, provided that such sale is evidenced by a bona-fide agreement to an unaffiliated third-party purchaser and is for adequate consideration (provided that after giving effect to such sale the Borrower is in compliance with the terms contained in all of the Loan Documents). The Borrower may direct the delivery of any of the Mortgage Loans for the purpose of sale and the Bank agrees to release its lien in the Mortgage Loan upon payment to the Bank (for credit against the Obligations of the Borrower under this Agreement) of all Net Proceeds realized by the Borrower on account of any such sale or disposition, or such lesser amount thereof necessary to cause the outstanding balance of the Loans not to exceed the Availability. S25. Sale of Underlying Property; Delivery to Purchasers. So long as no Event of Default has occurred and is continuing, any Underlying Property may be sold upon request of the Borrower, provided that such sale is evidenced by a bona-fide agreement to an unaffiliated third-party purchaser and is for adequate consideration (provided that after giving effect to such sale the Borrower is in compliance with the terms contained in all of the Loan Documents) the Bank agrees to release its lien against the subject Underlying Property upon payment to the Bank (for credit against the Obligations of the Borrower under this Agreement) of all Net Proceeds realized by the Borrower on account of any such sale or disposition, or such lesser amount thereof necessary to cause the outstanding balance of the Loans not to exceed the Availability. S26. Proceeds. All Net Proceeds of the sale of Collateral shall be paid directly to the Bank or its designee and applied to the payment of the Obligations. Any balance shall be deposited in the Proceeds Account. If proceeds are inadvertently remitted to the Borrower, it shall receive the proceeds in trust for the Bank subject to the security interests created hereby, and immediately remit the proceeds to the Bank. S27. COLLATERAL SECURITY. S28. To secure the repayment of the Obligations and the performance of the Borrower's other obligations to the Bank hereunder and under the other Loan Documents, the Borrower hereby grants to the Bank a security interest in the Collateral. S29. Unless a Default or Event of Default shall have occurred and then be continuing, the Borrower shall be entitled to receive and collect directly all sums payable to the Borrower in respect of the Collateral (such as regularly scheduled principal and interest payments) except proceeds from the prepayment, sale or other disposition thereof shall be deposited in to the Proceeds Account as provided in Section 5.2 hereof. S30. Upon and during the occurrence of a Default or Event of Default, the Bank shall be entitled to receive and collect all sums payable to the Borrower in respect of any Collateral and (a) the Bank may, at its option, in its own name or in the name of the Borrower or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, (b) the Borrower shall, if requested by the Bank, forthwith pay to the Bank all amounts thereafter received by the Borrower upon or in respect of any of the Collateral, advising the Bank of the source of such funds, and (iii) all amounts so received and collected by the Bank shall be applied to the Loans as provided herein. S31. The Borrower appoints the Bank as the Borrower's attorney-in-fact, with full power of substitution, for the purpose of taking such action and executing such documents, in the name of Borrower or otherwise, as the Bank may deem necessary or advisable to accomplish the purposes of this Agreement, which appointment is coupled with an interest and is irrevocable. The Bank agrees promptly to notify Borrower after any such action or execution of instruments, provided that the failure to give such notice shall not affect the validity of such action or execution of instruments. S32. Any item of Collateral (including Related Assets to any Mortgage Loan) held by the Borrower shall be held in trust by the Borrower for the benefit of, and as bailee for, the Bank, and shall be delivered to the Bank promptly upon the Bank's request. S33. This Agreement shall create a continuing security interest in the Collateral and shall: (i) remain in full force and effect until payment in full of the Borrower's Note; (ii) be binding upon the Borrower, its successors and assigns; and (iii) inure to the benefit of the Bank and its successors, transferees and assigns. S34. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Bank as follows: S35. Corporate Authority; Etc. S35.1. Incorporation; Good Standing. Each party comprising the Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has all requisite power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign entity and is duly authorized to do business in each jurisdiction where the nature of its properties or its business requires such qualifications. Each party comprising the Borrower is duly licensed or approved to conduct a mortgage banking business under the laws of all states in which it conducts business and which require such licenses or approvals, and no such license or approval has been revoked or suspended, or an application therefor denied. S35.2. Authorization. The execution, delivery and performance of this Agreement and the other Loan Documents to which the Borrower is or is to become a party and the consummation of the transactions contemplated hereby and thereby (i) are within the authority of the Borrower, (ii) have been duly authorized by all necessary proceedings on the part of the Borrower, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to the Borrower, (iv) do not conflict with any provision of the charter documents or bylaws of, or any agreement or other instrument binding upon, the Borrower, and (v) will not result in the imposition of any liens or encumbrances on any of the assets of the Borrower other than liens or security interests granted to the Bank pursuant to the Loan Documents. S35.3. Enforceability. The execution and delivery of this Agreement and the other Loan Documents to which the Borrower is or is to become a party will result in valid and legally binding obligations of the Borrower enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. S36. Governmental Approvals. The execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to which the Borrower is or is to become a party, the consummation of the transactions contemplated hereby and thereby and the validity and enforceability hereof and thereof do not require the approval or consent of, or filing with, any governmental agency or authority. S37. No Default or Event of Default. No Default or Event of Default has occurred and is continuing and the Borrower is not in default in any respect under any obligation for borrowed money or in default under any other contract, agreement or obligation which default could result in an impairment of the ability of the Borrower to fulfill its obligations hereunder or an impairment of its financial position or business prospects. S38. Financial Statements. The Borrower has furnished to the Bank a consolidated balance sheet of the Borrower as of the Balance Sheet Date, and a statement of income for the fiscal year then ended, accompanied by an auditor's report. Such balance sheet and statement of income have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition of the Borrower as at the close of business on the date thereof and the results of operations for the fiscal year then ended. There are no contingent liabilities of the Borrower as of such date involving material amounts, known to the officers of the Borrower, not disclosed in said balance sheet and the related notes thereto. S39. No Material Changes, Etc. Since the Balance Sheet Date, there have been no changes in the assets, liabilities, financial condition or business of the Borrower other than changes in the ordinary course of business, the effect of which has not been in any case, or in the aggregate materially adverse. S40. Taxes. The Borrower has filed all tax returns required to be filed with the United States and each State and possession of the United States where the Borrower is qualified to do business and in all other jurisdictions where such filings are required, and all taxes, assessments and other governmental charges due have been fully paid (except for payment of those amounts with respect to which the Borrower has contested in good faith by appropriate proceedings and has established adequate reserves in accordance with generally accepted accounting principles), and no extensions of the time of payment have been requested. The Borrower has paid or set up on its books reserves adequate for the payment of federal and state income and withholding tax liabilities. S41. Litigation. There are no actions, suits, proceedings or investigations of any kind pending or threatened against the Borrower before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Borrower or materially impair the right of the Borrower to carry on business substantially as now conducted by it, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the balance sheet of the Borrower, or which question the validity or enforceability of this Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. S42. Disclosure. Neither this Agreement nor any document delivered to the Bank hereunder by the Borrower or on its behalf to induce the Bank to enter into this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. S43. Franchises, Patents, Copyrights, Etc. The Borrower possess all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as conducted without known conflict with any rights of, or by, others. S44. No Materially Adverse Contracts, Etc. The Borrower is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materially adverse effect on the business, assets or financial condition of the Borrower. The Borrower is not a party to any contract or agreement that has or is expected, in the judgment of the Borrower's officers, to have any materially adverse effect on the business of the Borrower. S45. Compliance With Other Instruments, Laws, Etc. The Borrower is not in violation of any provision of its charter or other organization documents, by-laws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of the Borrower. S46. Perfection of Security Interest. All filings, assignments, pledges and deposits of documents or instruments have been made and all other actions have been taken that are necessary or advisable, under applicable law, to establish and perfect the Bank's security interest in the Collateral. The Collateral and the Bank's rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses. The Borrower is the owner of the Collateral in which it has granted a security interest to the Bank free from any lien, security interest, encumbrance and any other claim or demand. S47. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that from the date hereof and as long as the Credit remains in effect or any indebtedness is outstanding hereunder: S48. Punctual Payment. The Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans and all and fees provided for in this Agreement and the Note as well as all other sums owing pursuant to the Loan Documents. S1. S49. Maintenance of Office. The Borrower will maintain its chief executive office in Williamstown, Massachusetts, or at such other place in the United States of America as the Borrower shall designate upon written notice to the Bank, where notices, presentations and demands to or upon the Borrower in respect of the Loan Documents may be given or made. S50. Records and Accounts. The Borrower will (a) keep true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles and (b) maintain accounts and reserves for all taxes (including income taxes), depreciation and amortization of its properties, contingencies, and other reserves, all in accordance with generally accepted accounting principles. S51. Financial Statements, Certificates and Information. The Borrower will deliver to the Bank: S51.1. as soon as available, but in any event not later than ninety (90) days after the end of each fiscal year of each party comprising the Borrower, the consolidated audited balance sheet of the Borrower at the end of such year, and the related audited statements of earnings and cash flows for such year, setting forth in comparative form the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and accompanied by an auditor's report prepared by an independent certified public accountant acceptable to the Bank together with a written statement from such accountants to the effect that they have read a copy of this Agreement, and that, in making the examination necessary for said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default, they shall disclose in such statement any such Default or Event of Default; S51.2. as soon as available, but in any event not later than forty-five (45) days after the end of each of fiscal quarters of each party comprising the Borrower, copies of the consolidated unaudited balance sheet of the Borrower as at the end of such quarter, and the related unaudited statements of income and cash flows for the portion of the Borrower's fiscal year then elapsed, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of each party comprising the Borrower that the information contained in such financial statements fairly presents the financial position of the Borrower on the date thereof (subject to year-end audit adjustments); S51.3. from time to time such other financial data and information as the Bank may reasonably request. S51.4. Notices. S51.5. Defaults. The Borrower will promptly notify the Bank in writing of the occurrence of any Default or Event of Default, which writing will contain a detailed description of such Default or Event of Default and the action to be taken by the Borrower in response thereto. If any person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Agreement or under any note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrower is a party or obligor, whether as principal or surety, and such default would permit the holder of such note or obligation or other evidence of indebtedness to accelerate the maturity thereof, which acceleration would have a material adverse effect on the Borrower, the Borrower shall forthwith give written notice thereof to the Bank, describing the notice or action, the nature of the claimed default, and the action to be taken by the Borrower in response thereto. S51.6. Notification of Claims against Collateral. The Borrower will, immediately upon becoming aware thereof, notify the Bank in writing of any setoff, claims, withholdings or other defenses to which any of the Collateral, or the rights of the Bank with respect to the Collateral, are subject. S51.7. Notice of Litigation and Judgments. The Borrower will give notice to the Bank in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrower or to which the Borrower is or is to become a party involving any claim against the Borrower that could reasonably be expected to have a materially adverse effect on the Borrower and stating the nature and status of such litigation or proceedings. The Borrower will give notice to the Bank, in writing, in form and detail satisfactory to the Bank, (i) immediately upon (and in any event within three (3) days of) the commencement thereof, notice of any litigation questioning the validity or enforceability of the Loan Documents, and (ii) within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrower in an amount in excess of $10,000.00. S52. Existence; Maintenance of Properties. The Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a corporation. The Borrower will do or cause to be done all things necessary to preserve and keep in full force all of its rights and franchises. The Borrower (a) will cause all of its properties used or useful in the conduct of its business or the business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will continue to engage primarily in the businesses now conducted by it and in related businesses. S53. Insurance. The Borrower will maintain with financially sound and reputable insurers, insurance with respect to its properties and its business against such casualties and contingencies as the Bank shall require, each of which policies shall be in form and with such companies and in such amounts as are acceptable to the Bank, including, without limitation, maintenance of its mortgage banker's blanket bond or individual errors and omissions policy and indemnity bond. Such insurance shall be endorsed in each case to require not less than 30 days' prior notice by the insurer in the event of cancellation to the Bank at the address first written above. S54. Taxes. The Borrower will pay or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it or on any of its real properties, sales and activities or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that, if unpaid, might by law become a lien or charge upon any of such properties; provided that any such tax, assessment, charge, levy or claim with respect to properties need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrower shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrower will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. S55. Inspection of Properties and Books. The Borrower shall permit the Bank, or any designated representative of the Bank, to visit and inspect any of the properties of the Borrower to examine the books of account of the Borrower (and to make copies thereof and extracts therefrom) and to discuss the affairs, finances and accounts of the Borrower with, and to be advised as to the same by, its officers, all at such reasonable times and intervals as the Bank may reasonably request. The Bank may conduct the foregoing examinations, visitations, inspections and discussions at the Borrower's expense at such reasonable times and intervals as the Bank may reasonably request. S56. Compliance with Laws, Contracts, Licenses, and Permits. The Borrower will comply with (a) all applicable laws and regulations now or hereafter in effect wherever its business is conducted, (b) the provisions of its corporate charter, and other charter documents and by-laws, (c) all material agreements and instruments to which it is a party or by which it or any of its properties may be bound and (d) all applicable decrees, orders, and judgments. If at any time while any Loan or the Note is outstanding or the Bank has any obligation to make Loans hereunder, any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrower may fulfill any of its obligations hereunder, the Borrower will immediately take or cause to be taken all reasonable steps within the power of the Borrower to obtain such authorization, consent, approval, permit or license and furnish the Bank with evidence thereof. S57. Further Assurances. The Borrower will cooperate with the Bank and execute such further instruments and documents as Bank shall reasonably request to carry out to the Bank's satisfaction the transactions contemplated by this Agreement and the other Loan Documents. S58. Appraisals. The Borrower will obtain appraisals for each Underlying Properties which appraisals will satisfy the requirements of 12 CFR 34.1 - 34.47, and the requirements of any other bank regulatory agency to which the Bank is subject. The Borrower will hold such appraisals as agent for the Bank. In addition, the Borrower will, at the request of the Bank, deliver originals or copies of such appraisals to the Bank. S59. Use of Proceeds. The Borrower will use the proceeds of all Loans for its general working capital purposes. S60. Qualified Mortgage Collateral. Each Mortgage Loan submitted by the Borrower to the Bank, or the Bank's custodian, for inclusion in the Borrowing Base will be a Qualified Mortgage Loan at the time of such submission. S61. CONDITIONS TO INITIAL LOAN. The obligations of the Bank to make the initial Loan hereunder shall be subject to the satisfaction of the following conditions precedent: S62. Certified Copies of Organization Documents. The Bank shall have received from the Borrower a copy, certified as of a recent date by a duly authorized officer of Borrower to be true and complete, of the corporate charter and any other organization documents of the Borrower as in effect on such date of certification. S63. By-laws; Resolutions. All action on the part of the Borrower necessary for the valid execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Bank shall have been provided to the Bank. The Bank shall have received from the Borrower true copies of its by-laws and the resolutions adopted by its board of directors authorizing the transactions described herein, each certified by its secretary as of a recent date to be true and complete and not amended, modified or rescinded, and in full force and effect. S64. Incumbency Certificate; Authorized Signers. The Bank shall have received from the Borrower an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of the Borrower and giving the name and bearing a specimen signature of each individual who shall be authorized: S64.1. to sign, in the name and on behalf of the Borrower, each of the Loan Documents to which the Borrower is or is to become a party; S1.1. S64.2. to make Loan Requests; and S64.3. to give notices and to take other action on behalf of the Borrower under the Loan Documents. S65. Opinion of Counsel Concerning Organization and Loan Documents. The Bank shall have received a favorable opinion addressed to the Bank and dated as of the Closing Date, in form and substance satisfactory to the Bank from independent counsel to the Borrower as to the matters described on Exhibit G hereto. S66. Good Standing Certificates; Licenses. The Bank shall have received a certificate of good standing of the Borrower issued as of a recent date by the Secretary of State (and if applicable, the Department of Revenue) of the State in which the Borrower is incorporated, together with satisfactory opinions as to the currently effective licenses or approvals (if required) to conduct a mortgage banking business in each such State. S67. Borrowing Base Certificate. The Bank shall have received the initial Borrowing Base Certificate dated as of the Closing Date. S68. Note. The Bank shall have original of the Note duly executed and delivered by the Borrower. S69. Insurance. The Bank shall have received true copies of documents evidencing the insurance required by S8.7 hereof. S70. Other Documents. The Bank shall have received a copy of such other documents as the Bank in its sole discretion may require. S71. UCC Lien Searches. The Bank shall have received the UCC Perfection Certificate in the form of Exhibit H hereto, dated as of the Closing Date, signed by the Borrower's chief financial officer, and the results of the UCC lien searches of the Borrower in the appropriate States reflected thereon. S72. CONDITIONS TO ALL LOANS. The following conditions must be satisfied or waived in writing by the Bank, prior to the making of any Loan: S73. Notice. Receipt by the Bank of the Loan Request required by S2.5 hereof. S74. Collateral Documents. The Bank shall have received the Collateral Documents required by S3 hereof. S75. Borrowing Base Certificate. The Bank shall have received an updated Borrowing Base Certificate dated as of the Drawdown Date. S76. Representations and Warranties. The representations and warranties made by the Borrower in this Agreement and in the other Loan Documents and all other representations in writing made hereafter by or on behalf of the Borrower in connection with the transactions contemplated by this Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time each such Loan is requested (except to the extent of changes resulting from transactions contemplated by this Agreement and changes occurring in the ordinary course of business which are not materially adverse singly or in the aggregate to the Borrower taken as a whole, and to the extent that such representations and warranties relate expressly to an earlier date). S77. No Defaults. After giving effect to the requested Loan, no event shall have occurred and be continuing and no condition shall exist which constitutes, or with the giving of notice or lapse of time or both, would constitute, an Event of Default. S78. No Legal Impediment. No change shall have occurred in any law or regulations thereunder or interpretations thereof which in the opinion of special counsel for the Bank would make it illegal for the Bank to make Loans hereunder. S79. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Bank and to special counsel to the Bank such special counsel shall have received all such counterpart originals or certified or other copies of such documents as either of them may reasonably request. S80. Availability Not Exceeded. Following the funding of the requested Loan, the aggregate principal amount of Loans outstanding will not exceed the Availability. S81. EVENTS OF DEFAULT; ACCELERATION; ETC. S82. Events of Default and Acceleration. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: S82.1. the Borrower shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment, including, without limitation, any mandatory prepayments required pursuant to S2.7 hereof; S82.2. the Borrower shall fail to pay any interest on the Loans or any other sums due hereunder or under any of the other Loan Documents when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; S82.3. the Borrower shall fail to comply with any of its covenants contained in S8 hereof or any of the other covenants contained in the Loan Documents; S82.4. the Borrower shall fail to perform any other term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this S11) for fifteen (15) days after written notice of such failure has been given to the Borrower by the Bank; S82.5. any representation or warranty of the Borrower in this Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Agreement shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; S82.6. the Borrower shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received, or fail to observe or perform any term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; S82.7. the Borrower shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of the Borrower or of any substantial part of the assets of the Borrower or shall commence any case or other proceeding relating to the Borrower under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against the Borrower and the Borrower shall indicate its approval thereof, consent thereto or acquiescence therein; S82.8. a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating the Borrower bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of the Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; S82.9. if any involuntary proceeding shall be commenced, against the Borrower under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law or similar law of any jurisdiction, now or hereafter in effect, and the Borrower has not discharged such proceeding within sixty (60) days after commencement thereof; S82.10. there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any uninsured final judgment against the Borrower that, with other outstanding uninsured final judgments, undischarged, against the Borrower, exceeds in the aggregate $50,000.00; S82.11. if any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of each Bank party thereto, or interested therein, or any action at law, suit in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of the Borrower, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; or S82.12. the Borrower shall be indicted for a federal crime, a punishment for which could include the forfeiture of any assets of the Borrower; then, and in every such event, so long as the same may be continuing, the Bank may, by notice in writing to the Borrower declare all amounts owing with respect to this Agreement and the Note to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower. S83. Termination of Commitments. If any one or more Events of Default specified in S11.1(g), S11.1(h), S11.1(i) hereof shall occur, the Credit Commitment shall forthwith terminate and the Bank shall be relieved of all obligations to make Loans to the Borrower. If any other Event of Default shall have occurred and be continuing, the Bank may, by notice to the Borrower, terminate the Credit Commitment hereunder, and, upon such notice being given, the Credit Commitment hereunder shall terminate immediately and the Bank shall be relieved of the further obligations to make Loans. No termination of Credit Commitment hereunder shall relieve the Borrower of any of the Obligations or any of its existing obligations to the Bank arising under other agreements or instruments. S84. Rights of Enforcement. The Bank shall have all of the rights and remedies of a secured party upon default under the UCC, in addition to which the Bank shall have all and each of the following rights and remedies: S84.1. To collect the Collateral with or without the taking of possession of any of the Collateral; S84.2. To take possession of all or any portion of the Collateral. S84.3. To sell, lease, or otherwise dispose of any or all of the Collateral, with or without the taking of possession of any of the Collateral. S84.4. To apply the Collateral or the proceeds of the Collateral towards (but not necessarily in complete satisfaction of) the Obligations. S84.5. To exercise all or any of the rights, remedies, powers, privileges, and discretions under all or any of the Loan Documents. S85. Sale of Collateral. (a) Any sale or other disposition of the Collateral may be at public or private sale upon such terms and in such manner as the Bank deems advisable, having due regard to compliance with any statute or regulation which might affect, limit, or apply to the Bank's disposition of the Collateral. (b) Unless the Collateral threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event the Bank may provide the Borrower with such notice as may be practicable under the circumstances), the Bank shall give the Borrower at least seven (7) days prior written notice of the date, time, and place of any proposed public sale, and of the date after which any private sale or other disposition of the Collateral may be made. The Borrower agrees that such written notice shall satisfy all requirements for notice to the Borrower which are imposed under the UCC or other applicable law with respect to the Bank's exercise of the Bank's rights and remedies upon default. (c) The Bank may purchase the Collateral, or any portion of it at any sale held under this Article. S86. Occupation of Business Location. In connection with the Bank's exercise of the Bank's rights under this Article, the Bank may enter upon, occupy, and use any premises owned or occupied by the Borrower. The Bank shall not be required to remove any of the Collateral from any such premises upon the Bank's taking possession thereof. In no event shall the Bank be liable to the Borrower for use or occupancy by the Bank of any premises pursuant to this Article, nor for any charge (such as wages for the Borrower's employees and utilities) incurred in connection with the Bank's exercise of the Bank's rights and remedies. S87. Assembly of Collateral. The Bank may require the Borrower to assemble the Collateral and make it available to the Bank at the Borrower's sole risk and expense at a place or places which are reasonably convenient to the Bank. S88. Remedies. S88.1. Without limiting the foregoing remedies upon the occurrence of any Event of Default, the Bank may exercise any and all rights it has under this Agreement and the Note and any other documents or instruments executed or delivered as collateral therefor or in connection therewith, under law or equity, and proceed to protect and enforce the Bank's rights by any actions of law, suit and equity or other appropriate proceeding, whether for specific performance, or for an injunction against a violation of any covenant contained herein or in the Loan Documents or in furtherance of the exercise any power granted hereby or thereby or by law. (b) No remedy herein conferred upon the Bank or the holder of the Note is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. S89. Appointment as Attorney-in-Fact. The Borrower hereby irrevocably constitutes and appoints the Bank, exercisable upon the occurrence (and during the continuance) of any Event of Default, as the Borrower's true and lawful attorney, with full power of substitution, to convert the Collateral into cash at the sole risk, cost, and expense of the Borrower, but for the sole benefit of the Bank. The rights and powers granted the Bank by the within appointment include but are not limited to the right and power to: S89.1. Prosecute, defend, compromise, or release any action relating to the Collateral; S89.2. Endorse the name of the Borrower in favor of the Bank upon any and all checks, drafts, notes, acceptances, or other items or instruments; sign and endorse the name of the Borrower on, and receive as secured party, any of the Collateral; and S89.3. Sign the name of the Borrower on any notice to the obligors on the Collateral; sign the Borrower's name on any proof of claim in bankruptcy against any obligor on the Collateral. S90. No Obligation to Act. The Bank shall not be obligated to do any of the acts or to exercise any of the powers authorized herein, but if the Bank elects to do any such act or to exercise any of such powers, it shall not be accountable for more than it actually receives as a result of such exercise of power, and shall not be responsible to the Borrower for any act or omission to act except for any act or omission to act as to which there is a final determination made in a judicial proceeding (in which proceeding the Bank has had an opportunity to be heard) which determination includes a specific finding that the subject act or omission to act had been grossly negligent or in actual bad faith. S91. Distribution of Collateral Proceeds. In the event that, following the occurrence or during the continuance of any Event of Default, the Bank receives any monies in connection with the enforcement of any of the security interest granted to the Bank hereunder, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: S91.1. First, to the payment of, or (as the case may be) the reimbursement of, the Bank for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Bank in connection with the collection of such monies by the Bank, for the exercise, protection or enforcement by the Bank of all or any of the rights, remedies, powers and privileges of the Bank under this Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Bank against any taxes or liens which by law shall have, or may have, priority over the rights of the Bank to such monies; S91.2. Second, to the payment of (i) any Obligations owing to the Bank for the payment of interest, principal, fees and expenses, and (ii) all other Obligations in such order or preference as the Bank may determine; provided, that the Bank may in its discretion make proper allowance to take into account any Obligations not then due and payable; S91.3. Third, upon payment and satisfaction in full or other provision for payment in full satisfactory to the Bank and the Bank of all of the Obligations, to the payment of any obligations required to be paid pursuant to S9-504(1)(c) of the Uniform Commercial Code of the Commonwealth of Massachusetts; and S91.4. Fourth, the excess, if any, shall be returned to the Borrower or to such other persons as are entitled thereto. S92. SETOFF. Regardless of the adequacy of any Collateral, during the continuance of any Event of Default, any deposits (general or specific, time or demand, provisional or final, regardless of currency, maturity, or the branch where such deposits are held, but not including any custodial accounts held for the benefit of others) or other sums credited by or due from the Bank to the Borrower and any securities or other property of the Borrower in the possession of the Bank may be applied to or set off against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to the Bank. S93. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of producing and reproducing this Agreement, the other Loan Documents and the other agreements and instruments mentioned herein (b) any taxes (including any interest and penalties in respect thereof) payable by the Bank (other than taxes based upon the Bank's net income imposed by the jurisdiction in which its office is located), including any recording, mortgage, documentary or intangibles taxes in connection with the security interest granted hereunder and the other Loan Documents, or other taxes payable on or with respect to the transactions contemplated by this Agreement or any other Loan Document, including any taxes payable by the Bank after the Closing Date (the Borrower hereby agreeing to indemnify the Bank with respect thereto), (c) all title insurance premiums, appraisal fees, and the reasonable fees, expenses and disbursements of the Bank's counsel or any local counsel to the Bank incurred in connection with the preparation or enforcement of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) the reasonable out-of-pocket fees, expenses and disbursements of the Bank incurred by the Bank in connection with the administration or interpretation of the Loan Documents and other instruments mentioned therein, (e) all reasonable out-of-pocket expenses (including reasonable attorneys' fees and costs, which attorneys may be employees of the Bank and the fees and costs of appraisers, engineers, or other experts retained by the Bank in connection with any enforcement proceedings) incurred by the Bank in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against the Borrower or the administration thereof, and (ii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Bank's relationship with the Borrower, and (f) all reasonable out-of-pocket fees, expenses and disbursements of the Bank incurred in connection with UCC searches, UCC filings and/or mortgage recordings. The covenants of this S11 shall survive payment or satisfaction of payment of amounts owing with respect to the Note. S94. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Bank from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Agreement or any of the other Loan Documents or the transactions contemplated hereby or thereby including, without limitation, (a) any claims or actions commenced against the Bank by virtue of its entry into or participation in any Loan Document, (b) any actual or proposed use by the Borrower of the proceeds of any of the Loans, (c) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of the Borrower comprised in the Collateral, (d) the Borrower's entering into or performing this Agreement or any of the other Loan Documents, in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Bank shall be entitled to select its own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrower under this S14 are unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. The provisions of this S14 shall survive the repayment of the Loan and the termination of the obligations of the Bank hereunder. S95. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Note, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower pursuant hereto or thereto shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Bank of any of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due under this Agreement or the Note or any of the other Loan Documents remains outstanding or the Bank has any obligation to make any Loans. The indemnification obligations of the Borrower provided herein and the other Loan Documents shall survive the full repayment of amounts due and the termination of the obligations of the Bank hereunder and thereunder to the extent provided herein and therein. All statements contained in any certificate or other paper delivered to the Bank at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower hereunder. S96. NAME CHANGE AND ASSIGNMENT BY BORROWER. The Borrower shall give the Bank 30 days prior written notice of any change of name of the Borrower. All the terms of this Agreement, the other Loan Documents, and the Note shall be binding upon and inure to the benefit of the successors and assigns of the Borrower; provided that the Borrower shall not assign or transfer its rights under any of such documents without the prior written consent of the Bank, other than any assignment or transfer required as a matter of law or in connection with a merger or consolidation of the Borrower. S97. ASSIGNMENT AND PARTICIPATION. S98. Conditions to Assignment by the Bank. Except as provided herein, the Bank may assign all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of Credit Commitment and the same portion of the Loans at the time owing to it, and the Note held by it). From and after the effective date specified in any assignment agreement, the assignee thereunder shall be a party hereto and, to the extent provided in such assignment, have the rights and obligations of the Bank hereunder and this agreement shall be amended to reflect such assignment. S99. Participations. The Bank may sell Participations to one or more banks or other entities in all or a portion of the Bank's rights and obligations under this Agreement and the other Loan Documents. S100. Pledge By Lender. The Bank may at any time pledge all or any portion of its interest and rights under this Agreement (including all or any portion of its Note) to any of the Federal Reserve Banks organized under S4 of the Federal Reserve Act, 12 U.S.C. S341. No such pledge or the enforcement thereof shall release the Bank from its obligations hereunder or under any of the other Loan Documents. S101. No Assignment by the Borrower. The Borrower shall not assign or transfer any of its rights or obligations under any of the Loan Documents, other than any assignment or transfer required as a matter of law or in connection with a merger or consolidation of the Borrower. S102. Disclosure. The Borrower agrees that in addition to disclosures made in accordance with standard banking practices the Bank may disclose information obtained by the Bank pursuant to this Agreement to assignees or participants and potential assignees or participants hereunder. S103. NOTICES, ETC. Except as otherwise expressly provided in this Agreement, all notices and other communications made or required to be given pursuant to this Agreement or any of the other Loan Documents shall be in writing and shall be delivered by hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by facsimile and confirmed by delivery via one of the other acceptable means of delivery of notices, addressed as follows: S103.1. if to the Borrower, Litchfield Financial Corporation 430 Main Street Williamstown, Massachusetts 01267 Fax: (413) 458-1015 Attention:Amy S. Backiel, Vice President and LFC Realty, Inc. 430 Main Street Williamstown, MA 01267 Fax: (413) 450-1015 Attention: Amy S. Backiel (1) if to the Bank, MetroWest Bank 15 Park Street Framingham, Massachusetts 01701 Fax: (508) 879-8237 Attention:Mr. Barry D. Bliss, Vice President with a copy to: Riemer & Braunstein LLP Three Center Plaza Boston, Massachusetts 02108 Fax: (617) 723-6831 Attention:Michael S. Fallman, Esquire Any such notice or demand shall be deemed to have been duly given or made and to have become effective: (2) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending of such facsimile; and (3) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. S104. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN S19 HEREOF. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. S105. HEADINGS. The captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. S106. COUNTERPARTS. This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. S107. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby and thereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in S24 hereof. S108. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE BORROWER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT ARE PARTIES BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN. S109. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly provided in this Agreement, any consent or approval required or permitted by this Agreement may be given, and any term of this Agreement or of any other Loan Document or other instrument related hereto or thereto or mentioned herein or therein may be amended, and the performance or observance by the Borrower of any terms of this Agreement or such other Loan Document or other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Bank. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. S110. SEVERABILITY. The provisions of this Agreement are severable, and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. IN WITNESS WHEREOF, the undersigned have executed this Agreement as an instrument under seal as of the date first written above. LITCHFIELD FINANCIAL CORPORATION By: /s/ Amy S. Backiel Title: Vice President LFC REALTY, INC. By: /s/ Amy S. Backiel Title: Vice President METROWEST BANK By: /s/ Barry Bliss Title: Vice President EX-10 16 Exhibit 10.198 LITCHFIELD HYPOTHECATION CORP. 1997-B NOTE PURCHASE AGREEMENT June 28, 1999 LITCHFIELD HYPOTHECATION CORP.1997-B, a Delaware corporation, and its successors and assigns (the "Issuer"), and LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation ("Litchfield"), hereby agree with UNION BANK OF CALIFORNIA, N.A. (the "Purchaser"), as follows: 1. The Notes. The Issuer has authorized the execution and delivery to The Chase Manhattan Bank, as trustee (the "Trustee"), of an Indenture of Trust, dated as of August 1, 1997, as amended (the "Indenture"), providing for the issuance and sale by the Issuer of its Hypothecation Loan Collateralized Notes (the "Notes"), in one or more series, secured by the Trust Estate granted to the Trustee by the Issuer pursuant to the Indenture, which includes, among other assets, a pool of certain hypothecation Loans owned by the Issuer and serviced by Litchfield Financial Corporation, a Massachusetts corporation (in such capacity, the "Servicer"). Unless otherwise specifically defined herein, all capitalized terms shall have the meanings ascribed to them in the Indenture. 2. Purchase and Sale. In reliance upon the representations and warranties contained herein and subject to the terms and conditions set forth herein, (i) the Issuer agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Issuer, $1,776,419.96 principal amount of Hypothecation Loan Collateralized Notes, Series A and (ii) the Seller agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Seller, $3,123,580.04 principal amount of Hypothecation Loan Collateralized Notes, Series C (the foregoing notes are referred to herein collectively as the "Notes") at an aggregate price (the "Purchase Price") equal to the aggregate outstanding principal amount of the Notes on the Closing Date (as hereinafter defined). The Purchase Price shall be allocated among the Seller and the Issuer in proportion to the principal amount of Notes sold by each. The Purchase Price shall be payable to or upon the instructions of the Issuer and the Seller on the Closing Date by wire transfer in immediately available Federal funds. 3. The Closing; Delivery of the Notes. The closing of the purchase and sale of the Notes pursuant hereto (the "Closing") shall be held on June 28, 1999 (the "Closing Date"). The Closing shall take place by mail or at such place as the parties hereto shall designate. At the Closing, the Issuer and the Seller, respectively, will deliver to the Purchaser, against payment of the Purchase Price therefor, one Series A Note in the denomination of $1,776,419.96 and one Series C Note in the denomination of $3,123,580.04 registered in the Purchaser's name, or in the name of its nominee; provided however, that if the Purchaser requests the Issuer or the Seller in writing not less than one Business Day prior to the Closing Date to deliver to the Purchaser Notes in other denominations (authorized pursuant to the Indenture) that equal in the aggregate the denominations specified above, the Seller and the Issuer shall comply with such request. 4. Conditions of the Purchaser's Obligation. The obligation of the Purchaser set forth in Section 2 to purchase the Notes on the Closing Date shall be subject to the accuracy as of the date hereof and as of the Closing Date of (i) the representations and warranties of the Issuer set forth in Section 5 hereof, (ii) the representations and warranties of the Seller in the Purchase and Sale Agreement and in Section 5 hereof, and (iii) the representations and warranties of the Servicer in the Servicing Agreement, and shall also be subject to the following additional conditions: (a) Each of this Purchase Agreement, the Notes, the Indenture, the Servicing Agreement, and the Purchase and Sale Agreement (collectively, the "Agreements") shall have been duly authorized, executed and delivered by each of the parties thereto and be in full force and effect; and (b) The Purchaser shall have received copies of all documents and other information as it may reasonably request, in form and substance reasonably satisfactory to it, with respect to such transactions and the taking of all proceedings in connection therewith. 5. Representations and Warranties. (a) The Issuer represents and warrants to the Purchaser as of the date hereof as follows:(i) Each of the Agreements to which the Issuer is a party has been duly authorized, executed and delivered by the Issuer and, assuming due execution and delivery by the other parties thereto, constitutes a legal, valid and binding agreement of the Issuer enforceable against the Issuer in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). The Notes have been validly issued and are entitled to the benefits of the Indenture and constitute valid instruments enforceable in accordance with their terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (ii) Neither the issuance or sale of the Notes, nor the consummation of any other of the transactions contemplated in any of the Agreements to which the Issuer is a party, nor the execution, delivery or performance of the terms of any of the Agreements to which the Issuer is a party, has or will result in the breach of any term or provision of the certificate of incorporation or by-laws of the Issuer, or conflict with, result in a breach or violation on the part of the Issuer of or the acceleration of indebtedness under or constitute a default under, the terms of any indenture or other agreement or instrument to which the Issuer is a party or by which it is bound, or any statute or regulation applicable to the Issuer or any order applicable to the Issuer of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Issuer. (iii) No consent, approval, authorization of, registration or filing with, or notice to, any governmental or regulatory authority, agency, department, commission, board, bureau, body or instrumentality is required on the part of the Issuer for the execution and delivery or by the Issuer with any of the Agreements to which the Issuer is a party or the Notes, or the issuance of the Notes, or the consummation by the Issuer of any transaction contemplated under any of the Agreements to which the Issuer is a party, or such consent, approval or authorization has been obtained or such registration, filing or notice has been made (or, with respect to assignments of mortgages and financing statements, will be made by the Issuer as contemplated by the Indenture). (iv) There is no action, suit or proceeding against, or investigation of, the Issuer pending or, to the best of its knowledge, threatened, before any court, administrative agency or other tribunal which, either individually or in the aggregate, (A) may result in any material adverse change in the financial condition, properties, or assets of the Issuer or in any material and adverse impairment of the right or ability of the Issuer to perform its obligations under the Agreements, or (B) asserts the invalidity of any of the Agreements to which either the Issuer is a party or the Notes or (C) seeks to prevent the consummation of any of the transactions contemplated by any of the Agreements to which the Issuer is a party. (v) (vi) (v) Based in part on the representations and warranties contained in Section 6 hereof, the Issuer is not, and the sale of the Notes in the manner contemplated by this Purchase Agreement will not cause the Issuer to be, subject to registration or regulation as an investment company or affiliate of any investment company under the Investment Company Act of 1940, as amended. (vi) Each Loan included in the Trust Estate securing the Notes has been delivered to the Trustee or its collateral agent, together with an assignment thereof by the Issuer, which immediately prior to such assignment will own full legal and equitable title to each Loan, free and clear of any lien, charge, encumbrance or participation or ownership interest in favor of any other Person. Upon endorsement and delivery to the Trustee or its collateral agent of the executed original promissory notes and execution and delivery of the Indenture, all of the Issuer's right, title and interest in and to the Loans will be validly and effectively transferred to the Indenture Trustee as collateral security for the benefit of the Holders of the Notes. (vii) On the Closing Date after giving effect to the sale of the Notes to the Purchaser hereunder, the aggregate principal amount of all Hypothecation Loan Collateralized Notes outstanding shall be $41,359,206.81 of which $8,625,465.99 aggregate principal amount shall be Series A Notes owned of record by the Purchaser, $10,498,579.60 aggregate principal amount shall be Series A Notes owned by Green Tree Financial Servicing Corporation ("Green Tree"), $1,541,153.87 aggregate principal amount shall be Series B Variable Funding Notes owned of record by the Seller, $7,034,989.52 aggregate principal amount shall be Series C Notes owned of record by the Purchaser, $9,068,627.78 aggregate principal amount shall be Series C Notes owned of record by Green Tree and $4,590,390.05 aggregate principal amount shall be Series C Notes owned of record by Berkshire Bank. Such outstanding amounts are fully authorized (and do not exceed any limitations under the Indenture). (b) The Seller represents and warrants to the Purchaser as of the date hereof as follows: (i) Each of the Agreements to which the Seller is a party has been duly authorized, executed and delivered by the Seller and, assuming due execution and delivery by the other parties thereto, constitutes a legal, valid and binding agreement of the Seller enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (ii) Neither the sale of the Notes, nor the consummation of any other of the transactions contemplated in any of the Agreements to which the Seller is a party, nor the execution, delivery or performance of the terms of any of the Agreements to which the Seller is a party, has or will result in the breach of any term or provision of the certificate of incorporation or by-laws of the Seller, or conflict with, result in a breach or violation on the part of the Seller of or the acceleration of indebtedness under or constitute a default under, the terms of any indenture or other agreement or instrument to which the Seller is a party or by which it is bound, or any statute or regulation applicable to the Seller or any order applicable to the Seller of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Seller. (iii)No consent, approval, authorization of, registration or filing with, or notice to, any governmental or regulatory authority, agency, department, commission, board, bureau, body or instrumentality is required on the part of the Seller for the execution and delivery or by the Seller with any of the Agreements to which the Seller is a party, or the sale of the Notes, or the consummation by the Seller of any transaction contemplated under any of the Agreements to which the Seller is a party, or such consent, approval or authorization has been obtained or such registration, filing or notice has been made (or, with respect to assignments of mortgages and financing statements, will be made by the Seller as contemplated by the Indenture). (iv) There is no action, suit or proceeding against, or investigation of, the Seller pending or, to the best of its knowledge, threatened, before any court, administrative agency or other tribunal which, either individually or in the aggregate, (A) may result in any material adverse change in the financial condition, properties, or assets of the Seller or in any material and adverse impairment of the right or ability of the Seller to perform its obligations under the Agreements, or (B) asserts the invalidity of any of the Agreements to which either the Seller is a party or the Notes or (C) seeks to prevent the consummation of any of the transactions contemplated by any of the Agreements to which either the Seller is a party.(v) Neither the Seller nor any Affiliate of the Seller nor any Person authorized or employed by the Seller will, directly or indirectly, offer or sell any Note or similar security in a manner which would render the sale of the Notes pursuant to this Purchase Agreement a violation of Section 5 of the 1933 Act, or require registration pursuant thereto. Based in part on the representations and warranties contained in Section 6 hereof, the offering and sale of the Notes by the Seller to Purchaser at closing are exempt from the registration requirements of the 1933 Act and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. The Issuer and the Seller agree that the representations and warranties set forth in this Section 5 shall be fully assignable to the initial party to whom the Purchaser may sell the Notes. 6. The Purchaser's Representations. The Purchaser represents to the Issuer as follows: (a) The Purchaser is acquiring the Notes for its own account. The Purchaser understands that the Notes are not being registered under the Securities Act of 1933, as amended (the "1933 Act"), or any State securities or "Blue Sky" law and are being sold to the Purchaser in reliance upon the Purchaser's representations contained herein in a transaction that is exempt from the registration requirements of the 1933 Act and any applicable State law. The Purchaser agrees that the Notes may not be Transferred unless subsequently registered under the 1933 Act and any applicable State securities or "Blue Sky" law or unless exemptions from the registration requirements of the 1933 Act and applicable State laws are available. Subject to the express provisions of this Purchase Agreement and the Indenture, the disposition of the Notes shall at all times be within the control of the owner thereof. Notwithstanding anything to the contrary, express or implied, in this Agreement, the Indenture or otherwise, the Purchaser understands that none of the Trust, the Note Registrar or the Indenture Trustee is obligated to register the Notes under the 1933 Act or any other securities law and that any Transfer in violation of the provisions of the Indenture shall be void ab initio. The foregoing shall in no way limit the ability or the right of the Purchaser to sell participation interests in any Notes owned by the Purchaser. (b) The Purchaser is either (i) an "accredited investor" as defined in rule 501(a) under the 1933 Act or (ii) a Qualified Institutional Buyer as defined in Rule 144A under the 1933 Act. (c) The Purchaser is authorized to enter into this Purchase Agreement and to purchase the Notes. This Purchase Agreement has been duly authorized executed and delivered by the Purchaser and constitutes the Purchaser's legal, valid and binding agreement enforceable against the Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (d) The Purchaser has sufficient knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Notes and the Purchaser is able to bear the economic risk of investment in the Notes. The Purchaser acknowledges that in connection with the making of its investment decision, the Purchaser has been afforded the opportunity to ask questions of, and receive answers regarding, and to conduct its investigation of, the Issuer, the Loans and the Loan Collateral, the Trust Estate, the Notes and the Servicer as is sufficient and necessary for the Purchaser to make an informed investment decision with respect to the Notes. (e) No placement agent, broker, finder or investment banker has been employed by or has acted for the Seller or the Purchaser in connection with the transactions with the Purchaser contemplated in this Purchase Agreement or otherwise in connection with the Notes; and the Purchaser is solely responsible for, and the Purchaser shall indemnify the Seller for the fees, expenses or commissions of any placement agent, broker, finder or investment banker and any other person or entity claiming to have acted in such capacity for or under the authority of the Purchaser. (f) The Purchaser agrees to treat, and to take no action inconsistent with the treatment of, the Notes as debt of the Issuer for tax purposes. 7. Notices. All notices and other communications hereunder shall be in writing and shall be sent by first class registered or certified mail, return receipt requested, or by facsimile transmission, provided such transmission is confirmed by overnight mail delivered by a nationally recognized overnight delivery service, addressed (a) if to the Purchaser, Union Bank of California, N.A., 445 South Figueroa Street, 15th Floor, Los Angeles, California 90071, Attention: Stephen R. Sweeney, and (b) if to the Issuer or Litchfield, c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, Massachusetts 01267, Attention: Executive Vice President, or to such other address as the Issuer or Litchfield shall have furnished to the Purchaser in writing. Any notice so given by registered or certified mail shall be deemed to have been given five days after being deposited in a depository of the United States mails. Any notice given by means of a nationally recognized overnight delivery service shall be deemed to have been given upon receipt thereof. 8. Miscellaneous. (a) This Purchase Agreement shall be construed and enforced in accordance with and governed by the law of the State of New York. (b) Any action or proceeding relating in any way to this Purchase Agreement may be brought and enforced in the courts of the State of New York or of the United States for the Southern District of New York and each of the Issuer, Litchfield and the Purchaser irrevocably submits to the jurisdiction of each such court (and any appellate court from any thereof) in respect of any such action or proceeding. Each of the Issuer, Litchfield and the Purchaser irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in the Supreme Court of the State of New York or the United States District Court for the Southern District of New York, and any claim that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. (d) The headings in this Purchase Agreement are for the purposes of reference only and shall not limit or define the meaning hereof. (e) This Purchase Agreement shall be binding upon the respective successors and assigns of the parties hereto and shall inure to the benefit of and be enforceable by any registered owner or owners at the time of each Note then issued, or any part thereof. This Purchase Agreement may be assigned by the Purchaser to an eligible purchaser of the Notes in connection with a permitted transfer of the Notes in accordance with the Indenture. (f) This Purchase Agreement may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, waiver, discharge or termination is sought. (g) This Purchase Agreement may be executed simultaneously in several counterparts, or by different parties in separate counterparts, each of which counterparts shall be an original, but all of which shall constitute one instrument. 9. No Recourse. It is expressly understood and agreed by the parties hereto that (a) the representations, undertakings and agreements herein made on the part of the Issuer are made and intended not as personal representations, undertakings and agreements by Litchfield but are made and intended for the purpose of binding only the Issuer, (b) nothing herein contained shall be construed as creating any liability on Litchfield to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto, and (c) under no circumstances shall Litchfield be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer under this Agreement; it being understood that the foregoing shall in no way limit the obligations of Litchfield under the Guarantee or the Purchase and Sale Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be duly executed on the date first written above. LITCHFIELD HYPOTHECATION CORP. 1997-B By: /s/ Heather A. Sica Title: Executive Vice President LITCHFIELD FINANCIAL CORPORATION By: /s/ Heather A. Sica Title: Executive Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ Stephen R. Sweeney Title: Vice President EX-10 17 Exhibit 10.199 LIMITED GUARANTEE LIMITED GUARANTEE dated as of June 1, 1999 by LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation (the "Guarantor"), in favor of UNION BANK OF CALIFORNIA, N.A., a California banking corporation with an address at 445 South Figueroa Street, 15th Floor, Los Angeles, California 90071("Union Bank"), as a Noteholder under the Indenture hereinafter referred to. WHEREAS, Litchfield Hypothecation Corp.1997-B, a Delaware corporation (the "Issuer") and a wholly-owned subsidiary of the Guarantor, and The Chase Manhattan Bank, as trustee (the "Trustee")are parties to an Indenture of Trust, as amended, (the "Indenture") (capitalized terms used but not defined herein shall have the meanings attributed thereto in the Indenture or in Appendix A thereto), dated as of August 1, 1997 providing for the issuance by the Issuer from time to time of its Hypothecation Loan Collateralized Notes (collectively, the "Notes"); WHEREAS, the Issuer and the Trustee have executed and delivered Amendment No. 2 to the Indenture, dated as of June 1, 1999 ("Amendment No. 2 to the Indenture") providing for the issuance by the Issuer of Series A Notes in an initial aggregate principal amount of $1,776,419.96 (the "Additional Series A Notes") and to authorize the Trustee to authenticate and deliver the Additional Series A Notes to Union Bank; and WHEREAS, pursuant to the Indenture, the Issuer has issued the Additional Series A Notes which Additional Series A Notes the Issuer has sold to Union Bank pursuant to a Note Purchase Agreement dated as of June 28, 1999 (the "Note Purchase Agreement"); and WHEREAS, pursuant to the Indenture, the Issuer has issued and the Guarantor has purchased certain Series C Notes in the original principal amount of $3,123,580.04 (the "Series C Notes")which Series C Notes the Guarantor has sold to Union Bank pursuant to the Note Purchase Agreement; and WHEREAS, it is a condition to the purchase by Union Bank of the Additional Series A Notes and the Series C Notes (collectively, the "Guaranteed Notes")that the Guarantor issue a guarantee in the form hereof of certain of the obligations of the Issuer under the Guaranteed Notes. NOW, THEREFORE, in consideration of the premises and in order to induce Union Bank to purchase the Guaranteed Notes, the Guarantor hereby agrees as follows: 98 Section 1. Guarantee. The Guarantor hereby irrevocably and unconditionally guarantees the punctual payment when due, whether at stated maturity, after maturity, by acceleration or otherwise, of principal of and interest on the Guaranteed Notes (the "Guaranteed Obligations") in an aggregate amount not to exceed $245,000 (the "Guaranteed Amount"). The Guarantor hereby agrees that it shall make the payment of a Guaranteed Obligation upon receipt of written demand therefor from Union Bank (a "Demand Notice") which Demand Notice shall specify that an Event of Default has occurred and is continuing under either or both of Sections 7.1(a) and 7.1(b) of the Indenture due to the failure of the Issuer to make the applicable payment of principal and/or interest due and owing to Union Bank under the Guaranteed Notes and the Indenture. The obligation of the Guarantor hereunder shall in no event exceed the Guaranteed Amount. The Guaranteed Amount shall be reduced by (i) the amount of any payments made by Guarantor hereunder or (ii) the portion allocable to the Guaranteed Notes of any unreimbursed Servicer Advances pursuant to the Indenture. Notwithstanding the limitation contained in the preceding sentence, the Guarantor shall also pay all costs and expenses, including attorneys' fees, costs relating to all costs and expenses arising out of or with respect to the validity, enforceability, collection, defense, administration or preservation of this Guarantee. GUARANTOR ACKNOWLEDGES AND AGREES THAT ANY REPURCHASE OF THE HYPOTHECATION LOANS BY THE GUARANTOR PURSUANT TO THE TERMS OF THE INDENTURE OR ANY OTHER DOCUMENT PROVIDING GUARANTOR WITH SUCH OPTION OR OBLIGATION OR THE PAYMENT OR PERFORMANCE BY GUARANTOR OF ANY OTHER OBLIGATION OF ISSUER UNDER THE INDENTURE OR THE GUARANTEED NOTES SHALL NOT REDUCE THE OBLIGATIONS OF GUARANTOR TO UNION BANK UNDER THIS GUARANTEE AND UNION BANK'S CONSENT TO SUCH REPURCHASE SHALL NOT CONSTITUTE A WAIVER OF UNION BANK'S RIGHTS HEREUNDER. Section 2. Waiver. The Guarantor hereby absolutely, unconditionally and irrevocably waives, to the fullest extent permitted by law, (i) promptness, diligence, notice of acceptance and any other notice with respect to this Guarantee,(ii) any requirement that Union Bank protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Issuer or any other person or any collateral, (iii) any and all right to assert any defense, set-off, counterclaim or cross-claim of any nature whatsoever with respect to this Guarantee, the obligations of the Guarantor hereunder or the obligations of any other person or party (including, without limitation, the Issuer) relating to this Guarantee or the obligations of the Guarantor hereunder or otherwise with respect to the Guaranteed Obligations in any action or proceeding brought by Union Bank to collect the Guaranteed Obligations or any portion thereof or to enforce the obligations of the Guarantor under this Guarantee, and (iv) any other action, event or precondition to the enforcement of this Guarantee or the performance by the Guarantor of the obligations hereunder. Section 3. Guarantee Absolute. (a) The Guarantor guarantees that, to the fullest extent permitted by law, the Guaranteed Obligations will be paid or performed strictly in accordance with their terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Union Bank with respect thereto. (b) No invalidity, irregularity, voidability, voidness or unenforceability of the Indenture or the Guaranteed Notes or of all or any part of the Guaranteed Obligations or of any security therefor, shall affect, impair or be a defense to this Guarantee. (c) The liability of the Guarantor under this Guarantee shall be absolute and unconditional irrespective of: (i) any change in the manner, place or terms of payment or performance, and/or any change or extension of the time of payment or performance of, renewal or alteration of, any Guaranteed Obligation, any security therefor, or any liability incurred directly or indirectly in respect thereof, or any other amendment or waiver of or any consent to departure from the Indenture or the Guaranteed Notes , including any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Issuer; (ii) any sale, exchange, release, surrender, realization upon any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, all or any of the Guaranteed Obligations, and/or any offset thereagainst, or failure to perfect, or continue the perfection of, any lien in any such property, or delay in the perfection of any such lien, or any amendment or waiver of or consent to departure from any other guarantee for all or any of the Guaranteed Obligations; (iii)any exercise or failure to exercise any rights against the Issuer or others (including the Guarantor); (iv) any settlement or compromise of any Guaranteed Obligation, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and any subordination of the payment of all or any part thereof to the payment of any Guaranteed Obligations (whether due or not) of the Issuer to creditors of the Issuer other than the Guarantor; (v) any manner of application of any collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of the Issuer or any of its subsidiaries; or (vi) any change, restructuring or termination of the existence of the Issuer. (d) Union Bank may at any time and from time to time (whether or not after revocation or termination of this Guarantee) without the consent of, or notice (except as shall be required by applicable statute and cannot be waived) to, the Guarantor, and without incurring responsibility to the Guarantor or impairing or releasing the obligations of the Guarantor hereunder, apply any sums by whomsoever paid or howsoever realized to any Guaranteed Obligation regardless of what Guaranteed Obligations remain unpaid. (e) This Guarantee shall continue to be effective or be reinstated, as the case may be, if claim is ever made upon Union Bank for repayment or recovery of any amount or amounts received by Union Bank in payment or on account of any of the Guaranteed Obligations and Union Bank repays all or part of said amount by reason of any judgment, decree or order of any court or administrative body having jurisdiction over Union Bank, or any settlement or compromise of any such claim effected by Union Bank with any such claimant (including the Issuer), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the Guarantor, notwithstanding any revocation hereof or the cancellation of the Guaranteed Notes, and the Guarantor shall be and remain liable to Union Bank hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by Union Bank. Section 4. Continuing Guarantee. This Guarantee is a continuing one and shall (i) remain in full force and effect until the indefeasible payment and satisfaction in full of the Guaranteed Obligations, (ii) be binding upon the Guarantor, its successors and assigns, and (iii) inure to the benefit of, and be enforceable by, Union Bank and its successors, transferees and assigns. All obligations to which this Guarantee applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. Section 5. Representations, Warranties and Covenants. The Guarantor hereby represents, warrants and covenants to and with Union Bank that: (a) The Guarantor has the corporate power to execute and deliver this Guarantee and to incur and perform its obligations hereunder; (b) The Guarantor has duly taken all necessary corporate action to authorize the execution, delivery and performance of this Guarantee and to incur and perform its obligations hereunder; (c) No consent, approval, authorization or other action by, and no notice to or of, or declaration or filing with, any governmental or other public body, or any other person, is required for the due authorization, execution, delivery and performance by the Guarantor of this Guarantee or the consummation of the transactions contemplated hereby; and Exhibit 10.200 (d) The Guarantor shall provide to Union Bank (i) within 60 days of the end of each fiscal quarter, the report on form-10-Q of the Guarantor and (ii) within 135 days of the end of each fiscal year of the Guarantor, the report on form 10-K of the Guarantor. Section 6. Terms. (a) The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) All references herein to Sections and subsections shall be deemed to be references to Sections and subsections of this Guarantee unless the context shall otherwise require. Section 7. Amendments and Modification. No provision hereof shall be modified, altered or limited except by written instrument expressly referring to this Guarantee and to such provision, and executed by the party to be charged. Section 8. Waiver of Subrogation Rights. Guarantor hereby waives until the Guaranteed Obligations are paid in full any right of indemnity, reimbursement, contribution, or subrogation arising as a result of payment by Guarantor hereunder, and will not prove any claim in competition with Union Bank in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature. Guarantor will not claim any set-off or counterclaim against Issuer in respect of any liability of Guarantor to Issuer. Guarantor waives any benefit of and any right to participate in any collateral which may be held by Union Bank. Section 9. Statute of Limitations. Any acknowledgment or new promise, whether by payment of principal or interest or otherwise and whether by the Issuer or others (including the Guarantor), with respect to any of the Guaranteed Obligations shall, if the statute of limitations in favor of the Guarantor against Union Bank shall have commenced to run, toll the running of such statute of limitations and, if the period of such statute of limitations shall have expired, prevent the operation of such statute of limitations. Section 10. Rights and Remedies Not Waived. No act, omission or delay by Union Bank shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by Union Bank of any default hereunder or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. Section 11. Admissibility of Guarantee. The Guarantor agrees that any copy of this Guarantee signed by the Guarantor and transmitted by telecopier for delivery to Union Bank shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence. Section 12. Notices. All notices, requests and demands to or upon Union Bank or the Guarantor under this Agreement shall be in writing and given as provided in the Indenture (with respect to the Guarantor, to the address of the Issuer as set forth in the Indenture and with respect to Union Bank, at its address set forth above). Section 13. Counterparts. This Guarantee may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original and all of which shall together constitute one and the same agreement. Section 14. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; ETC. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTEE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS GUARANTEE, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, (i) TRIAL BY JURY, (ii) TO THE EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (iii) THE RIGHT TO INTERPOSE ANY SET-OFF, COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SET-OFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION). GUARANTOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS GUARANTEE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY WAIVES GUARANTOR'S RIGHTS TO NOTICE AND HEARING UNDER ANY APPLICABLE STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH UNION BANK MAY DESIRE TO USE. (b) The Guarantor irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the Guarantor at its address determined pursuant to Section 12 hereof. (c) Nothing herein shall affect the right of Union Bank to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Guarantor in any other jurisdiction. (d) The Guarantor hereby waives presentment, notice of dishonor and protests of all instruments included in or evidencing any of the Guaranteed Obligations, and any and all other notices and demands whatsoever (except as expressly provided herein). Section 15. GOVERNING LAW. THIS GUARANTEE AND THE GUARANTEED OBLIGATIONS SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. Section 16. Captions; Separability. (a) The captions of the Sections and subsections of this Guarantee have been inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Guarantee. (b) If any term of this Guarantee shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby. Section 17. Acknowledgment of Receipt. The Guarantor acknowledges receipt of a copy of this Guarantee. Section 18. This Guarantee shall inure to the benefit of and be enforceable by Union Bank, its successors, transferees and assigns, and it shall be binding upon Guarantor and the successors and assigns of Guarantor. IN WITNESS WHEREOF, the Guarantor has duly executed or caused this Guarantee to be duly executed in the State of New York as of the date first above set forth. LITCHFIELD FINANCIAL CORPORATION By:/s/ Heather A. Sica Title: Executive Vice President LITCHFIELD HYPOTHECATION CORP. 1998-A EX-10 18 Exhibit 10.200 NOTE PURCHASE AGREEMENT June 28, 1999 LITCHFIELD HYPOTHECATION CORP., a Delaware corporation, and its successors and assigns (the "Issuer"), and LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation (the "Seller"), hereby agree with BANKBOSTON, N.A. (the "Purchaser"), as follows: 1. The Notes. The Issuer has authorized the execution and delivery to The Chase Manhattan Bank, as trustee (the "Trustee"), of an Indenture of Trust, dated as of June 1, 1998, as amended (the "Indenture"), providing for the issuance and sale by the Issuer of its Hypothecation Loan Collateralized Notes, in one or more series, secured by the Trust Estate granted to the Trustee by the Issuer pursuant to the Indenture, which includes, among other assets, a pool of certain hypothecation Loans owned by the Issuer and serviced by Litchfield Financial Corporation, a Massachusetts corporation (in such capacity, the "Servicer"). Unless otherwise specifically defined herein, all capitalized terms shall have the meanings ascribed to them in the Indenture. 2. Purchase and Sale. In reliance upon the representations and warranties contained herein and subject to the terms and conditions set forth herein, the Seller agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Seller, (i) $4,850,190.71 principal amount of Hypothecation Loan Collateralized Notes, Series A and (ii) $7,349,809.29 principal amount of Hypothecation Loan Collateralized Notes, Series C (the foregoing notes are referred to herein collectively as the "Notes") at an aggregate price (the "Purchase Price") equal to the aggregate outstanding principal amount of the Notes on the Closing Date (as hereinafter defined). The Purchase Price shall be payable to or upon the instructions of the Seller on the Closing Date by wire transfer in immediately available Federal funds. 3. The Closing; Delivery of the Notes. The closing of the purchase and sale of the Notes pursuant hereto (the "Closing") shall be held on June 28, 1999 (the "Closing Date"). The Closing shall take place by mail or at such place as the parties hereto shall designate. At the Closing, the Seller will deliver to the Purchaser, against payment of the Purchase Price therefor, one Series A Note in the denomination of $4,850,190.71 and one Series C Note in the denomination of $7,349,809.29 registered in the Purchaser's name, or in the name of its nominee; provided however, that if the Purchaser requests the Seller in writing not less than one Business Day prior to the Closing Date to deliver to the Purchaser Notes in other denominations (authorized pursuant to the Indenture) that equal in the aggregate the denominations specified above, the Seller shall comply with such request. 4. Conditions of the Purchaser's Obligation. The obligation of the Purchaser set forth in Section 2 to purchase the Notes on the Closing Date shall be subject to the accuracy as of the date hereof and as of the Closing Date of (i) the representations and warranties of the Issuer set forth in Section 5 hereof, (ii) the representations and warranties of the Seller in the Purchase and Sale Agreement and in Section 5 hereof, and (iii) the representations and warranties of the Servicer in the Servicing Agreement, and shall also be subject to the following additional conditions: (a) Each of this Purchase Agreement, the Notes, the Indenture, the Servicing Agreement, and the Purchase and Sale Agreement (collectively, the "Agreements") shall have been duly authorized, executed and delivered by each of the parties thereto and be in full force and effect; and (b)The Purchaser shall have received copies of all documents and other information as it may reasonably request, in form and substance reasonably satisfactory to it, with respect to such transactions and the taking of all proceedings in connection therewith. 5. Representations and Warranties. (a) The Issuer represents and warrants to the Purchaser as of the date hereof as follows: (i) Each of the Agreements to which the Issuer is a party has been duly authorized, executed and delivered by the Issuer and, assuming due execution and delivery by the other parties thereto, constitutes a legal, valid and binding agreement of the Issuer enforceable against the Issuer in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). The Notes have been validly issued and are entitled to the benefits of the Indenture and constitute valid instruments enforceable in accordance with their terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (ii) Neither the issuance or sale of the Notes, nor the consummation of any other of the transactions contemplated in any of the Agreements to which the Issuer is a party, nor the execution, delivery or performance of the terms of any of the Agreements to which the Issuer is a party, has or will result in the breach of any term or provision of the certificate of incorporation or by-laws of the Issuer, or conflict with, result in a breach or violation on the part of the Issuer of or the acceleration of indebtedness under or constitute a default under, the terms of any indenture or other agreement or instrument to which the Issuer is a party or by which it is bound, or any statute or regulation applicable to the Issuer or any order applicable to the Issuer of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Issuer. (iii) No consent, approval, authorization of, registration or filing with, or notice to, any governmental or regulatory authority, agency, department, commission, board, bureau, body or instrumentality is required on the part of the Issuer for the execution and delivery or by the Issuer with any of the Agreements to which the Issuer is a party or the Notes, or the issuance of the Notes, or the consummation by the Issuer of any transaction contemplated under any of the Agreements to which the Issuer is a party, or such consent, approval or authorization has been obtained or such registration, filing or notice has been made (or, with respect to assignments of mortgages and financing statements, will be made by the Issuer as contemplated by the Indenture). (iv) There is no action, suit or proceeding against, or investigation of, the Issuer pending or, to the best of its knowledge, threatened, before any court, administrative agency or other tribunal which, either individually or in the aggregate, (A) may result in any material adverse change in the financial condition, properties, or assets of the Issuer or in any material and adverse impairment of the right or ability of the Issuer to perform its obligations under the Agreements, or (B) asserts the invalidity of any of the Agreements to which either the Issuer is a party or the Notes or (C) seeks to prevent the consummation of any of the transactions contemplated by any of the Agreements to which the Issuer is a party. (v) Based in part on the representations and warranties contained in Section 6 hereof, the Issuer is not, and the sale of the Notes in the manner contemplated by this Purchase Agreement will not cause the Issuer to be, subject to registration or regulation as an investment company or affiliate of any investment company under the Investment Company Act of 1940, as amended. (vi) Each Loan included in the Trust Estate securing the Notes has been delivered to the Trustee or its collateral agent, together with an assignment thereof by the Issuer, which immediately prior to such assignment will own full legal and equitable title to each Loan, free and clear of any lien, charge, encumbrance or participation or ownership interest in favor of any other Person. Upon endorsement and delivery to the Trustee or its collateral agent of the executed original promissory notes and execution and delivery of the Indenture, all of the Issuer's right, title and interest in and to the Loans will be validly and effectively transferred to the Indenture Trustee as collateral security for the benefit of the Holders of the Notes. (vii) On the Closing Date after giving effect to the sale of the Notes to the Purchaser hereunder, the aggregate principal amount of all Hypothecation Loan Collateralized Notes outstanding shall be $44,262,214.41, of which $13,718,496.44, aggregate principal amount shall be Series A Notes owned of record by the Purchaser, $4,492,787.00 aggregate principal amount shall be Series A Notes owned of record by BSB Bank & Trust, $1,460,682.44 aggregate principal amount shall be Series A Notes owned of record by MetroWest Bank, $256,994.39 aggregate principal amount shall be Series B Variable Funding Notes owned of record by the Seller, $15,286,723.58 aggregate principal amount shall be Series C Notes owned of record by the Purchaser, $3,539,317.56 aggregate principal amount shall be Series C Notes owned of record by MetroWest Bank., and $5,507,213.00 aggregate principal amount shall be Series C Notes owned of record by BSB Bank & Trust. (b) The Seller represents and warrants to the Purchaser as of the date hereof as follows: (i) Each of the Agreements to which the Seller is a party has been duly authorized, executed and delivered by the Seller and, assuming due execution and delivery by the other parties thereto, constitutes a legal, valid and binding agreement of the Seller enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (ii) Neither the sale of the Notes, nor the consummation of any other of the transactions contemplated in any of the Agreements to which the Seller is a party, nor the execution, delivery or performance of the terms of any of the Agreements to which the Seller is a party, has or will result in the breach of any term or provision of the certificate of incorporation or by-laws of the Seller, or conflict with, result in a breach or violation on the part of the Seller of or the acceleration of indebtedness under or constitute a default under, the terms of any indenture or other agreement or instrument to which the Seller is a party or by which it is bound, or any statute or regulation applicable to the Seller or any order applicable to the Seller of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Seller. (iii)No consent, approval, authorization of, registration or filing with, or notice to, any governmental or regulatory authority, agency, department, commission, board, bureau, body or instrumentality is required on the part of the Seller for the execution and delivery or by the Seller with any of the Agreements to which the Seller is a party, or the sale of the Notes, or the consummation by the Seller of any transaction contemplated under any of the Agreements to which the Seller is a party, or such consent, approval or authorization has been obtained or such registration, filing or notice has been made (or, with respect to assignments of mortgages and financing statements, will be made by the Seller as contemplated by the Indenture). (iv) There is no action, suit or proceeding against, or investigation of, the Seller pending or, to the best of its knowledge, threatened, before any court, administrative agency or other tribunal which, either individually or in the aggregate, (A) may result in any material adverse change in the financial condition, properties, or assets of the Seller or in any material and adverse impairment of the right or ability of the Seller to perform its obligations under the Agreements, or (B) asserts the invalidity of any of the Agreements to which either the Seller is a party or the Notes or (C) seeks to prevent the consummation of any of the transactions contemplated by any of the Agreements to which either the Seller is a party. (v) Neither the Seller nor any Affiliate of the Seller nor any Person authorized or employed by the Seller will, directly or indirectly, offer or sell any Note or similar security in a manner which would render the sale of the Notes pursuant to this Purchase Agreement a violation of Section 5 of the 1933 Act, or require registration pursuant thereto. Based in part on the representations and warranties contained in Section 6 hereof, the offering and sale of the Notes by the Seller to Purchaser at closing are exempt from the registration requirements of the 1933 Act and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended. The Issuer and the Seller agree that the representations and warranties set forth in this Section 5 shall be fully assignable to the initial party to whom the Purchaser may sell the Notes. 6. The Purchaser's Representations. The Purchaser represents to the Issuer as follows: (a) The Purchaser is acquiring the Notes for its own account. The Purchaser understands that the Notes are not being registered under the Securities Act of 1933, as amended (the "1933 Act"), or any State securities or "Blue Sky" law and are being sold to the Purchaser in reliance upon the Purchaser's representations contained herein in a transaction that is exempt from the registration requirements of the 1933 Act and any applicable State law. The Purchaser agrees that the Notes may not be Transferred unless subsequently registered under the 1933 Act and any applicable State securities or "Blue Sky" law or unless exemptions from the registration requirements of the 1933 Act and applicable State laws are available. Subject to the express provisions of this Purchase Agreement and the Indenture, the disposition of the Notes shall at all times be within the control of the owner thereof. Notwithstanding anything to the contrary, express or implied, in this Agreement, the Indenture or otherwise, the Purchaser understands that none of the Trust, the Note Registrar or the Indenture Trustee is obligated to register the Notes under the 1933 Act or any other securities law and that any Transfer in violation of the provisions of the Indenture shall be void ab initio. The foregoing shall in no way limit the ability or the right of the Purchaser to sell participation interests in any Notes owned by the Purchaser. (b) The Purchaser is either (i) an "accredited investor" as defined in rule 501(a) under the 1933 Act or (ii) a Qualified Institutional Buyer as defined in Rule 144A under the 1933 Act. (c) The Purchaser is authorized to enter into this Purchase Agreement and to purchase the Notes. This Purchase Agreement has been duly authorized executed and delivered by the Purchaser and constitutes the Purchaser's legal, valid and binding agreement enforceable against the Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (d) The Purchaser has sufficient knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Notes and the Purchaser is able to bear the economic risk of investment in the Notes. The Purchaser acknowledges that in connection with the making of its investment decision, the Purchaser has been afforded the opportunity to ask questions of, and receive answers regarding, and to conduct its investigation of, the Issuer, the Loans and the Loan Collateral, the Trust Estate, the Notes and the Servicer as is sufficient and necessary for the Purchaser to make an informed investment decision with respect to the Notes. (e) No placement agent, broker, finder or investment banker has been employed by or has acted for the Seller or the Purchaser in connection with the transactions with the Purchaser contemplated in this Purchase Agreement or otherwise in connection with the Notes; and the Purchaser is solely responsible for, and the Purchaser shall indemnify the Seller for the fees, expenses or commissions of any placement agent, broker, finder or investment banker and any other person or entity claiming to have acted in such capacity for or under the authority of the Purchaser.(f) The Purchaser agrees to treat, and to take no action inconsistent with the treatment of, the Notes as debt of the Issuer for tax purposes. 7. Notices. All notices and other communications hereunder shall be in writing and shall be sent by first class registered or certified mail, return receipt requested, or by facsimile transmission, provided such transmission is confirmed by overnight mail delivered by a nationally recognized overnight delivery service, addressed (a) if to the Purchaser, BankBoston, N.A.,15 Westminster Street, Providence, Rhode Island 02903, Attention: Thomas Morris, and (b) if to the Issuer or the Seller, c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, Massachusetts 01267, Attention: Executive Vice President, or to such other address as the Issuer or the Seller shall have furnished to the Purchaser in writing. Any notice so given by registered or certified mail shall be deemed to have been given five days after being deposited in a depository of the United States mails. Any notice given by means of a nationally recognized overnight delivery service shall be deemed to have been given upon receipt thereof. 8. Miscellaneous. (a) This Purchase Agreement shall be construed and enforced in accordance with and governed by the law of the State of New York. (b) Any action or proceeding relating in any way to this Purchase Agreement may be brought and enforced in the courts of the State of New York or of the United States for the Southern District of New York and each of the Issuer, the Seller and the Purchaser irrevocably submits to the jurisdiction of each such court (and any appellate court from any thereof) in respect of any such action or proceeding. Each of the Issuer, the Seller and the Purchaser irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in any state court of the State of New York or the United States District Court for the Southern District of New York, and any claim that any such action or proceeding brought in any such court has been brought in an inconvenient forum. (c) This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. (d) The headings in this Purchase Agreement are for the purposes of reference only and shall not limit or define the meaning hereof. (e) This Purchase Agreement shall be binding upon the respective successors and assigns of the parties hereto and shall inure to the benefit of and be enforceable by any registered owner or owners at the time of each Note then issued, or any part thereof. This Purchase Agreement may be assigned by the Purchaser to an eligible purchaser of the Notes in connection with a permitted transfer of the Notes in accordance with the Indenture. (f) This Purchase Agreement may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, waiver, discharge or termination is sought. (g) This Purchase Agreement may be executed simultaneously in several counterparts, or by different parties in separate counterparts, each of which counterparts shall be an original, but all of which shall constitute one instrument. 9. No Recourse. It is expressly understood and agreed by the parties hereto that (a) the representations, undertakings and agreements herein made on the part of the Issuer are made and intended not as personal representations, undertakings and agreements by the Seller but are made and intended for the purpose of binding only the Issuer, (b) nothing herein contained shall be construed as creating any liability on the Seller to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto, and (c) under no circumstances shall the Seller be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer under this Agreement; it being understood that the foregoing shall in no way limit the obligations of the Seller under the Guarantee or the Purchase and Sale Agreement. 10. Repurchase Right. The Seller hereby agrees that the Purchaser shall have the right, exercisable in the Purchaser's sole discretion, to require the Seller to repurchase all or any portion of the Notes at any time during the 90 days immediately following the Closing Date at a purchase price equal to the outstanding principal amount of the Notes to be repurchased on the date of repurchase together with all accrued and unpaid interest on the Notes to be repurchased to the date of repurchase. Exercise of the foregoing right shall be in writing delivered to the Seller no less than 30 days prior to the date of repurchase. IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be duly executed on the date first written above. LITCHFIELD HYPOTHECATION CORP. 1998-A By: /s/ Heather A. Sica Title: Executive Vice President LITCHFIELD FINANCIAL CORPORATION By: /s/ Heather A. Sica Title: Executive Vice President BANKBOSTON, N.A. By: /s/ Thomas Morris Title: Director EX-10 19 Exhibit 10.201 LIMITED GUARANTEE LIMITED GUARANTEE dated as of June 1, 1999 by LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation (the "Guarantor"), in favor of BankBoston, N.A., a national banking association with an address at 15 Westminster Street, Providence, Rhode Island ("BankBoston"), as a Noteholder under the Indenture hereinafter referred to. WHEREAS, Litchfield Hypothecation Corp. 1998-A, a Delaware corporation (the "Issuer") and a wholly-owned subsidiary of the Guarantor, is a party to an Indenture of Trust dated as of June 1, 1998, as amended by Amendment No. 1 thereto dated as of September 1, 1998, Amendment No. 2 thereto dated as of November 1, 1998, Amendment No. 3 thereto dated as of March 1, 1999 and Amendment No. 4 thereto dated as of June 1, 1999 (the "Indenture") (capitalized terms used but not defined herein shall have the meanings attributed thereto in the Indenture or in Appendix A thereto) with The Chase Manhattan Bank (the "Trustee") pursuant to which on the date hereof the Issuer has issued (i) that certain Series A Note in the original principal amount of $4,850,190.71 and (ii) that certain Series C Note in the original principal amount of $7,349,809.29 (collectively, the "Guaranteed Notes"); and WHEREAS, the Issuer, the Guarantor and BankBoston are parties to a Note Purchase Agreement, dated the date hereof, pursuant to which and subject to the terms and conditions contained therein, BankBoston shall purchase the Guaranteed Notes from the Issuer; and WHEREAS, it is a condition to the purchase by BankBoston of the Guaranteed Notes that the Guarantor issue a guarantee in the form hereof of certain of the obligations of the Issuer under the Guaranteed Notes. NOW, THEREFORE, in consideration of the premises and in order to induce BankBoston to purchase the Guaranteed Notes, the Guarantor hereby agrees as follows: Section 1. Guarantee. The Guarantor hereby irrevocably and unconditionally guarantees the punctual payment when due, whether at stated maturity, after maturity, by acceleration or otherwise, of principal of and interest on the Guaranteed Notes (the "Guaranteed Obligations") in an aggregate amount not to exceed $610,000.00 (the "Guaranteed Amount"). The Guarantor hereby agrees that it shall make the payment of a Guaranteed Obligation upon receipt of written demand therefor from BankBoston (a "Demand Notice") which Demand Notice shall specify that an Event of Default has occurred and is continuing under either or both of Sections 7.1(a) and 7.1(b) of the Indenture due to the failure of the Issuer to make the applicable payment of principal and/or interest due and owing to BankBoston under the Guaranteed Notes and the Indenture. The obligation of the Guarantor hereunder shall in no event exceed the Guaranteed Amount. The Guaranteed Amount shall be reduced by (i) the amount of any payments made by Guarantor hereunder or (ii) the amount of any unreimbursed Servicer Advances pursuant to the Indenture. Notwithstanding the limitation contained in the preceding sentence, the Guarantor shall also pay all costs and expenses, including attorneys' fees, costs relating to all costs and expenses arising out of or with respect to the validity, enforceability, collection, defense, administration or preservation of this Guarantee. GUARANTOR ACKNOWLEDGES AND AGREES THAT ANY REPURCHASE OF THE HYPOTHECATION LOANS BY THE GUARANTOR PURSUANT TO THE TERMS OF THE INDENTURE OR ANY OTHER DOCUMENT PROVIDING GUARANTOR WITH SUCH OPTION OR OBLIGATION OR THE PAYMENT OR PERFORMANCE BY GUARANTOR OF ANY OTHER OBLIGATION OF ISSUER UNDER THE INDENTURE OR THE GUARANTEED NOTES SHALL NOT REDUCE THE OBLIGATIONS OF GUARANTOR TO BANKBOSTON UNDER THIS GUARANTEE AND BANKBOSTON'S CONSENT TO SUCH REPURCHASE SHALL NOT CONSTITUTE A WAIVER OF BANKBOSTON'S RIGHTS HEREUNDER. Section 2. Waiver. The Guarantor hereby absolutely, unconditionally and irrevocably waives, to the fullest extent permitted by law, (i) promptness, diligence, notice of acceptance and any other notice with respect to this Guarantee,(ii) any requirement that BankBoston protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against the Issuer or any other person or any collateral, (iii) any and all right to assert any defense, set-off, counterclaim or cross-claim of any nature whatsoever with respect to this Guarantee, the obligations of the Guarantor hereunder or the obligations of any other person or party (including, without limitation, the Issuer) relating to this Guarantee or the obligations of the Guarantor hereunder or otherwise with respect to the Guaranteed Obligations in any action or proceeding brought by BankBoston to collect the Guaranteed Obligations or any portion thereof or to enforce the obligations of the Guarantor under this Guarantee, and (iv) any other action, event or precondition to the enforcement of this Guarantee or the performance by the Guarantor of the obligations hereunder. Section 3. Guarantee Absolute. (a) The Guarantor guarantees that, to the fullest extent permitted by law, the Guaranteed Obligations will be paid or performed strictly in accordance with their terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of BankBoston with respect thereto. (b) No invalidity, irregularity, voidability, voidness or unenforceability of the Indenture or the Guaranteed Notes or of all or any part of the Guaranteed Obligations or of any security therefor, shall affect, impair or be a defense to this Guarantee. (c) The liability of the Guarantor under this Guarantee shall be absolute and unconditional irrespective of: (i) any change in the manner, place or terms of payment or performance, and/or any change or extension of the time of payment or performance of, renewal or alteration of, any Guaranteed Obligation, any security therefor, or any liability incurred directly or indirectly in respect thereof, or any other amendment or waiver of or any consent to departure from the Indenture or the Guaranteed Notes, including any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Issuer; (ii) any sale, exchange, release, surrender, realization upon any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, all or any of the Guaranteed Obligations, and/or any offset thereagainst, or failure to perfect, or continue the perfection of, any lien in any such property, or delay in the perfection of any such lien, or any amendment or waiver of or consent to departure from any other guarantee for all or any of the Guaranteed Obligations; (iii) any exercise or failure to exercise any rights against the Issuer or others (including the Guarantor); (iv) any settlement or compromise of any Guaranteed Obligation, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and any subordination of the payment of all or any part thereof to the payment of any Guaranteed Obligations (whether due or not) of the Issuer to creditors of the Issuer other than the Guarantor; (v) any manner of application of any collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other assets of the Issuer or any of its subsidiaries; or (vi) any change, restructuring or termination of the existence of the Issuer. (d) BankBoston may at any time and from time to time (whether or not after revocation or termination of this Guarantee) without the consent of, or notice (except as shall be required by applicable statute and cannot be waived) to, the Guarantor, and without incurring responsibility to the Guarantor or impairing or releasing the obligations of the Guarantor hereunder, apply any sums by whomsoever paid or howsoever realized to any Guaranteed Obligation regardless of what Guaranteed Obligations remain unpaid. (e) This Guarantee shall continue to be effective or be reinstated, as the case may be, if claim is ever made upon BankBoston for repayment or recovery of any amount or amounts received by BankBoston in payment or on account of any of the Guaranteed Obligations and BankBoston repays all or part of said amount by reason of any judgment, decree or order of any court or administrative body having jurisdiction over BankBoston, or any settlement or compromise of any such claim effected by BankBoston with any such claimant (including the Issuer), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the Guarantor, notwithstanding any revocation hereof or the cancellation of the Guaranteed Notes, and the Guarantor shall be and remain liable to BankBoston hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by BankBoston. Section 4. Continuing Guarantee. This Guarantee is a continuing one and shall (i) remain in full force and effect until the indefeasible payment and satisfaction in full of the Guaranteed Obligations, (ii) be binding upon the Guarantor, its successors and assigns, and (iii) inure to the benefit of, and be enforceable by, BankBoston and its successors, transferees and assigns. All obligations to which this Guarantee applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. Section 5. Representations, Warranties and Covenants. The Guarantor hereby represents, warrants and covenants to and with BankBoston that: (a) The Guarantor has the corporate power to execute and deliver this Guarantee and to incur and perform its obligations hereunder; (b) The Guarantor has duly taken all necessary corporate action to authorize the execution, delivery and performance of this Guarantee and to incur and perform its obligations hereunder; (c) No consent, approval, authorization or other action by, and no notice to or of, or declaration or filing with, any governmental or other public body, or any other person, is required for the due authorization, execution, delivery and performance by the Guarantor of this Guarantee or the consummation of the transactions contemplated hereby; and (d) The Guarantor shall provide to BankBoston (i) within 60 days of the end of each fiscal quarter, the report on form 10-Q of the Guarantor and (ii) within 135 days of the end of each fiscal year of the Guarantor, the report on form 10-K of the Guarantor. Section 6. Terms. (a) The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation". (b) All references herein to Sections and subsections shall be deemed to be references to Sections and subsections of this Guarantee unless the context shall otherwise require. Section 7. Amendments and Modification. No provision hereof shall be modified, altered or limited except by written instrument expressly referring to this Guarantee and to such provision, and executed by the party to be charged. Section 8. Waiver of Subrogation Rights. Guarantor hereby waives until the Guaranteed Obligations are paid in full any right of indemnity, reimbursement, contribution, or subrogation arising as a result of payment by Guarantor hereunder, and will not prove any claim in competition with BankBoston in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature. Guarantor will not claim any set-off or counterclaim against Issuer in respect of any liability of Guarantor to Issuer. Guarantor waives any benefit of and any right to participate in any collateral which may be held by BankBoston . Section 9. Statute of Limitations. Any acknowledgment or new promise, whether by payment of principal or interest or otherwise and whether by the Issuer or others (including the Guarantor), with respect to any of the Guaranteed Obligations shall, if the statute of limitations in favor of the Guarantor against BankBoston shall have commenced to run, toll the running of such statute of limitations and, if the period of such statute of limitations shall have expired, prevent the operation of such statute of limitations. Section 10. Rights and Remedies Not Waived. No act, omission or delay by BankBoston shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by BankBoston of any default hereunder or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. Section 11. Admissibility of Guarantee. The Guarantor agrees that any copy of this Guarantee signed by the Guarantor and transmitted by telecopier for delivery to BankBoston shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence. Section 12. Notices. All notices, requests and demands to or upon BankBoston or the Guarantor under this Agreement shall be in writing and given as provided in the Indenture (with respect to the Guarantor, to the address of the Issuer as set forth in the Indenture and with respect to BankBoston, at its address set forth above). Section 13. Counterparts. This Guarantee may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original and all of which shall together constitute one and the same agreement. Section 14. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; ETC. (a) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTEE MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS GUARANTEE, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE GUARANTOR HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, (i) TRIAL BY JURY, (ii) TO THE EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND (iii) THE RIGHT TO INTERPOSE ANY SET-OFF, COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SET-OFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION). GUARANTOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS GUARANTEE IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY WAIVES GUARANTOR'S RIGHTS TO NOTICE AND HEARING UNDER ANY APPLICABLE STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH BANKBOSTON MAY DESIRE TO USE. (b) The Guarantor irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the Guarantor at its address determined pursuant to Section 12 hereof. (c) Nothing herein shall affect the right of BankBoston to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Guarantor in any other jurisdiction. (d) The Guarantor hereby waives presentment, notice of dishonor and protests of all instruments included in or evidencing any of the Guaranteed Obligations, and any and all other notices and demands whatsoever (except as expressly provided herein). Section 15. GOVERNING LAW. THIS GUARANTEE AND THE GUARANTEED OBLIGATIONS SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. Section 16. Captions; Separability. (a) The captions of the Sections and subsections of this Guarantee have been inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Guarantee. (b) If any term of this Guarantee shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby. Section 17. Acknowledgment of Receipt. The Guarantor acknowledges receipt of a copy of this Guarantee. Section 18. This Guarantee shall inure to the benefit of and be enforceable by BankBoston , its successors, transferees and assigns, and it shall be binding upon Guarantor and the successors and assigns of Guarantor. IN WITNESS WHEREOF, the Guarantor has duly executed or caused this Guarantee to be duly executed as of the date first above set forth. LITCHFIELD FINANCIAL CORPORATION By: /s/ Heather A. Sica Title: Executive Vice President EX-10 20 Exhibit 10.202 RECEIVABLES PURCHASE AGREEMENT THIS RECEIVABLES PURCHASE AGREEMENT (this "Agreement") is entered into as of June 30, 1999, by and between LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation with its chief executive office at 430 Main Street, Williamstown, Massachusetts 01267 ("Seller") and FIRST MASSACHUSETTS BANK, N.A. a national banking association with a place of business located at 99 West Street, Pittsfield, Massachusetts 01201(the "Purchaser"). WHEREAS, the Seller now owns the consumer receivables specified on Schedule 1 hereto (the "Receivables") representing purchase money indebtedness of purchasers (each a "Consumer") of fee simple interests in real property (each a "Property"); WHEREAS, the Receivables were acquired by the Seller from the originators of the Receivables (each an "Originator"); WHEREAS, the Seller desires to sell the Receivables to the Purchaser in accordance with the terms and conditions of this Agreement; WHEREAS, the Purchaser desires to purchase the Receivables from the Seller in accordance with the terms and conditions of this Agreement; and WHEREAS, the Purchaser desires to engage the Seller to service the Receivables upon the sale of the Receivables to the Purchaser and the Seller desires to perform such services; NOW THEREFORE, for and in consideration of the foregoing, and the covenants and agreements hereinafter set forth and other good and valuable consideration, the legal adequacy and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, hereby agree: 1. Definition of Receivable; Sale and Purchase of Eligible Receivables. (a) As used herein, the term "Receivable" shall mean with respect to each Receivable specified on Schedule 1 hereto: each and every promissory note, instrument, installment sales contract, contract for deed, purchase contract, or other evidence of indebtedness executed and delivered by the Consumer or any other Obligor (as defined in paragraph 4 below) to evidence the obligation to repay indebtedness, each mortgage, deed of trust, or other security instrument, if any, creating a first lien on the related Property (each a "Mortgage"), each other instrument, document, guarantee, contract, or agreement of whatever nature evidencing or securing the indebtedness of the Consumer and each other Obligor incurred in connection with the purchase of a Property, all guarantees or reserves provided by Originators securing the Receivables, and all payments, revenues, proceeds, property, contract rights, general intangibles, claims, powers, benefits and remedies arising from, or in any way related to, any of the foregoing. (b) Subject to the terms and conditions of this Agreement, the accuracy of all representations and warranties of the Seller contained herein, and the payment of the Purchase Price (as defined in Paragraph 3 below) by the Purchaser to the Seller on the Closing Date (as defined in Paragraph 2 below), the Seller hereby agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Seller, the Receivables. 2. Closing Date; Conditions Precedent to Purchase of Receivables. The "Closing Date" with respect to the Receivable shall be the date on which the purchase and sale of the Receivables shall occur and be funded. As a condition to closing, the Seller shall have delivered to the Purchaser or its designee or collateral agent the documents with respect to each Receivable specified on Schedule A hereto. In addition, the obligation of the Purchaser to purchase the Receivables is subject to the fulfillment of each of the following conditions: (a) all Receivable Documents (as defined in paragraph 4 below) shall be in form and substance satisfactory to the Purchaser and shall have been duly executed by all parties thereto, with the signatures properly notarized and the instruments in proper form for recordation, as required, and, where applicable, shall have been recorded; provided that the Seller shall have (i) 15 days from the Closing Date to deliver to the Purchaser the original files comprising the Receivable Documents and (ii) 90 days from the Closing Date to have filed in the appropriate recording office(s) any executed assignments necessary for assigning the Receivables or the Receivable Documents to the Purchaser; (b) all representations and warranties of the Seller contained herein shall be true and correct as of the Closing Date; and (c) the Seller shall be in compliance with all of its duties, obligations and covenants contained herein. 3. Purchase Price. The purchase price (the "Purchase Price") for each Receivable shall be the outstanding principal amount of the Receivable on the Closing Date. The Purchase Price shall be paid by the Purchaser to the Seller in immediately available funds on the Closing Date. In addition, on and after the Closing Date the Seller shall be entitled to a deferred purchase price (the "Deferred Purchase Price") payable in arrears on the 25th business day of each month equal to the aggregate remaining cash collections from the Receivables in the previous calendar month (each a "Remittance Period," provided that the first Remittance Period shall commence on the Closing Date and end on July 31, 1999) after payment to the Purchaser of (i) the greater of (A) all principal collected in respect of the Receivables during the Remittance Period or (B) all scheduled principal payments due to be paid in respect of the Receivables during the Remittance Period and (ii) interest accrued on the outstanding principal balance of the Receivables during the Remittance Period at a rate equal to the LIBOR Rate plus 180 basis points (the "Pass-through Rate") (the foregoing required payment to the Purchaser on each Remittance Date is referred to herein as the "Required Monthly Payment"). As used herein "LIBOR Rate" shall mean the rate published in The Wall Street Journal under "Money Rates" (or if such publication shall cease to publish such rate, then the rate published in such other nationally recognized publication as the Purchaser may from time to time specify) as the average of the interbank offered rates for U.S. Dollar deposits in the London interbank market for a term of 90 days, based on quotations at 5 major banks. The LIBOR Rate for each day of a Remittance Period shall be the rate so published on the first business day of such Remittance Period. Payment to LFC of the Deferred Purchase Price on any Remittance Date shall be subordinate to the payment to the Purchaser of the Required Monthly Payment on such Remittance Date. In the event collections on the Receivables during any Remittance Period are insufficient to pay the Required Monthly Payment on the related Remittance Date after giving effect to the subordination of the Deferred Purchase Price, the Seller shall advance such shortfall to the Purchaser. Any such advance shall be reimbursed to the Seller on subsequent Remittance Dates prior to payment of the Required Monthly Payment on such Remittance Date. The Seller's repurchase obligation in Paragraph 7 hereof shall be reduced to the extent of any unreimbursed advances. 4. Representations and Warranties. To induce the Purchaser to execute this Agreement and to purchase the Receivables, the Seller makes the following warranties and representations to the Purchaser and its successors and assigns, each of which is true and correct as of the date of this Agreement and on and as of the Closing Date, with the understanding that all of the warranties and representations contained herein shall survive each closing of the purchase and sale of Receivables hereunder: (a) With respect to each Receivable: (i) each promissory note, instrument, installment sales contract, contract for deed, purchase contract, or other evidence of indebtedness evidencing the obligation to repay indebtedness, each Mortgage, if any, and each other instrument, document, guarantee, contract, or agreement of whatever nature evidencing or securing each Receivable (each of the foregoing a "Receivable Document") has been duly executed and/or endorsed by the Consumer and/or any other person or entity that is or who may become obligated under the Receivable whether as the maker or guarantor (each an "Obligor"). All recordings or filings required to effectively assign all right, title and interest in and to the Receivable to the Purchaser have been recorded or filed or will be filed and recorded during the 90 day period referred to in Paragraph 2(a)(ii) above. Each Receivable Document represents the genuine, legal, valid and binding obligation of each Obligor, enforceable against each Obligor by the holder of the Receivable in accordance with its terms. Each party to the Receivable Documents had legal capacity to enter into the Receivable and to execute and deliver the Receivable Documents. No fraud, omission, misrepresentation or similar occurrence with respect to a Receivable has taken place on the part of any person; (ii) the Receivable is not and will not be subject to any right of rescission, set-off, recoupment, counterclaim or defense, including the defense of usury, whether or not arising out of transactions relating to the Receivable, and no Obligor has asserted either orally or in writing any illegality, breach, defense, set-off or counterclaim or otherwise disputed, contested or repudiated the Receivable or the related Property; (iii) immediately prior to the purchase by the Purchaser, the Seller is the sole owner of the Receivable, and the Seller has good, indefeasible and marketable title thereto, and has full right to transfer and sell the Receivable to the Purchaser, free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest, and has full right and authority subject to no interest or participation of, or agreement with, any other party, to sell and assign each Receivable pursuant to this Agreement. Upon the sale of each Receivable, the Seller will have transferred and conveyed good, indefeasible and marketable title in and to such Receivable to the Purchaser free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim, or security interest; (iv) the related Mortgage, if any, secures and creates a first lien on an estate in fee simple in real property and is a valid, subsisting and enforceable first lien on the related Property, and the Property is not subject to any other lien, mortgage, security interest claim or encumbrance. The related Property has not been released from the lien of the Mortgage, in whole or in part, except in consideration of principal payments which are reflected in the principal balance of the Receivable; (v) the solicitation, origination and servicing of the Receivable did not, and the terms and conditions of the Receivable as of any date do not and will not, contravene or violate any applicable laws, rules or regulations (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, real estate settlement procedures, disclosure, equal credit opportunity, fair debt collection practices and privacy) and no party to the related Receivable Documents is in violation of any such law, rule or regulation. At the time of origination of the Receivable, the Originator was qualified to transact business and in good standing in the jurisdiction in which the Receivable was originated; (vi) the Receivable is denominated and payable in United States dollars in the United States and relates to a Property located in the United States; (vii) no payment, in whole or in part, on the Receivable is more than 30 days contractually past due; (viii) the Receivable was originated by the related Originator in the ordinary course of its business and the Originator and the Seller have fulfilled all of their obligations in respect thereof. The Receivable evidences a purchase money obligation incurred by the Consumer solely for the purpose of financing the Consumer's purchase of the related Property; (ix) the Receivable is required to be paid pursuant to the terms of the related Receivable Documents, has not been paid in full or been compromised, adjusted, extended, re-negotiated, released, cancelled, satisfied, subordinated, rescinded or modified, and is not subject to compromise, adjustment, extension, satisfaction, subordination, rescission, or modification. The Seller has not waived the performance by any Obligor of any action, if the Obligor's failure to perform such action would cause the Receivable to be in default, nor has the Seller waived any default resulting from any action or inaction by the Obligor; (x) there are no proceedings or investigations pending or threatened (a) asserting the invalidity of the Receivable or (b) seeking to enforce the payment of the Receivable or (c) involving the condemnation or public taking of the Property related to the Receivable; (xi) no Obligor is subject to any bankruptcy, insolvency or reorganization law or proceeding; (xii) the Mortgage, if any, contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the related Property of the benefits of the security provided thereby. There is no homestead or other exemption available to a Consumer that would interfere with the right to sell the related Property at a trustee's sale or the right to foreclose the Mortgage; (xiii) each Obligor is a natural person and citizen of the United States or Canada and meets the Seller's creditworthiness standards; and (xiv) To the best of the Seller's knowledge the related Property does not possess the presence of Hazardous Materials and neither the current nor any proposed operation of the Property is likely to cause the production or location upon the Property of Hazardous Materials. As used herein, "Hazardous Materials" means (a) those substances as defined as "hazardous substances," "hazardous materials," "toxic substances," or "solid waste" in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et. seq., and in the regulations promulgated pursuant thereto; (b) those substances designated as a "hazardous substance" under or pursuant to the Federal Water Pollution Control Act, 33 U.S.C. S1257, et seq., and in the regulations promulgated pursuant thereto; (c) those substances listed in the United States Department of Transportation Table (40 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); and (d) such other substances and materials classified as hazardous or toxic under any local, state or federal law or regulation; (b) The Seller is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has all licenses necessary to carry on its business as now being conducted and is licensed, qualified and in good standing in each state wherein it owns or leases any material properties if the laws of such state require licensing or qualification in order to conduct business of the type conducted by the Seller, and in any event the Seller and its business and operations are in full compliance with all applicable federal, state and local laws and regulations; the Seller has the full power, authority and legal right to hold, transfer and convey the Receivables and to execute and deliver this Agreement and to perform its obligations hereunder; the execution, delivery and performance of this Agreement (including all instruments of transfer to be delivered pursuant to this Agreement) by the Seller and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action; this Agreement and all agreements contemplated hereby have been duly executed and delivered and constitute the valid, legal, binding and enforceable obligations of the Seller, regardless of whether such enforcement is sought in a proceeding in equity or at law; and all requisite corporate action has been taken by the Seller to make this Agreement and all agreements contemplated hereby valid and binding upon the Seller in accordance with their terms; (c) The consummation of the transactions contemplated by this Agreement are in the ordinary course of business of the Seller, and the transfer, assignment, and conveyance of the Receivables by the Seller pursuant to this Agreement are not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction; (d) Neither the execution and delivery of this Agreement, the sale of the Receivables to the Purchaser, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement, will conflict with or result in a breach of any of the terms, conditions or provisions of the Seller's organizational documents or any legal restriction or any agreement or instrument to which the Seller is now a party or by which it is bound, or constitute a default or result in an acceleration under any of the foregoing, or result in the violation of any law, rule, regulation, order, judgment or decree to which the Seller or its property is subject, or result in the creation or imposition of any lien, charge or encumbrance that would have an adverse effect upon any of its properties pursuant to the terms of any mortgage, contract, deed of trust or other instrument, or impair the ability of the Purchaser to realize on the Receivables or impair the value of the Receivables; (e) There is no action, suit, proceeding, or investigation pending or threatened against the Seller which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of the Seller, or in any material impairment of the right or ability of the Seller to carry on its business substantially as now conducted, or in any material liability on the part of the Seller, or which would draw into question the validity of this Agreement or the Receivables or of any action taken or to be taken in connection with the obligations of the Seller contemplated herein, or which would be likely to impair materially the ability of the Seller to perform under the terms of this Agreement; (f) No consent of any other party and no consent, approval, authorization or order of, or registration or filing with, or notice to any court or governmental agency or body is required for the execution, delivery or performance by the Seller of or compliance by the Seller with this Agreement or the sale of the Receivables or the consummation of the transactions contemplated by this Agreement, or if required, such approval has been obtained prior to the Closing Date; (g) All information heretofore or contemporaneously herewith furnished by the Seller to the Purchaser for the purposes of or in connection with this Agreement or any related document or any transaction contemplated hereby or thereby is, and all information hereafter furnished by or on behalf of the Seller to the Purchaser will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading; (h) The Seller has delivered to the Purchaser such financial information as requested by the Purchaser (including audited or unaudited financial statements). All such financial statements fairly present the pertinent results of operations and changes in financial position for each of the periods requested and the financial position at the end of each such period of the Seller and its subsidiaries and have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as set forth in the notes thereto. There has been no material adverse change in the business, operations, financial condition, properties or assets of the Seller since the date of the Seller's financial statements delivered to the Purchaser; (i) The Seller has not dealt with any broker, investment banker, agent or other person that may be entitled to any commission or compensation in connection with the sale of the Receivables; (j) The Seller understands and agrees that the Purchaser, without independent investigation, is relying upon the above representations and warranties in purchasing the Receivables from the Seller. The Seller further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as the Receivables shall be paid in full. 5. Protective Covenants. So long as any of the Receivables remain outstanding, the Seller shall: (a) Take no actions which are inconsistent with the Purchaser's purchase of the Receivables hereunder and take all actions as may reasonably be requested to further prove and demonstrate the Purchasers definitive purchase and the Seller's definitive sale of the Receivables hereunder; (b) Upon the request of the Purchaser, execute or cause the execution, acknowledgment and delivery of such further instruments (including, without limitation, declarations of no set-off) and do such further acts as may be necessary, desirable or proper to carry out more effectively or otherwise further the purposes of this Agreement; (c) Not take any action with respect to any Receivable which is inconsistent with the provisions and the purpose of this Agreement; and (d) Not solicit any Customer to refinance any performing Receivable. 6. Repurchase Obligation. All Receivables purchased by the Purchaser hereunder are sold by the Seller to the Purchaser subject to the right of the Purchaser to require the Seller to repurchase at the Repurchase Price (as hereinafter defined) (i) any Receivable for which the Seller has breached any representation or warranty contained in paragraph 4(a) (each an "Ineligible Receivable") and (ii) any Receivable which at any time becomes more than one hundred and twenty (120) days contractually past due or which at any time becomes more than ninety (90) days contractually past due with respect to which no payment has been made in the preceding 90 days (each a "Defaulted Receivable"). The obligation of the Seller to purchase Defaulted Receivables shall be limited to 10% of the principal balance of the Receivables at the Closing Date (subject to reinstatement in the amount of any recovery proceeds received by the Seller from the liquidation of any Defaulted Receivables repurchased by the Seller). Immediately upon any Receivable becoming an Ineligible Receivable or a Defaulted Receivable, the Seller shall repurchase the Ineligible Receivable or Defaulted Receivable at a price (the "Repurchase Price") equal to the then outstanding principal amount of the related Receivable together with all accrued and unpaid interest accrued at the Pass-through Rate to the date of repurchase. The Seller shall have thirty (30) days after the date of notice by the Purchaser to repurchase an Ineligible Receivable or Defaulted Receivable. Upon the repurchase of any Ineligible Receivable or Defaulted Receivable hereunder, the Purchaser shall convey and transfer back to the Seller, without recourse or warranty of whatever nature, the Ineligible Receivable or Defaulted Receivable. 7. Servicing. (a) The Purchaser hereby engages and authorizes the Seller to service and administer the Receivables in accordance with the terms of this Paragraph 7. The Seller agrees that (i) its servicing of the Receivables shall be carried out in accordance with the Seller's credit criteria and prudent, customary and usual procedures of financial institutions which service assets similar to the Receivables and, (ii) to the extent more exacting, the procedures which the Seller would use if the Receivables were beneficially owned by the Seller. The Seller, and its officers, employees, and agents and representatives shall be responsible for servicing of the Receivables, including, without limitation, the processing, application and collection of payments due under the Receivable, the accounting functions with regard to the Receivables, and such other administrative actions as the Seller and the Purchaser shall deem necessary and desirable. (b) Subject to the provisions herein, the Seller shall have full power and authority, acting alone and subject only to the specific requirements and prohibitions of this Paragraph 7, to do and take any and all actions, or to refrain from taking any such actions and to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, including, without limitation, calculating and compiling information required in connection with any report to be delivered pursuant to this Paragraph 7. Without limiting the generality of the foregoing, but subject to the provisions of this Paragraph 7, the Seller is hereby authorized and empowered by the Purchaser on behalf of and for the benefit of the Purchaser (i) to execute and deliver, in the Seller's own name, on behalf of the Purchaser, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables, including, without limitation, consenting to sales, transfers or encumbrances of the collateral or assignments and assumptions of the Receivable Documents, all in accordance with the terms of the Receivables and the Receivable Documents, (ii) take any and all actions or refrain from taking any action to enforce, foreclose upon, exercise any right, remedy or privilege in respect of, manage, administer, settle, compromise, or amend, modify, supplement, otherwise deal with the Receivables and the Receivable Documents and (iii) grant or withhold consent or approvals under the Receivables and the Receivable Documents, including, without limitation (A) the right to approve any amendment, modification (including any modification to any Receivable having a balloon principal payment to provide for monthly amortization payments), or waiver of any provision of the Receivable Documents; (B) controlling of the collection and enforcement of the Receivable Documents or realization thereon by suit, foreclosure, set-off, or otherwise; (C) consulting with legal counsel (including counsel for the Obligor), independent public accountants and other experts; (D) the employing of agents and attorneys-in-fact; (E) inspection of the subject real property; (F) the disbursement of insurance proceeds for the repair of damaged property; (G) the performance of such other matters as the Seller may deem necessary. Notwithstanding the foregoing, the Purchaser shall be notified of any proposed material modification to the terms of a Receivable covered by this Agreement and such a material modification may be made only if the Purchaser consents to such material modification. (c) In connection with its servicing and administration of the Receivables, the Seller will provide the Purchaser with periodic reports in a form agreeable to the Purchaser. Such reports will be delivered on such periodic basis as will be agreed by the parties from time to time, but in no event less often than monthly. (d) After the occurrence of an event of default under a Receivable, or an event which with the lapse of time would be an event of default under a Receivable, the Purchaser shall be notified of such event and shall have the right, but not the obligation, to administer, manage, perform, and enforce the terms of such Receivable and the related Receivable Documents (including, without limitation, the right to foreclose on any Mortgage securing such loan and security). The Purchaser may exercise such rights directly or indirectly, by directing the Seller as to the desired course of action with regard to such Receivable, or employ others to do so. The Purchaser shall not have the foregoing rights with respect to Receivables that have been repurchased by the Seller. (e) The Seller's and the Purchaser's obligations hereunder shall terminate with respect to a Receivable at the close of business at the earliest of (i) the date that the obligations of the Obligor to make payments or perform with respect to a Receivable shall have been irrevocably satisfied in full in accordance with the terms of the Receivable Documents and all obligations under this Agreement are satisfied; or (ii) the repurchase of a Receivable by Seller in accordance with Section 6 hereof (except for the obligation to reinstate the Seller's repurchase obligation under Paragraph 6 hereof in the event of any recoveries in respect of such Receivable) or (iii) with respect to each Receivable, the Purchaser's assignment of its interest in the Receivable; provided, however, this Agreement shall remain in full force and effect with respect to the remaining Receivables. The parties may also terminate this Agreement at any time upon mutual agreement. (f) The Seller, in its capacity as servicer, shall have the right to purchase all, but not less than all, of the Receivables at any time after which the outstanding principal amount of the Receivables is equal to or less than 10% of the outstanding principal balance of the Receivables on the Closing Date. The purchase price for such Receivables shall be the Repurchase Price on the date of purchase. 8. Relationship of Parties. The relationship between the Seller and the Purchaser is and shall be that of a seller and purchaser, not a debtor-creditor relationship. Neither this Agreement nor the performance hereof shall be deemed as creating a joint venture or a partnership between the Seller and the Purchaser or any employer-employee, agency or other relationship of any nature. Each transfer of a Receivable to the Purchaser hereunder constitutes an outright sale and assignment, negotiated at arm's length, by the Seller to the Purchaser of all of the Seller's legal and equitable ownership interest in such Receivable and in no way shall any such transfer be construed as an extension of credit by the Purchaser to the Seller or any Obligor. The Purchaser does not in any respect assume or incur any obligation, liability or tax of the Seller with respect to the Receivables or otherwise. 9. Notices. Any notice, approval, consent or other communication under this Agreement shall be in writing and shall be considered given when (1) delivered personally, or (2) mailed by registered or certified mail, return receipt requested or (3) transmitted by telecopy with a confirming copy sent by overnight mail or courier service to the parties at the addresses indicated below (or at such other address as a party may specify by notice to the others pursuant hereto). Notice given by a party's counsel shall be considered notice given by that party. (a) If to the Seller, to it at: Litchfield Financial Corporation 430 Main Street Williamstown, MA 01267 Attention: James Shippee Telecopier No. 413-458-1015 (b) If to the Purchaser, to it at: First Massachusetts Bank 99 West Street Pittsfield, MA 01201 Attention: Richard Henderson Telecopier No. 413-442-6983 (c) In each, with a copy to: Cain, Hibbard, Myers & Cook, PC 66 West Street Pittsfield, MA 01201 Attention: Michael E. MacDonald, Esquire Telecopier No. 413-443-7694 and Litchfield Financial Corporation 430 Main Street Williamstown, MA 01267 Attention: John J. Malloy, Esquire Telecopier 413-458-1015 10. Rights of the Purchaser. The Seller shall, upon the request of the Purchaser or the Purchaser's assigns, do everything reasonably necessary or advisable to put the Purchaser in a position to enforce the payment of all Receivables and security interests or instruments covered by this Agreement (including the execution of separate endorsements and assignments) or to exercise all other rights and remedies that the Seller would have with respect to the Receivables and security interests or instruments but for their purchase by and assignment to the Purchaser. 11. Intention as True Sale. It is the express intention of the parties hereto that the sale and purchase of Receivables hereunder is to absolutely be categorized as a true sale of the Receivables rather than a conveyance as security for the repayment of indebtedness. However, to the extent that the transfers described herein are subsequently determined or found not to be a sale under applicable law, it is fully and completely intended that this agreement shall constitute a security agreement under applicable law and that the Seller does hereby grant to the Purchaser and shall be deemed to have granted to the Purchaser a first priority security interest in (i) all of the Seller's right, title and interest in, to and under the Receivables, including without limitation all payments of interest and principal received by the Seller subsequent to the date of delivery of the Receivables to the Purchaser, (ii) all of the Seller's right, title and interest in, to and under the Receivables Documents related to the Receivables, if any, which are being conveyed and assigned to the Purchaser by the Seller, (iii) all of the Seller's servicing records as they relate to Receivable which are contemporaneously being delivered to the Purchaser by the Seller, (iv) all other property rights of whatever nature being conveyed by the Seller to the Purchaser hereunder, and (v) any interest on or other proceeds from the foregoing and all replacements and substitutions associated with the foregoing. 12. No Third-Party Beneficiary. Notwithstanding anything to the contrary contained herein, the parties hereto hereby expressly acknowledge and agree that the terms and provisions set forth in this Agreement are intended to inure solely to the benefit of the parties hereto and their respective successors and assigns. 13. Entire Agreement; Amendments. This Agreement contains the entire agreement between the parties concerning the sale and purchase of the Receivables, and merges and extinguishes all prior agreements, understandings and negotiations, and no amendments or modifications hereof shall be valid unless they are in writing and signed by all of the parties hereto. 14. Assignment; Binding Effect. All of the terms, covenants, conditions, representations and warranties hereof shall inure to the benefit of, and be binding upon, the successors and assigns of the parties hereto. 15. Interpretation. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender. All paragraph headings are for convenience only and do not define or limit any terms or provisions. The invalidity or unenforceability of any one or more provisions of this Agreement will in no way affect any other term or provision. This Agreement shall not be construed more strictly against any one party than against any other party, merely by virtue of the fact that it may have been prepared by counsel for one of the parties, it being recognized that all of the parties hereto and their respective counsel have contributed substantially and materially to the preparation of this Agreement. 16. Choice of Law. This Agreement and the transactions contemplated hereunder shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts, without regard to the choice-of-law provisions thereof. 17. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. EACH OF THE SELLER AND THE PURCHASER WAIVES ITS RIGHT TO A JURY TRIAL IN THE EVENT OF ANY DISPUTE OR LITIGATION ARISING HEREUNDER OR UNDER ANY RELATED DOCUMENT EXECUTED IN CONNECTION HEREWITH. THE PARTIES HERETO COVENANT AND AGREE THAT THE SOLE AND EXCLUSIVE JURISDICTION AND VENUE FOR ANY AND ALL MATTERS AND DISPUTES ARISING HEREUNDER SHALL OCCUR AND TAKE PLACE IN THE U.S. DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, WESTERN SECTION OR A MASSACHUSETTS STATE COURT LOCATED IN BERKSHIRE COUNTY, MASSACHUSETTS. 18. Multiple Counterparts. This agreement may be executed in multiple counterparts, each of which, when read collectively, shall constitute a single document. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written. FIRST MASSACHUSETTS BANK _______________ _______________By: /s/ Richard Henderson _______________Title: Vice President _______________LITCHFIELD FINANCIAL CORPORATION _______________ _______________By: /s/ John Malloy _______________Title: Senior Vice President EX-10 21 Exhibit 10.203 COLLATERAL AGENT AGREEMENT COLLATERAL AGENT AGREEMENT dated as of June 30, 1999 among THE CHASE MANHATTAN BANK, N.A. (the "Collateral Agent"), FIRST MASSACHUSETTS BANK, N.A. ("FMB") and LITCHFIELD FINANCIAL CORPORATION ("Litchfield"). PRELIMINARY STATEMENT Pursuant to a Receivables Purchase Agreement dated June ___, 1999 (the "Purchase Agreement") between FMB and Litchfield, FMB is purchasing from Litchfield certain consumer loans, and all promissory notes, installment sales contracts, mortgages, rights and documents related to such consumer loans (identified on Exhibit A attached hereto (the "Custodial Receivables") which Collateral Agent currently has in its custody The parties anticipate that the Custodial Receivables shall be transferred to the custody of FMB within 30 days after the date hereof. Until such transfer, the Collateral Agent shall act as custodian for FMB on the terms and conditions set forth herein. AGREEMENT IT IS THEREFORE AGREED AS FOLLOWS: 1. FMB hereby appoints the Collateral Agent and the Collateral Agent accepts the appointment to act as custodian for the purpose of receiving and holding physical custody and control over the Custodial Receivables. The authority of the Collateral Agent to act on behalf of FMB shall be limited solely to the specific authority granted hereunder. The Collateral Agent shall take instructions from FMB only and not Litchfield with respect to the Custodial Receivables, and the Collateral Agent shall not release any Custodial Receivables without the consent of FMB. 2. The Collateral Agent represents and warrants that it has custody of the Custodial Receivables. The Collateral Agent shall keep the Custodial Receivables segregated from other documents at its filing facilities. The Collateral Agent shall use the same degree of care in processing and storing the Custodial Receivables that it uses in processing and storing similar items for its own use. The Collateral Agent shall execute and deliver to FMB such receipts and acknowledgements evidencing custody of the Custodial Receivables as may be reasonably requested by FMB. 3. The Collateral Agent shall promptly deliver or cause to be delivered to FMB or such custodian designated by FMB the Custodial Receivables from time to time to such locations and in such manner as FMB shall determine. Litchfield hereby instructs the Collateral Agent to indorse in blank the promissory notes and any other documents containing endorsements to the Collateral Agent. On and after the date of this Agreement, (a) the Collateral Agent shall notify all servicers and lock box banks for the Custodial Receivables that all payments related to the Custodial Receivables should be credited to FMB c/o Litchfield as FMB's servicing agent or as otherwise designated by FMB, and (b) the Collateral Agent shall pay to FMB c/o Litchfield as servicing agent or as otherwise designated by FMB any amount related to the Custodial Receivables received by the Collateral Agent, and shall hold all such payments in trust for FMB pending payment as provided herein. 4. The Collateral Agent shall not be liable or responsible in any way for any loss or damage to the Custodial Receivables or any diminution in the value thereof, except those losses resulting directly from Collateral Agent's negligence or willful misconduct. The Collateral Agent shall not be liable or responsible in any way for any act of any other custodian, carrier, or any other person whatsoever. No loss of or damage to any Custodial Receivables shall release Litchfield from its obligations to FMB. 5. In consideration for its custodial services hereunder, Litchfield shall pay to the Collateral Agent fees and expenses as determined by the Collateral Agent and Litchfield from time to time. 6. Litchfield hereby indemnifies and holds harmless FMB and the Collateral Agent from and against any losses, damages, claims or liabilities in connection with the performance of the Collateral Agent's duties under this Agreement and the completion of the transfer of the Custodial Receivables to FMB, except for any such losses resulting from the indemnified party's gross negligence or willful misconduct. The provisions of this Section shall survive the termination of this Agreement. 7. FMB shall be entitled to terminate this Agreement at any time, in which event the Collateral Agent shall immediately deliver the Custodial Receivables to FMB or its designee. The Collateral Agent may resign its duties hereunder at any time for any reason upon 30 days' prior notice to Litchfield and FMB, at the expiration of which time if no successor Collateral Agent has been designated, the Collateral Agent shall deliver the Custodial Receivables to FMB. The resignation of the Collateral Agent shall not be effective until such time as the Custodial Receivables shall be delivered by the Custodial Agent to FMB or its designee. 8. Each of the Collateral Agent, Litchfield and FMB represents and warrants to the other parties that it has all requisite power and authority to enter into this Agreement and carry out its obligations hereunder. The Collateral Agent shall be entitled to rely upon any communication properly delivered hereunder which the Collateral Agent in good faith deems valid or genuine. 9. This Agreement shall not be deemed to constitute the parties as partners or joint venturers. 10. This Agreement contains a complete statement of all representations, warranties, covenants and agreements by and between the parties with respect to its subject matter. 11. This Agreement shall be governed by and construed in accordance with the substantive law of the Commonwealth of Massachusetts, without giving effect to the conflicts or choice of law provisions of Massachusetts or any other jurisdiction, and shall have the effect of a sealed instrument. 12. If any provision of this Agreement shall be deemed invalid or unenforceable, the balance of this Agreement shall remain in effect, and if any provision shall be deemed inapplicable to any person or circumstances it shall nevertheless be construed to apply to all other persons and circumstances. 13. Any notice, approval, consent or other communication under this Agreement shall be in writing and shall be considered given when (1) delivered personally, or (2) mailed by registered or certified mail, return receipt requested or (3) transmitted by telecopy with a confirming copy sent by overnight mail or courier service to the parties at the addresses indicated below (or at such other address as a party may specify by notice to the others pursuant hereto). Notice given by a party's counsel shall be considered notice given by that party. (a) If to Litchfield, to it at: Litchfield Financial Corporation 430 Main Street Williamstown, MA 01267 Attention: James Shippee Telecopier No. 413-458-1015 (b) If to FMB, to it at: 99 West Street Pittsfield, MA 01201 Attention: Richard Henderson Telecopier: 413-442-6983 (c) If to the Collateral Agent, to it at: _____________________ _____________________ (d) In each, with a copy to: Cain, Hibbard, Myers & Cook, PC 66 West Street Pittsfield, MA 01201 Attention: Michael E. MacDonald, Esquire Telecopier No. 413-443-7694 and Litchfield Financial Corporation 430 Main Street Williamstown, MA 01267 Attention: John J. Malloy, Esquire Telecopier 413-458-1015 Signed as of the date first above written. __________ LITCHFIELD FINANCIAL CORPORATION __________ By: /s/ John Malloy __________ Its: Senior Vice President THE CHASE MANHATTAN BANK, N.A. By: /s/ Cynthia Kerpen Its: Vice President EX-11 22 Exhibit 11.1 Litchfield Financial Corporation Computation of Earnings Per Share
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 --------- --------- --------- ----------- Basic: Weighted average number of common shares outstanding.... 6,908,145 5,754,018 6,897,411 5,706,887 ========== ========== ========== ========== Net income....................$3,207,000 $2,309,000 $5,485,000 $3,859,000 ========== ========== ========== ========== Net income per common share...$ .46 $ .40 $ .80 $ .68 ========== ========== ========== ========== Diluted: Weighted average number of common shares outstanding.... 6,908,145 5,754,018 6,897,411 5,706,887 Weighted average number of common stock equivalents outstanding: Stock options................ 278,326 363,814 292,077 362,277 ---------- --------- ---------- --------- Weighted average common and common equivalent shares outstanding................. 7,186,471 6,117,832 7,189,488 6,069,164 ========== ========== ========== ========== Net income....................$3,207,000 $2,309,000 $5,485,000 $3,859,000 ========== ========== ========== ========== Net income per common share...$ .45 $ .38 $ .76 $ .64 ========== ========== ========== ==========
EX-27 23 ART. 5 FDS FOR JUNE 30, 1999 FORM 10-Q
5 1,000 3-MOS 6-MOS DEC-31-1998 DEC-31-1998 JUN-30-1999 JUN-30-1999 49,581 49,581 32,603 32,603 233,295 233,295 7,545 7,545 0 0 0 0 0 0 0 0 340,589 340,589 0 0 133,897 133,897 70 70 0 0 26,200 26,200 91,218 91,218 340,589 340,589 0 0 13,272 24,347 0 0 0 0 0 0 500 1,000 4,724 9,352 5,549 9,252 2,137 3,562 3,207 5,485 0 0 0 0 0 0 3,207 5,485 .46 .80 .45 .76
EX-19 24 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): June 23, 1999 Commission File Number: 0-19822 LITCHFIELD FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-3023928 State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 430 MAIN STREET, WILLIAMSTOWN, MA 01267 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (413) 458-1000 (Former name, former address and former fiscal year, if changed since last report) Item 5: Other Events: Attached is the press release issued by the company on June 23, 1999 WILLIAMSTOWN, Massachusetts, (June 23, 1999) - Litchfield Financial Corporation (NASDAQ/LTCH) announced today that it has acquired Ironwood Acceptance Company, LLC. Ironwood, located in Scottsdale, Arizona, specializes in the purchasing, servicing and liquidation of municipal tax lien certificates. Litchfield acquired 100% of the outstanding membership interests of Ironwood for approximately $2.3 million, with one third paid in cash, and the remaining two thirds paid in Litchfield stock over a two-year period. Randy Stratton, President and CEO of Litchfield commented, "This acquisition is in keeping with our business strategy of identifying and lending money to smaller finance companies in niche businesses with strong, experienced management. After two solid years of experience with Ironwood, and performance that has been consistent with our expectations, we decided that it made good business sense to expand the relationship with them in a mutually beneficial way. This acquisition will enable us to increase our presence in the tax lien business, while providing Ironwood with sufficient capital for expansion." Mr. Stratton added, "It has been our strategy to view transactions of this nature as an opportunity to further reduce the portion of our revenues derived from the gain on sale of loans. So while this transaction would have been modestly accretive in 1999, and more so in 2000, we'll take this opportunity to further reduce our gain on sale as a percentage of our revenues, instead." Ironwood will become a subsidiary of Litchfield, and its nine employees will continue to operate out of Scottsdale, Arizona. Peter Reardon will continue to serve in his present position as President of Ironwood. The management of Ironwood has been successfully purchasing and managing tax liens for over eight years and is currently purchasing tax lien certificates, through auctions and over the counter sales, in twelve states. Mr. Stratton noted, "Tax liens will help us further diversify our half billion dollar serviced portfolio. These investments have small balances, high yields and are well collateralized and highly secure. These characteristics make tax liens complimentary to our existing consumer land and timeshare loans, hypothecation loans and acquisition and development loans." Litchfield is a diversified finance company that provides financing to creditworthy borrowers for assets not typically financed by banks. The company provides such financing by making loans to businesses secured by consumer receivables or other assets and by purchasing consumer loans. To learn more about Litchfield, visit our website at www.ltchfld.com. Except for the historical information contained or incorporated by reference in this press release, the matters discussed or incorporated by reference herein are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risk factors set forth under "Risk Factors", as listed in the 1998 Annual Report on Form 10-K, as well as the following: general economic and business conditions; industry trends; changes in business strategy or development plans; availability and quality of management; and availability, terms and deployment of capital. Special attention should be paid to such forward-looking statements including, but not limited to, statements relating to (i) the company's ability to execute its growth strategies and to realize its growth objectives and (ii) the Company's ability to obtain sufficient resources to finance its working capital needs and provide for its known obligations. Contact: Ronald E. Rabidou, Chief Financial Officer Telephone: 413-458-1000 x 160 Fax: 413-458-1020 E-Mail rrabidou@ltchfld.com -----END PRIVACY-ENHANCED MESSAGE-----