-----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, UvrpZl3Bh2RdzDr+ilyo/RyxXFPA4ksWKRr5MPbCaDomR9/sg9TQV7hP9+1Yw0rp LJktsxa/1gZElO0GMlFpeA== 0000950135-99-002163.txt : 19990429 0000950135-99-002163.hdr.sgml : 19990429 ACCESSION NUMBER: 0000950135-99-002163 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990428 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: S-3/A SEC ACT: SEC FILE NUMBER: 333-76285 FILM NUMBER: 99603157 BUSINESS ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIAMSTOWN STATE: MA ZIP: 05352 BUSINESS PHONE: 4134581000 MAIL ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIAMSTOWN STATE: MA ZIP: 05352 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITCHFIELD CAPITAL TRUST I CENTRAL INDEX KEY: 0001084081 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-76285-01 FILM NUMBER: 99603158 BUSINESS ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIANSTOWN STATE: MA ZIP: 01247 BUSINESS PHONE: 4134581000 MAIL ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIAMSTOWN STATE: MA ZIP: 01247 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITCHFIELD CAPITAL TRUST II CENTRAL INDEX KEY: 0001084082 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-76285-02 FILM NUMBER: 99603159 BUSINESS ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIANSTOWN STATE: MA ZIP: 01247 BUSINESS PHONE: 4134581000 MAIL ADDRESS: STREET 1: 430 MAIN STREET CITY: WILLIAMSTOWN STATE: MA ZIP: 01247 S-3/A 1 LITCHFIELD FINANCIAL CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1999 REGISTRATION NOS. 333-76285 333-76285-01 333-76285-02 ------------------------------------------------------------------------ ------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 LITCHFIELD FINANCIAL CORPORATION LITCHFIELD CAPITAL TRUST I LITCHFIELD CAPITAL TRUST II (Exact name of registrant as specified in its charter or trust agreement) MASSACHUSETTS 04-3023928 DELAWARE (TO BE APPLIED FOR) DELAWARE (TO BE APPLIED FOR) (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization)
430 MAIN STREET, WILLIAMSTOWN, MA 01267, (413)458-1000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) RICHARD A. STRATTON PRESIDENT AND CHIEF EXECUTIVE OFFICER LITCHFIELD FINANCIAL CORPORATION 430 MAIN STREET, WILLIAMSTOWN, MASSACHUSETTS 01267 (413)458-1000 (Name, address, including zip code, and telephone number, Including area code, of agent for service) COPIES TO: JAMES WESTRA, ESQ. BOB F. THOMPSON, ESQ. HUTCHINS, WHEELER & DITTMAR BASS, BERRY & SIMS PLC A PROFESSIONAL CORPORATION 2700 FIRST AMERICAN CENTER 101 FEDERAL STREET NASHVILLE, TENNESSEE 37238 BOSTON, MASSACHUSETTS 02110 (615)742-6200 (617)951-6600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SUBJECT TO COMPLETION, DATED APRIL 28, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 1999) 2,500,000 PREFERRED SECURITIES LITCHFIELD CAPITAL TRUST I % SERIES A TRUST PREFERRED SECURITIES GUARANTEED BY [LITCHFIELD FINANCIAL CORPORATION LOGO] - -------------------------------------------------------------------------------- THE TRUST: Litchfield Capital Trust I is a subsidiary of Litchfield Financial Corporation, and a statutory business trust created under Delaware law. THE OFFERING: In connection with this offering, the trust will: - sell preferred securities to the public and common securities to Litchfield; - use the proceeds from these sales to buy an equivalent principal amount of % Series A Junior Subordinated Debentures due 2029 issued by Litchfield; and - distribute the cash payments it receives on the junior subordinated debentures to the holders of the preferred and common securities. The preferred securities represent undivided preferred beneficial interests in the assets of the trust. If you purchase preferred securities, you will be entitled to receive cumulative cash distributions at an annual rate of % of the $10 liquidation amount of each preferred security. Distributions will begin to accumulate on , 1999 and will be payable quarterly, in arrears, on June 30, September 30, December 31 and March 31, of each year, beginning June 30, 1999. Litchfield can, on one or more occasions, defer interest payments on the junior subordinated debentures for up to 20 consecutive quarterly periods. If Litchfield defers interest payments, the trust will also defer payment of distributions on the preferred and common securities. During a deferral period, distributions will continue to accumulate on the preferred and common securities. Also, additional cash distributions will accumulate on any deferred distributions at an annual rate of %, to the extent permitted by law. Litchfield will fully and unconditionally guarantee the trust's payment obligations with respect to the preferred securities only to the extent described in this prospectus supplement and the accompanying prospectus. The trust has applied to have the preferred securities listed on the Nasdaq National Market under the symbol "LTCHP". If approved for listing, we expect trading to commence within 30 days after the preferred securities are first issued. The preferred securities will be ready for delivery in book-entry form only through The Depository Trust Company on or about May , 1999. Litchfield has granted the underwriters a 30-day option to purchase up to 375,000 additional preferred securities to cover over-allotments, if any. INVESTING IN THE PREFERRED SECURITIES INVOLVES CERTAIN RISKS WHICH ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT. YOU SHOULD READ THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY BEFORE YOU INVEST IN THE PREFERRED SECURITIES. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER TRUST PREFERRED SECURITY TOTAL ------------------------------ ------------- Public Offering Price..................................... $ 10.00 $ Underwriting Commissions.................................. $ $ Proceeds to the trust..................................... $ $
The trust will use all proceeds to purchase the junior subordinated debentures. Litchfield will pay all underwriting discounts and commissions. TUCKER ANTHONY CLEARY GULL FERRIS, BAKER WATTS Incorporated The date of this prospectus is May , 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3 ABOUT THIS PROSPECTUS SUPPLEMENT You should rely only on the information contained or incorporated by reference in this prospectus supplement or the accompanying prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus supplement or the accompanying prospectus as well as the information we previously filed with the SEC and incorporated by reference herein, is accurate only as of its respective date. Our business, financial condition, results of operations and prospects may have changed since that date. Unless otherwise noted, capitalized terms used in this prospectus supplement have the same meanings as used in the accompanying prospectus. TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUPPLEMENT About This Prospectus Supplement............................ S-2 Summary Information Regarding This Offering................. S-3 Risk Factors................................................ S-9 Use of Proceeds............................................. S-15 Accounting Treatment........................................ S-15 Litchfield Financial Corporation............................ S-16 Capitalization.............................................. S-26 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. S-27 Litchfield Capital Trust I.................................. S-34 Description of the Preferred Securities..................... S-34 Description of the Preferred Securities Guarantee........... S-48 Description of the Junior Subordinated Debentures........... S-48 Relationship Between the Preferred Securities, the Junior Subordinated Debentures and the Preferred Securities Guarantee................................................. S-54 Certain Federal Income Tax Consequences..................... S-55 Underwriting................................................ S-60 PROSPECTUS About This Prospectus....................................... 2 Where You Can Find More Information......................... 2 Disclosure Regarding Forward-looking Statements............. 4 Litchfield Financial Corporation............................ 5 Use of Proceeds............................................. 5 The Trusts.................................................. 6 Description of the Preferred Securities..................... 10 Descriptions of the Preferred Securities Guarantees......... 11 Description of the Junior Subordinated Debt Securities...... 15 Plan of Distribution........................................ 22 Legal Matters............................................... 23 Experts..................................................... 23
S-2 4 - -------------------------------------------------------------------------------- SUMMARY INFORMATION REGARDING THIS OFFERING The following information supplements, and should be read together with, the information contained in other parts of this prospectus supplement and in the accompanying prospectus. This summary highlights selected information included elsewhere in this prospectus supplement and the accompanying prospectus to help you understand the terms of the preferred securities. You should carefully read this prospectus supplement and the accompanying prospectus, including "Risk Factors" and the financial statements and notes to those statements included or incorporated by reference, to fully understand the terms of the preferred securities, as well as the tax and other considerations that are important to you in making a decision about whether to invest in the preferred securities. THE TRUST Litchfield Capital Trust I is a subsidiary of Litchfield and a statutory business trust recently created under Delaware law. In connection with this offering, the trust will sell its preferred securities to the public and its common securities to Litchfield. The trust will use the proceeds from these sales to buy an equivalent principal amount of % Series A Junior Subordinated Debentures due June 30, 2029 issued by Litchfield. The preferred securities and the junior subordinated debentures will have essentially the same terms. LITCHFIELD FINANCIAL CORPORATION Litchfield is a diversified finance company that provides financing to creditworthy borrowers for assets not typically financed by banks. Litchfield provides this financing by making loans to businesses secured by consumer receivables or other assets and by purchasing consumer loans. Litchfield provides financing to rural land dealers, timeshare resort developers and other finance companies secured by receivables. Litchfield also purchases consumer loans consisting primarily of loans to purchasers of rural and vacation properties and vacation ownership interests popularly known as timeshare interests, and provides loans to dealers and developers for the acquisition and development of rural land and timeshare resorts. In addition, Litchfield 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. The principal sources of Litchfield'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 Litchfield's revenues is comprised of gains realized upon sales of loans, the timing of these sales has a significant effect on Litchfield's results of operations. TERMS OF THE PREFERRED SECURITIES Distributions If you purchase preferred securities, you will be entitled to receive cumulative cash distributions at an annual rate of % of the $10 liquidation amount of each preferred security. Distributions will begin to accumulate on May and will be payable quarterly, in arrears, on June 30, September 30, December 31 and March 31 of each year beginning June 30, 1999. - -------------------------------------------------------------------------------- S-3 5 Deferral of Distribution Litchfield can defer interest payments on the junior subordinated debentures for up to 20 consecutive quarterly periods unless an event of default under the junior subordinated debentures has occurred and is continuing. Litchfield cannot, however, defer interest payments beyond the maturity date of the junior subordinated debentures, which is June 30, 2029. Additional interest will accrue on any deferred interest payments at an annual rate of %, to the extent permitted by law. If Litchfield defers interest payments on the junior subordinated debentures, the trust will also defer payment of distributions on the common and preferred securities. During a deferral period, distributions will continue to accumulate on the common and preferred securities at an annual rate of % of the liquidation amount of $10 per common or preferred security. Also, additional cash distributions will accumulate on any deferred distributions at an annual rate of %, to the extent permitted by law. Once Litchfield makes all interest payments due on the junior subordinated debentures, including any additional interest, it can elect to defer interest payments on the junior subordinated debentures again if no event of default under the junior subordinated debentures has occurred and is continuing. This deferral period, together with all previous and further extensions, may not exceed 20 consecutive quarters. During any period in which Litchfield defers interest payments on the junior subordinated debentures, Litchfield will not be permitted, subject to exceptions described on page S-50, to: - pay a dividend or make any other payment or distribution on its capital stock, - redeem, purchase or acquire any of its capital stock, - make an interest, principal or premium payment, or repurchase or redeem, any of its debt securities that rank equal with or junior to the junior subordinated debentures, or - make any guarantee payments with respect to any guarantee of the debt securities of any subsidiary that ranks equal with or junior to the junior subordinated debentures. Should Litchfield exercise its rights to defer payments of interest on the junior subordinated debentures, you will be required to include accumulated distributions in your gross income for United States federal income tax purposes before you actually receive the related cash distributions. Redemption The trust will redeem all of the outstanding preferred securities when the junior subordinated debentures are paid at maturity on June 30, 2029 or otherwise become due. In addition, if Litchfield redeems any junior subordinated debentures before their maturity, the trust will use the cash it receives on the redemption of the junior subordinated debentures to redeem, on a pro rata basis, preferred securities and common securities having an aggregate liquidation amount equal to the aggregate principal amount of the junior subordinated debentures redeemed. Litchfield will have the right to redeem some or all of the junior subordinated debentures before their maturity at 100% of their principal amount plus accrued and unpaid interest to, but excluding, the date of redemption, on one or more occasions any time on or after June 30, 2004. Litchfield will also have the right to redeem the junior subordinated debentures, in whole but not in part, at any time at 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption, if: - certain changes in tax or investment company law occur, each of which is a "special event" and is more fully described on page S-37, and - the junior subordinated debentures are redeemed within 90 days of the occurrence of the special event. S-4 6 Preferred Securities Guarantee Litchfield will fully and unconditionally guarantee the trust's payment obligations with respect to the preferred securities to the extent described in this prospectus supplement and the accompanying prospectus. Under the preferred securities guarantee, Litchfield will guarantee the trust's payment obligations only to the extent the trust has sufficient funds to make payments on the preferred securities. If Litchfield does not make payments on the junior subordinated debentures, the trust will not have sufficient funds to make payments on the preferred securities. Litchfield's obligations under the preferred securities guarantee are junior to its obligations to make payments on all of its other liabilities, except as discussed elsewhere in this prospectus supplement. Conditional Right to Shorten Maturity Litchfield may shorten the stated maturity of the junior subordinated debentures to as early as September 30, 2018, if certain tax events relating to non-deductibility of interest payments on the junior subordinated debentures occur (as more fully described on page S-53). If Litchfield exercises this option, the trust will redeem all of the outstanding preferred securities when the junior subordinated debentures are paid on their new maturity date. Distribution of Junior Subordinated Debentures Litchfield has the right to dissolve the trust at any time. If Litchfield decides to exercise its right to dissolve the trust, the trust will redeem the preferred securities by distributing the junior subordinated debentures to you and to Litchfield, as holder of the common securities, on a pro rata basis. If the trust distributes the junior subordinated debentures, Litchfield will use its best efforts to have the junior subordinated debentures listed on the Nasdaq National Market or on such other exchange or automated quotation system as the preferred securities are then listed. Liquidation Amount In the event the trust is liquidated and the junior subordinated debentures are not distributed to you, you will generally be entitled to receive $10 per preferred security plus an amount equal to any accumulated and unpaid distributions on each preferred security to the date of payment. Form of Preferred Securities The preferred securities will be represented by one or more global securities that will be deposited with and registered in the name of Cede & Co., as nominee for The Depository Trust Company. This means that you will not receive a certificate for your preferred securities. Your beneficial interest in the preferred securities will be evidenced by, and transfers thereof will be effected only through, records maintained by the participants in The Depository Trust Company. The preferred securities will be ready for delivery through The Depository Trust Company on or about May , 1999. Listing on the Nasdaq National Market The trust has applied to have the preferred securities listed on the Nasdaq National Market under the symbol "LTCHP." If approved for listing, we expect trading to commence within 30 days after the preferred securities are first issued. You should be aware that the listing of the preferred securities will not necessarily ensure that a liquid trading market will develop or remain for the preferred securities. S-5 7 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Certain amounts in the 1994 through 1996 financial information have been restated to conform to the 1997 and 1998 presentation.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- ---------- STATEMENT OF INCOME DATA: Revenues: Interest and fees on loans......... $ 5,669 $ 11,392 $ 14,789 $ 19,374 $ 25,736 Gain on sale of loans.............. 4,847 5,161 7,331 8,564 10,691 Servicing and other income......... 459 908 1,576 1,753 2,379 ---------- ---------- ---------- ---------- ---------- Total revenues.................. 10,975 17,461 23,696 29,691 38,806 ---------- ---------- ---------- ---------- ---------- Expenses: Interest expense................... 3,158 6,138 7,197 10,675 14,265 Salaries and employee benefits..... 1,776 2,798 2,824 3,399 4,806 Other operating expenses........... 1,164 2,120 3,147 3,480 3,834 Provision for loan losses.......... 559 890 1,954 1,400 1,532 ---------- ---------- ---------- ---------- ---------- Total expenses.................. 6,657 11,946 15,122 18,954 24,437 ---------- ---------- ---------- ---------- ---------- Income before income taxes and extraordinary item................. 4,318 5,515 8,574 10,737 14,369 Provision for income taxes........... 1,619 2,066 3,301 4,134 5,537 ---------- ---------- ---------- ---------- ---------- Income before extraordinary item..... 2,699 3,449 5,273 6,603 8,832 Extraordinary item................... (126) -- -- (220) (77) ---------- ---------- ---------- ---------- ---------- Net income......................... $ 2,573 $ 3,449 $ 5,273 $ 6,383 $ 8,755 ========== ========== ========== ========== ========== Basic per common share amounts: Income before extraordinary item... $ .66 $ .80 $ .97 $ 1.19 $ 1.41 Extraordinary item................. (.03) -- -- (.04) (.01) ---------- ---------- ---------- ---------- ---------- Net income per share............... $ .63 $ .80 $ .97 $ 1.15 $ 1.40 ========== ========== ========== ========== ========== Basic weighted average number of shares outstanding................. 4,116,684 4,315,469 5,441,636 5,572,465 6,273,638 Diluted per common share amounts: Income before extraordinary item... $ .63 $ .76 $ .93 $ 1.12 $ 1.34 Extraordinary item................. (.03) -- -- (.04) (.01) ---------- ---------- ---------- ---------- ---------- Net income per share............... $ .60 $ .76 $ .93 $ 1.08 $ 1.33 ========== ========== ========== ========== ========== Diluted weighted average number of shares outstanding................. 4,282,884 4,524,607 5,682,152 5,909,432 6,604,367 Cash dividends declared per common share.............................. $ .03 $ .04 $ .05 $ .06 $ .07 OTHER STATEMENT OF INCOME DATA: Income before extraordinary item as a percentage of revenues............. 24.6% 19.8% 22.3% 22.3% 22.8% Ratio of EBITDA to interest expense............................ 3.31 2.44 2.90 2.17 2.13 Ratio of earnings to fixed charges... 2.37 1.90 2.19 2.01 2.01 Return on average assets (before extraordinary item)................ 4.6% 3.7% 4.0% 3.8% 3.7% Return on average equity (before extraordinary item)................ 17.2% 16.6% 13.3% 14.1% 13.2%
S-6 8 - -------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, -------------------------------------------------------- 1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Total assets........................ $ 63,487 $112,459 $152,689 $186,790 $293,882 Loans held for sale (net of allowance)........................ 11,094 14,380 12,260 16,366 19,750 Other loans (net of allowance)...... 15,790 33,613 79,996 86,307 191,292 Retained interests in loan sales (net of recourse obligation)...... 11,996 22,594 28,912 30,299 28,883 Secured debt........................ 5,823 9,836 43,727 5,387 50,521 Unsecured debt...................... 29,896 47,401 46,995 105,347 134,588 Stockholders' equity................ 16,610 37,396 42,448 52,071 82,094
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- OTHER FINANCIAL DATA: Loans purchased and originated...... $ 59,798 $121,046 $133,750 $184,660 $375,292 Loans sold.......................... 40,116 65,115 54,936 98,747 144,762 Loans participated.................. -- -- -- 6,936 3,569 Serviced Portfolio.................. 105,013 176,650 242,445 304,102 466,912 Loans serviced for others........... 72,731 111,117 129,619 179,790 238,132 Dealer/developer reserves........... 6,575 9,644 10,628 10,655 9,979 Allowance for loan losses (includes estimated recourse obligation for loans sold)....................... 1,264 3,715 4,528 5,877 6,707 Allowance ratio..................... 1.20% 2.10% 1.87% 1.93% 1.44% Delinquency ratio................... .93% 1.73% 1.34% 1.20% 0.95% Net charge-off ratio................ .38% .67% .94% .74% .58% Non-performing asset ratio.......... 1.02% 1.35% 1.57% 1.03% 0.84%
- --------------- The information shown above is explained further by the following: - 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 Litchfield is subject. EBITDA is defined as earnings before deduction of taxes, depreciation, amortization, and interest expense, but after deduction for any extraordinary item. - 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. - The Serviced Portfolio consists of the principal amount of loans serviced by or on behalf of Litchfield, except loans participated without recourse to Litchfield. - The allowance ratio is the amount of allowances for loan losses divided by the amount of the Serviced Portfolio. - 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. - The net charge-off ratio is determined by dividing the amount of net charge-offs for the period by amount of the average Serviced Portfolio for the period. - 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. - -------------------------------------------------------------------------------- S-7 9 RECENT DEVELOPMENTS: Litchfield's net income for the first quarter of 1999 was $2,278,000 or $.32 per share on a diluted basis compared with net income of $1,550,000 or $.26 per share on a diluted basis for the first quarter of 1998. These results represent a 47% increase in net income and a 23% increase in diluted net income per share. Litchfield's revenues for the first quarter of 1999 increased 39% to $11,075,000 from $7,953,000 for the first quarter of 1998. Litchfield's first quarter 1999 originations were $98.0 million, representing a 45% increase from $67.5 million in the first quarter of 1998. During the first quarter of 1999, Litchfield's land, timeshare and financial services businesses originated $20.1 million, $47.8 million and $30.1 million, respectively, compared to $22.1 million, $22.2 million and $23.2 million, respectively, for the first quarter of 1998. S-8 10 RISK FACTORS Your investment in the preferred securities will involve some risks. You should carefully consider the following discussion of risks and the other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus before deciding whether an investment in the preferred securities is appropriate for you. RISK FACTORS RELATING TO THE PREFERRED SECURITIES LITCHFIELD'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES ARE SUBORDINATED TO ITS OTHER OBLIGATIONS. Litchfield's obligations under the junior subordinated debentures are unsecured and will rank junior in priority of payment to its senior debt, as more fully described on pages 17, 18 and 19 of the accompanying prospectus. This means that Litchfield cannot make any payments of principal, including redemption payments, or interest on the junior subordinated debentures if it defaults on a payment on its senior debt. In the event of the bankruptcy, liquidation or dissolution of Litchfield, its assets would be available to pay obligations under the junior subordinated debentures only after all payments had been made on its senior debt. As of December 31, 1998, Litchfield had approximately $185,109,000 of senior debt. Also, the junior subordinated debentures will be effectively subordinated to all indebtedness and other obligations, including trade payables, of Litchfield. As of December 31, 1998, the indebtedness and other obligations of Litchfield totaled approximately $211,788,000. The preferred securities, the preferred securities guarantee and the junior subordinated debentures do not limit the ability of Litchfield and its subsidiaries to incur additional indebtedness, including indebtedness that ranks senior in priority of payment to the junior subordinated debentures and the preferred securities guarantee. THE PREFERRED SECURITIES GUARANTEE ONLY GUARANTEES PAYMENTS IF THE TRUST HAS CASH AVAILABLE. The ability of the trust to pay distributions on the preferred securities, to pay the redemption price of the preferred securities and to pay the liquidation amount of each preferred security depends upon Litchfield making the related payments on the junior subordinated debentures when due. If Litchfield defaults on its obligations to pay principal or interest on the junior subordinated debentures, the trust will not have sufficient funds to pay distributions, the redemption price or the liquidation amount of each preferred security. In those circumstances, you will not be able to rely upon the preferred securities guarantee for payment of these amounts. Instead, you may: - directly sue Litchfield or seek other remedies to collect your pro rata share of payments owed; or - rely on the Property Trustee to enforce the trust's rights under the junior subordinated debentures. LITCHFIELD'S ABILITY TO DEFER INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED DEBENTURES HAS TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE MARKET PRICE OF THE PREFERRED SECURITIES. Litchfield can, on one or more occasions, defer interest payments on the junior subordinated debentures for up to 20 consecutive quarterly periods unless an event of default under the junior subordinated debentures has occurred and is continuing. Litchfield, however, cannot defer interest payments beyond the maturity date of the junior subordinated debentures, which is June 30, 2029. If Litchfield defers interest payments on the junior subordinated debentures, the trust will also defer payment of distributions on the preferred and common securities. During a deferral period, distributions will continue to accumulate on the preferred and common securities. Also, additional distributions will accumulate on any deferred distributions at an annual rate of %, to the extent permitted by law. If Litchfield exercises its right to defer payments of interest on the junior subordinated debentures, you will be required to accrue interest income, as original issue discount, the deferred stated interest allocable to your share of preferred securities for United States federal income tax purposes. As a result, S-9 11 you will include this income in gross income for United States federal income tax purposes before you receive any cash distributions. In addition, you will not receive cash from the trust related to this income if you dispose of your preferred securities prior to the record date on which distributions of these amounts are made. You should also consult with your own tax advisor about the tax consequences of an investment in the preferred securities. Litchfield does not currently intend to defer interest payments on the junior subordinated debentures. However, if Litchfield exercises its right to defer interest payments in the future, the market price of the preferred securities may not fully reflect the value of accrued but unpaid interest on the junior subordinated debentures. If you sell preferred securities during an interest deferral period, you may not receive the same return on investment as someone who continues to hold preferred securities. In addition, the existence of Litchfield's right to defer interest payments on the junior subordinated debentures could make the market price for the preferred securities more volatile than other securities that are not subject to these rights. THE TRUST MAY REDEEM THE PREFERRED SECURITIES IF CERTAIN TAX CHANGES OCCUR OR IF THE TRUST IS REQUIRED TO REGISTER AS AN "INVESTMENT COMPANY." If a special event, as more fully described on page S-37, occurs and is continuing, Litchfield has the right to redeem all of the junior subordinated debentures at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. If Litchfield redeems the junior subordinated debentures when a special event occurs, the trust will use the cash it receives from the redemption of the junior subordinated debentures to redeem the preferred and common securities. THE PREFERRED SECURITIES MAY BE REDEEMED ON OR AFTER JUNE 30, 2004 AT LITCHFIELD'S OPTION. Litchfield may redeem the junior subordinated debentures at its option, in whole or in part, at any time on or after June 30, 2004. The redemption price will equal 100% of the principal amount to be redeemed plus any accrued and unpaid interest to, but excluding, the redemption date. You should assume that Litchfield will exercise its redemption option if it is able to refinance the junior subordinated debentures at a lower interest rate or if it is otherwise in Litchfield's interest to redeem the junior subordinated debentures. If this redemption occurs, the trust will use the cash it receives from the redemption of the junior subordinated debentures to redeem an equivalent amount of preferred and common securities on a pro rata basis. DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES MAY BE A TAXABLE EVENT. Litchfield has the right to terminate the trust at any time. If Litchfield decides to exercise its right to terminate the trust, the trust will redeem the preferred and common securities by distributing the junior subordinated debentures to you and Litchfield, as holder of the common securities, on a pro rata basis. Under current United States federal income tax laws, a distribution of junior subordinated debentures on the dissolution of the trust would not be a taxable event to you. Nevertheless, if the trust is classified for United States federal income tax purposes as an association taxable as a corporation at the time it is dissolved, the distribution of the junior subordinated debentures would be a taxable event to you. If there is a change in law, a distribution of junior subordinated debentures on the dissolution of the trust could also be a taxable event to you. Litchfield does not currently intend to terminate the trust and distribute the junior subordinated debentures. However, there are no restrictions on its ability to do so at any time. Litchfield anticipates that it would consider exercising this right if expenses associated with maintaining the trust were substantially greater than currently expected, such as if a special event occurred. Litchfield cannot predict other circumstances under which this right would be exercised. S-10 12 Litchfield cannot predict the market prices for the junior subordinated debentures that may be distributed. Accordingly, the junior subordinated debentures that you receive on a distribution, or the preferred securities you hold pending a distribution, may trade at a discount to the price that you paid to purchase the preferred securities. If the junior subordinated debentures are distributed to the holders of preferred securities if the trust is liquidated, we will use our best efforts to list the junior subordinated debentures on the Nasdaq National Market or SmallCap Market or the stock exchange on which the preferred securities are then listed. However, we cannot assure you that the exchange will approve the junior subordinated debentures for listing or that a trading market will exist for the junior subordinated debentures. Because you may receive junior subordinated debentures, you should make an investment decision with regard to the junior subordinated debentures in addition to the preferred securities. You should carefully review all the information regarding the junior subordinated debentures contained in this prospectus supplement and the accompanying prospectus. TRADING PRICES OF THE PREFERRED SECURITIES MAY NOT REFLECT THE VALUE OF ACCRUED BUT UNPAID INTEREST. The preferred securities constitute a new issue of securities with no established trading market. The preferred securities may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the underlying junior subordinated debentures. If you dispose of your preferred securities between record dates for payments of distributions, you will be required to include accrued but unpaid interest on the junior subordinated debentures through the date of disposition in income as ordinary income. You also must add that amount to your adjusted tax basis in your pro rata share of the underlying junior subordinated debentures deemed disposed of. Accordingly, you will recognize a capital loss to the extent the selling price, which may not fully reflect the value of accrued but unpaid interest, is less than your adjusted tax basis, which will include accrued but unpaid interest. Subject to limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. AN ACTIVE MARKET FOR THE PREFERRED SECURITIES MAY NOT DEVELOP. Prior to this offering, there has been no public market for the preferred securities. The underwriters currently plan to make a market in the preferred securities. However, Litchfield cannot assure you the underwriters will engage in these activities or that an active trading market for the preferred securities will develop or be sustained. If this market develops, the preferred securities could trade at prices that may be higher or lower than their offering price depending upon many factors, including prevailing interest rates, Litchfield's operating results and the markets for similar securities. YOU WILL HAVE LIMITED VOTING RIGHTS. As a holder of preferred securities, you will have limited voting rights relating only to the modification of the preferred securities and, in some circumstances, the exercise of the trust's rights as holder of the junior subordinated debentures and the preferred securities guarantee. Only Litchfield can replace or remove any of the trustees or increase or decrease the number of trustees. RISK FACTORS RELATING TO LITCHFIELD LITCHFIELD'S BUSINESS IS SUBJECT TO VARIOUS BUSINESS RISKS. The level of Litchfield's revenues depends on demand for the type of loans originated, purchased, sold and serviced by Litchfield from both potential borrowers and investors. Future declines in real estate values, changes in prevailing interest rates and changes in the availability of attractive returns on alternative investments each could make loans of the type originated, purchased, sold and serviced by Litchfield less attractive to borrowers and investors. S-11 13 LITCHFIELD HAS A CONTINUOUS NEED TO RAISE CAPITAL TO FINANCE GROWTH. Litchfield has a constant need for working capital to fund the growth of its business and, as a result, generally has experienced negative cash flows from operations. Historically, Litchfield has funded negative cash flows from operations by borrowing under secured lines of credit and issuing long-term debt and equity securities. There can be no assurance that Litchfield will continue to be able to obtain financing or raise capital on terms satisfactory to Litchfield. Litchfield's ability to raise capital could be harmed by adverse conditions in the capital and credit markets, as well as by Litchfield's performance. To the extent Litchfield cannot raise additional funds, it could materially harm its operations and its ability to repay the junior subordinated debentures. A GENERAL ECONOMIC SLOWDOWN COULD ADVERSELY EFFECT LITCHFIELD'S BUSINESS. The business risks associated with Litchfield's business become more acute in an economic slowdown. That environment is generally characterized by decreased demand for rural and vacation real estate and timeshare interests and declining real estate values in many areas of the country. Delinquencies, foreclosures and loan losses generally increase during economic slowdowns or recessions, and any future slowdowns could harm the future operations of Litchfield. INCREASES IN INTEREST RATES COULD CAUSE LITCHFIELD'S VARIABLE RATE LIABILITIES TO EXCEED ITS VARIABLE RATE ASSETS. Litchfield's interest and fees on loans, gain on sale of loans and interest expense are affected by changes in interest rates. Litchfield could be harmed by interest rate increases if its variable rate liabilities exceed its variable rate assets or if the rates on its variable rate liabilities increase sooner or to a greater extent than the rates on its variable rate assets. LITCHFIELD'S LOANS ARE SUBJECT TO DELINQUENCY AND DEFAULT RISK. General downturns in the economy and other factors beyond Litchfield's control may increase Litchfield's delinquency and default rates. Litchfield's acquisition and development loans and, to a lesser extent, its hypothecation loans have a greater concentration of credit risk due to their larger size and, in the case of acquisition and development loans, their development and marketing risk. Litchfield's timeshare interest business is subject to some risks associated with timeshare interest ownership. Although individual timeshare interest owners are obligated to make payments under their notes irrespective of any defect in, damage to, or change in conditions of the vacation resort, or of any breach of contract by the property owners association to provide certain services to the timeshare interest borrowers, or of any other loss of benefits of ownership of their unit weeks, any of this type of material defect, damage, change, breach of contract, or loss of benefits is likely to result in a delay in payment or default by a substantial number of the borrowers whose timeshare interests are affected. The amounts realized on foreclosure and resale or liquidation of timeshare interests are generally significantly less than the amounts realized on other types of defaulted loans. PREPAYMENTS AND DEFAULTS IN EXCESS OF PROJECTED AMOUNTS COULD REDUCE EARNINGS. A significant portion of Litchfield's revenues historically has been comprised of gains on sales of loans. The gains are recorded in Litchfield's revenues and on its balance sheet as retained interests on loan sales at the time of sale, and the amount of gains recorded is based in part on management's estimates of future prepayment and default rates and other considerations in light of then-current conditions. If actual prepayments occur more quickly than was projected at the time loans were sold, as can occur when interest rates decline, interest would be less than expected and earnings would be charged in the current period. If actual defaults are greater than estimated, charge-offs would exceed previously estimated amounts and earnings would be charged in the current period. S-12 14 LITCHFIELD IS MAKING LARGER LOANS OF TYPES THAT ENTAIL A GREATER CONCENTRATION OF CREDIT RISK. Litchfield has increased the number and average principal amount of its hypothecation and acquisition and development loans. Acquisition and development loans are larger commercial loans to land dealers and resort developers and, consequently, have a greater concentration of credit risk than Litchfield's purchased loans. Acquisition and development loans for timeshare resorts are also subject to greater risk because their repayment depends on the successful completion of the development of the resort and the subsequent successful sale of a substantial portion of the resort's timeshare interests. Litchfield has historically made hypothecation loans to land dealers and resort developers secured by land loans and timeshare loans, respectively. Hypothecation loans are commercial loans that have significantly larger balances than Litchfield's purchased loans and, consequently, have a greater concentration of credit risk which is only partially offset by the lesser concentration of credit risk of the underlying collateral. As of December 31, 1998, Litchfield's five largest hypothecation loan relationships had aggregate loan balances ranging from $10.8 million to $21.5 million. In addition, Litchfield has expanded its marketing of hypothecation loans to include loans to other finance companies secured by other types of collateral. These loans may be subject to additional risk because Litchfield has relatively less experience with these other types of collateral. LITCHFIELD'S RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM ONE QUARTER TO THE NEXT. Since gains on sales of loans are a significant portion of Litchfield's revenues, the timing of loan sales has a significant effect on Litchfield's quarterly results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter. LITCHFIELD HAS COMMITTED TO GUARANTEE OR REPURCHASE SOME OF THE LOANS IT SELLS TO INVESTORS. In connection with some of Litchfield's whole loan sales to investors, Litchfield has committed to repurchase loans that become 90 days past due. These contingent obligations are subject to various terms and conditions, including limitations on the amounts of loans which must be repurchased. Litchfield has also guaranteed payment of mortgage loans included in some of its mortgage securitization programs. As of December 31, 1998, Litchfield had outstanding contingent repurchase obligations in the aggregate amount of approximately $12.8 million. In addition, when Litchfield sells mortgage loans through mortgage securitization programs, Litchfield commits to replace any loans that do not conform to representations and warranties included in the operative loan sale documents. LITCHFIELD'S COMPETITORS MAY HAVE GREATER FINANCIAL RESOURCES THAN LITCHFIELD. Some of Litchfield's competitors may have greater financial resources than Litchfield. CHANGES IN GOVERNMENTAL REGULATIONS MAY RESTRICT LITCHFIELD'S ABILITY TO ORIGINATE OR SELL LOANS, AND MAY FURTHER LIMIT OR RESTRICT THE AMOUNT OF INTEREST AND OTHER CHARGES EARNED UNDER LITCHFIELD'S LOANS. The operations of Litchfield are subject to extensive regulation by federal, state and local government authorities and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including among other things: - regulating credit granting activities; - establishing maximum interest rates and finance charges; - requiring disclosures to customers; - governing secured transactions and setting collection; - repossession and claims handling procedures and; - other trade practices. S-13 15 In addition, some states have enacted legislation which restricts the subdivision of rural land, and numerous states have enacted regulations in connection with time share interests. More restrictive laws, rules and regulations or interpretations thereof may be adopted in the future which could: - make compliance much more difficult or expensive; - restrict Litchfield's ability to originate or sell loans; - further limit or restrict the amount of interest and other charges earned under loans originated or purchased by Litchfield; or - otherwise adversely affect the business or prospects of Litchfield. LITCHFIELD MAY INCUR SIGNIFICANT LIABILITY FOR THE REMOVAL OF HAZARDOUS SUBSTANCES OR WASTE THAT COULD BE DISCOVERED ON PROPERTIES LITCHFIELD ACQUIRES BY FORECLOSURE. In the course of its business, Litchfield has acquired, and may in the future acquire, properties securing defaulted loans. Although substantially all of Litchfield's land loans are secured by mortgages on rural land, there is a risk that hazardous substances or waste could be discovered on these properties after foreclosure by Litchfield. In that event, Litchfield might be required to remove these substances from the affected properties at its sole cost and expense. Litchfield cannot assure you that the cost of the removal would not substantially exceed the value of the affected properties or the loans secured by the properties, that it would have adequate remedies against the prior owner or other responsible parties, or that it could sell the affected properties either before or after any removal. LITCHFIELD DEPENDS ON ITS SENIOR MANAGEMENT. Litchfield's success depends upon the continued contributions of its senior management. The loss of services of some of Litchfield's executive officers could harm Litchfield's business. Litchfield maintains key man insurance on the life of one member of its senior management, Chief Executive Officer and President, Richard A. Stratton. LITCHFIELD'S SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT. Litchfield uses and depends on a significant number of computer software programs and operating systems to conduct its business. Litchfield believes that substantially all of its operating systems are year 2000 compliant. To the extent that Litchfield relies on outside software vendors, year 2000 compliance matters will not be within Litchfield's direct control. In addition, Litchfield has relationships with vendors, customers and other third parties that rely on computer software that may not be year 2000 compliant. There can be no assurance that year 2000 compliance failures by Litchfield and such third parties will not harm Litchfield's performance. S-14 16 USE OF PROCEEDS The trust will invest all of the proceeds from the sale of the preferred securities in junior subordinated debentures issued by Litchfield. Litchfield anticipates that the net proceeds from the sale of the junior subordinated debentures will be used to support its business activities, as capital to support senior indebtedness and for other general corporate purposes. ACCOUNTING TREATMENT For financial reporting purposes, the trust will be treated as a subsidiary of Litchfield and, accordingly, the accounts of the trust will be included in the financial statements of Litchfield. The preferred securities will be reflected in the consolidated balance sheets of Litchfield as "Litchfield Obligated Mandatorily Redeemable Preferred Securities of Trust Subsidiaries Holding Solely Debentures of Litchfield" and appropriate disclosures about the preferred securities, the preferred securities guarantee and the junior subordinated debentures will be included in Litchfield's notes to consolidated financial statements. S-15 17 LITCHFIELD FINANCIAL CORPORATION OVERVIEW Litchfield 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"). Litchfield 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, Litchfield 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"). BUSINESS STRATEGY Litchfield was founded in November 1988. Litchfield's strategy has been to build its serviced portfolio (the "Serviced Portfolio") consisting of the principal amount of loans serviced by or on behalf of Litchfield (except loans participated without recourse to Litchfield) by acquiring loan portfolios from rural land dealers, resort developers and financial institutions and by providing loans to such dealers and developers and other businesses secured by consumer receivables. Litchfield also provides A&D Loans in order to have the opportunity to finance additional receivables generated by these A&D Loans. As part of its business and financing strategy, Litchfield seeks niche markets where its underwriting expertise and ability to provide value-added services enable it to distinguish itself from its competitors and earn an attractive rate of return on its invested capital. Initially, Litchfield pursued this strategy by financing consumer Land Loans through a land dealer network and portfolio acquisitions. Subsequently, Litchfield extended its strategy to financing consumer VOI Loans and providing Hypothecation Loans to land dealers and resort developers. In 1995, Litchfield significantly expanded its financing of VOI Loans when it acquired approximately $41.5 million of VOI related loans and assets as part of its purchase of the Government Employees Financial Corporation ("GEFCO") portfolio. In 1997, Litchfield expanded its financing of Hypothecation Loans to other finance companies ("Financial Services Loans") secured by other types of collateral. Litchfield expects to continue to expand its Financial Services lending. These loans may be larger than Litchfield's average Hypothecation Loans and may provide Litchfield an option to take an equity position in the borrower. Litchfield's objective is to identify other lending opportunities or lines of business to diversify its portfolio as it did with VOI Loans and Hypothecation Loans. Management believes that the marketing and operating strategies implemented by Litchfield have enabled it to provide financing to parties whose needs have been historically underserved in a highly fragmented and inefficient market. In doing so, Litchfield has increased its earnings per share during each of its full years 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, ----------------------------------------- 1994 1995 1996 1997 1998 ----- ----- ----- ----- ----- Purchased Loans............................ 85.3% 81.6% 67.1% 56.6% 38.4% Hypothecation Loans........................ 9.0 12.5 20.7 26.9 35.2 A&D Loans.................................. 3.3 3.1 8.7 13.7 11.2 Other Loans................................ 2.4 2.8 3.5 2.8 15.2 ----- ----- ----- ----- ----- Total............................ 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
S-16 18 The following table shows the growth in the diversity of Litchfield's originations from primarily Purchased Loans to a mix of Purchased Loans, Hypothecation Loans, A&D Loans and Other Loans:
DECEMBER 31, ----------------------------------------- 1994 1995 1996 1997 1998 ----- ----- ----- ----- ----- Purchased Loans............................ 67.6% 71.4% 49.9% 30.3% 14.9% Hypothecation Loans........................ 22.2 20.9 29.6 37.1 48.6 A&D Loans.................................. 6.0 3.1 14.4 24.0 10.2 Other Loans................................ 4.2 4.6 6.1 8.6 26.3 ----- ----- ----- ----- ----- Total............................ 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
(1) Purchased Loans Litchfield 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 generally using Litchfield's standard forms and subject to Litchfield's underwriting criteria. Litchfield then purchases such loans from the land dealer or resort developer on an individually approved basis in accordance with its credit guidelines. Each land dealer and resort developer from whom Litchfield purchases loans is interviewed by Litchfield 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, Litchfield typically requires land dealers and resort developers to guarantee payment of the loans and typically retains a portion of the amount payable by Litchfield to each land dealer and resort developer on the 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, Litchfield 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. Litchfield purchases only those loans which meet its credit standards. Litchfield 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 Litchfield 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. Litchfield 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, Litchfield conducts its normal review of the borrower's documentation, payment history and underlying collateral. However, Litchfield may not always be able to reject individual loans. Litchfield's portfolio of Purchased Loans is secured by property located in 39 states. S-17 19
PRINCIPAL AMOUNT OF LOANS ------------------------------------ DECEMBER 31, ------------------------------------ 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Southwest......................................... 19% 16% 26% 30% 32% South............................................. 37 31 31 31 30 West.............................................. 3 20 20 17 19 Mid-Atlantic...................................... 16 16 10 10 8 Northeast......................................... 25 17 13 12 11 --- --- --- --- --- Total................................... 100% 100% 100% 100% 100% === === === === ===
a. Land Loans Dealers from whom Litchfield 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 year ended December 31, 1998, Litchfield acquired approximately $53.7 million of Land Loans. The aggregate principal amount of Land Loans purchased from individual dealers during the year ended December 31, 1998 varied from a low of approximately $9,000 to a high of approximately $4.7 million. As of December 31, 1998, the five largest dealers accounted for approximately 20.6% of the principal amount of the Land Loans in the Serviced Portfolio, and no single dealer accounted for more than 5.4%. As of December 31, 1998, 34.3% of the Serviced Portfolio consisted of Land Loans with an average principal balance of approximately $13,100. The following table sets forth as of December 31, 1998, the distribution of Land Loans in Litchfield's Serviced Portfolio:
PERCENTAGE OF PERCENTAGE OF PRINCIPAL PRINCIPAL NUMBER OF NUMBER OF PRINCIPAL BALANCE AMOUNT AMOUNT LOANS LOANS - ----------------- ------------ ------------- --------- ------------- Less than $10,000................ $ 28,936,000 18.1% 5,581 45.7% $10,000-$19,999.................. 61,138,000 38.2 4,287 35.1 $20,000 and greater.............. 70,024,000 43.7 2,343 19.2 ------------ ----- ------ ----- Total.................. $160,098,000 100.0% 12,211 100.0% ============ ===== ====== =====
As of December 31, 1998, the weighted average interest rate of the Land Loans included in Litchfield's Serviced Portfolio was 12.0% and the weighted average remaining maturity was 12.0 years. The following table sets forth as of December 31, 1998 the distribution of interest rates payable on the Land Loans:
PERCENTAGE OF PRINCIPAL PRINCIPAL INTEREST RATE AMOUNT AMOUNT - ------------- ------------ ------------- Less than 12.0%.......................................... $ 55,332,000 34.6% 12.0% - 13.9%............................................ 81,256,000 50.7 14.0% and greater........................................ 23,510,000 14.7 ------------ ----- Total.......................................... $160,098,000 100.0% ============ =====
As of December 31, 1998, Litchfield's Land Loan borrowers resided in 50 states, the District of Columbia and ten territories or foreign countries. S-18 20 b. VOI Loans Litchfield purchases VOI Loans from various resort developers. Litchfield 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 year ended December 31, 1998, Litchfield acquired approximately $2.4 million of VOI Loans. As of December 31, 1998, the five largest developers accounted for approximately 35.1% of the principal amount of the VOI Loans in the Serviced Portfolio, and no single developer accounted for more than 9.4%. As of December 31, 1998, 4.1% of the Serviced Portfolio consisted of VOI Loans, with an average principal balance of approximately $3,400. The following table sets forth as of December 31, 1998 the distribution of VOI Loans:
PERCENTAGE OF PERCENTAGE OF PRINCIPAL PRINCIPAL NUMBER OF NUMBER OF PRINCIPAL BALANCE AMOUNT AMOUNT LOANS LOANS ----------------- ----------- ------------- --------- ------------- Less than $4,000.................. $ 7,519,000 39.3% 3,615 64.8% $4,000 - $5,999................... 6,530,000 34.2 1,316 23.6 $6,000 and greater................ 5,070,000 26.5 649 11.6 ----------- ----- ----- ------ Total................... $19,119,000 100.0% 5,580 100.0% =========== ===== ===== ======
As of December 31, 1998, the weighted average interest rate of the VOI Loans included in Litchfield's Serviced Portfolio was 14.6% and the weighted average remaining maturity was 3.7 years. The following table sets forth as of December 31, 1998 the distribution of interest rates payable on the VOI Loans:
PERCENTAGE OF PRINCIPAL PRINCIPAL INTEREST RATE AMOUNT AMOUNT - ------------- ----------- ------------- Less than 14.0%........................................... $ 8,147,000 42.6% 14.0% - 15.9%............................................. 4,482,000 23.4 16.0% and greater......................................... 6,490,000 34.0 ----------- ----- Total........................................... $19,119,000 100.0% =========== =====
As of December 31, 1998, Litchfield's VOI borrowers resided in 50 states, the District of Columbia and four territories or foreign countries. (2) Hypothecation Loans Litchfield extends Hypothecation Loans to land dealers and resort developers and other businesses secured by receivables. Litchfield 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 Litchfield's average Hypothecation Loans and may provide Litchfield with an option to take an equity position in the borrower. During the year ended December 31, 1998, Litchfield extended or acquired approximately $182.2 million of Hypothecation Loans, of which $26.5 million, or 14.5%, were secured by Land Loans, $84.2 million, or 46.2%, were secured by VOI Loans and $71.5 million, or 39.3%, were secured by other types of collateral such as tax lien certificates, accounts receivable and mortgages. Litchfield typically extends Hypothecation Loans based on advance rates of 75% to 90% of the eligible receivables which serve as collateral. Litchfield's Hypothecation Loans are typically made at variable rates based on the prime rate of interest plus 2% to 4%. As of December 31, 1998, Litchfield had $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, Litchfield acquired a $17.0 million participation interest in a Hypothecation Loan from another financial institution. As planned, in May of 1998, the Company S-19 21 purchased the underlying receivables, which Litchfield reclassified as Other Loans. The proceeds of the receivables purchased were applied to pay off Litchfield's participation interest. At December 31, 1998, Hypothecation Loans ranged in size from less than $500 to $21.5 million with an average principal balance of $1,678,000. The five largest Hypothecation Loans represented 15.5% of the Serviced Portfolio. (3) A&D Loans Litchfield 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 year ended December 31, 1998, Litchfield made $38.2 million of A&D Loans to land dealers and resort developers, of which $13.3 million, or 34.9%, were secured by land and $24.9 million, or 65.1%, were secured by timeshare resorts under development. Litchfield 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 December 31, 1998, Litchfield had $52.3 million of A&D Loans outstanding, none of which were 31 days or more past due. A&D Loans are secured by timeshare resort developments and rural land subdivisions in 16 states and one territory. A&D Loans range in size from $1,700 to $9.5 million with an average principal balance of $780,000. The five largest A&D Loans represent 4.7% of the Serviced Portfolio. (4) Other Loans At December 31, 1998, Other Loans consisted primarily of consumer home equity loans, mortgage and construction loans, other secured commercial loans and tax lien certificates. Historically, Litchfield 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, Litchfield purchased 232 builder construction loans totaling $32.7 million, a portion of which had previously been collateral for the Hypothecation Loan in which Litchfield owned a participation interest. As of December 31, 1998, Litchfield had 176 of the builder construction loans totaling $33.9 million. In October 1998, Litchfield began purchasing tax lien certificates and held $21.2 million of such certificates at December 31, 1998. Litchfield had $71.0 million of Other Loans, 1.94% of which were 91 days or more past due. Other Loans range 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. LOAN UNDERWRITING Litchfield 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, Litchfield's underwriting staff routinely conduct telephone interviews with a sample of borrowers. The primary focus of Litchfield'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. Litchfield's loan policy is to purchase Land and VOI Loans from $3,000 to $50,000. On a case by case basis, Litchfield will also consider purchasing such loans in excess of $50,000. As of December 31, 1998, Litchfield had 154 Land Loans exceeding $50,000 representing 2.3% of the number of such loans in the Serviced Portfolio, for a total of $10.9 million. There were no VOI Loans exceeding $50,000 as of December 31, 1998. Litchfield will originate Hypothecation Loans up to $15 million and A&D Loans up to $10 million. From time to time, Litchfield may have an opportunity to originate larger Hypothecation Loans or A&D Loans in which case Litchfield would seek to participate such loans with other financial institutions. As of December 31, 1998, Litchfield's five largest hypothecation loan relationships had aggregate loan balances ranging from $10.8 million to $21.5 million and its largest A&D loan relationship had an aggregate loan balance of $14.4 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, three Executive Vice Presidents and a Senior Vice President. S-20 22 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 Litchfield'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 Litchfield sends out a late notice. When an account is fifteen days past due, Litchfield 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 Litchfield's collection procedures, Litchfield generally obtains the assistance of the dealer or developer in collecting the loan. Litchfield extends a limited number of its loans for reasons Litchfield 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 Litchfield. For extensions of four to six months, the customer must make four to six timely payments, respectively, without any intervention from Litchfield. Litchfield will not extend a loan more than two times for an aggregate of six months over the life of the loan. Litchfield has extended approximately 0.9% of its loans through December 31, 1998. Litchfield 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, Litchfield collects late charges and return-check fees and records these items as additional revenue. Only if a delinquency cannot otherwise be cured will Litchfield decide that foreclosure is the appropriate course of action. If Litchfield determines that purchasing a property securing a mortgage loan will minimize the loss associated with such defaulted loan, Litchfield 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 Litchfield's delinquencies and delinquency rates, net of dealer/developer reserves and guarantees, for the Serviced Portfolio:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 1994 1995 1996 1997 1998 ------------ ------------ ------------ ------------ ------------ Serviced Portfolio... $105,013,000 $176,650,000 $242,445,000 $304,102,000 $466,912,000 Delinquent loans(1)........... 981,000 3,062,000 3,255,000 3,642,000 4,456,000 Delinquency as a Percentage of Serviced Portfolio.......... .93% 1.73% 1.34% 1.20% 0.95%
- --------------- (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. S-21 23 Land Loans The following table shows Litchfield's delinquencies and delinquency rates, net of dealer/developer reserves and guarantees, for Land Loans in the Serviced Portfolio:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------- 1994 1995 1996 1997 1998 ----------- ----------- ------------ ------------ ------------ Land Loans in Serviced Portfolio........... $90,502,000 $97,266,000 $119,370,000 $142,828,000 $160,098,000 Delinquent Land Loans(1)............ 981,000 1,059,000 1,920,000 2,453,000 2,728,000 Delinquency as a Percentage of Land Loans in Serviced Portfolio........... 1.08% 1.09% 1.61% 1.72% 1.70%
- --------------- (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 Litchfield's delinquencies and delinquency rates, net of dealer/developer reserves and guarantees, for VOI Loans in the Serviced Portfolio:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1994 1995 1996 1997 1998 ---------- ----------- ----------- ----------- ----------- VOI Loans in Serviced Portfolio............... $2,851,000 $46,700,000 $43,284,000 $29,232,000 $19,119,000 Delinquent VOI Loans(1)... -- 1,958,000 1,316,000 739,000 350,000 Delinquency as a Percentage of VOI Loans in Serviced Portfolio... -- 4.19% 3.04% 2.53% 1.83%
- --------------- (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 Litchfield did not have any delinquent Hypothecation Loans or A&D Loans for the years ended December 31, 1993 through December 31, 1998. Litchfield did not have significant amounts of delinquent Other Loans for the years ended December 31, 1993 through December 31, 1996. At December 31, 1997, there were $8.5 million of Other Loans of which $450,000 or 5.3% 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 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. S-22 24 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:
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1994 1995 1996 1997 1998 ----------- ----------- ----------- ----------- ---------- Allowance, beginning of year..... $ 1,064,000 $ 1,264,000 $ 3,715,000 $ 4,528,000 $5,877,000 Net charge-offs of Uncollectible accounts....................... (359,000) (946,000) (1,965,000) (2,010,000) (2,239,000) Provision for loan losses........ 559,000 890,000 1,954,000 1,400,000 1,532,000 Allocation of purchase Adjustment(1).................. -- 2,507,000 824,000 1,959,000 1,537,000 ----------- ----------- ----------- ----------- ---------- Allowance, end of year........... $ 1,264,000 $ 3,715,000 $ 4,528,000 $ 5,877,000 $6,707,000 =========== =========== =========== =========== ==========
- --------------- (1) Represents allocation of purchase adjustment related to purchase of certain non-guaranteed loans. The following is an analysis of net charge-offs by major loan and collateral types experienced by Litchfield:
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- ---------- Land Loans............... $ 359,000 $ 546,000 $ 669,000 $ 986,000 $1,358,000 VOI Loans................ -- 45,000 1,284,000 939,000 556,000 Hypothecation Loans...... -- -- -- -- -- A&D Loans................ -- 352,000 (8,000) (2,000) -- Other Loans.............. -- 3,000 20,000 87,000 325,000 ---------- ---------- ---------- ---------- ---------- Total net charge-offs.... $ 359,000 $ 946,000 $1,965,000 $2,010,000 $2,239,000 ========== ========== ========== ========== ========== Net charge-offs as a percentage of the average Serviced Portfolio.............. .38% .67% .94% .74% .58%
As part of Litchfield's financing of Land and VOI Loans, Litchfield enters into arrangements with most land dealers and resort developers whereby Litchfield retains a portion of the amount payable to a dealer when purchasing a Land or a VOI Loan to protect Litchfield from potential losses associated with such loans and uses the amount retained to absorb loan losses. Litchfield 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. Developer reserves for VOI Loans were $1,760,000, $2,299,000 and $3,072,000 at December 31, 1998, 1997 and 1996, respectively. Most dealers and developers provide personal and, when relevant, corporate guarantees to further protect Litchfield from loss. LOAN SERVICING AND SALES Litchfield retains the right to service all 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 Litchfield, and Litchfield 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, Litchfield subcontracted the servicing of its loans to an unaffiliated third party. In July 1998, Litchfield resumed certain customer service and collection functions. The unaffiliated third S-23 25 party continues to provide certain data processing and payment processing functions. Litchfield retains responsibility for servicing all loans as a master servicer. In 1990, Litchfield 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 of the interest payments on the loans transferred to the trust are collected by Litchfield 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 December 31, 1998, Litchfield sold or securitized a total of approximately $493.0 million of loans at face value. In certain of Litchfield'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 Litchfield. In certain other of Litchfield'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 Litchfield and might, therefore, have to be charged against the estimated recourse obligations to the extent dealer guarantees and reserves are not available. Litchfield 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 December 31, 1998, the outstanding balance of the sold or pledged loans securing this facility was $137.5 million. Litchfield 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 December 31, 1998, the outstanding aggregate balance of the sold loans under the facility was $10.6 million. MARKETING AND ADVERTISING Litchfield markets its program to rural land dealers and resort developers through brokers, referrals, dealer and developer solicitation, and targeted direct mail. Litchfield employs three marketing executives based in Lakewood, Colorado, five marketing executives based in Williamstown, Massachusetts and two marketing executives based in Hoover, Alabama. In the last five years Litchfield has closed loans with over 325 different dealers and developers. Management believes that Litchfield 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 Litchfield and are generated in the states in which Litchfield operates by dealers, brokers, attorneys and financial institutions. Management and marketing representatives also conduct seminars for dealers and brokers and attend trade shows to improve awareness and understanding of Litchfield's programs. REGULATION Litchfield is licensed as a lender, mortgage banker or mortgage broker in 23 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 Litchfield and various other matters. Litchfield is generally subject to state regulations, examination and reporting requirements, and licenses are revocable for cause. Litchfield is subject to state usury laws in all of the states in which it operates. The consumer loans purchased or financed by Litchfield 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. Litchfield S-24 26 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 Litchfield. There can be no assurance that Litchfield will not face increased competition from existing or new financial institutions or finance companies. In addition, Litchfield may enter new lines of business that may be highly competitive and may have competitors with greater financial resources than Litchfield. Litchfield 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 December 31, 1998, Litchfield had 102 full-time equivalent employees. None of Litchfield's employees are covered by a collective bargaining agreement. Litchfield considers its relations with its employees to be good. S-25 27 CAPITALIZATION The following table sets forth the capitalization of Litchfield as of December 31, 1998, and as adjusted to reflect the sale of the trust securities by the trust and the issuance of the junior subordinated debentures by Litchfield:
DECEMBER 31, 1998 ---------------------------- ACTUAL AS ADJUSTED ------------ ------------ Long-term notes............................................. $134,588,000 $134,588,000 Litchfield Obligated Mandatorily Redeemable Preferred Securities of Trust Subsidiaries Holding Solely Debentures of Litchfield............................................. 0 25,000,000 Stockholders' equity: Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding.................... 0 0 Common stock, $.01 par value; authorized 12,000,000 shares, 6,886,329 issued and outstanding (6,886,329 shares issued and outstanding, as adjusted)(1)......... 69,000 69,000 Additional paid in capital................................ 58,040,000 58,040,000 Accumulated other comprehensive income.................... 1,250,000 1,250,000 Retained earnings......................................... 22,735,000 22,735,000 ------------ ------------ Total stockholders' equity........................ 82,094,000 82,094,000 ------------ ------------ Total capitalization(2)........................... $216,682,000 $241,682,000 ============ ============
- --------------- (1) Does not include 1,422,319 shares reserved for issuance pursuant to Litchfield's 1990 Stock Option Plan and 18,864 shares reserved for issuance pursuant to Litchfield's 1995 Stock Option Plan for Non-Employee Directors, of which 853,850 are issuable upon exercise of options currently outstanding as of December 31, 1998. (2) Total capitalization includes total stockholders' equity, long-term notes and Litchfield Obligated Mandatorily Redeemable Preferred Securities of Trust Subsidiaries Holding Solely Debentures of Litchfield. S-26 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth the percentage relationship to revenues, unless otherwise indicated, of certain items included in Litchfield's statements of income.
YEAR ENDED DECEMBER 31, ----------------------- 1996 1997 1998 ----- ----- ----- Revenues Interest and fees on loans................................ 62.4% 65.3% 66.3% Gain on sale of loans..................................... 30.9 28.8 27.6 Servicing and other income................................ 6.7 5.9 6.1 ----- ----- ----- 100.0 100.0 100.0 ----- ----- ----- Expenses Interest expense.......................................... 30.4 36.0 36.8 Salaries and employee benefits............................ 11.9 11.4 12.4 Other operating expenses.................................. 13.3 11.7 9.9 Provision for loan losses................................. 8.2 4.7 3.9 ----- ----- ----- 63.8 63.8 63.0 ----- ----- ----- Income before income taxes and extraordinary item........... 36.2 36.2 37.0 Provision for income taxes.................................. 13.9 13.9 14.2 ----- ----- ----- Income before extraordinary item............................ 22.3 22.3 22.8 Extraordinary item, net..................................... -- (0.8) (0.2) ----- ----- ----- Net income.................................................. 22.3% 21.5% 22.6% ===== ===== =====
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Revenues increased 30.7% to $38,806,000 for the year ended December 31, 1998, from $29,691,000 for the year ended December 31, 1997. Net income for the year ended December 31, 1998 increased 37.2% to $8,755,000 compared to $6,383,000 in 1997. Net income as a percentage of revenues was 22.6% for the year ended December 31, 1998 compared to 21.5% for the year ended December 31, 1997. Loan purchases and originations grew 103.2% to $375,292,000 in 1998 from $184,660,000 in 1997. The Serviced Portfolio increased 53.5% to $466,912,000 at December 31, 1998 from $304,102,000 at December 31, 1997. Interest and fees on loans increased 32.8% to $25,736,000 in 1998 from $19,374,000 in 1997, primarily as the result of the higher average balance of other loans during the 1998 period. The average rate earned on the Serviced Portfolio decreased to 11.7% at December 31, 1998 from 12.2% at December 31, 1997, primarily due to the effect of the growth in Hypothecation Loans as a percentage of the portfolio and a decline in interest rates. 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 24.8% to $10,691,000 in 1998 from $8,564,000 in 1997. The volume of loans sold increased 46.6% to $144,762,000 for the year ended December 31, 1998 from $98,747,000 for the same period in 1997. Gain on sale of loans increased less than the volume of loans sold for the year ended December 31, 1998 primarily due to the increase in Hypothecation Loans sold. The yield on the sale of Hypothecation Loans is significantly less than the typical yield on sales of consumer receivables primarily due to shorter average maturities and the nature of the underlying collateral. S-27 29 Servicing and other income increased 35.7% to $2,379,000 for the year ended December 31, 1998, from $1,753,000 for the year ended December 31, 1997 largely due to the increase in the other fee income including certain processing fees, prepayment penalties and income from an affiliate. Loans serviced for others increased 32.5% to $238,132,000 as of December 31, 1998 from $179,790,000 at December 31, 1997. Interest expense increased 33.6% to $14,265,000 in 1998 from $10,675,000 in 1997. The increase in interest expense primarily reflects an increase in average borrowings which was only partially offset by lower rates. During the year ended December 31, 1998, the weighted average borrowings were $150,483,000 at an average rate of 8.7% compared to $107,900,000 at an average rate of 9.1% during the year ended December 31, 1997. Interest expense includes the amortization of deferred debt issuance costs. Salaries and employee benefits increased 41.4% to $4,806,000 for the year ended December 31, 1998 from $3,399,000 for the year ended December 31, 1997 because of an increase in the number of employees in 1998 and, to a lesser extent, an increase in salaries. Personnel costs as a percentage of revenues increased slightly to 12.4% in 1998 compared to 11.4% in 1997. However, as a percentage of the Serviced Portfolio, personnel costs decreased to 1.0% for the year ended December 31, 1998 from 1.1% for the year ended December 31, 1997. The increase in salaries and employee benefits was due in part to bringing customer service and collections in-house during 1998. This resulted in a decrease in third party servicing expenses included in other operating expenses. Total salaries and employee benefits plus other operating expenses as a percentage of revenues decreased in 1998 to 22.3% from 23.2% in 1997. Other operating expenses increased 10.2% to $3,834,000 for the year ended December 31, 1998 from $3,480,000 for the year ended December 31, 1997. 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 9.9% in 1998 from 11.7% in 1997. As a percentage of the Serviced Portfolio, other operating expenses decreased to 0.8% for the year ended December 31, 1998 compared to 1.1% for the year ended December 31, 1997. During the year ended December 31, 1998, the provision for loan losses increased 9.4% to $1,532,000 from $1,400,000 for the year ended December 31, 1997 primarily due to the growth of the Serviced Portfolio. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues increased 25.3% to $29,691,000 for the year ended December 31, 1997, from $23,696,000 for the year ended December 31, 1996. Net income for 1997 increased 21.1% to $6,383,000 compared to $5,273,000 in 1996. Net income as a percentage of revenues was 21.5% for the year ended December 31, 1997 compared to 22.3% for the year ended December 31, 1996. Loan purchases and originations grew 38.1% to $184,660,000 in 1997 from $133,750,000 in 1996. The Serviced Portfolio increased 25.4% to $304,102,000 at December 31, 1997 from $242,445,000 at December 31, 1996. Interest and fees on loans increased 31.0% to $19,374,000 in 1997 from $14,789,000 in 1996, primarily as the result of the higher average balance of loans held for sale and other loans during 1997. The average rate earned on loans owned and retained interests in loan sales decreased to 12.2% for the year ended December 31, 1997 from 12.5% for the year ended December 31, 1996, primarily due to the effect of the growth in Hypothecation Loans and A&D Loans as a percentage of the Serviced Portfolio. Hypothecation Loan and A&D 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 16.8% to $8,564,000 in 1997 from $7,331,000 in 1996. The volume of loans sold increased 79.7% to $98,747,000 for the year ended 1997 from $54,936,000 for the same period in 1996. Gain on sale of loans increased less than the volume of loans sold for the year ended December 31, 1997 primarily due to the lower yield on the sale of Hypothecation Loans in 1997 and, to a lesser extent, the lower amount of discount relating to loans sold. S-28 30 Servicing and other fee income increased 11.2% to $1,753,000 for the year ended December 31, 1997, from $1,576,000 for the year ended December 31, 1996 mostly due to the increase in other fee income resulting from the collection of significant prepayment penalties from a Hypothecation Loan and an A&D Loan in 1997. Although loans serviced for others increased 38.7% to $179,790,000 at December 31, 1997 from $129,619,000 at December 31, 1996, servicing income remained relatively constant due to a decrease in the average servicing fee per loan primarily as the result of the decrease in the number of purchased VOI Loans in the Serviced Portfolio. Interest expense increased 48.3% to $10,675,000 for 1997, from $7,197,000 in 1996. The increase in interest expense primarily reflects an increase in average borrowings that were only partially offset by a decrease in average rates. During the year ended December 31, 1997, borrowings averaged $107,900,000 at an average rate of 9.1% compared to $71,800,000 and 9.3%, respectively, during 1996. Interest expense includes the amortization of deferred debt issuance costs. Salaries and employee benefits increased 20.4% to $3,399,000 for the year ended December 31, 1997 from $2,824,000 for the year ended December 31, 1996 because of an increase in the number of employees and, to a lesser extent, an increase in salaries. Personnel costs as a percentage of revenues decreased slightly to 11.4% for the year ended December 31, 1997 compared to 11.9% in 1996. As a percentage of the Serviced Portfolio, personnel costs decreased to 1.12% for the year ended December 31, 1997 from 1.16% for the same period in 1996. Other operating expenses increased 10.6% to $3,480,000 for the year ended December 31, 1997 from $3,147,000 for the same period in 1996 primarily as the result of the growth in the Serviced Portfolio. As a percentage of revenues, other operating expenses decreased to 11.7% in 1997 compared to 13.3% in 1996. As a percentage of the Serviced Portfolio, other operating expenses decreased to 1.14% for 1997 from 1.30% for 1996. During 1997, the provision for loan losses decreased 28.4% to $1,400,000 from $1,954,000 in 1996. The provision for loan losses decreased despite the increase in loans owned and retained interests in loans sold because of the growth in Hypothecation Loans as a percentage of the Serviced Portfolio. Hypothecation Loans have experienced significantly lower delinquency and default rates than Purchased Loans. LIQUIDITY AND CAPITAL RESOURCES Litchfield's business requires continued access to short and long-term sources of debt financing and equity capital. Litchfield's principal cash requirements arise from loan originations, repayment of debt on maturity and payments of operating and interest expenses. Litchfield'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, Litchfield has sold $492,960,000 of loans at face value ($348,198,000 through December 31, 1997). The principal amount remaining on the loans sold was $238,132,000 at December 31, 1998 and $179,790,000 at December 31, 1997. In connection with certain loan sales, Litchfield 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 $12,750,000 of loans at December 31, 1998 which Litchfield could be required to repurchase in the future should such loans become 90 days or more past due. Litchfield repurchased $491,000, $740,000 and $991,000 of such loans under the recourse provisions of loan sales 1998, 1997 and 1996, respectively. As of December 31, 1998, $25,685,000 of Litchfield's cash was restricted as credit enhancement for certain securitization programs. To date, Litchfield has participated $10,505,000 of A&D and Other Loans without recourse to Litchfield ($6,936,000 through December 31, 1997). Litchfield funds its loan purchases in part with borrowings under various lines of credit. Lines are paid down when Litchfield receives the proceeds from the sale of the loans or when cash is otherwise available. These lines of credit totaled $116,000,000 at December 31, 1998 and 117,500,000 at December 31, 1997. S-29 31 Outstanding borrowings on these lines of credit were $49,021,000 at December 31, 1998. Interest rates on these lines of credit range from the Eurodollar or LIBOR rate plus 2% to the prime rate plus 1.25%. Litchfield is not required to maintain compensating balances or forward sales commitments under the terms of these lines of credit. Litchfield 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 December 31, 1998 and $150,000,000 at December 31, 1997. As of December 31, 1998 and December 31, 1997, the outstanding balances of loans sold or pledged under these facilities were $148,164,000 and $121,142,000, respectively. There were no outstanding borrowings under these lines of credit at December 31, 1998. Outstanding borrowings under these lines of credit were $169,000 at December 31, 1997. Interest is payable on these lines of credit based on certain commercial paper rates. In June 1998, Litchfield 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, Litchfield 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. Litchfield also finances its liquidity needs with long-term debt. Long-term debt totaled $134,588,000 at December 31, 1998 and $105,347,000 at December 31, 1997. In September of 1998, Litchfield redeemed a term note of $3,265,000 resulting in an extraordinary loss of $77,000, net of applicable tax benefit of $48,000. The note was collateralized by certain of Litchfield's retained interests in loan sales and cash. The balance outstanding on the note was $5,210,000 at December 31, 1997. In June 1997, Litchfield 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. In June, 1994, Litchfield 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 Litchfield to receive an amount, based on an amortizing notional amount, which at December 31, 1998 was $3,670,000, when commercial paper rates exceed 8%. If payments were to be received as a result of the cap agreement, they would be accrued as a reduction of interest expense. This agreement expires in July 2003. Historically, Litchfield has not required major capital expenditures to support its operations. S-30 32 CREDIT QUALITY AND ALLOWANCES FOR LOAN LOSSES Litchfield 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 and guarantees) as a percentage of the Serviced Portfolio as of December 31, 1998, decreased to 0.95% from 1.20% at December 31, 1997. [NET DELINQUENCIES CHART] [NET CHARGE-OFF RATIO CHART] 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 Litchfield 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 $6,707,000 at December 31, 1998 compared to $5,877,000 at December 31, 1997. The allowance ratio (the allowances for loan losses divided by the amount of the Serviced Portfolio) at December 31, 1998 decreased to 1.44% from 1.93% at December 31, 1997 primarily as a result of the increase in Hypothecation Loans as a percentage of the Serviced Portfolio. [PERFORMANCE/ALLOWANCE BAR GRAPH]
ALLOWANCE CHARGE-OFFS --------- ----------- Land................................................... 2.15 0.90 VOI.................................................... 4.05 2.30 Hypo................................................... 0.50 0.00 A&D.................................................... 1.30 0.00 Other.................................................. 1.40 0.82
As part of Litchfield's financing of Purchased Loans, arrangements are entered into with dealers and resort developers, whereby reserves are established to protect Litchfield from potential losses associated with such loans. As part of Litchfield'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 Litchfield and is available to Litchfield to absorb loan losses for those loans. Litchfield negotiates the amount of the reserves with the dealers and developers based upon various criteria, two of which are the financial S-31 33 strength of the dealer or developer and credit risk associated with the loans being purchased. Dealer/developer reserves amounted to $9,979,000 and $10,655,000 at December 31, 1998 and December 31, 1997, respectively. Litchfield 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. Litchfield has evaluated the year 2000 readiness of the information technology systems used in its operations ("IT Systems") and its non-IT Systems, such as building security, voice mail and other systems. Non-compliant IT Systems and non-IT Systems are expected to be remediated by the end of the second quarter of 1999. Litchfield's current financial and accounting software was installed in October 1998, and the supplier has informed Litchfield that such software is year 2000 compliant. Litchfield uses a third party servicer to perform certain functions, such as receipt and posting of loan payments and other loan related activity. The third party servicer has represented to Litchfield that its systems are year 2000 compliant. In addition, Litchfield 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 Litchfield's financial condition and results of operations. During 1998, Litchfield circulated a questionnaire to vendors and customers with whom Litchfield has material relationships to obtain information about year 2000 compliance. Litchfield is still receiving and evaluating this information to identify any significant risks. We plan to require all our business partners to address any significant risks by July 1, 1999. We plan to replace any material non-compliant business partners by October 1, 1999. Costs. To date, Litchfield 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 Litchfield evaluating year 2000 compliance matters generally. Litchfield 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 Litchfield. At this time, Litchfield does not possess 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 Litchfield's financial condition and results of operations. Contingency Plan. Litchfield has not yet developed a year 2000-specific contingency plan. If further year 2000 compliance issues are discovered, Litchfield then will evaluate the need for one or more contingency plans relating to such issues. INFLATION Inflation has not had a significant effect on Litchfield's operating results to date. S-32 34 EXPOSURE TO MARKET RISK Litchfield 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. Litchfield'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. Litchfield 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 December 31, 1998, Litchfield had the following estimated sensitivity profile: Interest rate changes (in basis points)............... 100 (100) Impact on earnings per share.......................... ($ 0.02) $ 0.06 Impact on interest income and pre-tax earnings........ ($136,000) $425,000
RECENT DEVELOPMENTS Litchfield's net income for the first quarter of 1999 was $2,278,000 or $.32 per share on a diluted basis compared with net income of $1,550,000 or $.26 per share on a diluted basis for the first quarter of 1998. These results represent a 47% increase in net income and a 23% increase in diluted net income per share. Litchfield's revenues for the first quarter of 1999 increased 39% to $11,075,000 from $7,953,000 for the first quarter of 1998. Litchfield's first quarter 1999 originations were $98.0 million, representing a 45% increase from $67.5 million in the first quarter of 1998. During the first quarter of 1999, Litchfield's land, timeshare and financial services businesses originated $20.1 million, $47.8 million and $30.1 million, respectively, compared to $22.1 million, $22.2 million and $23.2 million, respectively, for the first quarter of 1998. The preceding data is unaudited, but, in the opinion of management of Litchfield, includes all adjustments (consisting of normal recurring accruals and deferrals) that management considers necessary for a fair presentation of the financial position and results of operations for the periods presented in accordance with generally accepted accounting principles and practices consistently applied. S-33 35 LITCHFIELD CAPITAL TRUST I Litchfield Capital Trust I is a statutory business trust created on April 12, 1999 under the Delaware Business Trust Act pursuant to a declaration of trust among the trustees and Litchfield and the filing of a certificate of trust with the Secretary of State of the State of Delaware. This declaration will be amended and restated in its entirety, as so amended and restated, the "Declaration" as of the date the trust initially issues the preferred securities. The Declaration will be qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The trust will initially have five trustees. Three of the trustees will be officers or employees of Litchfield. The Bank of New York will act as the Property Trustee of the trust (the "Property Trustee") and The Bank of New York (Delaware) will act as the Delaware Trustee of the trust. Upon the issuance of the preferred securities, the holders thereof will own all of the issued and outstanding preferred securities of the trust. Litchfield will, directly or indirectly, acquire common securities representing common undivided beneficial interests in the assets of the trust in an amount equal to at least 3% of the total capital of the trust and will own, directly or indirectly, all of the issued and outstanding common securities of the trust. The trust exists for the purposes of: - issuing the preferred securities, - issuing the common securities to Litchfield, - investing the gross proceeds from the sale of the trust securities in junior subordinated debentures of Litchfield and - engaging in only such other activities as are necessary, convenient or incidental thereto or are specifically authorized in the Declaration. The rights of the holders of the trust securities, including economic rights, rights to information and voting rights, are as set forth in the Declaration, the Delaware Business Trust Act and the Trust Indenture Act. In the Declaration, Litchfield has agreed to pay for all debts and obligations (other than with respect to the trust securities) and all costs and expenses of the trust, including the fees and expenses of the trustees and any taxes to which the trust may become subject, except for United States withholding taxes, and all related costs and expenses. DESCRIPTION OF THE PREFERRED SECURITIES The preferred securities will be issued under the terms of the Declaration, which is qualified under the Trust Indenture Act. The Property Trustee, but not the other trustees of the trust, will act as the indenture trustee under the Declaration for purposes of the Trust Indenture Act. The terms of the preferred securities and the Declaration include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act and the Delaware Business Trust Act. The following summarizes the material terms and provisions of the preferred securities and is qualified in its entirety by reference to the Declaration, the Delaware Business Trust Act and the Trust Indenture Act. GENERAL The Declaration authorizes the trust to issue the preferred securities, which represent preferred undivided beneficial interests in the assets of the trust, and the common securities, which represent common undivided beneficial interests in the assets of the trust. All of the common securities will be owned, directly or indirectly, by Litchfield. The common securities and the preferred securities rank pari passu with each other and will have equivalent terms except that (i) if a Declaration Event of Default (as hereinafter defined) occurs and is continuing, the rights of the holders of the common securities to payment in respect of periodic distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the preferred securities and (ii) holders of common S-34 36 securities will have the exclusive right to appoint, remove or replace the trustees and to increase or decrease the number of trustees. The declaration does not permit: - the issuance by the trust of any securities or other evidences of beneficial ownership of, or beneficial interests in, the trust other than the preferred securities and the common securities; - the incurrence of any indebtedness for borrowed money by the trust; or - the making of any investment other than in the junior subordinated debentures. Pursuant to the Declaration, the Property Trustee will own and hold the junior subordinated debentures as trust assets for the benefit of the holders of the preferred securities and the common securities. The payment of distributions out of moneys held by the Property Trustee and payments on redemption of the preferred securities or liquidation of the trust are guaranteed by Litchfield on a subordinated basis as and to the extent described in this prospectus supplement under "Description of the Preferred Securities Guarantee" and in the accompanying prospectus under "Description of the Preferred Securities Guarantees." The Property Trustee will hold the preferred securities guarantee for the benefit of holders of the preferred securities. The preferred securities guarantee is a full and unconditional guarantee from the time of issuance of the preferred securities, but the preferred securities guarantee covers distributions and other payments on the preferred securities only if and to the extent that Litchfield has made a payment to the Property Trustee of interest or principal on the junior subordinated debentures. DISTRIBUTIONS Distributions on the preferred securities will be fixed at an annual rate of % of the $10 liquidation amount of each preferred security. Distributions in arrears for more than one calendar quarter will accumulate additional distributions at the rate per annum of %, to the extent permitted by law compounded quarterly. The term "distributions" as used herein means such periodic cash distributions and any additional distributions unless otherwise stated. The amount of distributions payable for any 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 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 May , 1999, and, except as otherwise described below, will be payable quarterly in arrears on June 30, September 30, December 31 and March 31 of each year, commencing on June 30, 1999, but only if, and to the extent that, interest payments are made on the junior subordinated debentures held by the Property Trustee. OPTION TO DEFER DISTRIBUTIONS As long as it is not in default in the payment of interest on the junior subordinated debentures, Litchfield has the right under the Indenture to defer payments of interest on the junior subordinated debentures by extending the interest payment period at any time and from time to time on the junior subordinated debentures for a period not exceeding 20 consecutive quarterly interest periods. During any Extension Period (as hereinafter defined) no interest will be due and payable on the junior subordinated debentures. As a consequence, distributions will 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 junior subordinated debentures) at the rate of % per annum, compounded quarterly during any such Extension Period; provided that no such Extension Period may extend beyond the stated maturity of the junior subordinated debentures. For a description of capital stock dividends and other restrictions that will be placed upon Litchfield during an Extension Period, see "Description of the Junior Subordinated Debentures -- Option to Extend Interest Payment Period." S-35 37 Prior to the termination of any Extension Period, Litchfield may further extend it; 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 may commence a new Extension Period, subject to the above requirements. Litchfield may also prepay at any time all or any portion of the interest accrued during an Extension Period. Consequently, there could be multiple Extension Periods of varying lengths throughout the term of the junior subordinated debentures, not to exceed 20 consecutive quarters or to cause any extension beyond the maturity of the junior subordinated debentures. See "Risk Factors -- Litchfield's ability to defer interest payments on the junior subordinated debentures has tax consequences for you and may affect the market price of the preferred securities," "Description of the Junior Subordinated Debentures -- Interest" and "-- Option to Extend Interest Payment Period" in this prospectus supplement. 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 an Extension Period. PAYMENT OF DISTRIBUTIONS Distributions on the preferred securities will be paid on the dates payable to the extent that the Property Trustee has cash on hand in a segregated non-interest bearing banking account (the "Property Account") to permit such payment. The funds available for distribution to the holders of the preferred securities will be limited to payments received by the Property Trustee for the junior subordinated debentures. If Litchfield does not make interest payments on the junior subordinated debentures, the Property Trustee will not make distributions on the preferred securities. Under the Declaration, if and to the extent Litchfield does make interest payments on the junior subordinated debentures deposited in the trust as trust assets, the Property Trustee is obligated to make distributions on the trust securities on a pro rata basis. The payment of distributions on the preferred securities is guaranteed by Litchfield on a subordinated basis as and to the extent described in this prospectus supplement under "Description of the Preferred Securities Guarantee" and in the accompanying prospectus under "Description of the Preferred Securities Guarantees." The preferred securities guarantee is a full and unconditional guarantee from the time of issuance of the preferred securities, but the preferred securities guarantee covers distributions and other payments on the preferred securities only if and to the extent that Litchfield has made a payment to the Property Trustee of interest or principal on the junior subordinated debentures. METHOD OF PAYMENT OF DISTRIBUTIONS Distributions on the preferred securities will be made to the holders of the securities as they appear on the books and records of the trust on the relevant record dates, which, as long as the preferred securities remain in book-entry form, will be one business day prior to the relevant distribution payment date. Distributions payable on any preferred securities that are not punctually paid on any distribution payment date as a result of Litchfield's failure to make the corresponding interest payment on the junior subordinated 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 will not be considered payable on any distribution payment date falling within an Extension Period unless Litchfield has elected to make a full or partial payment of interest accrued on the junior subordinated debentures on the distribution payment date. Distributions on the preferred securities will be paid through the Property Trustee who will hold amounts received in respect of the junior subordinated debentures in the Property Account for the benefit of the holders of the preferred securities and the common securities. Subject to any applicable laws and regulations and the provisions of the Declaration, each payment will be made as described under "--Book-Entry Only Issuance--The Depository Trust Company" below. If the preferred securities do not continue to remain in book-entry form, the relevant record dates will be the fifteenth day of the month prior to the relevant distribution payment date. The Declaration provides that the payment S-36 38 dates or record dates for the preferred securities will be the same as the payment dates and record dates for the junior subordinated debentures. All distributions paid on the trust securities will be paid on a pro rata basis to the entitled holders thereof. If any date on which distributions are to be made is not a Business Day, then payment of the distribution to be made on that 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 that business day is in the next succeeding calendar year, the 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 the payment was originally payable. "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, New York or Boston, Massachusetts are authorized or required by law to close. SPECIAL EVENT REDEMPTION If a tax event or an investment company event (each, a "Special Event") has occurred and is continuing, Litchfield will have the right to redeem the junior subordinated debentures, in whole but not in part, and therefore cause a mandatory redemption of the trust securities, in whole but not in part, at the Redemption Price, the liquidation amount plus accumulated and unpaid distributions, within 90 days following the occurrence of the Special Event. "Tax Event" means that Litchfield and the Regular Trustees have received an opinion of counsel experienced in these matters to the effect that on or after the date of this prospectus supplement as a result of: - 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; - any amendment to, or change in, an interpretation or application of any 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; - any interpretation or pronouncement by any legislative body, court, governmental agency or regulatory authority that provides for a position with respect to these laws or regulations that differs from the theretofore generally accepted position; or - 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 the date of this prospectus supplement, there is more than an insubstantial risk that: - 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 junior subordinated debentures; - 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 - interest payable by Litchfield to the trust on the junior subordinated debentures is not, or within 90 days of the date thereof will not be, deductible by Litchfield for United States federal income tax purposes. "Investment Company Event" means that Litchfield and the Regular Trustees shall have received an opinion of counsel experienced in practice under the Investment Company Act of 1940, as amended, 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, 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 Investment Company Act law becomes effective on or after the date of this prospectus supplement. S-37 39 DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES At any time, Litchfield, as the holder of the common securities, may, in its sole discretion, dissolve the trust and, after satisfaction of liabilities to creditors of the trust as provided by applicable law, cause the junior subordinated debentures to be distributed to the holders of the trust securities. If junior subordinated debentures are distributed to the holders of the trust securities upon the dissolution and liquidation of the trust, the junior subordinated debentures will be issued in denominations of $10 and integral multiples of $10. If distributed to holders of the trust securities, it is anticipated that the junior subordinated debentures would be distributed in the form of one or more global securities and DTC, or any successor depositary for the preferred securities, would act as depositary for the junior subordinated debentures. The depositary arrangements for the junior subordinated debentures would be substantially similar to those in effect for the preferred securities. None of Litchfield, the indenture trustee, any paying agent or any other agent of Litchfield or the indenture trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global security for such junior subordinated debentures or for maintaining, supervising or reviewing any records relating to these beneficial ownership interests. For a description of the depository and the terms of the depository arrangements relating to payments, transfers, voting rights, redemption and other notices and other matters relating to the junior subordinated debentures, see "Description of the Junior Subordinated Debentures--Book-Entry and Settlement." On the date fixed for any distribution of junior subordinated debentures, upon dissolution of the trust, (i) the preferred securities, the preferred securities guarantee and the common securities will no longer be deemed to be outstanding and (ii) any certificates representing preferred securities will be deemed to represent beneficial interests in the junior subordinated debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, and bearing accrued and unpaid interest equal to accumulated and unpaid distributions on, the preferred securities, until certificates are presented to Litchfield or its agent for transfer or reissuance. Litchfield cannot assure you about the market price for the junior subordinated debentures which may be distributed in exchange for preferred securities if a dissolution and liquidation of the trust occurs. Accordingly, the junior subordinated debentures which a holder of preferred securities may subsequently receive on dissolution and liquidation of the trust, may trade at a discount to the price of the preferred securities exchanged. If the junior subordinated debentures are distributed to the holders of preferred securities upon the dissolution of the trust, Litchfield will use its best efforts to list the junior subordinated debentures on the Nasdaq National Market or on another exchange or automated quotation system on which the preferred securities are then listed. MANDATORY REDEMPTION Upon the repayment of the junior subordinated debentures, in whole or in part, whether at maturity, upon redemption or otherwise, the proceeds from the repayment will be promptly applied to redeem on a pro rata basis preferred securities and common securities having an aggregate liquidation amount equal to the aggregate principal amount of the junior subordinated debentures so repaid or redeemed, upon not less than 30 nor more than 60 days' notice, at the Redemption Price. The common securities will be entitled to be redeemed on a pro rata basis with the preferred securities, except that if an Event of Default under the Declaration has occurred and is continuing, the preferred securities will have a priority over the common securities with respect to payment of the Redemption Price. Subject to the foregoing, if fewer than all outstanding preferred securities and common securities are to be redeemed, the preferred securities and common securities will be redeemed on a pro rata basis. S-38 40 REDEMPTION PROCEDURES The trust may not redeem fewer than all outstanding preferred securities unless all accumulated and unpaid Distributions have been paid on all preferred securities for all quarterly Distribution periods terminating on or before the date of redemption. If the trust gives a notice of redemption for preferred securities, which notice will be irrevocable, then, while the preferred securities are still in book-entry only form, by 10:00 a.m., New York City time, on the Redemption Date and provided that Litchfield has paid to the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the junior subordinated debentures, the Property Trustee will irrevocably deposit with the depositary funds sufficient to pay the applicable Redemption Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of the preferred securities. See "--Book-Entry Only Issuance--The Depository Trust Company." If notice of redemption is given and funds deposited as required, then, immediately prior to the close of business on the Redemption Date, Distributions will cease to accumulate on the preferred securities called for redemption, the preferred securities will no longer be deemed to be outstanding and all rights of holders of the preferred securities so called for redemption will cease, except the right of the holders of the preferred securities to receive the Redemption Price, but without interest on the 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 date fixed for redemption of preferred securities is not a Business Day, then payment of the Redemption Price payable on that 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 the Business Day falls in the next calendar year, that payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on that date fixed for redemption. If payment of the Redemption Price in respect of preferred securities is improperly withheld or refused and not paid by the Property Trustee or by Litchfield pursuant to the preferred securities guarantee, Distributions on such preferred securities will continue to accumulate, from the original redemption date of the preferred securities 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. In the event that fewer than all of the outstanding preferred securities are to be redeemed, the preferred securities will be redeemed as described below under "--Book-Entry Only Issuance--The Depository Trust Company." If a partial redemption of the preferred securities 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 will redeem junior subordinated debentures only in whole and, as a result, under these circumstances the trust may redeem the preferred securities only in whole. Subject to the foregoing and applicable law, including, without limitation, United States federal securities laws, Litchfield or any of its subsidiaries may at any time purchase outstanding preferred securities by tender, in the open market or by private agreement. LIQUIDATION DISTRIBUTION UPON DISSOLUTION Holders of the preferred securities and the common securities at the date of any voluntary or involuntary dissolution, winding-up or termination of the trust, as the case may be, are entitled to receive an amount equal to the aggregate of the stated liquidation amount of $10 per trust security plus accumulated and unpaid Distributions thereon to the date of payment. This amount is paid on a pro rata basis 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, unless, in connection with the dissolution, winding-up or termination, and after satisfaction of liabilities to the creditors of the trust, junior subordinated debentures, in an aggregate principal amount equal to the aggregate stated liquidation amount of such trust securities and bearing accrued and unpaid interest in an amount equal to S-39 41 the accumulated and unpaid Distributions on such trust securities, shall be distributed on a pro rata basis to the holders of the preferred securities and the common securities in exchange therefor. If, upon any such dissolution, winding-up or termination, 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 on a pro rata basis. The holders of the common securities will be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination on a pro rata basis with the holders of the preferred securities, except that if an Event of Default under the Declaration has occurred and is continuing, the preferred securities shall have a priority over the common securities with respect to the payment of the Liquidation Distribution. Pursuant to the Declaration, the trust will dissolve: - on June 30, 2029, the expiration of the term of the trust; - when all of the trust securities have been called for redemption and the amounts necessary for redemption thereof have been paid to the holders of trust securities in accordance with the terms of the trust securities; - when all of the junior subordinated debentures have been distributed to the holders of trust securities in exchange for all of the trust securities in accordance with the terms of the trust securities; or - upon a decree of judicial dissolution. MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST The trust may not consolidate, convert into, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any corporation or other body, except as described below, or as described in "Liquidation Distribution Upon Dissolution." The trust may, at the request of Litchfield, with the consent of the Regular Trustees and without the consent of the holders of the trust securities, the Delaware Trustee or the Property Trustee, consolidate, convert into, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, a trust organized as such under the laws of any State; provided, that such successor entity either: - expressly assumes all of the obligations of the trust under the trust securities and the Declaration; or - substitutes for the trust securities other securities having substantially the same terms as the trust securities (the "Successor Securities"), so long as the Successor Securities rank the same as the trust securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; and - Litchfield expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the junior subordinated debentures; - the preferred securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or with another organization on which the preferred securities are then listed or quoted; - such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the trust securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity); - such successor entity has purposes substantially identical to those of the trust; S-40 42 - prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, Litchfield has received an opinion of counsel experienced in such matters to the effect that: - such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the trust securities (including any Successor Securities) in any material respect (other than with respect to any dilution of the holders' interest in the new entity); - following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the trust nor such successor entity will be required to register as an investment company under the Investment Company Act; - following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the trust or such successor entity will continue to be classified as a grantor trust for United States federal income tax purposes; - Litchfield or any other 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 securities guarantee; and - there shall have been furnished to the Property Trustee an officers' certificate and an opinion of counsel relating to the satisfaction of all conditions precedent in the Declaration. Notwithstanding the foregoing, the trust will not, except with the consent of holders of 100% in liquidation amount of the trust 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 entity or permit any other entity 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 to be classified as other than a grantor trust for United States federal income tax purposes or would cause the holders of the trust securities not to be treated as owning an undivided interest in the junior subordinated debentures. DECLARATION EVENTS OF DEFAULT An Indenture Event of Default will constitute an event of default under the Declaration with respect to the trust securities (a "Declaration Event of Default"); provided that pursuant to the Declaration, the holder of the common securities will be deemed to have waived any such Declaration Event of Default with respect to the common securities until all Declaration Events of Default with respect to the preferred securities have been cured, waived or otherwise eliminated. Until all such Declaration Events of Default with respect to the preferred securities 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 with respect to certain matters under the Declaration and consequently under the Indenture. In the event that any Declaration Event of Default with respect to the preferred securities is waived by the holders of the preferred securities as provided in the Declaration, the holders of common securities pursuant to the Declaration have agreed that such waiver also constitutes a waiver of such Declaration 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. Upon the occurrence of a Declaration Event of Default, the Property Trustee, subject to the limitations described below under "--Voting Rights," as the holder of all of the junior subordinated debentures will have the right under the Indenture to declare the principal of and interest on the Junior Subordinated Debentures to be immediately due and payable. In addition, the Property Trustee will, subject to the limitations described below under "--Voting Rights," have the right to direct the time, method and place of conducting any proceeding for any remedy available to the indenture trustee. S-41 43 VOTING RIGHTS Except as provided below, under "--Modification and Amendment of the Declaration" and "Description of the Preferred Securities Guarantees-- Amendments and Assignment" in the accompanying prospectus and as otherwise required by the Delaware Business Trust Act, the Trust Indenture Act and the Declaration, the holders of the preferred securities will have no voting rights. So long as any junior subordinated debentures are held by the Property Trustee, the trustees will not: - direct the time, method and place of conducting any proceeding for any remedy available to the indenture trustee or exercising any trust or power conferred on the indenture trustee with respect to the junior subordinated debentures; - waive any past default that is waivable under Section 6.06 of the Indenture; or - exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of the junior subordinated 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 a later vote of the holders. The Property Trustee will notify each holder of preferred securities of any notice of default with respect to the junior subordinated debentures. In addition to obtaining the foregoing approvals of the holders of the preferred securities and common securities, prior to taking any of the foregoing actions, the trustees will obtain an opinion of counsel experienced in these 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 a Declaration 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 junior subordinated debentures. If the Property Trustee fails to enforce its rights under the junior subordinated debentures, a holder of preferred securities, to the extent permitted by applicable law, may, after a period of 30 days has elapsed from the holder's written request to the Property Trustee to enforce these rights, institute a legal proceeding directly against Litchfield to enforce the Property Trustee's rights under the junior subordinated debentures without first instituting any legal proceeding against the Property Trustee or any other person or entity. Further, if a Declaration Event of Default has occurred and is continuing and the event is attributed to the failure of Litchfield to pay interest or principal on the junior subordinated debentures on the date the 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 to enforce the payment to the holder of the principal of or interest on the junior subordinated debentures having a principal amount equal to the aggregate liquidation amount of the preferred securities of the holder on or after the respective due date specified in the junior subordinated debentures. In connection with such Direct Action, Litchfield will be subrogated to the rights of the holder of preferred securities to the extent of any payment made by Litchfield to the holders of preferred securities in such 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 junior subordinated debentures. See "The Trusts--The Property Trustee" in the accompanying prospectus. A waiver of an Indenture Event of Default by the Property Trustee at the direction of holders of the preferred securities will constitute a waiver of the corresponding Declaration Event of Default in respect of the trust securities. In the event the consent of the Property Trustee as the holder of the junior subordinated debentures is required under the Indenture for any amendment, modification or termination of the Indenture or the S-42 44 junior subordinated debentures, the Property Trustee will request the written direction of the holders of the trust securities with respect to the amendment, modification or termination and shall vote with respect to the amendment, modification or termination as directed by a majority in liquidation amount of the trust securities voting together as a single class. If any amendment, modification or termination under the Indenture would require the consent or vote of holders of junior subordinated debentures representing a specified percentage greater than a majority in principal amount of the junior subordinated debentures, the Property Trustee may only vote with respect to that amendment, modification or termination as directed by the vote of holders of trust securities representing such specified percentage of the aggregate liquidation amount of the trust securities. The Property Trustee will be under no obligation to take any action in accordance with the directions of the holders of the trust securities unless the Property Trustee has received an opinion of counsel experienced in these matters that the trust will not be classified for United States federal income tax purposes as other than a grantor trust on account of this action. Any required approval or direction of holders of preferred securities may be given at a separate meeting of holders of preferred securities convened for that purpose, at a meeting of all of the holders of trust 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 notice will include a statement setting forth: - the date of the meeting; - a description of any resolution proposed for adoption at the meeting on which the holders are entitled to vote; and - 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 junior subordinated 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 that are owned by Litchfield or by any affiliate of Litchfield will not be entitled to vote or consent and shall, for purposes of the vote or consent, be treated as if they were not outstanding. The procedures by which persons owning preferred securities registered in the name of and held by DTC or its nominee may exercise their voting rights are described under "--Book-Entry Only Issuance--The Depository Trust Company" below. Holders of preferred securities will have no rights to increase or decrease the number of trustees or to appoint, remove or replace a trustee, which rights are held exclusively by the holders of the common securities. MODIFICATION AND AMENDMENT OF THE DECLARATION The Declaration may be modified and amended if approved by a majority of the Regular Trustees, provided, that if any proposed modification or amendment provides for, or the Regular Trustees otherwise propose to effect: - any action that would adversely affect the powers, preferences or special rights of the trust securities, whether by amendment to the Declaration, other than as described below, or otherwise; or - the dissolution, winding-up or termination of the trust other than under the terms of the Declaration; then the holders of the outstanding trust securities as a single class will be entitled to vote on the amendment or proposal, and the amendment or proposal will not be effective except with the approval of at least a majority in liquidation amount of the trust securities. If any amendment or proposal referred to above would adversely affect only the preferred securities or the common securities, then only the affected S-43 45 class of trust securities will be entitled to vote on the amendment or proposal and the amendment or proposal shall not be effective except with the approval of a majority in liquidation amount of such class of trust securities. Notwithstanding the foregoing, no amendment or modification may be made to the Declaration: - unless the Regular Trustees shall have first received - an officers' certificate from Litchfield that the amendment is permitted by, and conforms to, the terms of the Declaration and - an opinion of counsel the amendment is permitted by, and conforms to, the terms of the Declaration and that all conditions precedent, if any, in the Declaration to execute and deliver the amendment have been satisfied; and - to the extent the result of the amendment would be to - cause the trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust, - reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act or - cause the trust to be deemed to be an "investment company" required to be registered under the Investment Company Act. Specified provisions of the Declaration may not be amended without the consent of all of the holders of the trust securities. No amendment which adversely affects the rights, powers and privileges of the Property Trustee or the Delaware Trustee may be made without the consent of the Property Trustee or Delaware Trustee, respectively. Article IV of the Declaration relating to the obligation of Litchfield to purchase the common securities and to pay some obligations and expenses of the trust as described under "The Trusts" in the accompanying prospectus may not be amended without the consent of Litchfield. The rights of holders of common securities under Article V 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. The Declaration further provides that it may be amended without the consent of the holders of the trust securities to: - cure any ambiguity; - correct or supplement any provision in the Declaration that may be defective or inconsistent with any other provision of the Declaration; - add to the covenants, restrictions or obligations of Litchfield; - conform to changes in, or a change in interpretation or application of certain Investment Company Act regulations by the Securities and Exchange Commission; - make any other provisions with respect to matters or questions arising under the Declaration which shall not be inconsistent with the other provisions of the Declaration; - modify, eliminate or add to any provisions of the Declaration to the extent 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 trust 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 - 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 of the trust securities. S-44 46 Book-Entry Only Issuance--The Depository Trust Company The Depository Trust Company ("DTC") will act as securities depositary for the preferred securities. The preferred securities will be issued only as fully registered securities registered in the name of DTC or its nominee. One or more fully-registered global preferred securities certificates, representing the total aggregate number of preferred securities, will be issued and will be deposited with DTC or pursuant to DTC's instructions. The laws of some jurisdictions require that some purchasers of securities take physical delivery of securities in definitive form. These laws may impair the ability to transfer beneficial interests in a global preferred security. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly. Direct Participants and Indirect Participants are collectively referred to herein as "Participants." The rules applicable to DTC and its Participants are on file with the SEC. When a Preferred Securities Global Certificate is issued, DTC will credit on its book-entry registration and transfer system the number of Preferred Securities represented by such Preferred Securities Global Certificate to the accounts of institutions that have accounts with DTC. Ownership of beneficial interests in a Preferred Securities Global Certificate will be limited to Participants or persons that may hold interests through Participants. The ownership interest of each actual purchaser of each preferred security is recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners will receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased preferred securities. Entries are made on the books of Participants acting on behalf of Beneficial Owners to show transfers of ownership interests. Beneficial Owners will not receive certificates representing their ownership interests in the preferred securities, except in the event that use of the book-entry system for the preferred securities is discontinued. DTC has no knowledge of the actual Beneficial Owners of the preferred securities, DTC's records reflect only the identity of the Direct Participants to whose accounts such preferred securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. So long as DTC, or its nominee, is the owner of a Preferred Securities Global Certificate, DTC or such nominee, as the case may be, will be considered the sole owner and holder of record of the preferred securities represented by such Preferred Securities Global Certificate for all purposes. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect. S-45 47 While DTC is acting as the securities depository for the preferred securities, redemption notices will be sent by Litchfield and the trust directly to DTC. DTC will then inform the Direct Participants, who will then contact the Beneficial Owners. If less than all of the preferred securities are being redeemed, DTC's practice is to determine by lot the interest of each Direct Participant to be redeemed. Although voting with respect to the preferred securities is limited, in those instances in which a vote is required, neither DTC nor Cede & Co. will consent or vote with respect to preferred securities. Under its usual procedures, DTC would mail an Omnibus Proxy to the trust as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the preferred securities are credited on the record date, identified in a listing attached to the Omnibus Proxy. Distribution payments on the preferred securities represented by a Preferred Series Global Certificate will be made by the Property Trustee to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participants and not of DTC, the trust or Litchfield, subject to any statutory or regulatory requirements as may be in effect at times. Payment of Distributions to DTC is the responsibility of the trust, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. Except as provided in this prospectus supplement, a Beneficial Owner will not be entitled to receive physical delivery of preferred securities. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the preferred securities. DTC may discontinue providing its services as securities depository with respect to the preferred securities at any time by giving reasonable notice to the trust. Under those circumstances, if a successor securities depository is not obtained, preferred securities certificates will be required to be printed and delivered. Additionally, the trust may decide to discontinue use of the system of book-entry transfers through DTC, or a successor depository. In that event, certificates for the preferred securities will be printed and delivered. Under the Declaration, payments made by the trust to DTC or its nominee will satisfy the trust's obligations under the Declaration, to the extent of the payments so made. Beneficial Owners will not be, and will not be considered by the trust to be, and will not have any rights as, owners of preferred securities under the Declaration. The trust, Litchfield and the trustees will have no responsibility or obligation to any Direct Participant, Indirect Participant or any Beneficial Owner or any other person not shown on the registration books of the trust as being a registered owner with respect to: (1) the accuracy of any records maintained by DTC or any Direct Participant or Indirect Participant, (2) the payment of any amount due by DTC to any Direct Participant or by any Direct Participant or Indirect Participant to any Beneficial Owner in respect of Distributions, (3) the delivery of any notice by DTC to any Direct Participant or by any Direct Participant or Indirect Participant to any Beneficial Owner that is required or permitted to be given to registered owners under the terms of the Declaration, (4) the selection of the Beneficial Owners to receive payment in the event of any practical redemption of the preferred securities or (5) any consent given or other action taken by DTC as a registered owner. The trustee and the trust, so long as a book-entry only system is used for the preferred securities, will send any notice of redemption or of proposed document amendments requiring consent of registered owners and any other notices required by the document to be sent to registered owners only to DTC, or any successor securities depository, or its nominee. Any failure of DTC to advise any Direct Participant, or of any Direct Participant or Indirect Participant to notify the Beneficial Owner, of any notice and its S-46 48 content or effect will not affect the validity of the redemption of the preferred securities called for redemption, the document amendment or any other action premised on that notice. The trust, Litchfield and the trustees cannot and do not assure that DTC will distribute Distributions and other payments on the preferred securities made to DTC or its nominee as the registered owner or any redemption or other notices to the Participants, or that the Participants or others will distribute the payments or notices to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will serve and act in the manner described in this prospectus supplement. Beneficial Owners should make appropriate arrangements with their broker or dealer regarding distribution of information regarding the preferred securities that may be transmitted by or through DTC. The foregoing information concerning DTC and DTC's book-entry system is based upon information obtained from DTC and contains statements that are believed to describe accurately DTC, the method of effecting book-entry transfers of securities distributed through DTC and related matters. Neither the trust nor Litchfield take any responsibility for the accuracy of these statements. Registrar, Transfer Agent and Paying Agent If the preferred securities do not remain in book-entry only form, the following provisions will apply. 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 New York, New York. 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 to the payments and the payment on redemption of any preferred security will be made only upon surrender of the preferred security to the Property Trustee. The Bank of New York or one of its affiliates will act as registrar and transfer agent for the preferred securities. The Bank of New York will also act as paying agent and, with the consent of the Regular Trustees, may designate additional paying agents. Registration of transfers of preferred securities will be effected without charge by or on behalf of the trust but only upon payment, with the giving of such indemnity as the Regular Trustees may require of, any tax or other governmental charges that may be imposed in relation to it. The trust will not be required to register or cause to be registered the transfer of preferred securities after such preferred securities have been called for redemption. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, prior to the occurrence of a Declaration Event of Default and after the curing of all Declaration Events of Default that may have occurred, will undertake to perform only the duties that are specifically set forth in the Declaration and, after the occurrence of a Declaration Event of Default, that has not been cured or waived, shall exercise the rights and powers vested in it by the Declaration and use the same degree of care and skill in their exercise, as a prudent individual would exercise or use under the circumstances in the conduct of his or her own affairs. The Property Trustee is under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of preferred securities, unless offered reasonable security and indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Property Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Property Trustee has reasonable grounds for believing that the repayment of such funds or liability or adequate indemnity against such risk or liability is not reasonably assured to it. Litchfield and its subsidiaries maintain commercial banking and trust relationships with the Property Trustee and its affiliates. S-47 49 Governing Law The Declaration and the preferred securities will be governed by, and construed in accordance with, the laws of the State of Delaware. Miscellaneous The Regular Trustees are authorized and directed to take such action as they determine in their discretion to be necessary or desirable in carrying out the purposes of the trust, including, but not limited to: - causing the trust not to be deemed to be an "investment company" required to be registered under the Investment Company Act; - causing the trust to be classified for United States federal income tax purposes as a grantor trust; and - cooperating with Litchfield to ensure that the junior subordinated debentures will be treated as indebtedness of Litchfield for United States federal income tax purposes. In this connection, the Regular Trustees are authorized to take any action not inconsistent with applicable law, the certificate of trust or the Declaration that the Regular Trustees determine in their discretion to be reasonable and necessary or desirable for such purposes. Litchfield and the Regular Trustees on behalf of the trust will be required to provide to the Property Trustee annually a certificate as to whether or not Litchfield and the trust, respectively, are in compliance with all the conditions and covenants under the Declaration. DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE Pursuant to the preferred securities guarantee, Litchfield will irrevocably and unconditionally agree, to the extent set forth therein, to pay in full to the holders of the preferred securities, the Guarantee Payments (as defined in the accompanying prospectus) (without duplication of amounts theretofore paid by the trust) as and when due, regardless of any defense, right of set-off or counterclaim which the trust may have or assert. Litchfield's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Litchfield to the holders of preferred securities or by causing the trust to pay such amounts to such holders. The preferred securities guarantee will be qualified as an indenture under the Trust Indenture Act. The Bank of New York will act as indenture trustee under the preferred securities guarantee (the "Guarantee Trustee"). The terms of the preferred securities guarantee will be those set forth in such preferred securities guarantee and those made part of such preferred securities guarantee by the Trust Indenture Act. The preferred securities guarantee will be held by the Guarantee Trustee for the benefit of the holders of the preferred securities. A summary description of the preferred securities guarantee appears in the accompanying prospectus under the caption "Description of the Preferred Securities Guarantees." DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES Set forth below is a description of the junior subordinated debentures in which the trust will invest the proceeds from the issuance and sale of the trust securities and which will be deposited in the trust as trust assets. The terms of the junior subordinated debentures include those stated in the Junior Subordinated Indenture dated as of May , 1999 between Litchfield and The Bank of New York, as trustee (the "Indenture Trustee"), as supplemented by Supplemental Indenture No. 1 dated as of May , 1999 between Litchfield and the Indenture Trustee (as so supplemented, the "Indenture") and those made part of the Indenture by the Trust Indenture Act. This description supplements the description of the general terms and provisions of the junior subordinated debentures set forth in the accompanying prospectus under the caption "Description of the Junior Subordinated Debt Securities." The following S-48 50 description does not purport to be complete and is qualified in its entirety by reference to the Indenture and the Trust Indenture Act. Whenever particular provisions or defined terms in the Indenture are referred to herein, such provisions or defined terms are incorporated by reference herein. The Indenture does not limit the aggregate principal amount of indebtedness which may be issued thereunder and provides that junior subordinated debentures may be issued thereunder from time to time in one or more series. The junior subordinated debentures constitute a separate series under the Indenture. Under certain circumstances involving the dissolution of the trust, junior subordinated debentures may be distributed to the holders of the trust securities in liquidation of the trust. See "Description of the Preferred Securities--Distribution of the Junior Subordinated Debentures." GENERAL The junior subordinated debentures are unsecured, subordinated obligations of Litchfield, limited in aggregate principal amount to an amount equal to the sum of: - the stated liquidation amount of the preferred securities issued by the trust; and - the proceeds received by the trust upon issuance of the common securities to Litchfield (which proceeds will be used to purchase an equivalent principal amount of junior subordinated debentures). The entire principal amount of the junior subordinated debentures will become due and payable, together with any accrued and unpaid interest thereon, on June 30, 2029, unless such maturity date is shortened by Litchfield as described herein under "--Litchfield's Right to Shorten Maturity." The junior subordinated debentures are not subject to any sinking fund. If junior subordinated debentures are distributed to holders of preferred securities upon the dissolution of the trust, such junior subordinated debentures will initially be issued as a Global Security (as defined below). As described herein, under certain limited circumstances, junior subordinated debentures may be issued in certificated form in exchange for a Global Security. See "--Book-Entry and Settlement" below. In the event that junior subordinated debentures are issued in certificated form, such junior subordinated debentures will be in denominations of $10 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on junior subordinated debentures issued as a Global Security will be made to DTC, a successor depositary, or in the event that no depositary is used, to a paying agent for the junior subordinated debentures. In the event that junior subordinated debentures are issued in certificated form, payments of principal and interest will be payable, the transfer of the junior subordinated debentures will be registrable, and junior subordinated debentures will be exchangeable for junior subordinated debentures of other denominations of a like aggregate principal amount at the corporate trust office of the Indenture Trustee in New York, New York; provided that payment of interest may be made at the option of Litchfield by check mailed to the address of the persons entitled thereto and that the payment of principal with respect to any Junior Subordinated Debenture will be made only upon surrender of such Junior Subordinated Debenture to the Indenture Trustee. OPTIONAL REDEMPTION Except as provided below, the junior subordinated debentures may not be redeemed prior to June 30, 2004. Litchfield shall have the right to redeem the junior subordinated debentures, in whole or in part, from time to time, on or after June 30, 2004, upon not less than 30 nor more than 60 days' notice, at 100% of the principal amount of the junior subordinated debentures together with accrued and unpaid interest, including Compounded Interest (as hereinafter defined) to, but excluding, the redemption date. If the junior subordinated debentures are redeemed on any Interest Payment Date (as defined below), accrued and unpaid interest shall be payable to holders of record on the relevant record date. S-49 51 So long as the trust securities are outstanding, the proceeds from the redemption of any junior subordinated debentures will be used to redeem trust securities. Litchfield will also have the right to redeem the junior subordinated debentures, in whole but not in part, within 90 days following the occurrence of a Special Event as described under "Description of the Preferred Securities--Special Event Redemption." Litchfield may not redeem any junior subordinated debentures unless all accrued and unpaid interest thereon, including Compounded Interest, if any, has been paid for all quarterly periods terminating on or prior to the date of notice of redemption. If Litchfield gives a notice of redemption in respect of junior subordinated debentures (which notice will be irrevocable), then by 10:00 a.m., New York City time, on the redemption date, Litchfield will deposit irrevocably with the Indenture Trustee funds sufficient to pay the applicable Redemption Price and will give irrevocable instructions and authority to pay such Redemption Price to the holders of the junior subordinated debentures. If notice of redemption shall have been given and funds deposited as required, then immediately prior to the close of business on the redemption date interest will cease to accrue on the junior subordinated debentures called for redemption, such junior subordinated debentures will no longer be deemed to be outstanding and all rights of holders of such junior subordinated debentures so called for redemption will cease, except the right of the holders of such junior subordinated debentures to receive the applicable Redemption Price but without interest on such Redemption Price. If any date fixed for redemption of junior subordinated debentures 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 Litchfield fails to repay the junior subordinated debentures on maturity or the date fixed for redemption or if payment of the Redemption Price in respect of junior subordinated debentures is improperly withheld or refused and not paid by Litchfield, interest on such junior subordinated debentures will continue to accrue 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 applicable Redemption Price. If fewer than all of the junior subordinated debentures are to be redeemed, the junior subordinated debentures will be redeemed pro rata or by lot or by any other method utilized by the Indenture Trustee. In the event of any redemption in part, Litchfield will not be required to: - issue, register the transfer of, or exchange any junior subordinated debentures during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of junior subordinated debentures and ending at the close of business on the date of such mailing; and - register the transfer of or exchange any junior subordinated debentures so selected for redemption, in whole or in part, except the unredeemed portion of any junior subordinated debentures being redeemed in part. INTEREST The junior subordinated debentures will bear interest at the rate of % per annum from . Interest will be payable quarterly in arrears June 30, September 30, December 31 and March 31 of each year (each, an "Interest Payment Date"), commencing on June 30, 1999, to the person in whose name such junior subordinated debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. In the event (i) the preferred securities shall not continue to remain in book-entry only form or (ii) if following distribution of the junior subordinated debentures to holders of trust securities upon dissolution of the trust as described under "Description of the Preferred Securities--Distribution of the Junior Subordinated Debentures," the junior subordinated debentures shall not continue to remain in book-entry only form, the relevant record date will be the fifteenth day of the month in which the relevant Interest Payment Date occurs. Interest payable on S-50 52 any Junior Subordinated Debenture that is not punctually paid or duly provided for on any Interest Payment Date will forthwith cease to be payable to the person in whose name such Junior Subordinated Debenture is registered on the relevant record date, and such defaulted interest will instead be payable to the person in whose name such junior subordinated debenture is registered on the special record date or other specified date determined in accordance with the Indenture; provided, however, that interest shall not be considered payable by Litchfield on any Interest Payment Date falling within an Extension Period unless Litchfield has elected to make a full or partial payment of interest accrued on the junior subordinated debentures on such Interest Payment Date. 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 will be computed on the basis of the actual number of days elapsed per 90-day quarter. If any date on which interest is payable on the junior subordinated debentures is not a Business Day, then payment of the interest 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. OPTION TO EXTEND INTEREST PAYMENT PERIOD So long as Litchfield is not in default in the payment of interest on the junior subordinated debentures, Litchfield will have the right to defer payments of interest on the junior subordinated debentures by extending the interest payment period at any time from time to time for an extension period not exceeding 20 consecutive quarterly interest periods (each such period, an "Extension Period"). Litchfield has no current intention of exercising its right to extend an interest payment period. No interest will be due and payable on the junior subordinated debentures during an Extension Period, except at the end thereof. During any Extension Period, Litchfield will not: - 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: - dividends or distributions in shares of, or options, warrants, rights to subscribe for or purchase shares of, Litchfield's common stock; - 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; - as a result of a reclassification of Litchfield's capital stock or the exchange or the conversion of one class or series of Litchfield's capital stock for another class or series of Litchfield's capital stock; - the payment of accrued dividends and the purchase of fractional interests in shares of Litchfield's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; - purchases of Litchfield's common stock related to the issuance of Litchfield's common stock or rights under any of Litchfield's benefit plans for its directors, officers, employees, any of Litchfield's dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of Litchfield's affiliates for such affiliates' directors, officers or employees; - make any payment of principal or of interest or premium, if any, on or repay, repurchase or redeem any debt security of Litchfield that, ranks pari passu with or junior in interest to the junior subordinated debentures; or S-51 53 - make any guarantee payments with respect to any guarantee by Litchfield of the debt securities of any subsidiary of Litchfield (other than the preferred securities guarantee) if such guarantee ranks pari passu with or junior in interest to the junior subordinated debentures. Prior to the termination of any such Extension Period, Litchfield 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 or extend beyond the maturity of the junior subordinated debentures. On the Interest Payment Date occurring at the end of each Extension Period, Litchfield will pay to the holders of junior subordinated debentures of record on the record date for such Interest Payment Date (regardless of who the holders of record may have been on other dates during the Extension Period) all accrued and unpaid interest on the junior subordinated debentures, together with interest thereon at the rate specified for the junior subordinated debentures to the extent permitted by applicable law, compounded quarterly ("Compounded Interest"). Upon the termination of any Extension Period and the payment of all amounts then due, Litchfield may commence a new Extension Period, subject to the above requirements. Litchfield may also prepay at any time all or any portion of the interest accrued during an Extension Period. Consequently, there could be multiple Extension Periods of varying lengths throughout the term of the junior subordinated debentures, not to exceed 20 consecutive quarterly interest periods; provided, that no such period may extend beyond the stated maturity of the junior subordinated debentures. The failure by Litchfield to make interest payments during an Extension Period would not constitute a default or an event of default under the Indenture or Litchfield's currently outstanding indebtedness. If the Property Trustee is the sole holder of the junior subordinated debentures, Litchfield will give the Property Trustee notice of its election to begin an Extension Period one Business Day prior to the earlier of: - the next succeeding date on which Distributions on the preferred securities are payable; or - the date the trust is required to give notice to the Nasdaq National Market or other applicable self-regulatory organization or to holders of the preferred securities of the record date or the date such Distribution is payable. The trust will give notice of Litchfield's election to begin such Extension Period to the holders of the preferred securities. If junior subordinated debentures have been distributed to holders of trust securities, Litchfield will give the holders of the junior subordinated debentures notice of its election to begin an Extension Period at least ten Business Days prior to the earlier of: - the next succeeding Interest Payment Date; or - the date Litchfield is required to give notice to the Nasdaq National Market (if the junior subordinated debentures are then listed thereon) or other applicable self-regulatory organization or to holders of the junior subordinated debentures of the record or payment date of such related interest payment. ADDITIONAL INTEREST If at any time the trust shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the U.S. or any other taxing authority, then, in any such case, Litchfield will pay as additional interest ("Additional Interest") on the junior subordinated debentures such additional amounts as shall be required so that the net amounts received and retained by the trust after paying any such taxes, duties, assessments or other governmental charges will be equal to the amounts the trust would have received had no such taxes, duties, assessments or other governmental charges been imposed. S-52 54 COMPOUNDED INTEREST Payments of Compounded Interest on the junior subordinated debentures held by the trust will make funds available to pay additional cash distributions on Distributions in arrears in respect of the preferred securities pursuant to the terms thereof. LITCHFIELD'S RIGHT TO SHORTEN MATURITY If a Tax Event occurs, then Litchfield will have the right (i) prior to the dissolution of the trust, to shorten the stated maturity of the junior subordinated debentures to the minimum extent required, but not earlier than September 30, 2018 or (ii) to direct the Property Trustee to dissolve the trust (if not previously dissolved) and shorten the stated maturity of the junior subordinated debentures to the minimum extent required, but not earlier than September 30, 2018, in each case such that in the opinion of counsel to Litchfield experienced in such matters, after shortening the stated maturity, interest paid on the junior subordinated debentures will be deductible for federal income tax purposes. If Litchfield exercises its right and shortens the stated maturity of the junior subordinated debentures, the trust will redeem all of the outstanding preferred securities when the junior subordinated debentures are paid on their new maturity date. BOOK-ENTRY AND SETTLEMENT If any junior subordinated debentures are distributed to holders of preferred securities (see "Description of the Preferred Securities-- Distribution of the Junior Subordinated Debentures"), such junior subordinated debentures will be issued in the form of one or more global certificates (each a "Global Security") registered in the name of the Depositary or its nominee. Except under the limited circumstances described below, junior subordinated debentures represented by the Global Security will not be exchangeable for, and will not otherwise be issuable as, junior subordinated debentures in definitive form. The Global Securities described above may not be transferred except 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 or to a successor Depositary or its nominee. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such laws may impair the ability to transfer beneficial interests in a Global Security. Except as provided below, owners of beneficial interests in a Global Security will not be entitled to receive physical delivery of junior subordinated debentures in definitive form and will not be considered the holders (as defined in the Indenture) thereof for any purpose under the Indenture, and no Global Security representing junior subordinated debentures shall be exchangeable, except for another Global Security of like denomination and tenor to be registered in the name of the Depositary or its nominee or to a successor Depositary or its nominee. Accordingly, each such beneficial owner must rely on the procedures of the Depositary or, if such person is not a Participant, on the procedures of the Participant through which such person owns its interest to exercise any rights of a holder under the Indenture. If junior subordinated debentures are distributed to holders of preferred securities, DTC will act as securities depositary for the junior subordinated debentures. For a description of DTC and DTC's book-entry system, see "Description of the Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company." As of the date of this prospectus supplement, the description herein of DTC's book-entry system and DTC's practices as they relate to purchases, transfers, notices and payments with respect to the preferred securities apply in all material respects to any debt obligations represented by one or more Global Securities held by DTC. Litchfield may appoint a successor to DTC or any successor depositary in the event DTC or the successor depositary is unable or unwilling to continue as a depository for the Global Securities. Litchfield, the Indenture Trustee, any paying agent and any other agent of Litchfield or the Indenture Trustee will not have any responsibility or liability for any aspect of the records relating to or payments S-53 55 made on account of beneficial ownership interests in a Global Security for junior subordinated debentures or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. A Global Security shall be exchangeable for junior subordinated debentures registered in the names of persons other than the depositary or its nominee only if: - the Depositary notifies Litchfield that it is unwilling or unable to continue as a depositary for the Global Security and no successor depositary shall have been appointed; - the Depositary, at any time, ceases to be a clearing agency registered under the Exchange Act at which time the Depositary is required to be so registered to act as a depositary and no successor depositary shall have been appointed; or - Litchfield, in its sole discretion, determines that the Global Security shall be so exchangeable. Any Global Security that is exchangeable pursuant to the preceding sentence will be exchangeable for junior subordinated debentures registered in the names that the Depositary shall direct. It is expected that those instructions will be based upon directions received by the Depositary from its Participants with respect to ownership of beneficial interests in the Global Security. RELATIONSHIP BETWEEN THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE As set forth in the Declaration, the trust exists for the purposes of: - issuing the trust securities evidencing undivided beneficial interests in the assets of the trust and investing the proceeds thereof in the junior subordinated debentures; and - only engaging in other activities as are necessary, convenient and incidental thereto or are specifically authorized in the Declaration. As long as payments of interest and other payments are made when due on the junior subordinated debentures, those payments will be sufficient to cover Distributions and other payments due on the preferred securities primarily because: - the aggregate principal amount of junior subordinated debentures held as trust assets by the trust will be equal to the sum of the aggregate stated liquidation amount of the preferred securities and the common securities; - the interest rate and interest and other payment dates of the junior subordinated debentures will match the distribution rate and Distribution and other payment dates of the preferred securities; - the Declaration further provides that the trustees will not cause or permit the trust, among other things, to engage in any activity that is not consistent with the limited purposes of the trust; and - the Declaration provides that Litchfield will pay for all debts and obligations, other than with respect to the trust securities, and all costs and expenses of the trust, including the fees and expenses of the trustees and any taxes and all costs and expenses with respect thereto, to which the trust may become subject, except for United States withholding taxes. However, no assurance can be given that Litchfield will have sufficient resources to enable it to pay those debts, obligations, costs and expenses on behalf of the trust. Payments of Distributions and other payments due on the preferred securities are guaranteed by Litchfield on a subordinated basis as and to the extent set forth under "Description of the Preferred Securities Guarantees" in the accompanying prospectus. If Litchfield does not make interest or other payments on the junior subordinated debentures, the trust will not make Distributions or other payments on the preferred securities. Under the Declaration, if and to the extent Litchfield does make interest or other payments on the junior subordinated debentures, the Property Trustee is obligated to make Distributions or other payments on the preferred securities. The preferred securities guarantee is a full and S-54 56 unconditional guarantee from the time of issuance of the preferred securities, but the preferred securities guarantee covers distributions and other payments on the preferred securities only if and to the extent that Litchfield has made a payment to the Property Trustee of interest or principal on the junior subordinated debentures. The Property Trustee will have the power to exercise all rights, powers and privileges under the Indenture with respect to the junior subordinated debentures, including its rights as the holder of the junior subordinated debentures to enforce Litchfield's obligations under the junior subordinated debentures upon the occurrence of an Indenture Event of Default. The Guarantee Trustee will have the right to enforce the preferred securities guarantee on behalf of the holders of the preferred securities. In addition, the holders of at least a majority in liquidation amount of the preferred securities will have the right to direct the Property Trustee with respect to certain matters under the Declaration and the preferred securities guarantee. If the Property Trustee fails to enforce its rights under the Indenture, any holder of preferred securities may, after a period of 30 days has elapsed from the holder's written request to the Property Trustee to enforce these rights, institute a legal proceeding against Litchfield to enforce those rights. If the Guarantee Trustee fails to enforce the preferred securities guarantee, to the extent permitted by applicable law, any holder of preferred securities may institute a legal proceeding directly against Litchfield to enforce the Guarantee Trustee's rights under the preferred securities guarantee. Notwithstanding the foregoing, if Litchfield has failed to make a guarantee payment, a holder of preferred securities may directly institute a proceeding against Litchfield for enforcement of the preferred securities guarantee for such payment. See "Description of the Preferred Securities" and "Description of the Preferred Securities Guarantee" herein and "Description of the Preferred Securities Guarantees--Status of the Preferred Securities Guarantee" in the accompanying prospectus. The above mechanisms and obligations, taken together, provide a full and unconditional guarantee by Litchfield of payments due on the preferred securities. CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, counsel to Litchfield and the trust, the following are the material United States federal income tax consequences of the ownership and disposition of the preferred securities. Unless otherwise stated, this summary deals only with the preferred securities held as capital assets by holders who acquire the preferred securities upon original issuance at the price indicated on the cover of this prospectus supplement. The tax treatment of a holder may vary depending on the holder's particular situation. This summary does not deal with special classes of holders, such as, for example, dealers in securities or currencies, banks, thrifts, real estate investment trusts, regulated investment companies, life insurance companies, persons holding preferred securities as part of a straddle or as part of a hedging or conversion transaction, or persons whose functional currency is not the United States dollar. Further, it does not include any description of alternative minimum tax consequences or the tax laws of any state or local government or any foreign government that may be applicable to the preferred securities. This summary is based on the Internal Revenue Code of 1986, as amended, final and temporary Treasury Regulations promulgated thereunder, published administrative positions of the Internal Revenue Service (the "IRS"), and reported judicial decisions, all as existing on the date hereof, and all of which are subject to change, possibly on a retroactive basis. In particular, legislation was previously proposed by the Clinton Administration in 1996 and 1997 that, if enacted, could have adversely affected Litchfield's ability to deduct interest on the junior subordinated debentures. In addition, the IRS has challenged the interest deduction in a similar arrangement that is in the early stages of litigation in the Tax Court. Loss of the interest deduction would permit Litchfield to cause a redemption of the junior subordinated debentures and therefore cause a redemption of the preferred securities. Alternatively, Litchfield could, in its discretion, dissolve the trust and cause the junior subordinated debentures to be distributed to the holders of the trust securities. See "Description of the Preferred Securities -- Special Event Redemption." The authorities on which this summary is based are subject to various interpretations, and it is therefore possible that the federal income tax treatment of the ownership and disposition of preferred securities may differ from the treatment described below. S-55 57 Investors are advised to consult their own tax advisors as to the United States federal income tax consequences of the ownership and disposition of the preferred securities in light of their particular circumstances, as well as the effect of any state, local or other tax laws. CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES Litchfield intends to take the position that the junior subordinated debentures will be classified for United States federal income tax purposes as indebtedness under current law. No assurance can be given, however, that this position of Litchfield will not be challenged by the IRS. As mentioned above, the allowability of the interest deduction in a similar arrangement is currently being litigated in the Tax Court. The remainder of this discussion assumes that the junior subordinated debentures will be classified for United States federal income tax purposes as indebtedness of Litchfield. CLASSIFICATION OF THE TRUST Assuming full compliance with the terms of the Declaration, the trust will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, each holder of preferred securities will be considered the owner of a pro rata portion of the junior subordinated debentures held by the trust and will be required to include in gross income the holder's pro rata share of income accrued on the junior subordinated debentures, whether or not cash is actually distributed to the holders. INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT Under Treasury Regulations issued in 1996 applicable to debt instruments (the "Regulations"), a "remote" contingency that stated interest will not be timely paid will be ignored in determining whether a debt instrument is issued with original issue discount ("OID"). Litchfield believes that the likelihood of its exercising its option to defer payments is remote. Based on the foregoing, the junior subordinated debentures will not be considered to be issued with OID at the time of their original issuance and, accordingly, a holder should include in gross income the holder's allocable share of interest on the junior subordinated debentures in accordance with the holder's method of tax accounting. Under the Regulations, if Litchfield exercised its option to defer any payment of interest, the junior subordinated debentures would at that time be treated as issued with OID, and all stated interest on the junior subordinated debentures would thereafter be treated as OID as long as the junior subordinated debentures remained outstanding. In that event, each holder of the preferred securities, including a taxpayer who otherwise uses the cash method of accounting, would be required to include the holder's pro rata share of OID on the junior subordinated debentures in income as it accrued, in accordance with a constant yield method based on a compounding of interest, before the receipt of Distributions on the preferred securities. Generally, during an Extension Period, all of a holder's taxable interest income with respect to the junior subordinated debentures will be accounted for as "OID" and actual distributions of stated interest will not be separately reported as taxable income. Consequently, during an Extension Period, a holder would be required to include OID in gross income even though Litchfield would not make any actual cash payments. The Regulations have not been addressed in any rulings or other interpretations by the IRS, and it is possible that the IRS could take a position contrary to the interpretation herein. No portion of the amounts received on the preferred securities will be eligible for the dividends received deduction. Subsequent uses of the term "interest" in this summary include income in the form of OID. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD ON THE JUNIOR SUBORDINATED DEBENTURES Holders of preferred securities will begin to accrue OID with respect to their pro rata share of the junior subordinated debentures during an Extension Period. A holder who disposes of the preferred securities during an Extension Period may suffer a loss because the market value of the preferred securities S-56 58 will likely fall if Litchfield exercises its option to defer payments of interest on the junior subordinated debentures. See "--Disposition of the Preferred Securities" below. Furthermore, the market value of the preferred securities may not reflect the accumulated Distributions that will be paid at the end of the Extension Period, and a holder who sells the preferred securities during the Extension Period will not receive from Litchfield any cash related to the interest income the holder accrued and included in the holder's taxable income under the OID rule (because that cash will be paid to the holder of record at the end of the Extension Period). DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED SECURITIES Under current law, a distribution by the trust of the junior subordinated debentures as described under the caption "Description of the Preferred Securities--Distribution of the Junior Subordinated Debentures" will be nontaxable and will result in the holder receiving directly the holder's pro rata share of the junior subordinated debentures previously held indirectly through the trust, with a holding period and tax basis equal to the holding period and adjusted tax basis such holder was considered to have had in the holder's pro rata share of the underlying junior subordinated debentures prior to such distribution. A holder will include interest income in respect of junior subordinated debentures received from the trust in the manner described above under "-- Interest Income and Original Issue Discount." DISPOSITION OF THE PREFERRED SECURITIES Upon a sale, exchange or other disposition of the preferred securities (including a distribution of cash in redemption of a holder's preferred securities upon redemption or repayment of the underlying junior subordinated debentures, but excluding the distribution of junior subordinated debentures), a holder will recognize gain or loss equal to the difference between the amount realized on the sale of such preferred securities and the holder's adjusted tax basis in the preferred securities. The amount realized will equal the cash received, less the amount of accrued and unpaid interest with respect to the holder's pro rata share of the junior subordinated debentures. The holder will be required to include such accrued and unpaid interest in the holder's ordinary income. Assuming that Litchfield does not exercise its option to defer payment of interest on the junior subordinated debentures, a holder's adjusted tax basis in the preferred securities generally will be the holder's initial purchase price. If the junior subordinated debentures are deemed to be issued with OID as a result of Litchfield's deferral of any interest payment or otherwise, a holder's tax basis in the preferred securities generally will be the holder's initial purchase price, increased by OID previously includible in the holder's gross income to the date of disposition and decreased by Distributions or other payments received on the preferred securities since and including the date of the first Extension Period. Such gain or loss generally will be a capital gain or loss and generally will be a long-term capital gain or loss if the preferred securities have been held for more than one year. If Litchfield exercises its option to defer any payment of interest on the junior subordinated debentures, the preferred securities may trade at a price that does not fully reflect the value of accrued but unpaid interest on the underlying junior subordinated debentures. If this deferral occurs, a holder who disposes of the holder's preferred securities between record dates for payments of Distributions thereon will nevertheless be required to include in income, as OID, accrued but unpaid interest on the junior subordinated debentures through the date of disposition and to add that amount to the holder's adjusted tax basis in the holder's preferred securities. Accordingly, the holder will recognize a capital loss to the extent the selling price, which may not fully reflect the value of accrued but unpaid interest, is less than the holder's adjusted tax basis, which will include accrued but unpaid interest. Subject to limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. INFORMATION REPORTING TO HOLDERS The trust will report the interest income paid or accrued during the year with respect to the junior subordinated debentures, and any gross proceeds received by the trust from the retirement or redemption of the junior subordinated debentures, annually to the holders of record of the preferred securities and the S-57 59 IRS. The trust currently intends to deliver these reports to holders of record prior to January 31 following each calendar year. It is anticipated that persons who hold preferred securities as nominees for beneficial holders will report the required tax information to beneficial holders on Form 1099. BACKUP WITHHOLDING Payments made on, and proceeds from the sale of, preferred securities may be subject to a "backup" withholding tax of 31% unless the holder complies with certain certification procedures. Any withheld amounts will generally be allowed as a credit against the holder's federal income tax, provided the required information is timely filed with the IRS. UNITED STATES ALIEN HOLDERS For purposes of this discussion, a "United States Alien Holder" is any corporation, individual, partnership, estate or trust who or that is, for U.S. federal income tax purposes, a foreign corporation, a nonresident alien individual, a foreign partnership or a nonresident fiduciary of a foreign estate or trust. United States Treasury Regulations were published in the Federal Register on October 14, 1997 that affect the procedures to be followed by a United States Alien Holder in establishing its non-U.S. person status. These regulations are generally effective with respect to payments made after December 31, 1999, subject to transition rules. The discussion below is not intended to be a complete discussion of the provisions of these regulations, and prospective investors are urged to consult their own tax advisors with respect to the effect of these regulations. Litchfield and the trust, respectively, will not pay any additional amounts on the junior subordinated debentures deemed to be held, and on the Preferred Securities held, by a United States Alien Holder in respect of any tax, assessment or governmental charge withheld or deducted. PAYMENTS ON THE PREFERRED SECURITIES As discussed above, Litchfield intends to take the position that the junior subordinated debentures will be classified for United States federal income tax purposes as indebtedness of Litchfield under current law. However, Litchfield cannot assure you that this position will not be challenged by the IRS. Assuming that the junior subordinated debentures are classified for United States federal income tax purposes as indebtedness of Litchfield and subject to the discussion of effectively connected income below, under present United States federal income tax law, payments by the trust or any of its paying agents to any holder of preferred securities who or that is a United States Alien Holder will not be subject to U.S. federal withholding tax, provided that (a) the beneficial owner of the preferred securities does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Litchfield entitled to vote, (b) the beneficial owner of the preferred securities is not a controlled foreign corporation that is related to Litchfield through stock ownership, (c) the beneficial owner of the preferred securities is not a bank deemed to be extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business, and (d) either (A) the beneficial owner of the preferred securities certifies to the trust or its paying agent, under penalties of perjury, that the owner is not a U.S. person and provides the owner's name, address and, if required, taxpayer identification number, or (B)(x) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution"), and holds the preferred securities in such capacity, certifies to the trust or its paying agent, under penalties of perjury, that such statement has been received from the beneficial owner by it or by a Financial Institution between it and the beneficial owner and furnishes the trust or its paying agent with a copy thereof or (y) with respect to payments after December 31, 1999, a "qualified intermediary" (which includes certain foreign financial institutions, foreign clearing organizations or foreign branches of U.S. financial institutions or clearing organizations which have entered into withholding agreements with the IRS and have received appropriate certification from the beneficial owner) provides the trust or its paying agent with an intermediary withholding certificate. S-58 60 If the junior subordinated debentures were not classified for United States federal income tax purposes as indebtedness of Litchfield, payments by the trust or any of its paying agents to any holder of preferred securities who or that is a United States Alien Holder would be subject to U.S. withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax treaty). Prospective investors that would be United States Alien Holders should consult their tax advisors concerning the possible application of these rules. SALE OR EXCHANGE OF PREFERRED SECURITIES Subject to the discussion of effectively connected income below, a United States Alien Holder (other than certain U.S. expatriates) generally will not be subject to U.S. federal income tax on gain realized on the sale, exchange or other disposition of the preferred securities unless the United States Alien Holder is an individual who is present in the U.S. for 183 days or more in the taxable year of disposition, and certain other conditions are satisfied. EFFECTIVELY CONNECTED INCOME If a United States Alien Holder of preferred securities is engaged in a trade or business in the United States, and if the interest income paid or accrued on the preferred securities is effectively connected with the conduct of such trade or business, the United States Alien Holder, although exempt from the withholding tax on payments on preferred securities, will generally be subject to regular United States income tax on the interest income and on any gain realized on the sale, exchange or other disposition of preferred securities in the same manner as if the holder were a U.S. person. Such a holder will be required to provide to the applicable withholding agent a properly executed form prescribed by the IRS in order to claim an exemption from withholding tax. In addition, if such United States Alien Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% (or a lower rate prescribed by an applicable treaty) of its effectively connected earnings and profits for the taxable year. S-59 61 UNDERWRITING GENERAL Based on the terms and conditions of an underwriting agreement, the trust has agreed to sell to the underwriters named below, and the underwriters have agreed to purchase from the trust, the number of preferred securities set forth opposite its name below:
NUMBER OF PREFERRED UNDERWRITER SECURITIES ----------- ---------- Tucker Anthony Cleary Gull.................................. [ ] Ferris, Baker Watts Incorporated............................ [ ] --------- Total............................................. 2,500,000 =========
The underwriters are obligated to purchase all of the preferred securities if any preferred securities are purchased. Litchfield and the trust have agreed with the underwriters to indemnify them against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribute with respect to payments which the underwriters may be required to make. Some of the underwriters have in the past and may in the future engage in transactions with, or perform services for, Litchfield or its subsidiaries in the ordinary course of their businesses. The underwriters will not make any sales to discretionary accounts without the prior written approval of the customer. Litchfield will pay all expenses, estimated to be approximately $ , associated with the offer and the sale of the preferred securities by the trust. Litchfield has granted the underwriters an option to purchase an aggregate of up to an additional 375,000 preferred securities solely to cover over-allotments, if any, at the initial offering price to the public plus accrued interest. All or any of these options may be exercised at any time until 30 days after the date of the underwriting agreement. COMMISSION AND DISCOUNTS The underwriters will offer the preferred securities directly to the public at a price of $10 per preferred security. The underwriters may also offer the preferred securities to certain dealers at the above mentioned offering price less a concession not in excess of $ per preferred security. The underwriters may allow, and such dealers may reallow, a discount not in excess of $ per preferred security to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. In view of the fact that the proceeds from the sale of the preferred securities will be used to purchase the junior subordinated debentures, Litchfield has agreed to pay to the underwriters as compensation for arranging the investment therein of such proceeds an amount of $ per preferred security, (or a total of $ ). The following tables show the per share and total underwriting discounts and commissions Litchfield will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional preferred securities. S-60 62 UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY LITCHFIELD
WITH WITHOUT OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE ----------------------- ----------------------- Per preferred security.............................. $ $ Total............................................... $ $
NASDAQ NATIONAL MARKET LISTING Before this offering, there has been no established public trading market for the preferred securities. The trust has applied to list the preferred securities on the Nasdaq National Market under the symbol "LTCHP". If approved for listing, Litchfield expects trading of the preferred securities to begin within 30 days of the issuance of the preferred securities. In order to meet all of the requirements for listing the preferred securities on the Nasdaq National Market, the underwriters have agreed to sell the preferred securities to a minimum of 400 beneficial holders. The underwriters have advised Litchfield that they intend to make a market in the preferred securities prior to the commencement of trading on the Nasdaq National Market. However, the underwriters are not obligated to do so and may discontinue market making at any time without notice. No assurances can be given about the liquidity of the trading market for the preferred securities. NO SALES OF SIMILAR SECURITIES Litchfield and the trust have agreed that, during the period beginning on the date of the underwriting agreement and continuing to and including the date of delivery of the preferred securities to the underwriters in accordance with the underwriting agreement, they will not offer, sell, contract to sell or otherwise dispose of any preferred securities, any securities convertible into or exchangeable into or exercisable for the preferred securities or the junior subordinated debentures or any debt securities substantially similar to the junior subordinated debentures or any equity securities substantially similar to the preferred securities (except for the junior subordinated debentures and the preferred securities issued pursuant to the underwriting agreement) without the prior written consent of Tucker Anthony Cleary Gull and Ferris, Baker Watts Incorporated. PRICE STABILIZATION AND SHORT POSITIONS In connection with the sale of the preferred securities, Securities and Exchange Commission rules permit the underwriters to engage in transactions that stabilize the price of the preferred securities. These transactions may include purchases for the purpose of fixing or maintaining the price of the preferred securities. The underwriters may create a short position in the preferred securities in connection with the offering. That means that they sell a larger number of the preferred securities than is shown on the cover page of this prospectus supplement. If they create a short position, the underwriters may purchase preferred securities in the open market to reduce the short position. If the underwriters purchase the preferred securities to stabilize the price or to reduce their short position, the price of the preferred securities could be higher than it might be if an underwriter had not made such purchases. The underwriters make no representation or prediction about any effect that the purchases may have on the price of the preferred securities. The underwriters may suspend any of these activities at any time. S-61 63 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED [ ], 1999 PROSPECTUS $100,000,000 [LITCHFIELD FINANCIAL CORPORATION LOGO] JUNIOR SUBORDINATED DEBT SECURITIES LITCHFIELD CAPITAL TRUST I LITCHFIELD CAPITAL TRUST II TRUST PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED, AS SET FORTH HEREIN, BY LITCHFIELD FINANCIAL CORPORATION - -------------------------------------------------------------------------------- THE TRUSTS: Litchfield Capital Trust I and Litchfield Capital Trust II are subsidiaries of Litchfield Financial Corporation. The trusts are statutory business trusts created under Delaware law. They exist for the purpose of issuing trust preferred securities. THE OFFERING: JUNIOR SUBORDINATED DEBT SECURITIES By this prospectus, Litchfield may offer junior subordinated debt securities. Litchfield's obligations under these debt securities will be unsecured and subordinate and junior in right of payment to all other senior debt of Litchfield. Litchfield may issue and sell these junior subordinated debt securities to the trusts in connection with the trusts' investment of proceeds from the sale of their trust preferred securities and common securities. Under certain circumstances the trusts may be dissolved and these junior subordinated debt securities will be distributed to holders of the trusts' trust preferred securities. TRUST PREFERRED SECURITIES By this prospectus, the trusts may offer and sell trust preferred securities representing undivided beneficial interests in the assets of the issuing trust. The trusts will use the proceeds from the sale of their trust preferred securities and common securities to purchase junior subordinated debt securities of Litchfield. GUARANTEE Litchfield will fully and unconditionally guarantee the trusts' payment obligations with respect to their trust preferred securities on the terms described in this prospectus and the accompanying prospectus supplement. - -------------------------------------------------------------------------------- We will provide additional terms of our securities in one or more supplements to this prospectus. You should read this prospectus supplement carefully before you invest in our securities. This prospectus may not be used to offer and sell our securities unless accompanied by a prospectus supplement. - -------------------------------------------------------------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- The date of this prospectus is [ ] , 1999 64 ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we have filed with the SEC using a "shelf" registration process. By using this process, we may offer the securities described in this prospectus in one or more public offerings with a total aggregate initial offering price of up to $100,000,000. This prospectus provides you with a general description of the securities we may offer. Each time we offer securities, we will provide a prospectus supplement. The prospectus supplement will describe the specific terms of the offering. The prospectus supplement may also add, update or change the information contained in this prospectus. Please carefully read this prospectus and the applicable prospectus supplement, in addition to the information contained in the documents we refer to under the heading "Where You Can Find More Information." You should rely only on the information contained or incorporated by reference in this prospectus and any accompanying prospectus supplement. We have not authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is current only as of the date of this prospectus. We have not included separate financial statements of the trusts in this prospectus. We do not consider that such financial statements would be material to holders of the trusts' trust preferred securities because: - Each trust is a newly created special purpose entity; - Each trust has no operating history or independent operations; and - Neither trust is engaged in nor does it propose to engage in any activity other than holding the Junior Subordinated Debt Securities (as defined herein), issuing the trust securities (as defined herein) and any other activity related thereto or specifically authorized by the trust's Declaration (as defined herein). Furthermore, taken together, Litchfield's obligations under the Junior Subordinated Debt Securities, the Indenture, the Declarations and the preferred securities guarantees (each, as defined herein) provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the trusts' preferred securities. See "The Trusts," "Description of the Preferred Securities," "Description of the Preferred Securities Guarantees" and "Description of the Junior Subordinated Debt Securities." In addition, we do not expect that the trusts will file reports under the Securities Exchange Act of 1934, with the SEC. WHERE YOU CAN FIND MORE INFORMATION Litchfield files reports and other information with the SEC. You may read and copy any document we file with the SEC at the SEC's Public Reference Room located at 450 Fifth Street, N.W., Washington, D.C. 20549, at the district office of the SEC located at 73 Tremont Street, Suite 600, Boston, MA 02108- 3912, and the regional office at 7 World Trade Center, Suite 1300, New York, New York 10048. You may obtain further information regarding the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also available to the public on the SEC's Internet site located at http://www.sec.gov. In addition, you may inspect our reports at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. The SEC allows us to "incorporate by reference" into this prospectus the information we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, unless we update or supersede that information by the information contained in this prospectus or a prospectus supplement or by information that we file subsequently that is incorporated by reference into this prospectus. We are incorporating by reference into this prospectus the following documents that Litchfield has filed with the 2 65 SEC and Litchfield's future filings with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, until the offering of the securities offered hereby is completed: - Litchfield's Annual Report on Form 10-K for its fiscal year ended December 31, 1998; and - The definitive Proxy Statement dated March 23, 1999 for the Annual Meeting of Litchfield's stockholders held on April 23, 1999. This prospectus is part of a registration statement we have filed with the SEC relating to our securities. As permitted by SEC rules, this prospectus does not contain all of the information included in the registration statement and the accompanying exhibits and schedules we file with the SEC. You should read the registration statement, the exhibits and schedules for more information about us and our securities. The registration statement, exhibits and schedules are also available at the SEC's Public Reference Room or through its web site. You may also obtain a copy of our filings with the SEC at no cost, by writing to or telephoning us at the following address: Litchfield Financial Corporation 430 Main Street Williamstown, Massachusetts 01267 Attn: Treasurer (413) 458-1000 3 66 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Statements contained in this prospectus and any accompanying prospectus supplement, including the documents that are incorporated by reference as set forth in "Where You Can Find More Information," that are not historical facts 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 Litchfield, 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 Litchfield's ability to execute its growth strategies, realize its growth objectives and obtain sufficient resources to finance its working capital needs and provide for its known obligations. Forward-looking statements are based on the beliefs of Litchfield's management as well as assumptions made by and information currently available to management. Litchfield and the trusts caution that assumptions, projections, expectations, intentions or beliefs about future events may and often do vary materially from actual results and the differences between assumptions, projections, expectations, intentions or beliefs and actual results can be material. Accordingly, there can be no assurance actual results will not differ materially from those expressed or implied by forward-looking statements. 4 67 LITCHFIELD FINANCIAL CORPORATION Litchfield Financial Corporation is a diversified finance company that provides financing to creditworthy borrowers for assets not typically financed by banks. Litchfield provides such financing by making loans to businesses secured by consumer receivables or other assets and by purchasing consumer loans. Litchfield provides financing to rural land dealers, timeshare resort developers and other finance companies secured by receivables. Litchfield also purchases consumer loans consisting primarily of loans to purchasers of rural and vacation properties and vacation ownership interests popularly known as timeshare interests, and provides loans to dealers and developers for the acquisition and development of rural land and timeshare resorts. In addition, Litchfield 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. The principal sources of Litchfield'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 Litchfield's revenues is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on Litchfield's results of operations. USE OF PROCEEDS Unless otherwise indicated in the applicable prospectus supplement, Litchfield anticipates that any net proceeds from the sale of the securities offered hereby will be used to support its business activities, as capital to support senior indebtedness and for other general corporate purposes. Until used for the purposes indicated, Litchfield will invest the net proceeds of this offering in short-term investment-grade interest-bearing securities. Each trust will use all proceeds received from the sale of its trust securities to purchase junior subordinated debt securities from Litchfield. 5 68 THE TRUSTS Litchfield Capital Trust I and Litchfield Capital Trust II are statutory business trusts created on April 12, 1999, under the Delaware Business Trust Act pursuant to separate declarations of trust among the trustees of each trust and Litchfield and the filing of a certificate of trust with the Secretary of State of the State of Delaware. Each such declaration will be amended and restated in its entirety (as so amended and restated, the "Declaration" and together, the "Declarations") as of the date the respective trust initially issues trust preferred securities representing preferred undivided beneficial interests in the assets of such trust. Each Declaration will be qualified under the Trust Indenture Act of 1939. The following description summarizes the material terms of the Declarations and is qualified in its entirety by reference to the form of Declaration, which has been filed as an exhibit to the registration statement of which this prospectus is a part, and the Trust Indenture Act. The address of the principal office of each trust is c/o Litchfield Financial Corporation, 430 Main Street, Williamstown, MA 01267, and the telephone number of each trust at such address is (413) 458-1000. PREFERRED SECURITIES Upon issuance of any preferred securities by a trust, the holders of the preferred securities will own all of the issued and outstanding preferred securities of such trust. Litchfield will, directly or indirectly, acquire common securities representing common undivided beneficial interests in the assets of each trust in an amount equal to 3% of the total capital of such trust. Litchfield's common securities will constitute all of the issued and outstanding common securities of each trust. The preferred securities and the common securities will rank equally with each other and will have equivalent terms; provided that - if a Declaration Event of Default (as defined under "Events of Default") under the Declaration of a trust occurs and is continuing, the holders of preferred securities of such trust will have a priority over holders of the common securities of such trust with respect to payments in respect of distributions and payments upon liquidation, redemption and maturity and (ii) the holders of common securities have the exclusive right to appoint, remove or replace the trustees and to increase or decrease the number of trustees. Each trust exists for the purposes of (a) issuing its preferred securities, (b) issuing its common securities to Litchfield, (c) investing the gross proceeds from the sale of its trust securities in Junior Subordinated Debt Securities of Litchfield and (d) engaging in only such other activities as are necessary, convenient or incidental thereto or are specifically authorized in its Declaration. The rights of the holders of the preferred securities of a trust, including economic rights, rights to information and voting rights, are set forth in the applicable Declaration, the Business Trust Act and the Trust Indenture Act. POWERS AND DUTIES OF TRUSTEES The number of trustees of each trust will initially be five. Three of the trustees (the "Regular Trustees") are individuals who are officers, directors or employees of Litchfield. The fourth trustee is The Bank of New York, which is unaffiliated with Litchfield and serves as the property trustee (the "Property Trustee") and acts as the indenture trustee under the Declaration for purposes of the Trust Indenture Act. The fifth trustee is The Bank of New York (Delaware) which has its principal place of business in the State of Delaware (the "Delaware Trustee"). Pursuant to each Declaration, legal title to the Junior Subordinated Debt Securities purchased by a trust will be owned by and held of record in the name of the Property Trustee in trust for the benefit of the holders of the trust securities of such trust, and the Property Trustee will have the legal power to exercise all rights, powers and privileges under the Indenture (as defined under "Description of the Junior Subordinated Debt Securities") with respect to such Junior Subordinated Debt Securities. In addition, the Property Trustee will maintain exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments in respect of the Junior Subordinated Debt Securities purchased by a trust for the benefit of the holders of its trust securities. The Property Trustee will promptly make distributions to the holders of the trust securities out 6 69 of funds from the Property Account. The preferred securities guarantees are separately qualified under the Trust Indenture Act and will be held by The Bank of New York (the "Guarantee Trustee"), acting in its capacity as indenture trustee with respect thereto, for the benefit of the holders of the applicable preferred securities. As used in this prospectus and any accompanying prospectus supplement, the term "Property Trustee" with respect to a trust refers to The Bank of New York acting either in its capacity as a trustee under the related Declaration and the holder of legal title to the Junior Subordinated Debt Securities purchased by such trust or in its capacity as the Guarantee Trustee under the applicable preferred securities guarantee, as the context may require. Litchfield, as the direct or indirect owner of all of the common securities of each trust, will have the exclusive right to appoint, remove or replace trustees and to increase or decrease the number of trustees, provided that the number of trustees will be, except under certain circumstances, at least five and the majority of trustees will be Regular Trustees. The term of a trust will be set forth in the applicable prospectus supplement but may dissolve earlier as provided in the applicable Declaration. The duties and obligations of the trustees of a trust will be governed by the Declaration of such trust, the Business Trust Act and the Trust Indenture Act. Under its Declaration, each trust will not, and the trustees will cause such trust not to, engage in any activity other than in connection with the purposes of such trust or other than as required or authorized by the related Declaration. In particular, each trust will not and the trustees will cause each trust not to (a) invest any proceeds received by such trust from holding the Junior Subordinated Debt Securities purchased by such trust but shall promptly distribute from the Property Account all such proceeds to holders of its trust securities pursuant to the terms of the related Declaration and of its trust securities; (b) acquire any assets other than as expressly provided in the related Declaration; (c) possess property of such trust for other than a trust purpose; (d) make any loans, other than loans represented by the Junior Subordinated Debt Securities; (e) possess any power or otherwise act in such a way as to vary the assets of such trust or the terms of its trust securities in any way whatsoever, except as expressly provided in the related Declaration; (f) issue any securities or other evidences of beneficial ownership of, or beneficial interests in, such trust other than its trust securities; (g) incur any indebtedness for borrowed money; (h) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee (as defined under "Description of the Junior Subordinated Debt Securities") or exercising any trust or power conferred upon the Indenture Trustee with respect to the Junior Subordinated Debt Securities deposited in such trust as trust assets; (i)waive any past default that is waivable under the Indenture; (j) exercise any right to rescind or annul a declaration of acceleration of the maturity of the principal of all of the Junior Subordinated Debt Securities deposited in such trust as trust assets, without, in the case of clauses (h), (i) and (j), obtaining the prior approval of the holders of a majority in liquidation amount of all outstanding trust securities of such trust; (k) consent to any amendment, modification or termination of the Indenture or the Junior Subordinated Debt Securities deposited in such trust as trust assets, where such consent is required, unless in the case of this clause (k) the Property Trustee shall have received an opinion of counsel experienced in such matters to the effect that such amendment, modification or termination will not cause more than an insubstantial risk that for United States federal income tax purposes such trust will not be classified as a grantor trust; (l) 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 property of such trust; (m) vary the investment (within the meaning of Treasury Regulation Section 301.7701-4(c)) of such trust or of the holders of its trust securities; (n) after the issuance of its preferred securities, 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 such 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 such trust or (o) revoke any action previously authorized or approved by a vote of the holders of its preferred securities except by subsequent vote of such holders. 7 70 BOOKS AND RECORDS The books and records of each trust will be maintained at the principal office of such trust and will be open for inspection by a holder of preferred securities of such trust or his authorized representative for any purpose reasonably related to his interest in such trust during normal business hours. VOTING Holders of preferred securities generally will have limited voting rights, relating only to the modification of the preferred securities and, under certain circumstances, to the exercise of a trust's rights as holder of the Junior Subordinated Debt Securities and the preferred securities guarantee. The holders of the preferred securities will not be able to appoint, remove or replace, or to increase or decrease the number of, trustees, which rights are vested exclusively in the holders of the common securities. THE PROPERTY TRUSTEE The Property Trustee, for the benefit of the holders of the trust securities of a trust, is authorized under each Declaration to exercise all rights under the Indenture with respect to the Junior Subordinated Debt Securities deposited in such trust as trust assets, including its rights as the holder of such Junior Subordinated Debt Securities to enforce Litchfield's obligations under such Junior Subordinated Debt Securities upon the occurrence of an Indenture Event of Default (as defined herein under "Description of the Junior Subordinated Debt Securities--Indenture Events of Default"). The Property Trustee will also be authorized to enforce the rights of holders of the preferred securities of a trust under the related preferred securities guarantee. If any trust's failure to make distributions on the preferred securities of such trust is a consequence of Litchfield's exercise of any right under the terms of the Junior Subordinated Debt Securities deposited in such trust as trust assets to extend the interest payment period for such Junior Subordinated Debt Securities, the Property Trustee will have no right to enforce the payment of distributions on such preferred securities until a Declaration Event of Default shall have occurred. If a Declaration Event of Default has occurred and is continuing, then the holders of at least a majority in liquidation amount of the preferred securities of a trust will have the right to direct the Property Trustee for such trust with respect to certain matters under the related Declaration and the related preferred securities guarantee. If the Property Trustee fails to enforce its rights under the applicable series of Junior Subordinated Debt Securities, any holder of preferred securities, to the extent permitted by applicable law, may, after a period of 30 days has elapsed from such holder's written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against Litchfield to enforce such rights without first instituting any legal proceeding against the Property Trustee or any other person. Notwithstanding the foregoing, if a Declaration Event of Default under the applicable Declaration has occurred and is continuing and such event is attributable to the failure of Litchfield to pay interest or principal, or premium, if any, on the applicable series of Junior Subordinated Debt Securities on the date such interest, principal or premium is otherwise payable (or in the case of redemption, on the redemption date), then a holder of preferred securities of such trust may directly institute a proceeding for enforcement of payment to such holder of the principal of, or premium, if any, or interest on the applicable series of Junior Subordinated Debt Securities 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 applicable series of Junior Subordinated Debt Securities. In connection with such Holder Direct Action, Litchfield will be subrogated to the rights of such holder of preferred securities under the applicable Declaration to the extent of any payment made by Litchfield to such holder of preferred securities in such Holder Direct Action. Except as expressly provided in the preceding sentences or in the applicable prospectus supplement, the holders of preferred securities of such trust will not be able to exercise directly any other remedy available to the holders of the applicable series of Junior Subordinated Debt Securities. 8 71 DISTRIBUTIONS Pursuant to each Declaration, distributions on the preferred securities of a trust must be paid on the dates payable to the extent that the Property Trustee for such trust has cash on hand in the applicable Property Account to permit such payment. The funds available for distribution to the holders of the preferred securities of a trust will be limited to payments received by the Property Trustee in respect of the Junior Subordinated Debt Securities that are deposited in such trust as trust assets. If Litchfield does not make interest payments on the Junior Subordinated Debt Securities deposited in a trust as trust assets, the Property Trustee will not make distributions on the preferred securities of such trust. Under each Declaration, if and to the extent Litchfield does make interest payments on the Junior Subordinated Debt Securities deposited in a trust as trust assets, the Property Trustee is obligated to make distributions on the trust securities of such trust on a Pro Rata Basis (as defined below). The payment of distributions on the preferred securities of a trust is guaranteed by Litchfield as and to the extent set forth under "Description of the Preferred Securities Guarantees." A preferred securities guarantee is a guarantee from the time of issuance of the preferred securities, but the preferred securities guarantee covers distributions and other payments on the applicable preferred securities only if and to the extent that Litchfield has made a payment to the Property Trustee of interest or principal, or premium, if any, on the Junior Subordinated Debt Securities deposited in a trust as trust assets. As used in this prospectus, the term "Pro Rata Basis" shall mean pro rata to each holder of trust securities of a trust according to the aggregate liquidation amount of the trust securities of such trust held by the relevant holder in relation to the aggregate liquidation amount of all trust securities of such trust outstanding unless, in relation to a payment, a Declaration Event of Default under the related Declaration 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 of such trust pro rata according to the aggregate liquidation amount of the preferred securities held by the relevant holder in relation to the aggregate liquidation amount of all the preferred securities of such trust outstanding, and only after satisfaction of all amounts owed to the holders of such preferred securities, to each holder of common securities of such trust pro rata according to the aggregate liquidation amount of such common securities held by the relevant holder in relation to the aggregate liquidation amount of all common securities of such trust outstanding. EVENTS OF DEFAULT If an Indenture Event of Default occurs and is continuing with respect to the Junior Subordinated Debt securities deposited in a trust as trust assets, an Event of Default under the Declaration (a "Declaration Event of Default") of such trust will occur and be continuing, with respect to any outstanding trust securities of such trust. In such event, each Declaration provides that the holders of common securities of such trust will be deemed to have waived any such Declaration Event of Default with respect to the common securities until all Declaration Events of Default with respect to the preferred securities of such trust have been cured or waived or otherwise eliminated. Until all such Declaration Events of Default with respect to the preferred securities of such trust 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 of such trust and only the holders of such preferred securities will have the right to direct the Property Trustee with respect to certain matters under such Declaration and consequently under the Indenture. In the event that any Declaration Event of Default with respect to the preferred securities of such trust is waived by the holders of the preferred securities of such trust as provided in the Declaration, the holders of common securities of such trust pursuant to such Declaration have agreed that such waiver also constitutes a waiver of such Declaration Event of Default with respect to such common securities for all purposes under the Declaration without any further act, vote or consent of the holders of such common securities. The Property Trustee shall notify each holder of preferred securities of a trust of any notice of default with respect to the related Junior Subordinated Debt Securities, unless such default has been cured before the giving of such notice or the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers (as that term is defined in the applicable Declaration) of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the holders of the trust securities of such trust. 9 72 RECORD HOLDERS Each Declaration provides that the trustees of such trust may treat the person in whose name a certificate representing its preferred securities is registered on the books and records of such trust as the sole holder thereof and of the preferred securities represented thereby for purposes of receiving distributions and for all other purposes and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such certificate or in the preferred securities represented thereby on the part of any person, whether or not the trustees of such trust shall have actual or other notice thereof. Preferred securities will be issued in fully registered form. Unless otherwise specified in a prospectus supplement, preferred securities will be represented by one or more global certificates registered on the books and records of such trust in the name of a depositary (the "Depositary") named in an accompanying prospectus supplement or its nominee. Under each Declaration: (i) such trust and the trustees thereof will be entitled to deal with the Depositary (or any successor depositary) for all purposes, including the payment of distributions and receiving approvals, votes or consents under the related Declaration, and except as set forth in the related Declaration with respect to the issuance of definitive certificates representing the preferred securities, will have no obligation to persons owning a beneficial interest in preferred securities ("Preferred Security Beneficial Owners") registered in the name of and held by the Depositary or its nominee; and (ii) the rights of Preferred Security Beneficial Owners will be exercised only through the Depositary (or any successor depositary) and will be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Depositary and/or its participants. With respect to preferred securities registered in the name of and held by the Depositary or its nominee, all notices and other communications required under each Declaration will be given to, and all distributions on such preferred securities will be given or made to, the Depositary (or its successor). The specific terms of the depositary arrangement with respect to the preferred securities of a trust will be disclosed in the applicable prospectus supplement. DEBTS AND OBLIGATIONS In each Declaration, Litchfield has agreed to pay all debts and obligations (other than with respect to the related trust securities) and all costs and expenses of the applicable trust, including the fees and expenses of its trustees and any taxes and all costs and expenses with respect thereto, to which such trust may become subject, except for United States withholding taxes. The foregoing obligations of Litchfield under each Declaration are for the benefit of, and will 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 thereof. Any such Creditor may enforce such obligations of Litchfield directly against Litchfield, and Litchfield has irrevocably waived any right or remedy to require that any such Creditor take any action against any trust or any other person before proceeding against Litchfield. Litchfield will be subrogated to all rights of a trust in respect of any amounts paid to any Creditor by Litchfield. Litchfield has agreed in each Declaration to execute such additional agreements as may be necessary or desirable in order to give full effect to the foregoing. DESCRIPTION OF THE PREFERRED SECURITIES Each trust may issue, from time to time, only one series of preferred securities having terms described in the prospectus supplement relating thereto. The Declaration of each trust authorizes the Regular Trustees of such trust to issue on behalf of such trust one series of preferred securities. Each Declaration will be qualified as an indenture under the Trust Indenture Act. The preferred securities will have such terms, including distributions, redemption, voting, liquidation rights and such other preferred, deferred or other special rights or such restrictions as set forth in the related Declaration or made part of such Declaration by the Trust Indenture Act. Reference is made to the prospectus supplement relating to the 10 73 preferred securities of a trust for specific terms, including (i) the specific designation of such preferred securities, (ii) the number of preferred securities issued by such trust, (iii) the annual distribution rate (or method of calculation thereof) for preferred securities issued by such trust, the date or dates upon which such distributions will be payable and the record date or dates for the payment of such distributions, (iv) whether distributions on the preferred securities issued by such trust will be cumulative, and, in the case of preferred securities having such cumulative distribution rights, the date or dates or method of determining the date or dates from which distributions on preferred securities issued by such trust will be cumulative, (v) the amount or amounts which will be paid out of the assets of such trust to the holders of preferred securities of such trust upon voluntary or involuntary dissolution, winding-up or termination of such trust, (vi) the obligation or right, if any, of such trust to purchase or redeem preferred securities issued by such trust and the price or prices at which, the period or periods within which and the terms and conditions upon which preferred securities issued by such trust will or may be purchased or redeemed, in whole or in part, pursuant to such obligation or right, (vii) the voting rights, if any, of preferred securities issued by such trust in addition to those required by law, including the number of votes per preferred security and any requirement for the approval by the holders of preferred securities, as a condition to specified actions or amendments to the Declaration of such trust, (viii) terms for any conversion or exchange into other securities (ix) the rights, if any, to defer distributions on the preferred securities by extending the interest payment period on the Junior Subordinated Debt Securities and (x) any other relevant, terms, rights, preferences, privileges, limitations or restrictions of preferred securities issued by such trust consistent with the Declaration of such trust or with applicable law. All preferred securities offered hereby will be guaranteed by Litchfield as and to the extent set forth below under "Description of the Preferred Securities Guarantees." Certain United States federal income tax considerations applicable to any offering of preferred securities will be described in the prospectus supplement relating thereto. In connection with the issuance of the preferred securities, each trust will issue one series of common securities. The Declaration of each trust authorizes the Regular Trustees of such trust to issue on behalf of such trust one series of common securities having such terms including distributions, redemption, voting, liquidation rights or such restrictions as set forth therein. The terms of the common securities issued by a trust will be substantially identical to the terms of the preferred securities issued by such trust and the common securities will rank pari passu, and payments will be made thereon on a Pro Rata Basis with the preferred securities except that if a Declaration Event of Default occurs and is continuing, the rights of the holders of such common securities to payment in respect of distributions and payments upon liquidation, redemption and maturity will be subordinated to the rights of the holders of such preferred securities. The common securities issued by a trust will also carry the right to vote and to appoint, remove or replace any of the trustees of such trust. All of the common securities issued by a trust will be directly or indirectly owned by Litchfield. DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES The payment of periodic cash distributions with respect to the preferred securities of each trust out of moneys held by the Property Trustee of each trust, and payments on liquidation of each trust and redemption of preferred securities of each trust, will be fully and unconditionally guaranteed by Litchfield as described herein. Set forth below is a summary of the preferred securities guarantees that will be executed and delivered by Litchfield for the benefit of the holders from time to time of preferred securities. Each preferred securities guarantee will be separately qualified under the Trust Indenture Act and will be held by The Bank of New York, acting in its capacity as indenture trustee with respect thereto (the "Guarantee Trustee"), for the benefit of holders of the preferred securities of the applicable trust. The terms of each preferred securities guarantee will be those set forth in such preferred securities guarantee and those made part of such guarantee by the Trust Indenture Act. This description summarizes the material terms of the preferred securities guarantees and is qualified in its entirety by reference to the form of preferred securities guarantee, which is filed as an exhibit to the registration statement of which this prospectus forms a part, and the Trust Indenture Act. 11 74 GENERAL Pursuant to each preferred securities guarantee, Litchfield will irrevocably and unconditionally agree, to the extent set forth therein, to pay in full, to the holders of the preferred securities issued by a trust, the Guarantee Payments (as defined herein) (without duplication of amounts theretofore paid by such trust), as and when due, regardless of any defense, right of set-off or counterclaim that such trust may have or assert. The following payments or distributions with respect to preferred securities issued by a trust to the extent not paid or made by or on behalf of such trust will be subject to such preferred securities guarantee (without duplication): (i) any accumulated and unpaid distributions on such preferred securities, and the redemption price, including all accumulated and unpaid distributions to, but excluding, the date of redemption, with respect to such preferred securities called for redemption by such trust but if and only to the extent that in each case Litchfield has made a payment to the related Property Trustee of interest or principal, or premium, if any, on the Junior Subordinated Debt Securities deposited in such trust as trust assets and (ii) upon a voluntary or involuntary dissolution, winding-up or termination of such trust (other than in connection with the distribution of Junior Subordinated Debt Securities to the holders of such preferred securities in exchange for preferred securities or the redemption of all of such preferred securities upon the maturity or redemption of the Junior Subordinated Debt Securities), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid distributions on such preferred securities to the date of payment, to the extent such trust has funds on hand legally available therefor, and (b) the amount of assets of such trust remaining available for distribution to holders of such preferred securities in liquidation of such trust as required by applicable law (the "Guarantee Payments"). Litchfield's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by Litchfield to the holders of such preferred securities or by causing the applicable trust to pay such amounts to such holders. The preferred securities guarantee is a guarantee from the time of issuance of the applicable preferred securities, but the preferred securities guarantee covers distributions and other payments on such preferred securities only if and to the extent that Litchfield has made a payment to the Property Trustee of interest or principal, or premium, if any, on the Junior Subordinated Debt Securities deposited in the applicable trust as trust assets. If Litchfield does not make interest, principal or premium, if any, payments on the Junior Subordinated Debt Securities deposited in the applicable trust as trust assets, the Property Trustee will not make distributions on the preferred securities of such trust and the trust will not have funds available therefor. Litchfield's obligations under the Declaration for each trust, the preferred securities guarantee issued with respect to preferred securities issued by such trust, the Junior Subordinated Debt Securities purchased by such trust and the Indenture, in the aggregate, will provide a full and unconditional guarantee on a subordinated basis by Litchfield of payments due on the preferred securities issued by such trust. CERTAIN COVENANTS OF LITCHFIELD In each preferred securities guarantee, Litchfield will covenant that, so long as any preferred securities issued by the applicable trust remain outstanding, Litchfield will 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 Litchfield, (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 Litchfield's capital stock or the exchange or the conversion of one class or series of Litchfield's capital stock for another class or series of Litchfield's capital stock, (d) the payment of accrued dividends and the purchase of fractional interests in shares of Litchfield'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 Litchfield's common stock related to the issuance of Litchfield's common stock or rights under any of Litchfield's benefit plans for its directors, officers or employees, any of Litchfield's 12 75 dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of Litchfield'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 Litchfield that ranks pari passu with or junior in interest to the Junior Subordinated Debt Securities deposited in such trust or (iii) make any guarantee payments with respect to any guarantee by Litchfield of the debt securities of any subsidiary of Litchfield (other than pursuant to a preferred securities guarantee) if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debt Securities deposited in such trust, if at such time (x) Litchfield shall be in default with respect to its Guarantee Payments or other payment obligations under the related preferred securities guarantee, (y) there shall have occurred any Declaration Event of Default under the applicable Declaration or (z) Litchfield shall have given notice of its election to defer payments of interest on the Junior Subordinated Debt Securities by extending the interest payment period as provided in the terms of the Junior Subordinated Debt Securities deposited in such trust as trust assets and such period, or any extension thereof, is continuing. In addition, so long as any preferred securities of a trust remain outstanding, Litchfield has agreed (i) to remain the sole direct or indirect owner of all of the outstanding common securities of such trust and not to cause or permit such common securities to be transferred except to the extent permitted by the applicable Declaration; provided that any permitted successor of Litchfield under the Indenture may succeed to Litchfield's ownership of such common securities and (ii) to use reasonable efforts to cause such trust to continue to be treated as a grantor trust for United States federal income tax purposes except in connection with a distribution of Junior Subordinated Debt Securities to the holders of such preferred securities as provided in the applicable Declaration. AMENDMENTS AND ASSIGNMENT Except with respect to any changes that do not adversely affect the rights of holders of preferred securities in any material respect (in which case no consent will be required), each preferred securities guarantee may be amended only with the prior approval of Litchfield and the holders of not less than a majority in liquidation amount of the outstanding preferred securities issued by the applicable trust. The manner of obtaining any such approval of holders of such preferred securities will be set forth in an accompanying prospectus supplement. All guarantees and agreements contained in a preferred securities guarantee shall bind the successors, assignees, receivers, trustees and representatives of Litchfield and shall inure to the benefit of the holders of the preferred securities of the applicable trust then outstanding. Except in connection with a consolidation, merger or sale involving Litchfield that is permitted under the Indenture, Litchfield may not assign its obligations under any preferred securities guarantee. TERMINATION OF THE PREFERRED SECURITIES GUARANTEE Each preferred securities guarantee will terminate and be of no further force and effect as to the preferred securities issued by the applicable trust (i) upon full payment of the redemption price of all preferred securities of such trust, (ii) upon distribution of the Junior Subordinated Debt Securities to the holders of the trust securities of such trust in exchange for all of the trust securities issued by such trust or (iii) upon full payment of the amounts payable in accordance with the applicable Declaration upon liquidation of such trust. Notwithstanding the foregoing, each preferred securities guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of preferred securities issued by the applicable trust must restore payment of any sums paid with respect to such preferred securities or under such preferred securities guarantee. STATUS OF THE PREFERRED SECURITIES GUARANTEE Litchfield's obligation under each preferred securities guarantee to make the Guarantee Payments will constitute an unsecured obligation of Litchfield and will rank (i) subordinate and junior in right of payment to all other liabilities of Litchfield, including the Junior Subordinated Debt Securities, except those made pari passu or 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 Litchfield, which preferred stock will rank 13 76 pari passu with each preferred securities guarantee) now or hereafter issued by Litchfield and to any guarantee now or hereafter entered into by Litchfield in respect of any of its capital stock (other than the most senior preferred stock issued, from time to time, if any, by Litchfield). Litchfield's obligations under each preferred securities guarantee 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 of the preferred securities guarantee and provide for comparable guarantees by Litchfield of payment on preferred securities issued by other trusts, partnerships or other entities affiliated with Litchfield that are financing vehicles of Litchfield and (ii) the debentures or other evidences of indebtedness of Litchfield relating to such preferred securities are junior subordinated, unsecured indebtedness of Litchfield. Litchfield's obligations under each preferred securities guarantee are effectively subordinated to all existing and future liabilities, including trade payables, of Litchfield's subsidiaries, except to the extent that Litchfield is a creditor of the subsidiaries and is recognized as such. Each Declaration provides that each holder of preferred securities by acceptance thereof agrees to the subordination provisions and other terms of the related preferred securities guarantee. Each preferred securities guarantee will constitute a guarantee of payment and not merely of collection (that is, the guaranteed party may institute a legal proceeding directly against the guarantor to enforce its rights under the guarantee without first instituting a legal proceeding against any other person or entity). Each preferred securities guarantee will be deposited with the Guarantee Trustee, as indenture trustee, to be held for the benefit of the holders of the preferred securities issued by the applicable trust. The Guarantee Trustee will have the right to enforce the preferred securities guarantee on behalf of the holders of the preferred securities issued by the applicable trust. The holders of not less than a majority in aggregate liquidation amount of the preferred securities issued by the applicable trust will 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 the related preferred securities guarantee or exercising any trust or other power conferred upon the Guarantee Trustee under such preferred securities guarantee. If the Guarantee Trustee fails to enforce such preferred securities guarantee as above provided, any holder of preferred securities issued by the applicable trust may institute a legal proceeding directly against Litchfield to enforce its rights under such preferred securities guarantee without first instituting a legal proceeding against the applicable trust, the Guarantee Trustee or any other person or entity. Notwithstanding the foregoing, if Litchfield has failed to make a Guarantee Payment, a holder of preferred securities may directly institute a proceeding against Litchfield for enforcement of the applicable preferred securities guarantee for such payment without first instituting a legal proceeding against the applicable trust, the Guarantee Trustee or any other person or entity. MISCELLANEOUS Litchfield will be required to provide annually to the Guarantee Trustee a statement as to the performance by Litchfield of certain of its obligations under each preferred securities guarantee and as to any default in such performance. Litchfield is required to file annually with the Guarantee Trustee an officers' certificate as to Litchfield's compliance with all conditions under each preferred securities guarantee. The Guarantee Trustee, prior to the occurrence of an event of default under a preferred securities guarantee and after the curing or waiving of all events of default that may have occurred, will undertake to perform only such duties as are specifically set forth in the applicable preferred securities guarantee, and no implied covenants will be read into such preferred securities guarantee. After a default with respect to a preferred securities guarantee has occurred, the Guarantee Trustee shall exercise such of the rights and powers vested in it by such preferred securities guarantee, 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. Subject to such provision, the Guarantee Trustee is under no obligation to exercise any of the rights or powers vested in it by a preferred securities guarantee at the request or direction of any holder of the applicable preferred securities unless it is offered security and indemnity satisfactory to it against the costs, expenses and liabilities that might be incurred thereby. 14 77 GOVERNING LAW Each preferred securities guarantee will be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws provisions thereof. DESCRIPTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES Litchfield may issue from time to time one or more series of Junior Subordinated Debt Securities ("Junior Subordinated Debt Securities") under a Junior Subordinated Indenture (the "Indenture") between Litchfield and The Bank of New York, as trustee (the "Indenture Trustee"). The Indenture will be qualified under the Trust Indenture Act. The form of the Indenture has been filed as an exhibit to the registration statement of which this prospectus forms a part. The following description summarizes the material terms of the Indenture, and is qualified in its entirety by reference to the Indenture and the Trust Indenture Act. Whenever particular provisions or defined terms in the Indenture are referred to herein, such provisions or defined terms are incorporated by reference herein. Section and article references used herein are references to provisions of the Indenture. GENERAL The Junior Subordinated Debt Securities will be unsecured junior subordinated obligations of Litchfield. The Indenture does not limit the amount of additional indebtedness Litchfield or any of its subsidiaries may incur. Litchfield's rights and the rights of its creditors, including the holders of Junior Subordinated Debt Securities, to participate in the assets of any subsidiary of Litchfield upon the latter's liquidation or recapitalization will be subject to the prior claims of the subsidiary's creditors, except to the extent that Litchfield may itself be a creditor with recognized claims against the subsidiary. The Indenture does not limit the aggregate principal amount of indebtedness that may be issued thereunder and provides that Junior Subordinated Debt Securities may be issued thereunder from time to time in one or more series. The Junior Subordinated Debt Securities are issuable in one or more series pursuant to an indenture supplemental to the Indenture. In the event Junior Subordinated Debt Securities are issued to a trust in connection with the issuance of trust securities by such trust, such Junior Subordinated Debt Securities subsequently may be distributed pro rata to the holders of such trust securities in connection with the dissolution of such trust at the election of Litchfield or upon the occurrence of certain events described in the prospectus supplement relating to such trust securities. Only one series of Junior Subordinated Debt Securities will be issued to each trust in connection with the issuance of the trust securities by such trust. Reference is made to the prospectus supplement which will accompany this prospectus for the following terms of the series of Junior Subordinated Debt Securities being offered thereby (to the extent such terms are applicable to the Junior Subordinated Debt Securities of such series): (i) the specific designation of such Junior Subordinated Debt Securities, aggregate principal amount, purchase price and premium, if any; (ii) any limit on the aggregate principal amount of such Junior Subordinated Debt Securities; (iii) the date or dates on which the principal of such Junior Subordinated Debt Securities is payable and the right to shorten, extend or defer such date or dates; (iv) the rate or rates at which such Junior Subordinated Debt Securities will bear interest or the method of calculating such rate or rates, if any; (v) 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 dates for the determination of holders to whom interest is payable on any such interest payment dates; (vi) the right, if any, to extend or defer the interest payment periods and the duration of such extension; (vii) the period or periods within which, the price or prices at which, and the terms and conditions upon which, such Junior Subordinated Debt Securities may be redeemed, in whole or in part, at the option of Litchfield; (viii) the obligation, if any, of Litchfield to redeem or purchase such Junior Subordinated Debt Securities 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 the holder thereof and the period or 15 78 periods for which, the price or prices at which, the currency or currencies (including currency unit or units) in which and the terms and conditions upon which, such Junior Subordinated Debt Securities will be redeemed or purchased, in whole or part, pursuant to such obligation; (ix) any exchangeability, conversion or prepayment provisions of the Junior Subordinated Debt Securities; (x) any applicable United States federal income tax consequences, including whether and under what circumstances Litchfield will pay additional amounts on the Junior Subordinated Debt Securities 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 Litchfield will have the option to redeem such Junior Subordinated Debt Securities rather than pay such additional amounts; (xi) the form of such Junior Subordinated Debt Securities; (xii) if other than denominations of $10 or any integral multiple thereof, the denominations in which such Junior Subordinated Debt Securities will be issuable; (xiii) any and all other terms with respect to such series, including any modification of or additions to the events of default or covenants provided for with respect to such series, and any terms which may be required by or advisable under applicable laws or regulations not inconsistent with the Indenture; and (xiv) whether such Junior Subordinated Debt Securities are issuable as a global security, and in such case, the identity of the depositary. (Section 2.01) Unless otherwise indicated in the prospectus supplement relating thereto, the Junior Subordinated Debt Securities will be issued in United States dollars in fully registered form without coupons in denominations of $10 or integral multiples thereof. Junior Subordinated Debt Securities may be presented for exchange and Junior Subordinated Debt Securities in registered form may be presented for transfer in the manner, at the places and subject to the restrictions set forth in the Junior Subordinated Debt Securities and the prospectus supplement. Such services will be provided without charge, other than any tax or other governmental charge payable in connection therewith, but subject to the limitations provided in the Junior Subordinated Debt Securities. Junior Subordinated Debt Securities may bear interest at a fixed rate or a floating rate. Junior Subordinated Debt Securities bearing no interest or interest at a rate that at the time of issuance is below the prevailing market rate will be sold at a discount below their stated principal amount. Special United States federal income tax considerations applicable to any such discounted Junior Subordinated Debt Securities or to certain Junior Subordinated Debt Securities issued at par which are treated as having been issued at a discount for United States federal income tax purposes will be described in the relevant prospectus supplement. CERTAIN COVENANTS OF LITCHFIELD APPLICABLE TO THE JUNIOR SUBORDINATED DEBT SECURITIES If Junior Subordinated Debt Securities are issued to a trust in connection with the issuance of trust securities by such trust, Litchfield will covenant in the Indenture that, so long as the preferred securities issued by the applicable trust remain outstanding, Litchfield will 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 Litchfield, (b) any declaration of a dividend in connection with the implementation of a stockholders' 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 Litchfield's capital stock or the exchange or the conversion of one class or series of Litchfield's capital stock for another class or series of Litchfield's capital stock, (d) the payment of accrued dividends and the purchase of fractional interests in shares of Litchfield'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 Litchfield's common stock related to the issuance of Litchfield's common stock or rights under any of Litchfield's benefit plans for its directors, officers, employees, any of Litchfield's dividend reinvestment plans or stock purchase plans, or any of the benefit plans of any of Litchfield'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 Litchfield that, ranks pari passu with or junior in interest to the Junior Subordinated Debt Securities deposited in such trust or (iii) make any guarantee payments with respect to any guarantee by Litchfield of the debt securities of 16 79 any subsidiary of Litchfield (other than pursuant to a preferred securities guarantee) if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debt Securities deposited in such trust, if at such time (x) Litchfield shall be in default with respect to its Guarantee Payments or other payment obligations under the related preferred securities guarantee, (y) there shall have occurred any Indenture Event of Default with respect to the Junior Subordinated Debt Securities deposited in such trust as trust assets or (z) Litchfield shall have given notice of its election to defer payments of interest on the Junior Subordinated Debt Securities by extending the interest payment period as provided in the terms of the Junior Subordinated Debt Securities deposited in such trust as trust assets and such period, or any extension thereof, is continuing. In addition, if Junior Subordinated Debt Securities are issued to a trust in connection with the issuance of trust securities by such trust, for so long as any preferred securities issued by the applicable trust remain outstanding, Litchfield has agreed (i) to remain the sole direct or indirect owner of all of the outstanding common securities issued by the applicable trust and not to cause or permit such common securities to be transferred except to the extent permitted by the applicable Declaration; provided that any permitted successor of Litchfield under the Indenture may succeed to Litchfield's ownership of the common securities issued by the applicable trust, (ii) to comply fully with all of its obligations and agreements contained in the related Declaration and (iii) to use reasonable efforts to cause the applicable trust to continue to be treated as a grantor trust for United States federal income tax purposes except in connection with a distribution of Junior Subordinated Debt Securities to holders of preferred securities issued by the applicable trust as provided in the related Declaration. SUBORDINATION The payment of principal of, premium, if any, and interest on the Junior Subordinated Debt Securities will, to the extent and in the manner set forth in the Indenture, be subordinated and junior in right of payment to the prior payment in full, in cash or cash equivalents, of all Senior Debt of Litchfield whether outstanding on the date of this prospectus or thereafter incurred. Upon any payment by Litchfield or distribution of assets of Litchfield 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 Litchfield, the holders of all Senior Debt will first be entitled to receive payment in full of all amounts due or to become due thereon before the holders of the Junior Subordinated Debt Securities will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Junior Subordinated Debt Securities. In the event and during the continuation of any default by Litchfield 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 Litchfield with respect to the principal (including redemption payments) of or premium, if any, or interest on the Junior Subordinated Debt Securities 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 Junior Subordinated Debt Securities, then no payments shall be made by Litchfield with respect to the principal (including redemption payments) of or premium, if any, or interest on the Junior Subordinated Debt Securities 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 Indenture Trustee or any holder of Junior Subordinated Debt Securities when such payment is prohibited by the preceding paragraphs, 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. 17 80 By reason of such subordination, in the event of insolvency of Litchfield, funds that would otherwise be payable to holders of Junior Subordinated Debt Securities will be paid to the holders of Senior Debt of Litchfield to the extent necessary to pay such Senior Debt in full, and Litchfield may be unable to meet fully its obligations with respect to the Junior Subordinated Debt Securities. "Debt" is defined to mean, 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 with respect 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 certain 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, 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. "Senior Debt" is defined to mean the principal of (and premium, if any) and interest on all Debt of Litchfield whether created, incurred or assumed before, on or after the date of the Indenture; provided that such Senior Debt shall not include (i) Debt of Litchfield 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 Litchfield which by the terms of the instrument creating or evidencing the same is specifically designated as being subordinated to or pari passu with the Junior Subordinated Debt Securities, and in particular the Junior Subordinated Debt Securities shall rank pari passu with all other debt securities and guarantees issued to any trust, partnership or other entity affiliated with Litchfield which is a financing vehicle of Litchfield in connection with an issuance of preferred securities by such financing entity. INDENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events, which has occurred and is continuing, constitutes an "Indenture Event of Default" with respect to each series of Junior Subordinated Debt Securities: (a) failure for 30 days to pay interest on the Junior Subordinated Debt Securities of such series when due; provided that a valid extension of the interest payment period by Litchfield shall not constitute a default in the payment of interest for this purpose; (b) failure to pay principal of or premium, if any, on the Junior Subordinated Debt Securities of such series when due whether at maturity, upon redemption, by declaration or otherwise; (c) failure for 30 days to pay any sinking fund or analogous fund payment with respect to the Junior Subordinated Debt Securities of such series; (d) failure to duly observe or perform, in any material respect, any other covenant or agreement contained in the Indenture with respect to such series for 90 days after written notice to Litchfield from the Indenture Trustee or the holders of at least 25% in principal amount of the outstanding Junior Subordinated Debt Securities of such series; (e) certain events in bankruptcy, insolvency or reorganization of Litchfield; or (f) any other Indenture Event of Default applicable to the Junior Subordinated Debt Securities of such series. (Section 6.01) 18 81 In each and every such case, unless the principal of all the Junior Subordinated Debt Securities of that series shall have already become due and payable, either the Indenture Trustee or the holders of not less than 25% in aggregate principal amount of the Junior Subordinated Debt Securities of that series then outstanding, by notice in writing to Litchfield (and to the Indenture Trustee if given by such holders), may declare the principal of all the Junior Subordinated Debt Securities 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. (Section 6.01) The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debt Securities of that series have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee or exercising any trust or power conferred on the Indenture Trustee with respect to such series. (Section 6.06) The Indenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Junior Subordinated Debt Securities of that series may declare the principal due and payable immediately upon an Indenture Event of Default with respect to such series, but the holders of a majority in aggregate outstanding principal amount of Junior Subordinated Debt Securities of such series may rescind and annul such declaration and waive the default if the default has been cured and a sum sufficient to pay all matured installments of interest and principal otherwise than by acceleration and any premium has been deposited with the Indenture Trustee. (Sections 6.01 and 6.06) The holders of a majority in aggregate outstanding principal amount of the Junior Subordinated Debt Securities of that series may, on behalf of the holders of all the Junior Subordinated Debt Securities of that series, waive any past default, except a default in the payment of principal, premium, if any, or interest (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal otherwise than by acceleration and any premium has been deposited with the Indenture Trustee) or a call for redemption of the Junior Subordinated Debt Securities of that series. (Section 6.06) Litchfield is required to file annually with the Indenture Trustee a certificate as to whether or not Litchfield is in compliance with all the conditions and covenants under the Indenture. (Section 5.03) If Junior Subordinated Debt Securities are issued to a trust in connection with the issuance of trust securities of such trust, then under the applicable Declaration an Indenture Event of Default with respect to such series of Junior Subordinated Debt Securities will constitute a Declaration Event of Default. If a Declaration Event of Default under the applicable Declaration has occurred and is continuing and such event is attributable to the failure of Litchfield to pay interest or principal, or premium, if any, on the applicable series of Junior Subordinated Debt Securities on the date such interest, principal or premium is otherwise payable (or in the case of redemption, on the redemption date), then a holder of preferred securities of such trust may directly institute a Holder Direct Action on or after the respective due date specified in the applicable series of Junior Subordinated Debt Securities (see "The Trusts--The Property Trustee"). In connection with such Holder Direct Action, Litchfield will be subrogated to the rights of such holder of preferred securities under the applicable Declaration to the extent of any payment made by Litchfield to such holder of preferred securities in such Holder Direct Action. Except as expressly provided in the preceding sentences or in the applicable prospectus supplement, the holders of preferred securities of such trust will not be able to exercise directly any other remedy available to the holders of the applicable series of Junior Subordinated Debt Securities. MODIFICATION OF THE INDENTURE From time to time Litchfield and the Indenture Trustee may, without the consent of the holders of Junior Subordinated Debt Securities, amend the Indenture or indentures supplemental thereto for one or more of the following purposes: (a) to evidence the succession of another corporation or other entity to Litchfield under the Indenture and the Junior Subordinated Debt Securities and the assumption by such successor corporation or other entity of the obligations of Litchfield thereunder; 19 82 (b) to add further covenants, restrictions, conditions or provisions for the protection of the holders of Junior Subordinated Debt Securities; (c) to cure any ambiguity or to correct or supplement any provision which may be defective or inconsistent with any other provision; (d) to add to, change or eliminate any of the provisions of the Indenture, provided that any such addition, change or elimination shall become effective only after there are no such Junior Subordinated Debt Securities of any series entitled to the benefit of such provision outstanding; (e) to provide for the issuance of Junior Subordinated Debt Securities in coupon form; (f) to evidence and provide for the acceptance of a successor trustee; (g) to qualify or maintain the qualification of the Indenture under the Trust Indenture Act; (h) to establish the form or terms of a series of Junior Subordinated Debt Securities; and (i) to make any addition, change or elimination of any provision of the Indenture that does not adversely affect the rights of any holder of Junior Subordinated Debt Securities in any material respect. (Section 9.01) The Indenture contains provisions permitting Litchfield and the Indenture Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Junior Subordinated Debt Securities of each series affected by such modification, to modify the Indenture or any supplemental indenture affecting the rights of the holders of such Junior Subordinated Debt Securities; provided that no such modification may, without the consent of the holder of each outstanding Subordinated Debt Security affected thereby, (i) extend the fixed maturity of the Junior Subordinated Debt Securities of any series, reduce the principal amount thereof, reduce the rate or extend the time of payment of interest thereon, reduce any premium payable upon the redemption thereof or (ii) reduce the percentage of Junior Subordinated Debt Securities, the holders of which are required to consent to any such modification. (Section 9.02) BOOK-ENTRY AND SETTLEMENT If any Junior Subordinated Debt Securities of a series are represented by one or more global securities (each, a "Global Security"), the applicable prospectus supplement will describe the circumstances, if any, under which beneficial owners of interests in any such Global Security may exchange such interests for Junior Subordinated Debt Securities of such series and of like tenor and principal amount in any authorized form and denomination. Principal of and any premium and interest on a Global Security will be payable in the manner described in the applicable prospectus supplement. The specific terms of the depositary arrangement with respect to any portion of a series of Junior Subordinated Debt Securities to be represented by a Global Security will be described in the applicable prospectus supplement. CONSOLIDATION, MERGER AND SALE The Indenture will provide that Litchfield may not consolidate with or merge into any other person or convey, transfer or lease its properties and assets substantially as an entirety to any person and may not permit any person to merge into or consolidate with Litchfield unless (i) either Litchfield will be the resulting or surviving entity or any successor or purchaser is a corporation, limited liability company, partnership or trust organized under the laws of the United States of America, any State or the District of Columbia, and any such successor or purchaser expressly assumes Litchfield's obligations under the Junior Subordinated Debt Securities and the Indenture and (ii) immediately after giving effect to the 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 10.01) 20 83 DEFEASANCE AND DISCHARGE Under the terms of the Indenture, Litchfield will be discharged from any and all obligations in respect of a series of the Junior Subordinated Debt Securities (except in each case for certain obligations to register the transfer or exchange of such Junior Subordinated Debt Securities, replace stolen, lost or mutilated Junior Subordinated Debt Securities of such series, maintain paying agencies and hold moneys for payment in trust) if (i) Litchfield irrevocably deposits with the Indenture Trustee cash or U.S. Government Obligations or a combination thereof, as trust funds in an amount certified to be sufficient to pay at maturity (or upon redemption) the principal of, premium, if any, and interest on all outstanding Junior Subordinated Debt Securities of such series; (ii) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which Litchfield is a party or by which it is bound; (iii) Litchfield delivers to the Indenture Trustee an opinion of counsel to the effect that the holders of the Junior Subordinated Debt Securities of such series will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance and discharge and that such defeasance and discharge will not otherwise alter holders' United States federal income tax treatment of principal, premium and interest payments on such Junior Subordinated Debt Securities of such series (such opinion must be based on a ruling of the Internal Revenue Service or a change in United States federal income tax law occurring after the date of the Indenture, since such a result would not occur under current tax law); (iv) Litchfield has delivered to the Indenture Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the defeasance and discharge contemplated by such provision have been complied with; and (v) no event or condition shall exist that pursuant to the applicable subordination provisions, would prevent Litchfield from making payments of principal of, premium, if any, and interest on the Junior Subordinated Debt Securities at the date of the irrevocable deposit referred to above. (Section 11.01) GOVERNING LAW The Indenture and the Junior Subordinated Debt Securities will be governed by the laws of the State of New York, without regard to the conflicts of laws principles thereof. (Section 13.05) INFORMATION CONCERNING THE INDENTURE TRUSTEE The Indenture Trustee, prior to the occurrence of an Indenture Event of Default and after the curing of all Indenture Events of Default undertakes to perform only such duties as are specifically set forth in the Indenture and, after an Indenture Event of Default has occurred (which has not been cured or waived), shall exercise such of the rights and powers vested in it by the 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. (Section 7.01) Subject to such provision, the Indenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Junior Subordinated Debt Securities, unless offered security or indemnity satisfactory to it by such holder against the costs, expenses and liabilities that might be incurred thereby. (Section 7.02) The Indenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance 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 the Indenture or adequate indemnity against such risk is not reasonably assured to it. (Section 7.01) Litchfield and its subsidiaries maintain commercial banking and trust relationships with the Indenture Trustee and its affiliates. MISCELLANEOUS Litchfield will have the right at all times to assign any of its rights or obligations under the Indenture to an affiliate; provided that, in the event of any such assignment, Litchfield will remain jointly and severally liable for all such obligations. Subject to the foregoing, the Indenture will be binding upon and 21 84 inure to the benefit of the parties thereto and their respective successors and assigns. The Indenture provides that it may not otherwise be assigned by the parties thereto other than by Litchfield to a successor or purchaser pursuant to a consolidation, merger, sale or conveyance permitted by the Indenture. (Section 13.11) PLAN OF DISTRIBUTION Litchfield may sell any series of Junior Subordinated Debt Securities and each trust may sell its preferred securities (the Junior Subordinated Debt Securities and the preferred securities are collectively referred to herein as the "Offered Securities") being offered hereby in any of three ways (or in any combination thereof): (i) through underwriters or dealers; (ii) directly to a limited number of purchasers or to a single purchaser; or (iii) through agents. The prospectus supplement with respect to any Offered Securities will set forth the terms of the offering of such Offered Securities, including the name or names of any underwriters, dealers or agents and the respective amounts of such Offered Securities underwritten or purchased by each of them, the initial public offering price of such Offered Securities and the proceeds to Litchfield or the applicable trust, as the case may be, from such sale, any discounts, commissions or other items constituting compensation from Litchfield or the applicable trust, as the case may be, and any discounts, commissions or concessions allowed or reallowed or paid to dealers and any securities exchanges on which such Offered Securities may be listed. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. If underwriters are used in the sale of any Offered Securities, such Offered Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Such Offered Securities may be either offered to the public through underwriting syndicates represented by managing underwriters, or directly by underwriters. Unless otherwise set forth in the prospectus supplement, the obligations of the underwriters to purchase such Offered Securities will be subject to certain conditions precedent and the underwriters will be obligated to purchase all of such Offered Securities if any are purchased. Offered Securities may be sold directly by Litchfield or a trust, as the case may be, or through agents designated by Litchfield or such trust, as the case may be, from time to time. Any agent involved in the offer or sale of Offered Securities in respect of which this prospectus is delivered will be named, and any commissions payable by Litchfield or the applicable trust, as the case may be, to such agent will be set forth, in the prospectus supplement. Unless otherwise indicated in the prospectus supplement, any such agent will be acting on a best efforts basis for the period of its appointment. If so indicated in the prospectus supplement, Litchfield or the applicable trust, as the case may be, will authorize underwriters, dealers or agents to solicit offers by certain purchasers to purchase Offered Securities from Litchfield or the applicable trust, as the case may be, at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth the commission payable for solicitation of such contracts. Agents and underwriters may be entitled under agreements entered into with Litchfield and the applicable trust to indemnification by Litchfield and the applicable trust against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the agents or underwriters may be required to make in respect thereof. Agents and underwriters may be customers of, engage in transactions with, or perform services for Litchfield, the applicable trust and/or any of their affiliates in the ordinary course of business. Certain persons participating in the offering may engage in transactions that stabilize, maintain or otherwise affect the price of the Offered Securities. In connection with the offering, the underwriters or agents, as the case may be, may purchase and sell the Offered Securities in the open market. These 22 85 transactions may include overallotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with the offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Offered Securities; and syndicate short positions involve the sale by the underwriters or agents, as the case may be, of a greater number of Offered Securities than they are required to purchase from Litchfield or the applicable trust, as the case may be, in the offering. The underwriters may also impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers for the Offered Securities sold for their account may be reclaimed by the syndicate if such Offered Securities are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Offered Securities, which may be higher than the price that might otherwise prevail in the open market, and, if commenced, may be discontinued at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. For a description of these activities, see "Plan of Distribution" or "Underwriting" in the relevant prospectus supplement. Unless otherwise indicated in the prospectus supplement, Litchfield does not intend to list any of the Offered Securities on a national securities exchange. No assurances can be given that there will be a market for the Offered Securities. LEGAL MATTERS Unless otherwise indicated in the applicable prospectus supplement, certain matters of Delaware law relating to the validity of the preferred securities, the enforceability of the applicable Declaration and the formation of the trusts will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel to the trusts and Litchfield. The validity of the applicable Preferred Securities Guarantee and the Junior Subordinated Debt Securities offered hereby will be passed upon for Litchfield by Hutchins, Wheeler & Dittmar, A Professional Corporation, Boston, Massachusetts and for the Underwriters by Bass, Berry & Sims PLC, Nashville, Tennessee. Certain legal matters may also be passed upon by John J. Malloy, Esq., Senior Vice President, General Counsel and Clerk of Litchfield. James Westra,, a shareholder of Hutchins, Wheeler & Dittmar, is a Director of Litchfield. Mr. Westra owns 1,735 shares of Litchfield's common stock and has options to acquire another 7,512 shares. EXPERTS The consolidated financial statements of Litchfield Financial Corporation incorporated by reference in Litchfield's Annual Report (Form 10-K) for the year ended December 31, 1998, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein and incorporated herein by reference. Such financial statements are, and audited financial statements to be included in subsequently filed documents will be, incorporated herein in reliance upon the reports of Ernst & Young LLP pertaining to such financial statements (to the extent covered by consents filed with the Securities and Exchange Commission) given on the authority of such firm as experts in accounting and auditing. 23 86 [LITCHFIELD FINANCIAL CORPORATION LOGO] 87 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses in connection with the issuance and distribution of the securities being registered hereby are estimated as follows: Registration fee under Securities Act....................... $ 27,800 Nasdaq listing fee.......................................... $ 51,223* Legal fees and expenses..................................... $150,000* Accounting fees and expenses................................ $ 20,000* Printing and engraving...................................... $100,000* Trustees fees and expenses.................................. $ 15,000* NASD Fee.................................................... $ 10,500 Miscellaneous............................................... $ 5,477* -------- Total............................................. $380,000* ========
- --------------- * Amounts are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 67 of Chapter 156B of the General Laws of the Commonwealth of Massachusetts provides as follows: "Section 67. Indemnification of directors, officers, employees and other agents of a corporation, and persons who serve at its request as directors, officers, employees or other agents of another organization, or who serve at its request in any capacity with respect to any employee benefit plan, may be provided by it to whatever extent shall be specified in or authorized by (i) the articles of organization or (ii) a by-law adopted by the stockholders or (iii) a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. Except as the articles of organization or by-laws otherwise require, indemnification of any persons referred to in the preceding sentence who are not directors of the corporation may be provided by it to the extent authorized by the directors. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under this section which undertaking may be accepted without reference to the financial ability of such person to make repayment. Any such indemnification may be provided although the person to be indemnified is no longer an officer, director, employee or agent of the corporation or of such other organization or no longer serves with respect to any such employee benefit plan. No indemnification shall be provided for any person with respect to any matter as to which he shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. The absence of any express provision for indemnification shall not limit any right of indemnification existing independently of this section. A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or other agent of another organization or with respect to any employee benefit plan, against any liability incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability." II-1 88 Article 7 of the Amended and Restated By-Laws of Litchfield provides that: Each director and officer (and his heirs and personal representatives) shall be indemnified by Litchfield against any Expenses incurred by him in connection with any action, suit or proceeding, civil or criminal, brought or threatened in or before any court, tribunal, administrative or legislative body or agency in which he is involved as a result of his serving or having served as a director or officer, except as limited by law or with respect to a proceeding as to which it shall have been adjudicated that he did not act in good faith in the reasonable belief that his action was in the best interests of Litchfield. "Expense" means any fine or penalty, and any liability fixed by a judgment, order, decree or award in such a proceeding and any professional fees and other disbursements reasonably incurred in connection with such a proceeding. Article Sixth of the Restated Articles of Organization of Litchfield provides that: No Director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any statutory provision or other law imposing such liability, except for liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the Director derived an improper personal benefit. The directors and officers of Litchfield are insured against liabilities which they incur in their capacity as such under policies of insurance carried by Litchfield. ITEM 16. EXHIBITS
EXHIBIT NUMBER DOCUMENT DESCRIPTION - ------- -------------------- 1.1 Form of Underwriting Agreement 4.1 Form of Junior Subordinated Indenture (the "Junior Subordinated Indenture") between Litchfield and The Bank of New York, as Trustee 4.2.1* Declaration of Trust of Litchfield Capital Trust I 4.2.2* Declaration of Trust of Litchfield Capital Trust II 4.3 Form of Amended and Restated Declaration of Trust 4.4.1* Certificate of Trust of Litchfield Capital Trust I 4.4.2* Certificate of Trust of Litchfield Capital Trust II 4.5 Form of Preferred Security (included in Exhibit 4.3) 4.6 Form of Supplemental Indenture to the Junior Subordinated Indenture 4.7 Form of Junior Subordinated Debt Security (included in Exhibit 4.6) 4.8 Form of Preferred Securities Guarantee 5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation 5.2.1* Opinion of Richards, Layton & Finger, P.A. relating to Litchfield Capital Trust I 5.2.2* Opinion of Richards, Layton & Finger, P.A. relating to Litchfield Capital Trust II 8.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to certain tax matters 12.1* Statement re: Computation of Ratios 23.1 Consent of Ernst & Young LLP 23.2* Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in Exhibit 5.1) 23.3* Consent of Richards, Layton & Finger, P.A. (included in Exhibits 5.2.1 and 5.2.2) 24.1* Power of Attorney
II-2 89
EXHIBIT NUMBER DOCUMENT DESCRIPTION - ------- -------------------- 25.1* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as the Trustee under the Junior Subordinated Indenture 25.2* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Property Trustee, relating to Litchfield Capital Trust I 25.3* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Property Trustee, relating to Litchfield Capital Trust II 25.4* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Guarantee Trustee, relating to Litchfield Capital Trust I 25.5* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Guarantee Trustee, relating to Litchfield Capital Trust II
- --------------- * Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. Provided, however, that paragraphs (1)(i) and (1)(ii) of this section do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new II-3 90 registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant further undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 91 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on the 28th day of April, 1999. LITCHFIELD FINANCIAL CORPORATION By: /s/ RICHARD A. STRATTON ---------------------------------- RICHARD A. STRATTON, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ RICHARD A. STRATTON President, Chief Executive April 28, 1999 - ----------------------------------------------------- Officer, and Director RICHARD A. STRATTON /s/ HEATHER A. SICA Executive Vice President and April 28, 1999 - ----------------------------------------------------- Director HEATHER A. SICA /s/ RONALD E. RABIDOU Executive Vice President, Chief April 28, 1999 - ----------------------------------------------------- Financial Officer and RONALD E. RABIDOU Treasurer /s/ JOHN A. COSTA Executive Vice President and April 28, 1999 - ----------------------------------------------------- Director JOHN A. COSTA /s/ GERALD SEGEL Director April 28, 1999 - ----------------------------------------------------- GERALD SEGEL /s/ JAMES WESTRA Director April 28, 1999 - ----------------------------------------------------- JAMES WESTRA
II-5 92 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Litchfield Capital Trust I certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on April 28, 1999. LITCHFIELD CAPITAL TRUST I By: Litchfield Financial Corporation, as Sponsor By: /s/ RONALD E. RABIDOU -------------------------------- Name: Ronald E. Rabidou Title: Executive Vice President, Chief Financial Officer and Treasurer II-6 93 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Litchfield Capital Trust II certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on April 28, 1999. LITCHFIELD CAPITAL TRUST II By: Litchfield Financial Corporation, as Sponsor By: /s/ RONALD E. RABIDOU -------------------------------- Name: Ronald E. Rabidou Title: Executive Vice President, Chief Financial Officer and Treasurer II-7 94 INDEX TO EXHIBITS
EXHIBIT NUMBER DOCUMENT DESCRIPTION - ------- -------------------- 1.1 Form of Underwriting Agreement 4.1 Form of Junior Subordinated Indenture (the "Junior Subordinated Indenture") between Litchfield and The Bank of New York, as trustee 4.2.1* Declaration of Trust of Litchfield Capital Trust I 4.2.2* Declaration of Trust of Litchfield Capital Trust II 4.3 Form of Amended and Restated Declaration of Trust 4.4.1* Certificate of Trust of Litchfield Capital Trust I 4.4.2* Certificate of Trust of Litchfield Capital Trust II 4.5 Form of Preferred Security (included in Exhibit 4.3) 4.6 Form of Supplemental Indenture to the Junior Subordinated Indenture 4.7 Form of Junior Subordinated Debt Security (included in Exhibit 4.6) 4.8 Form of Preferred Securities Guarantee 5.1* Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation 5.2.1* Opinion of Richards, Layton & Finger, P.A. relating to Litchfield Capital Trust I 5.2.2* Opinion of Richards, Layton & Finger, P.A. relating to Litchfield Capital Trust II 8.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation, as to certain tax matters 12.1* Statement re: Computation of Ratios 23.1 Consent of Ernst & Young LLP 23.2* Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in Exhibit 5.1) 23.3* Consent of Richards, Layton & Finger, P.A. (included in Exhibits 5.2.1 and 5.2.2) 24.1* Power of Attorney 25.1* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as the Trustee under the Junior Subordinated Indenture 25.2* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Property Trustee, relating to Litchfield Capital Trust I 25.3* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Property Trustee, relating to Litchfield Capital Trust II 25.4* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Guarantee Trustee, relating to Litchfield Capital Trust I 25.5* Statement of Eligibility under the Trust Indenture Act of The Bank of New York, as Guarantee Trustee, relating to Litchfield Capital Trust II
- --------------- * Previously filed. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 Exhibit 1.1 LITCHFIELD CAPITAL TRUST I % TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY) GUARANTEED BY LITCHFIELD FINANCIAL CORPORATION ------------------------------------------------ UNDERWRITING AGREEMENT May __, 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 __________ (the "Firm Securities") and, at the election of the Underwriters, up to an additional ___________ (the "Optional Securities"), of ______% Series A Trust 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 ___________ (or ____________ assuming full exercise by the Underwriters of the over-allotment option described herein) of its Common Securities (liquidation amount $10 per common security) (the "Common Securities," and, collectively with the Preferred Securities, the "Trust Securities"), $___________ aggregate principal amount (or $____________ aggregate principal amount assuming full exercise by the Underwriters of the over-allotment option described herein) of ____% Series A Junior Subordinated Debentures due ___________ (the "Subordinated Debentures") of the Company, to be issued pursuant 2 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 a Trust Agreement (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 "Administrative 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 Administrative 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 No.'s 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 2 3 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 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 any Underwriter 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 3 4 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 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 4 5 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 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 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 5 6 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 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. 6 7 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 of 1933, as amended (the "Securities Act") or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder (the "Rules and Regulations"). l. The Company has full legal right, power and authority to authorize the offering of the Guarantee and the Subordinated Debentures, 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. 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 Company's capital stock conforms to the description 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 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. 7 8 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," 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 8 9 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. 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 9 10 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. 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, 10 11 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 Company in connection with the offering, the sale or resale of the Preferred Securities or the Company Common Stock issuable upon exercise or conversion of Preferred Securities and the Subordinated Debentures. The Company acknowledges that the Underwriters may engage in passive market making transactions on The Nasdaq Stock Market's National Market (the "Nasdaq National Market"). 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 11 12 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. 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, plus interest accrued from the First Closing Date. 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 12 13 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 Underwriters' 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 their 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 the Underwriters 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. 13 14 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 $____ per Preferred Security for the Preferred Securities to be delivered by the Company at such Closing Date. 3. OFFERING BY THE UNDERWRITER. 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, covenant and agree 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' reasonable opinion, may be necessary or advisable in connection with the distribution of the Preferred Securities; and the Company 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 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 14 15 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 Trusts 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 may reasonably request. The Company and Trusts 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 15 16 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 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) 16 17 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, (c) any shares of Company common stock, or (d) any other securities which are convertible into, or exercisable or exchangeable for, any of (a) through (c) above, without the prior consent of Tucker Anthony for a period of 180 days after the date of the Effective Prospectus. 17 18 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 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, A Professional Corporation, 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 and legal investment 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 any of 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 its 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: 18 19 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 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 Shares, 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' 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 our knowledge, 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 19 20 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 our knowledge, 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 our knowledge, 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 our knowledge, 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. 20 21 (4) 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. 21 22 (5) 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 or the Trust 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 or the Trust 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. (6) 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 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. (7) 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 22 23 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. (8) 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. (9) 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 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 23 24 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 have been addressed in the legal opinion of even date herewith of Orrick Herrington & Sutcliffe (a copy of which is being delivered to you herewith), this opinion is given in reliance on, and subject to any limitations in, such opinion. In the case of the aforementioned opinion, we have relied, with your permission, upon such opinion without independent investigation. To the extent that matters discussed above have been addressed in the legal opinion of even date herewith of Thomas P. McHugh, Esq. (a copy of which is being delivered to you herewith), this opinion is given in reliance on, and subject to any limitations in, such opinion. In the case of the aforementioned opinion, we have relied, with your permission, upon such opinion without independent investigation. To the extent that matters discussed above have been addressed in the legal opinion of even date herewith of John J. Malloy, Esq. (a copy of which is being delivered to you herewith), this opinion is given in reliance on, and subject to any limitations in, such opinion. In the case of the aforementioned opinion, we have relied, with your permission, upon such opinion without independent investigation. d. Richards, Layton & Finger, P.A., special Delaware counsel for the Trust, shall have furnished to you their written opinions, 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. 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. 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. 24 25 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. We note that the Securityholders may be obligated, pursuant to the Trust Agreement, (a) to provide indemnity and security in connection with and pay taxes or governmental charges arising from transfers of certificates evidencing the Preferred Security certificates and the issuance of replacement Preferred Security certificates, and (b) to provide security and indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and powers under the Trust Agreement. 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 Prospectus under the caption "The Trusts" and in the Final 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. 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. 25 26 e. Hutchins, Wheeler & Dittmar, A Professional Corporation, 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: i. under then current law and assuming full compliance with the terms of the Trust Agreement and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Trust will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation; and ii. 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 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 26 27 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. 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 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 27 28 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 subsidiaries, 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 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 28 29 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. j. On or after the date hereof, none of the Company's debt securities or the Preferred Securities are rated by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act. k. On or after the date hereof there shall not have occurred any of the following: (i) trading in securities on the New York Stock Exchange, the American 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; (ii) if at or prior to the Closing Date trading in securities of the Company shall have been suspended; or (iii) 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 such as in the judgment of the Underwriters makes it impracticable or inadvisable to proceed with the offering or the delivery of the Preferred Securities on the terms and in the manner contemplated in the Registration Statement. 29 30 l. 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 the Underwriters 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 Representatives shall reasonably request. m. 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 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. 30 31 The obligations 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. 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 each Underwriter and each such controlling person for any legal or other expenses reasonably incurred by the Underwriter 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 31 32 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 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 32 33 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 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 such 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 is 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. Neither the Underwriters nor any person controlling the Underwriters shall 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. 33 34 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. 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 34 35 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 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. 35 36 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 any of the Underwriters, shall be mailed or delivered or telegraphed and confirmed in writing to Tucker Anthony Incorporated, 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. 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. 36 37 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: 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: 37 38 SCHEDULE I UNDERWRITERS NUMBER OF FIRM SECURITIES UNDERWRITERS TO BE PURCHASED - ----------------------------------------------------------- ---------------- Tucker Anthony Cleary Gull................................. Ferris, Baker Watts Incorporated........................... ---------------- Total Firm Securities to be Purchased............. ================ 38 EX-4.1 3 FORM OF JUNIOR SUBORDINATED INDENTURE 1 EXHIBIT 4.1 LITCHFIELD FINANCIAL CORPORATION AND THE BANK OF NEW YORK, AS TRUSTEE JUNIOR SUBORDINATED INDENTURE DATED AS OF ___________, ____ JUNIOR SUBORDINATED DEBENTURES 2
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.......................... 10 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........................................................ 18 ARTICLE 3 Redemption of Debentures and Sinking Fund Provisions Section 3.01. Redemption........................................................... 19 Section 3.02. Notice of Redemption................................................. 19 Section 3.03. Payment Upon Redemption.............................................. 20 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............................ 21 ARTICLE 4 Particular Covenants of the Company Section 4.01. Payment of Principal of (and Premium, if any) and Interest on Debentures............................................... 22
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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, Trustee 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
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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
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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 Satisfaction 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 Immunity of Incorporators, Stockholders, Officers and Directors Section 12.01. Incorporators, Stockholders, Officers and Directors of Company Exempt From Individual Liability............................. 52 ARTICLE 13 Miscellaneous 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................................... 52 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................................... 53 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
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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 Subordination 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 7 THIS JUNIOR SUBORDINATED INDENTURE, is dated as of the ___ day of _________, ____, 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: 8 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 9 "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 10 "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 11 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 12 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 13 "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 14 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 15 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 16 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 17 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 Interest 11 18 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 19 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 13 20 Debenture or Debentures of the same series which the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (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 14 21 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 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, 15 22 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. 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 16 23 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. 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 17 24 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. (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. 18 25 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 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 19 26 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 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 20 27 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 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. 21 28 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 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 22 29 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 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. 23 30 (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. (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 24 31 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 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. 25 32 (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. (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; 26 33 (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; (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 27 34 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 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 28 35 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 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 29 36 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, 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; 30 37 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 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. 31 38 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. (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 32 39 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 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 33 40 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. - ----------------------------------------- (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 34 41 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; (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; 35 42 (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 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. 36 43 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 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 37 44 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. 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 38 45 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 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 39 46 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. (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 40 47 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, 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 41 48 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 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 42 49 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 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, 43 50 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 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 44 51 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; (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 45 52 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 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 46 53 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 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 47 54 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 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 48 55 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 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; 49 56 (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 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 50 57 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 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. 51 58 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. 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 52 59 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. 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 53 60 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 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. 54 61 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, 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. 55 62 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. 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 56 63 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. 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 57 64 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 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 58 65 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. 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 66 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 By: ------------------------------------- Name and Title: THE BANK OF NEW YORK, as Trustee By: ------------------------------------- Name and Title: STATE OF COUNTY OF BEFORE ME, the undersigned authority, on this day of _____________, ____, personally appeared ________________________ 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 day of , . ----- --------- ---- ----------------------------------- Notary Public My Commission Expires: STATE OF COUNTY OF BEFORE ME, the undersigned authority, on this day of _____________, ____, personally appeared _______________________ 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 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. 60 67 GIVEN UNDER MY HAND AND SEAL THIS _____ day of _________, ____. ----------------------------------- Notary Public My Commission Expires: 61 EX-4.3 4 FORM OF AMENDED AND RESTATED DECLARATION OF TRUST 1 EXHIBIT 4.3 AMENDED AND RESTATED DECLARATION OF TRUST OF LITCHFIELD CAPITAL TRUST I DATED AS OF ___________, ____ 2 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 First Closing Date ............................................. 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 3 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 Option Closing Date ............................................ 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 4 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 5 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 6 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 7 AMENDED AND RESTATED DECLARATION OF TRUST OF LITCHFIELD CAPITAL TRUST I AMENDED AND RESTATED DECLARATION OF TRUST (this "Declaration") dated and effective as of __________, ____ by Richard A. Stratton, 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 [ ], 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 [ ]; 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. 8 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 9 "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. "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 "____% Junior Subordinated Debentures due [ ]". "Definitive Preferred Security Certificates" has the meaning set forth in 3 10 Section 9.04. "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. "First Closing Date" means the First Closing Date as specified in the Underwriting Agreement. "Fiscal Year" has the meaning specified in Section 11.01. "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 _________, ____ between Litchfield Financial and the Debenture Trustee as supplemented by the _______ Supplemental Indenture thereto dated as of ____________, ____, 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 11 "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 12 (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 __________, ____ 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 13 "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 14 "Super Majority" has the meaning specified in Section 2.06(a)(ii). "Supplemental Indenture" means the _____ Supplemental Indenture dated as of ________, ____ 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 __________, ____ among the Trust, the Sponsor, Tucker Anthony Cleary Gull and Ferris, Baker Watts Incorporated, as representatives of the several underwriters named therein. ARTICLE 2 Trust Indenture Act Section 2.01. Trust Indenture Act; Application. 8 15 (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 16 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 17 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 act, vote or consent of the 11 18 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 19 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 ___________ Preferred Securities having an aggregate liquidation amount of $__________, against receipt of the aggregate purchase price of such Preferred Securities of $___________, and (ii) to the Sponsor, one or more Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of ________ Common Securities having an aggregate liquidation amount of $____________, against receipt of the aggregate purchase price of such Common Securities of $___________. 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 Underwriting Agreement, in an aggregate amount of up to ___________ Preferred Securities having an aggregate liquidation amount of up to $__________, against receipt of the aggregate purchase price of such Preferred Securities of up to $___________ 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 ________ Common Securities having an aggregate liquidation amount of up to $____________, against receipt of the aggregate purchase price of such Common Securities of up to $___________. 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 $___________, 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 $___________. 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 $___________, 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 $___________. 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 13 20 or cause the Trust not to be classified for United States Federal income tax purposes as a grantor trust. 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 simultaneous issuances of both Preferred Securities and Common Securities on each 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 in the 14 21 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 22 (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 23 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 24 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 25 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 liquidation 19 26 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 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 27 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 28 (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 29 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. (f) All moneys received by the Property Trustee shall, until used or applied as 23 30 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 31 (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 No. 333-______) (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 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, ______________, ___________, and _____________ 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's 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- 25 32 in-fact and 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 33 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 34 (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, disbursements 28 35 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 36 (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 37 (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 38 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 5.01 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 39 (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 of their 33 40 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 41 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 42 (c) The Certificates shall be signed on behalf of the Trust by one or more 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 one or more of 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, one or more of 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 one or more 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, one or more of 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 43 (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 44 (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 45 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 46 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, one or more 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 47 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 48 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 49 (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 50 (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 51 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 relating 45 52 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 53 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 54 (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 55 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 56 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: ------------------------------ Name: Title: --------------------------------------- Ronald E. Rabidou, as Regular Trustee --------------------------------------- Heather A. Sica, as Regular Trustee --------------------------------------- John J. Malloy, as Regular Trustee THE BANK OF NEW YORK, as Property Trustee By: ------------------------------------ Name: Title: THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By:------------------------------------ Name: Title: 50 57 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. THE BANK OF NEW YORK (DELAWARE), not in its individual capacity, but solely as Delaware Trustee By:___________________________________________________ Name: Title: THE BANK OF NEW YORK, not in its individual capacity but solely as Property Trustee 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 ______________________________________________________ 51 58 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 ____________, ____ (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. _________ (_______) Preferred Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of ___________________________________________ Dollars ($___________), and each with a liquidation amount with respect to the assets of the Trust of $10 per Preferred Security, and __________ (__________) Preferred Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of _________ Dollars ($_________) and each with a liquidation amount with respect to the assets of the Trust of $10 per Preferred Security for issuance upon the exercise of the option granted to the Underwriters solely to cover over-allotments, if any, are hereby designated as "____% 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 ___________, _____ and will be payable quarterly in arrears, on ______, ______, _____ and _____ of each year, commencing 52 59 on ________________, ____, 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 payment shall be made on 53 60 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 61 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 _________, ____, 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 62 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 ____________, ____ 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 _________, ____, 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 _________, ____. (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 63 (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 64 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, Section 3 of Exhibit B or Section 3 of Exhibit C, 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 65 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 66 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 pro 60 67 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 68 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 69 (______) 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 70 ------------------------------------- Heather A. Sica, as Regular Trustee ------------------------------------- John J. Malloy, as Regular Trustee Dated: Countersigned and Registered: The Bank of New York Transfer Agent and Registrar By: --------------------------- Authorized Signatory 64 71 [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 72 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 73 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 ____________, ____ (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. _________ (_______) Common Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of ___________________________________________ Dollars ($___________), and each with a liquidation amount with respect to the assets of the Trust of $10 per Common Security, and __________ (__________) Common Securities of the Trust with an aggregate liquidation amount at any time outstanding with respect to the assets of the Trust of __________ Dollars ($__________), 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 "____% 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 $_____________ 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 ____% (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 74 (b) Distributions on the Common Securities will accumulate from ___________, ____ and will be payable quarterly in arrears, on ______, ______, _____ and _____ of each year commencing on ________________, ____, 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 Distribution payable on such date will be 68 75 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 76 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 _________, ____, 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 Securities with 70 77 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 ____________, ____ 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 _________, ____, 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 _________, ____. (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 of 71 78 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 79 (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 80 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 81 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 82 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 83 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 84 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 85 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) 79 EX-4.6 5 FORM OF SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.6 LITCHFIELD FINANCIAL CORPORATION AND THE BANK OF NEW YORK, AS TRUSTEE SUPPLEMENTAL INDENTURE NO. 1 DATED AS OF , 1999 ---------- TO JUNIOR SUBORDINATED INDENTURE DATED AS OF __________, 1999 % SERIES A JUNIOR SUBORDINATED DEBENTURES DUE 2029 -- $ ------------ 2 SUPPLEMENTAL INDENTURE NO. 1, dated as of the __________ day of __________, 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 __________, 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 __% Series A 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 April 12, 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 __________, 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 __% Series A Trust Preferred Securities (the "Preferred Securities") and sell such Preferred Securities to the underwriters set forth in that certain Underwriting Agreement dated__________, 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 3 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 4 (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__________, 1999; (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 5 (21) "Preferred Securities Guarantee" means the Guarantee Agreement, dated as of __________, 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 __________, 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 __________, 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 6 \ (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 A DEBENTURES SECTION 2.01. TITLE OF DEBENTURES. There shall be and is hereby authorized a series of Debentures designated as the "__% Series A 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 $__________; 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 __________, 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 6 7 Additional Interest and Compounded Interest, if any) on the Series A Debentures held by the 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 __% per annum from __________, 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 (__%), compounded quarterly ("Compounded Interest"), payable (subject to the provisions of Article Four) quarterly in arrears 7 8 on June 30, September 30, December 31 and March 31 of each year (each an "Interest Payment Date"), 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 9 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 10 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 11 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 12 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 13 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 14 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 15 No. $ [CUSIP NO. ] ------------------------- LITCHFIELD FINANCIAL CORPORATION -- % SERIES A 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 June 30, September 30, December 31 and March 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 16 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 17 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: -------------------------------- Name: Title: Attest: By: -------------------------------- Name: Title: 17 18 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 19 (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 __% Series A 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 20 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 21 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 22 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 23 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: By: -------------------------------- -------------------------------- Name: Name: Title: Title: 23 24 Attest: THE BANK OF NEW YORK, as Trustee By: By: -------------------------------- -------------------------------- Name: Name: Title: Title: 24 EX-4.8 6 FORM OF PREFERRED SECURITIES GUARANTEE 1 EXHIBIT 4.8 LITCHFIELD FINANCIAL CORPORATION GUARANTEE AGREEMENT LITCHFIELD CAPITAL TRUST I DATED AS OF , 1999 ----------- 2 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.......................... 8 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.........................................11 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
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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
4 GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of __________, 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 ______________, 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 $_________ aggregate liquidation amount of its __% 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 $__________ 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 5 (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 "_____% 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 6 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 ______ __, 1999 between the Guarantor and The Bank of New York, as trustee, as supplemented by the ________ Supplemental Indenture thereto dated as of ___________, 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 7 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 8 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 9 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. 7 10 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. 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 11 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 12 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 13 (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 14 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 15 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 16 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 17 (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 18 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 19 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 20 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 21 (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 22 THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. LITCHFIELD FINANCIAL CORPORATION By: -------------------------------- Name: Title: THE BANK OF NEW YORK, as Guarantee Trustee By: -------------------------------- Name: Title: 20 EX-8.1 7 OPINION OF HUTCHINS, WHEELER & DITTMAR 1 EXHIBIT 8.1 April 28, 1999 Litchfield Financial Corporation 430 Main Street Williamstown, MA 01267 Litchfield Capital Trust I 430 Main Street Williamstown, MA 01267 Re: Tax Opinion ----------- Ladies and Gentlemen: We have acted as counsel to Litchfield Financial Corporation, a Massachusetts corporation ("Litchfield"), and Litchfield Capital Trust I and Litchfield Capital Trust II, each of which is a Delaware statutory business trust (collectively, the "Trusts"), relating to the registration of (i) $100,000,000 aggregate principal amount of Junior Subordinated Debentures of Litchfield and (ii) $100,000,000 aggregate liquidation amount of preferred securities of the Trusts. In that connection, reference is made to the registration statement under the Securities Act of 1933 of Litchfield and the Trusts on Form S-3 (Registration Nos. 333-76285, 333-76285-01 and 333-76285-02) filed with the Securities and Exchange Commission (the "Commission") on April 14, 1999 as amended by Pre-effective Amendment No. 1 thereto filed with Commission on April 28, 1999, and to the prospectus and prospectus supplement included therein (the "Prospectus") and (the "Prospectus Supplement"), respectively, describing the Series A Trust Preferred Securities, of Litchfield Capital Trust I (the "Preferred Securities") and the Series A Junior Subordinated Debentures due 2029 of Litchfield (the "Junior Subordinated Debentures"). Capitalized terms not otherwise defined herein shall have the meaning specified in the Prospectus and the Prospectus Supplement. As such counsel, we have examined, among other things, originals or copies identified to our satisfaction as being true copies of the originals of the following documents: 2 (a) the Prospectus; and (b) the Prospectus Supplement. In addition, we have assumed that the Junior Subordinated Debentures and the Preferred Securities will be issued in accordance with the operative documents described in the Prospectus and the Prospectus Supplement. Based on the assumptions set forth under the heading "Certain Federal Income Tax Consequences" in the Prospectus Supplement we are of the opinion that statements of legal conclusion set forth under such heading reflect the material federal income tax consequences of the ownership and disposition of the Preferred Securities. This opinion represents only our best judgment as to such consequences and is not binding on the Internal Revenue Service or any court of law, tribunal, administrative agency or other governmental body. The conclusions are based on the Internal Revenue Code of 1986, as amended, final and temporary Treasury Regulations promulgated thereunder, published administrative positions of the Internal Revenue Service, and reported judicial decisions, all as existing on the date hereof. No assurance can be given that future legislative, administrative or judicial changes or interpretations, on either a prospective or retroactive basis, would not adversely affect the accuracy of such statements of legal conclusion in the Prospectus Supplement. Nevertheless, by rendering this opinion, we undertake no responsibility to advise you of any new developments in the application or interpretation of the federal income tax laws. Our opinion is limited to tax matters specifically covered hereby and may be relied upon only with respect to such matters. This opinion letter shall not be construed as or deemed to be a guaranty or insuring agreement. This opinion is intended for the benefit of Litchfield, the Trusts, and the holders of the Preferred Securities and may not be relied upon or utilized for any other purpose or by any other person and may not be made available to any other person without our prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to this Firm in the section captioned "Certain Federal Income Tax Consequences" in the Prospectus Supplement. In giving this consent, we do not thereby admit that we come within the category of a person whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission thereunder. Very truly yours, /s/ Hutchins, Wheeler & Dittmar HUTCHINS, WHEELER & DITTMAR A Professional Corporation EX-23.1 8 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3 Nos. 333-76258, 333-76258-01 and 333-76258-02) of Litchfield Financial Corporation for the registration of Trust Preferred Securities, and to the incorporation by reference therein of our report dated January 30, 1999, with respect to the consolidated financial statements of Litchfield Financial Corporation incorporated by reference in its Annual Report (Form 10-K) for the year ended December 31, 1998, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Boston, Massachusetts April 28, 1999 -----END PRIVACY-ENHANCED MESSAGE-----