AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-37963

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
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             MASSACHUSETTS                               04-3023928
    (STATE OR OTHER JURISDICTION OF         (IRS EMPLOYER IDENTIFICATION NUMBER)
    INCORPORATION OR ORGANIZATION)

789 MAIN ROAD, STAMFORD, VERMONT 05352, (802) 694-1200
 (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
P.O. BOX 488, WILLIAMSTOWN, MASSACHUSETTS 01267
 (802) 694-1200
COPIES TO:

    JAMES WESTRA, ESQ.                           BOB F. THOMPSON, ESQ.
HUTCHINS, WHEELER & DITTMAR                       BASS, BERRY & SIMS
A PROFESSIONAL CORPORATION                    2700 FIRST AMERICAN CENTER
    101 FEDERAL STREET                        NASHVILLE, TENNESSEE 37238
BOSTON, MASSACHUSETTS 02110                         (615) 742-6200
     (617) 951-6600	

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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 investment plans, check the following box. [ ] 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 REGISTRANT HEREBY AMENDS 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 OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997

PROSPECTUS
$45,000,000
[LITCHFIELD FINANCIAL CORPORATION LOGO]
% NOTES DUE 2002

The % Notes due November 1, 2002 (the "Notes") offered hereby are unsecured general obligations of Litchfield Financial Corporation ("Litchfield" or the "Company"). Interest on the Notes is payable monthly in arrears commencing December 1, 1997.
The Company will redeem, at any time, at par plus accrued interest, Notes tendered by the personal representative or surviving joint tenant, tenant in common or tenant by the entirety of a deceased holder within 60 days of presentation of the necessary documents, up to an annual maximum of $25,000 per holder and up to an annual aggregate maximum of 5% of the original aggregate principal amount of the Notes. The Company will redeem Notes tendered by other beneficial holders commencing December 1, 1998 and on each anniversary thereof subject to the per holder and aggregate limitations. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 1999, at the redemption prices set forth herein, plus accrued interest.
The Notes will be issued in integral multiples of $1,000 and will be in fully registered form. No sinking fund will be established for the Notes. See "Description of the Notes." The minimum principal amount of Notes which may be purchased is $2,000. The Company has been advised by the Underwriters that each Underwriter intends to make a market in the Notes; however, the Notes will not be listed for trading on the Nasdaq stock market or any exchange, and no assurance can be given that an active trading market for the Notes will develop.

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR MATTERS WHICH SHOULD BE CAREFULLY
CONSIDERED BY INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

=============================================================================
                          PRICE TO       UNDERWRITING      PROCEEDS TO
                           PUBLIC        DISCOUNT(1)        COMPANY(2)
-----------------------------------------------------------------------------
Per Note.............           100%          %                 %
-----------------------------------------------------------------------------
Total(3).............   $45,000,000           $                 $
=============================================================================	

(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $340,000.
(3) The Company has granted the Underwriters an option exercisable within 30 days from the date of this Prospectus to purchase up to $6,750,000 aggregate principal amount of additional Notes on the same terms and conditions set forth above to cover over-allotments, if any. If all such Notes are purchased, the total Price to Public, Underwriting Discount and Proceeds to the Company will be $51,750,000, $ and $ , respectively. See "Underwriting."

The Notes are offered by the Underwriters, subject to receipt and acceptance of such Notes by the Underwriters and subject to their rights to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. The Notes will bear interest from the date of delivery to the Underwriters. It is expected that the Notes will be ready for delivery on or about November , 1997.
MCDONALD & COMPANY
SECURITIES, INC.
J.C. BRADFORD & CO.
TUCKER ANTHONY
INCORPORATED
 , 1997

[Graphic to Come]
This map shows the percentage distribution by state of the principal amount of the Serviced Portfolio as of June 30, 1997 based on the location of the collateral securing the loans. In addition to the locations shown on the map, approximately 1.4% of the principal amount of the Serviced Portfolio is secured by collateral located in the Caribbean Islands.
THE UNDERWRITERS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2

PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus or incorporated herein by reference. Unless otherwise indicated, the information set forth herein does not reflect the exercise of the Underwriters' over-allotment option.
THE COMPANY
Litchfield Financial Corporation is a specialty finance company which provides financing to creditworthy borrowers for assets not typically financed by banks. The Company provides such financing by purchasing consumer loans, by making loans to businesses secured by consumer receivables and by making other secured loans to businesses.
Currently, the Company provides financing for the purchase of rural and vacation properties and vacation ownership interests, popularly known as timeshare interests ("Purchased Loans"). The Company also provides financing to rural land dealers, timeshare resort developers and others secured by consumer receivables ("Hypothecation Loans"), to dealers and developers for the acquisition and development of rural land and timeshare resorts ("A&D Loans") and for other secured loans ("Other Loans").
Purchased Loans consist of "Land Loans" and "VOI Loans." Land Loans are typically secured by three to twenty acre rural parcels. Land Loans are secured by property located in 34 states, predominantly in the southern United States. VOI Loans finance the purchase of ownership interests in fully furnished vacation properties. VOI Loans are secured by property located in 17 states, predominantly in California, Florida and Pennsylvania. The Company requires most dealers or developers from whom it buys loans to guarantee repayment or replacement of any loan in default. Ordinarily, the Company retains a percentage of the purchase price as a reserve until the loan is repaid.
The Company makes Hypothecation Loans to rural land dealers, resort developers and others secured by consumer receivables consisting primarily of Land Loans and VOI Loans. Hypothecation Loans typically have advance rates of 75% to 85% of the current balance of the pledged consumer receivables and variable interest rates based on the prime rate plus 2% to 4%. Hypothecation Loans are secured by receivables from timeshare resorts and rural land in 25 states.
The Company also makes A&D Loans to rural land dealers with whom it has ongoing relationships for the acquisition and subdivision of rural land and to resort developers for the acquisition and development of timeshare resorts. At the time the Company makes A&D Loans, it receives a right of first refusal to purchase or finance the related consumer receivables generated by the sale of the subdivided land or timeshare interests. A&D Loans typically have loan to value ratios of 60% to 80% and variable interest rates based on the prime rate plus 2% to 4%. A&D Loans are secured by timeshare resort developments and rural land subdivisions in 19 states.
The principal sources of the Company's revenues are (i) interest and fees on loans, (ii) gain from the sale of loans and (iii) servicing and other fee income. Gains on sales of loans are based on the difference between the allocated cost basis of the assets sold and the proceeds, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. Because a significant portion of the Company's revenue is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations. As of June 30, 1997, the Company had sold $222.2 million, $51.5 million and $15.3 million of Land Loans, VOI Loans and Hypothecation Loans, respectively, since its inception.
As of June 30, 1997, the Company serviced loans with a principal balance of $282.0 million (the "Serviced Portfolio"), of which the Company owned $143.2 million. As of June 30, 1997 the Serviced Portfolio was comprised of 60.8% Purchased Loans, 24.2% Hypothecation Loans, 11.8% A&D Loans and 3.2% Other Loans. The average principal balance of the Land Loans in the Serviced Portfolio was $12,600 with a weighted average remaining maturity of 12.0 years and a weighted average interest rate of 12.2%. Approxi-

3

mately 79.7% of such loans had fixed rates of interest. The average principal balance of the VOI Loans in the Serviced Portfolio was $3,800 with a weighted average remaining maturity of 3.9 years and a weighted average interest rate of 14.6%. Approximately 96.9% of such loans had fixed rates of interest. The average principal balance of the Hypothecation Loans in the Serviced Portfolio was $1,004,000 with a weighted average interest rate of 12.1% and an average advance rate of 74.0%. Approximately 6.5% of such loans had a fixed rate of interest. The average principal balance of the A&D Loans in the Serviced Portfolio was $742,000 with a weighted average interest rate of 11.9% and an average loan to value ratio of 64%. Approximately 19.1% of such loans had fixed rates of interest. As of June 30, 1997, loans 30 days or more past due were .99% of the Serviced Portfolio. For the six months ended June 30, 1997, annualized net charge-offs were .69% of the average Serviced Portfolio.
THE OFFERING
Securities Offered......... $45,000,000 principal amount of % Notes due 2002 assuming no exercise of the Underwriters' over-allotment option to purchase up to an additional $6,750,000 principal amount of Notes. The Notes are unsecured, general obligations of the Company. See "Description of the Notes" for a more detailed description of the Notes offered hereby.

Maturity...................  November 1, 2002

Interest Payment Dates.....  Interest is payable monthly in arrears commencing
                             December 1, 1997.

Redemption at Noteholder's
  Options..................  UPON THE DEATH OF A NOTEHOLDER: Notes tendered by
                             the personal representative or surviving joint
                             tenant or tenant in common of a deceased beneficial
                             owner shall be redeemed within 60 days of tender,
                             at par plus accrued interest, subject to the amount
                             limitations set forth below.

                             BY OTHER NOTEHOLDERS: Notes tendered by the last
                             day of September each year shall be redeemed at par
                             plus accrued interest, subject to the amount
                             limitations set forth below, on December 1 each
                             year, commencing in 1998.

                             AMOUNT LIMITATIONS: Of the Notes tendered, the
                             Company is only required to redeem, for the period
                             from date of issue until December 1, 1998 and for
                             each twelve month period ending December 1
                             thereafter, an aggregate maximum of 5% of the
                             original aggregate principal amount of the Notes
                             issued under the Indenture, subject to a maximum of
                             $25,000 per beneficial owner, per period. Notes
                             tendered by representatives of deceased beneficial
                             owners will be redeemed prior to Notes tendered by
                             other Noteholders.

Redemption Upon Occurrence
of Certain Events..........  In the event of a Fundamental Structural Change or
                             a Significant Subsidiary Disposition (as those
                             terms are defined herein), each holder of Notes
                             will have the right to require the Company to
                             purchase the holder's Notes at a price equal to the
                             principal amount thereof plus accrued interest;
                             provided that such right shall not be exercisable
                             if within 40 days after the occurrence of such
                             event the Notes have received a specified rating
                             from a nationally recognized statistical rating
                             organization. See "Description of the
                             Notes -- Noteholders' Right to Prepayment After
                             Fundamental Structural Change or Significant
                             Subsidiary Disposition."

--------------------------------------------------------------------------------
                                        4	

Redemption at Company's
  Option...................  The Notes may be redeemed at the Company's option
                             on or after November 1, 1999, at the redemption
                             prices set forth herein.

Sinking Fund...............  None.

Certain Covenants of the
  Company..................  In the Indenture, the Company agrees to certain
                             limitations on dividends and additional
                             indebtedness, to maintain certain levels of cash or
                             marketable investment securities, and, unless
                             certain conditions are met, to redeem Notes
                             tendered by Noteholders in the event of certain
                             transactions relating to the Company.

Use of Proceeds............  The net proceeds from the sale of the Notes will be
                             used to redeem the Company's outstanding 10% Notes
                             due 2002 (the "1992 Notes"), repay other
                             indebtedness of the Company and for general
                             corporate purposes.

Investment
Considerations.............  Certain factors should be considered in connection
                             with the purchase of the Notes. See "Risk Factors."

Trustee....................  The Bank of New York, New York, New York.	

5

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                                                           SIX MONTHS ENDED
                                                          YEAR ENDED DECEMBER 31,                              JUNE 30,
                                       --------------------------------------------------------------   -----------------------
STATEMENT OF INCOME DATA(1):              1992         1993         1994         1995         1996         1996         1997
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
Revenues:
  Interest and fees on loans.......... $    2,305   $    4,330   $    5,669   $   11,392   $   15,396   $    6,640   $    9,329
  Gain on sale of loans...............      2,501        4,550        4,847        5,161        7,331        3,354        4,067
  Servicing and other fee income......        368          501          459          908        1,456          757          702
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Total revenues....................      5,174        9,381       10,975       17,461       24,183       10,751       14,098
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
Expenses:
  Interest expense....................        629        2,717        3,158        6,138        7,197        3,297        5,042
  Salaries and employee benefits......      1,017        1,350        1,776        2,798        3,233        1,382        1,646
  Other operating expenses............        810        1,017        1,164        2,120        3,225        1,282        1,756
  Provision for loan losses...........        270          620          559          890        1,954          954          735
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Total expenses....................      2,726        5,704        6,657       11,946       15,609        6,915        9,179
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
Income before income taxes and
  extraordinary item..................      2,448        3,677        4,318        5,515        8,574        3,836        4,919
Provision for income taxes............        942        1,426        1,619        2,066        3,301        1,474        1,894
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
Income before extraordinary item......      1,506        2,251        2,699        3,449        5,273        2,362        3,025
Extraordinary item(2).................         --           --         (126)          --           --           --           --
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Net income........................ $    1,506   $    2,251   $    2,573   $    3,449   $    5,273   $    2,362   $    3,025
                                       ==========   ==========   ==========   ==========   ==========   ==========   ==========
Primary per common share amounts:
  Income before extraordinary item.... $      .42   $      .53   $      .63   $      .76   $      .93   $      .41   $      .52
  Extraordinary item..................         --           --         (.03)          --           --           --           --
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Net income per share.............. $      .42   $      .53   $      .60   $      .76   $      .93   $      .41   $      .52
                                       ==========   ==========   ==========   ==========   ==========   ==========   ==========
Primary weighted average number of
  shares outstanding..................  3,572,289    4,224,402    4,280,006    4,522,983    5,674,264    5,672,999    5,840,526
Fully-diluted per common share
  amounts:
  Income before extraordinary item.... $      .42   $      .53   $      .63   $      .76   $      .92   $      .41   $      .52
  Extraordinary item..................         --           --         (.03)          --           --           --           --
                                       ----------   ----------   ----------   ----------   ----------   ----------   ----------
    Net income per share.............. $      .42   $      .53   $      .60   $      .76   $      .92   $      .41   $      .52
                                       ==========   ==========   ==========   ==========   ==========   ==========   ==========
Fully-diluted weighted average number
  of shares outstanding...............  3,589,264    4,246,945    4,280,006    4,543,009    5,736,467    5,698,866    5,861,180
Cash dividends declared per common
  share............................... $       --   $      .02   $      .03   $      .04   $      .05   $       --   $       --

OTHER STATEMENT OF INCOME DATA:
Net income as a percentage of
  revenues............................       29.1%        24.0%        23.4%        19.8%        21.8%        22.0%        21.5%
Ratio of EBITDA to interest
  expense(3)..........................       5.45         2.81         3.31         2.44         2.90         2.24         2.88
Ratio of earnings to fixed
  charges(4)..........................       4.89         2.35         2.37         1.90         2.19         2.16         1.98
Return on average assets(5)...........        6.2%         5.0%         4.3%         3.7%         4.0%         4.0%         3.7%
Return on average equity(5)...........       20.3%        17.0%        16.4%        16.6%        13.3%        12.2%        13.4%	

(1) Certain amounts in the 1992 through 1996 financial information have been restated to conform to the 1997 presentation.
(2) Reflects loss on early extinguishment of a portion of the 1992 Notes net of applicable tax benefit of $76,000.
(3) The ratio of EBITDA to interest expense is required to be calculated for the twelve month period immediately preceding each calculation date, pursuant to the terms of the indentures to which the Company is subject. EBITDA is defined as earnings before deduction of taxes, depreciation, amortization and interest expense (but after deduction for any extraordinary item).
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and extraordinary item and fixed charges. Fixed charges consist of interest charges and the amortization of debt expense.
(5) The return on average assets and average equity for the six month periods are calculated on an annualized basis.

6

SUMMARY CONSOLIDATED FINANCIAL INFORMATION - (CONTINUED)
 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                DECEMBER 31,
                                           ------------------------------------------------------    JUNE 30,
BALANCE SHEET DATA(6):                      1992       1993        1994        1995        1996        1997
                                           -------    -------    --------    --------    --------    --------
Total assets.............................  $33,980    $54,444    $ 63,487    $112,459    $152,689    $175,310
Loans held for sale(7)...................    5,086      5,931      11,094      14,380      12,260      20,475
Other loans(7)...........................    3,501     10,306      15,790      33,613      79,996      91,750
Retained interests in loan sales(7)......    9,652     11,764      11,996      22,594      28,912      27,759
Secured debt.............................       --         --       5,823       9,836      43,727      40,683
Unsecured debt...........................   16,210     32,302      29,896      47,401      46,995      66,382
Stockholders' equity.....................   11,813     14,722      16,610      37,396      42,448      47,603	

                                                                DECEMBER 31,
                                           -------------------------------------------------------   JUNE 30,
OTHER FINANCIAL DATA:                        1992       1993       1994        1995        1996        1997
                                           --------   --------   ---------   ---------   ---------   ---------
Loans purchased and originated(8)........  $ 32,214   $ 42,410   $  59,798   $ 121,046   $ 133,750   $  83,311
Loans sold(8)............................    24,632     28,099      40,116      65,115      54,936      39,501
Serviced Portfolio(9)....................    58,968     84,360     105,013     176,650     242,445     281,965
Loans serviced for others................    43,623     59,720      72,731     111,117     129,619     138,771
Dealer/developer reserves................     3,512      4,926       6,575       9,644      10,628      10,626
Allowance for loan losses(10)............       498      1,064       1,264       3,715       4,528       5,541
Allowance ratio(11)......................       .84%      1.26%       1.20%       2.10%       1.87%       1.97%
Delinquency ratio(12)....................       .94%       .61%        .93%       1.92%       1.34%        .99%
Net charge-off ratio(8)(13)..............       .37%       .69%        .38%        .67%        .94%        .69%
Non-performing asset ratio(14)...........      1.09%      1.48%       1.02%       1.35%       1.57%        .98%	

(6) In 1997 the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Consequently, certain amounts included in the 1992 through 1996 financial statements have been reclassified to conform with the 1997 presentation: "Subordinated pass through certificates held to maturity," "Excess servicing asset" and "Allowance for loans sold" have been reclassified as "Retained interests in loan sales." In addition, "Loans held for investment" have been reclassified as "Other loans."
(7) Amount indicated is net of allowance for losses and recourse obligation on retained interests in loan sales.
(8) During the relevant period.
(9) The Serviced Portfolio consists of the principal amount of loans serviced by or on behalf of the Company.
(10) The allowance for loan losses includes allowance for losses under the recourse provisions of loans sold. See Note 4 to financial statements.
(11) The allowance ratio is the allowances for loan losses divided by the amount of the Serviced Portfolio.
(12) The Delinquency ratio is the amount of delinquent loans divided by the amount of the Serviced Portfolio. Delinquent loans are those which are 30 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned.
(13) The net charge-off ratio is determined by dividing the amount of net charge-offs for the period by the average Serviced Portfolio for the period. The June 30, 1997 amount is calculated on an annualized basis.
(14) The non-performing asset ratio is determined by dividing the sum of the amount of those loans which are 90 days or more past due and other real
estate owned by the amount of the Serviced Portfolio.

7

RECENT DEVELOPMENTS
Net income for the nine months ended September 30, 1997 increased 20% to $5,186,000 from $4,308,000 for the same period in 1996. Net income per share for the nine months ended September 30, 1997 increased 16% to $.87 from $.75 for the same period in 1996. For the third quarter of 1997 net income increased 11% to $2,161,000 from $1,946,000 for the third quarter of 1996. For the third quarter of 1997 net income per share increased 6% to $.36 from $.34 for the third quarter of 1996.
The Company's revenues increased 18.4% and 26.1% to $8,263,000 and $22,361,000 for the three and nine month periods ending September 30, 1997, respectively, from $6,977,000 and $17,728,000 for the same periods in 1996.
Originations increased 31.9% and 37.6% to $51,235,000 and $134,546,000 for the three and nine month periods ending September 30, 1997, respectively, from $38,837,000 and $97,789,000 for the same periods in 1996. Originations consisted of $13,619,000 or 26.6% Purchased Loans, $16,690,000 or 32.6% Hypothecation Loans, $16,129,000 or 31.4% A&D Loans and $4,797,000 or 9.4% Other Loans for the three month period ending September 30, 1997. Originations consisted of $46,276,000 or 34.4% Purchased Loans, $46,551,000 or 34.6% Hypothecation Loans, $30,463,000 or 22.6% A&D Loans and $11,256,000 or 8.4% Other Loans for the nine month period ending September 30, 1997.
The Serviced Portfolio increased to $297,098,000 at September 30, 1997, consisting of $174,815,000 or 58.9% Purchased Loans, $71,374,000 or 24.0% Hypothecation Loans, $39,253,000 or 13.2% A&D Loans and $11,656,000 or 3.9% Other Loans. The overall delinquency ratio of the Serviced Portfolio was 1.31% at September 30, 1997 compared to 0.99% at June 30, 1997 and 1.43% at September 30, 1996. The delinquency ratio (calculated on an end of period basis) at June 30, 1997 was lower than usual because the Company acquired two large pools of Purchased Loans at the end of the second quarter of 1997 which increased the amount of the Serviced Portfolio without a corresponding increase in delinquencies. The overall net charge-off ratio of the Serviced Portfolio was 0.70% at September 30, 1997 compared to 0.69% at June 30, 1997 and 1.01% at September 30, 1996.
The Company sold $38,694,000 and $78,195,000 of loans in the three and nine months ended September 30, 1997 compared to $21,582,000 and $45,430,000 in the same periods in 1996. The Company sold $13,229,000 of Purchased Loans and $25,465,000 of Hypothecation Loans in the three months ended September 30, 1997, and $37,405,000 of Purchased Loans and $40,790,000 of Hypothecation Loans in the nine months ended September 30, 1997.
The Company's borrowings under its line of credit were $20,472,000 at September 30, 1997 compared to $34,287,000 at June 30, 1997. There was no change
in the Company's long-term debt during the third quarter of 1997.

8

THE COMPANY
Litchfield Financial Corporation is a specialty finance company which provides financing to creditworthy borrowers for assets not typically financed by banks. The Company provides such financing by purchasing consumer loans, by making loans to businesses secured by consumer receivables and by making other secured loans to businesses.
Currently, the Company provides financing for the purchase of rural and vacation properties and vacation ownership interests, popularly known as timeshare interests ("Purchased Loans"). The Company also provides financing to rural land dealers, timeshare resort developers and others secured by consumer receivables ("Hypothecation Loans"), to dealers and developers for the acquisition and development of rural land and timeshare resorts ("A&D Loans") and for other secured loans ("Other Loans".)
Purchased Loans consist of "Land Loans" and "VOI Loans." Land Loans are typically secured by three to twenty acre rural parcels. Land Loans are secured by property located in 34 states, predominantly in the southern United States. VOI Loans finance the purchase of ownership interests in fully furnished vacation properties. VOI Loans are secured by property located in 17 states, predominantly in California, Florida and Pennsylvania. The Company requires most dealers or developers from whom it buys loans to guarantee repayment or replacement of any loan in default. Ordinarily, the Company retains a percentage of the purchase price as a reserve until the loan is repaid.
The Company makes Hypothecation Loans to rural land dealers, resort developers and others secured by consumer receivables consisting primarily of Land Loans and VOI Loans. Hypothecation Loans typically have advance rates of 75% to 85% of the current balance of the pledged consumer receivables and variable interest rates based on the prime rate plus 2% to 4%. Hypothecation Loans are secured by receivables from timeshare resorts and rural land in 25 states.
The Company also makes A&D Loans to rural land dealers with whom it has ongoing relationships for the acquisition and subdivision of rural land and to resort developers for the acquisition and development of timeshare resorts. At the time the Company makes A&D Loans, it receives a right of first refusal to purchase or finance the related consumer receivables generated by the sale of the subdivided land or timeshare interests. A&D Loans typically have loan to value ratios of 60% to 80% and variable interest rates based on the prime rate plus 2% to 4%. A&D Loans are secured by timeshare resort developments and rural land subdivisions in 19 states.
The principal sources of the Company's revenues are (i) interest and fees on loans, (ii) gain from the sale of loans and (iii) servicing and other fee income. Gains on sales of loans are based on the difference between the allocated cost basis of the assets sold and the proceeds, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. Because a significant portion of the Company's revenue is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations. As of June 30, 1997, the Company had sold $222.2 million, $51.5 million and $15.3 million of Land Loans, VOI Loans and Hypothecation Loans, respectively, since its inception.
As of June 30, 1997, the Company serviced loans with a principal balance of $282.0 million (the "Serviced Portfolio"), of which the Company owned $143.2 million. As of June 30, 1997, the Serviced Portfolio was comprised of 60.8% Purchased Loans, 24.2% Hypothecation Loans, 11.2% A&D Loans and 3.2% Other Loans. The average principal balance of the Land Loans in the Serviced Portfolio was $12,600 with a weighted average remaining maturity of 12.0 years and a weighted average interest rate of 12.2%. Approximately 79.7% of such loans had fixed rates of interest. The average principal balance of the VOI Loans in the Serviced Portfolio was $3,800 with a weighted average remaining maturity of 3.9 years and a weighted average interest rate of 14.6%. Approximately 96.9% of such loans had fixed rates of interest. The average principal balance of the Hypothecation Loans in the Serviced Portfolio was $1,004,000 with a weighted average interest rate of 12.1% and an average advance rate of 74.0%. Approximately 6.5% of such loans had a fixed rate of interest. The average principal balance of the A&D Loans in the Serviced Portfolio was $742,000 with a weighted average interest rate of 11.9% and an average loan to value ratio of 64%. Approximately 19.1% of such loans had fixed rates of interest. As of June 30, 1997, loans 30 days or more past due were .99% of the
9

Serviced Portfolio. For the six months ended June 30, 1997, annualized net charge-offs were .69% of the average Serviced Portfolio.
The Company was founded in November 1988. The Company's strategy has been to build its Serviced Portfolio by acquiring loan portfolios from rural land dealers, resort developers and financial institutions, and by providing loans to such dealers, developers and other businesses secured by consumer receivables. The Company also provides financing to such dealers and developers for the acquisition and development of rural land and timeshare resorts in order to finance additional receivables generated by these A&D loans. As part of its business and financing strategy, the Company 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, the Company pursued this strategy by financing consumer Land Loans through a land dealer network and portfolio acquisitions. Subsequently, the Company extended its strategy to financing consumer VOI Loans and providing Hypothecation Loans to land dealers and resort developers. In 1995, the Company significantly expanded its financing of VOIs 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.
RISK FACTORS
In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an investment in the Notes offered hereby:
General Business Risks. The Company's business is subject to various business risks. The level of the Company's revenues is dependent upon demand for the type of loans purchased, sold and serviced by the Company 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 and purchased by the Company less attractive to borrowers and investors.
Funding and Liquidity. The Company has a constant need for working capital to fund its lending, purchasing and securitization activities and, as a result, generally has experienced negative cash flows from operations. Historically, the Company has funded any negative cash flows from operations by borrowing under secured lines of credit and issuing long-term debt and equity securities. The Company's lines of credit are renewable on one to three year bases. The Company had secured lines of credit totaling $106.0 million with five financial institutions as of June 30, 1997. To date, the Company has issued $71.0 million of long-term debt and has publicly issued $25.6 million of equity securities.
The Company also has a $100.0 million revolving line of credit and sale facility as part of an asset backed commercial paper facility with a multi-seller commercial paper conduit. The facility expires in June 1998. As of June 30, 1997, the outstanding balance of the sold or pledged loans securing this facility was $83.4 million. The Company has an additional revolving line of credit and sale facility of $25.0 million with another multi-seller commercial paper conduit. The facility expires in March 2000. As of June 30, 1997, the outstanding aggregate balance of the sold or pledged loans under the facility was $13.8 million.
There can be no assurance that the Company will continue to be able to obtain financing or raise capital on terms satisfactory to the Company. To the extent the Company cannot raise additional funds, it could have a material adverse impact on its operations and its ability to repay the Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Impact of Economic Cycles. The business risks associated with the Company's business become more acute in an economic slowdown. Such an environment is generally characterized by decreased demand for rural and vacation real estate and VOIs 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 such future slowdowns could adversely affect future operations of the Company. See "Business -- Collections and Delinquencies."
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Interest Rate Risk. The Company's interest and fees on loans, gain on sale of loans and interest expense are affected by changes in interest rates. The Company could be adversely affected 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.
The Company seeks to mitigate a portion of its interest rate risk by attempting to match fixed and variable rate assets and liabilities, instituting interest rate floors and by entering into interest rate swaps on certain of its variable rate assets, and purchasing interest rate caps on certain of its variable rate liabilities.
There can be no assurance that the Company's attempts to mitigate its interest rate risk will be effective.
Competition. The financing of VOIs is highly competitive and many of the Company's competitors have greater financial resources. The Company's strategy will be to service and finance VOIs primarily at small to medium size resorts. The Company believes that financing of such VOIs is less competitive. Nonetheless, there can be no assurance that the Company's strategy will be successful. In addition, the Company may enter new lines of business that may be highly competitive and may have competitors with greater financial resources than the Company.
Credit Risks. The Company's loans are subject to delinquency and default risk. General downturns in the economy and other factors beyond the Company's control may have an adverse effect on the Company's delinquency and default rates. The Company's A&D 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 A&D Loans their development and marketing risk.
The Company's VOI business is subject to certain risks associated with VOI ownership. Although individual VOI owners are obligated to make payments under their notes irrespective of any defect in, damage to, or change in conditions of the vacation resort (such as erosion, construction of adjacent or nearby properties, or environmental problems) or of any breach of contract by the property owners association to provide certain services to the VOI borrowers (including any such breach resulting from a destruction of the resort) or of any other loss of benefits of ownership of their unit week(s) (including cessation of the ability of the borrowers to exchange their time intervals in the resort for time intervals in other unaffiliated resorts), any such 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 VOIs are affected. The costs of foreclosure and resale of unit weeks securing defaulted loans are likely to be substantially higher than such costs for traditional mortgage loans, and this may materially affect the amounts realized by the Company on defaulted loans.
Estimates of Future Prepayment and Default Rates. A significant portion of the Company's revenues historically has been comprised of gains on sales of loans. The gains are recorded in the Company'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 with respect to loans occur more quickly than was projected at the time such 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 with respect to loans sold are greater than estimated, charge-offs would exceed previously estimated amounts and earnings would be charged in the current period.
Expansion of Business. The Company has increased the number and average principal amount of its Hypothecation and A&D Loans. A&D Loans are larger commercial loans to land dealers and resort developers and, consequently, have a greater concentration of credit risk than the Company's Purchased Loans. A&D 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. The Company may seek to limit its exposure to any one developer by participating a portion of an A&D Loan with another lender.
The Company has historically made Hypothecation Loans to land dealers and resort developers secured by Land Loans and VOI Loans, respectively. Hypothecation Loans are commercial loans that have
11

significantly larger balances than the Company'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.
In addition, the Company has recently 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 the Company has relatively less experience with these other types of collateral than with Land Loans or VOI Loans. In addition, these loans may be larger than the Company's average Hypothecation Loans and may provide the Company with an option to take an equity position in the borrower.
Fluctuations in Quarterly Results of Operations. Since gains on sales of loans are a significant portion of the Company's revenues, the timing of loan sales has a significant effect on the Company's quarterly results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Contingent Repurchase Obligations. In connection with certain of the Company's whole loan sales to investors, the Company has committed to repurchase such 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. The Company has also guaranteed payment of mortgage loans included in certain of its mortgage securitization programs. As of June 30, 1997, Litchfield had outstanding contingent repurchase obligations in the aggregate amount of approximately $8.9 million. In addition, when the Company sells mortgage loans through mortgage securitization programs, the Company commits to replace any loans that do not conform to certain representations and warranties included in the operative loan sale documents.
Third Party Servicer. The Company uses a third party servicer to service its loans. The third party servicer's systems and controls support the servicing, collecting and monitoring of the Serviced Portfolio as well as certain accounting and management functions of the Company. There can be no assurance that the third party servicer will continue to provide these services in the future or that its systems and controls will continue to be adequate to support the Company's growth. A failure of the third party servicer's automated systems or its controls over data integrity or accuracy could have a material adverse effect on the Company's operations and financial condition.
Regulation. The operations of the Company 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. In addition, certain states have enacted legislation which restricts the subdivision of rural land and numerous states have enacted regulations in connection with VOIs. Although the Company believes that it is in compliance in all material respects with applicable federal, state and local laws, rules and regulations, there can be no assurance that more restrictive laws, rules and regulations or interpretations thereof will not be adopted in the future which could make compliance much more difficult or expensive, restrict the Company'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 the Company, or otherwise adversely affect the business or prospects of the Company. See "Business -- Regulation."
Environmental Liabilities. In the course of its business, the Company has acquired, and may in the future acquire, properties securing defaulted loans. Although substantially all of the Company's Land Loans are secured by mortgages on rural land, there is a risk that hazardous substances or waste could be discovered on such properties after foreclosure by the Company. In such event, the Company might be required to remove such substances from the affected properties at its sole cost and expense. There can be no assurances that the cost of such removal would not substantially exceed the value of the affected properties or the loans secured by the properties or that the Company would have adequate remedies against the prior owner or other responsible parties, or that the Company would not find it difficult or impossible to sell the affected properties either prior to or following any such removal.
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Dependence on Senior Management. The Company's success depends upon the continued contributions of its senior management. The loss of services of certain of the Company's executive officers could have an adverse effect upon the Company's business. The Company maintains key man insurance on the life of one member of its senior management, Chief Executive Officer and President, Richard A. Stratton.
Limited Market for Notes. The Company has no present intention to have the Notes authorized for quotation on the Nasdaq stock market or any other quotation system or listed on any securities exchange. Although the Company has been advised that the Underwriters currently intend to make a market in the Notes, the Underwriters are under no obligation to do so or to continue any market making activities if commenced. No assurance can be given that an active trading market for the Notes will develop.
Leverage. The issuance of the Notes will increase the Company's leverage to the extent that the proceeds of the Offering are not used to satisfy indebtedness of the Company and/or over time to the extent the Company reborrows on any indebtedness paid down with such proceeds. The consequences of increased leverage include: (i) the Company's increased vulnerability to changes in economic conditions and competition; (ii) the potential limitations on the Company's access to capital markets and ability to refinance its secured financing facilities; and (iii) the dedication of a substantial portion of the Company's available cash to debt service, thereby reducing cash available to fund expanding business operations and future business opportunities.
Limited Covenants in the Indenture; Absence of Sinking Fund. The Indenture pursuant to which the Notes will be issued contains financial and operating covenants including, among others, limitations on the Company's ability to pay dividends, incur additional indebtedness and engage in certain transactions. This includes limitations on certain consolidations, mergers or transfers of all or substantially all of its assets. The covenants in the Indenture are limited and are not designed to protect the Noteholders in the event of a material adverse change in the Company's financial condition or results of operations. Further, the Notes do not have the benefit of any sinking fund payments by the Company. See "Description of the Notes."
13

INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to the Exchange Act, are incorporated in and made a part of this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997.
(c) The definitive Proxy Statement dated March 27, 1997 for the Special Meeting in Lieu of the Annual Meeting of the Company's stockholders held on April 25, 1997.
All reports and any definitive proxy or information statements filed by the Company with the Commission pursuant to Sections 13, 14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the shares offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated herein by reference modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits not specifically incorporated in such documents). Requests for such copies should be directed to Ronald E. Rabidou, Litchfield Financial Corporation, 789 Main Road, Stamford, VT (telephone number: 802-694-1200).
FORWARD-LOOKING STATEMENTS
Except for the historical information contained or incorporated by reference in this Prospectus, the matters discussed or incorporated by reference herein are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risk factors set forth under "Risk Factors" as well as the following: general economic and business conditions; industry trends; changes in business strategy or development plans; availability and quality of management; and availability, terms and deployment of capital. Special attention should be paid to such forward-looking statements including, but not limited to, statements relating to (i) the Company's ability to execute its growth strategies and to realize its growth objectives and (ii) the Company's ability to obtain sufficient resources to finance its working capital needs and provide for its known obligations.
14

USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby are estimated to be $ ($ if the Underwriters' over-allotment option is exercised in full), after deducting the underwriting discount and estimated offering expenses payable by the Company. It is expected that the net proceeds of this Offering will be used to redeem the Company's outstanding 10% Notes due 2002 (the "1992 Notes"), repay other indebtedness of the Company and for general corporate purposes. The Company anticipates such redemption will occur in the quarter ended December 31, 1997 and will result in an extraordinary charge to earnings of approximately $230,000, net of an applicable tax benefit of approximately $145,000. Until used for the purposes indicated, the Company will invest the net proceeds of this Offering in short-term investment-grade interest-bearing securities.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June 30, 1997, and as adjusted to reflect the sale by the Company of $45,000,000 of Notes (assuming the Underwriters' over-allotment option is not exercised) and the application of the net proceeds as set forth under "Use of Proceeds."

                                                                           JUNE 30, 1997
                                                                  -------------------------------
                                                                     ACTUAL        AS ADJUSTED(1)
                                                                  ------------     --------------
Long-term debt:
  1992 Notes(2).................................................  $ 12,785,000       $         --
  1993, 1995 and April 1997 Notes(2)............................    53,597,000         53,597,000
  Notes.........................................................            --         45,000,000
                                                                  ------------       ------------
          Total long-term debt..................................    66,382,000         98,597,000
                                                                  ------------       ------------
Stockholders' equity:
  Preferred stock, $.01 par value; authorized 1,000,000 shares,
     none issued and outstanding................................            --                 --
  Common stock, $.01 par value; authorized 8,000,000 shares,
     5,616,372 shares issued and outstanding(3).................        56,000             56,000
  Additional paid in capital....................................    36,238,000         36,238,000
  Net unrealized gain on retained interests in loan sales.......       523,000            523,000
  Retained earnings.............................................    10,786,000         10,786,000
                                                                  ------------       ------------
          Total stockholders' equity............................    47,603,000         47,603,000
                                                                  ------------       ------------
          Total capitalization(4)...............................  $113,985,000       $146,200,000
                                                                  ============       ============	

(1) The As Adjusted amounts do not reflect an extraordinary charge to earnings of approximately $230,000, net of an applicable tax benefit of approximately $145,000, resulting from the anticipated redemption of the 1992 Notes.
(2) The 1992 Notes, 1993 Notes, 1995 Notes and April 1997 Notes were issued in November 1992, May 1993, March 1995 and April 1997, respectively, and rank on a parity with the Notes.
(3) Does not include 1,188,469 shares reserved for issuance under the Company's stock option plans, of which 786,782 are issuable upon exercise of options outstanding as of June 30, 1997.
(4) Total capitalization includes total stockholders' equity and total long-term debt.
15

SELECTED CONSOLIDATED FINANCIAL INFORMATION
 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                                                               SIX MONTHS ENDED
                                                  YEAR ENDED DECEMBER 31,                          JUNE 30,
                                 ---------------------------------------------------------   ---------------------
                                   1992        1993        1994        1995        1996        1996        1997
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
STATEMENT OF INCOME DATA:(1)
  Revenues:
  Interest and fees on loans.... $   2,305   $   4,330   $   5,669   $  11,392   $  15,396   $   6,640   $   9,329
  Gain on sale of loans.........     2,501       4,550       4,847       5,161       7,331       3,354       4,067
  Servicing and other fee
     income.....................       368         501         459         908       1,456         757         702
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
     Total revenues.............     5,174       9,381      10,975      17,461      24,183      10,751      14,098
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
Expenses:
  Interest expense..............       629       2,717       3,158       6,138       7,197       3,297       5,042
  Salaries and employee
     benefits...................     1,017       1,350       1,776       2,798       3,233       1,382       1,646
  Other operating expenses......       810       1,017       1,164       2,120       3,225       1,282       1,756
  Provision for loan losses.....       270         620         559         890       1,954         954         735
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
     Total expenses.............     2,726       5,704       6,657      11,946      15,609       6,915       9,179
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
Income before income taxes and
  extraordinary item............     2,448       3,677       4,318       5,515       8,574       3,836       4,919
Provision for income taxes......       942       1,426       1,619       2,066       3,301       1,474       1,894
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
Income before extraordinary
  item..........................     1,506       2,251       2,699       3,449       5,273       2,362       3,025
Extraordinary item(2)...........        --          --        (126)         --          --          --          --
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
     Net income................. $   1,506   $   2,251   $   2,573   $   3,449   $   5,273   $   2,362   $   3,025
                                 =========   =========   =========   =========   =========   =========   =========
Primary per common share
  amounts:
  Income before extraordinary
     item....................... $     .42   $     .53   $     .63   $     .76   $     .93   $     .41   $     .52
  Extraordinary item............        --          --        (.03)         --          --          --          --
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
     Net income per share....... $     .42   $     .53   $     .60   $     .76   $     .93   $     .41   $     .52
                                 =========   =========   =========   =========   =========   =========   =========
Primary weighted average number
  of shares outstanding......... 3,572,289   4,224,402   4,280,006   4,522,983   5,674,264   5,672,999   5,840,526
Fully-diluted per common share
  amounts:
  Income before extraordinary
     item....................... $     .42   $     .53   $     .63   $     .76   $     .92   $     .41   $     .52
  Extraordinary item............        --          --        (.03)         --          --          --          --
                                 ---------   ---------   ---------   ---------   ---------   ---------   ---------
     Net income per share....... $     .42   $     .53   $     .60   $     .76   $     .92   $     .41   $     .52
                                 =========   =========   =========   =========   =========   =========   =========
Fully-diluted weighted average
  number of shares
  outstanding................... 3,589,264   4,246,945   4,280,006   4,543,009   5,736,467   5,698,866   5,861,180
Cash dividends declared per
  common share.................. $      --   $     .02   $     .03   $     .04   $     .05   $      --   $      --

OTHER STATEMENT OF INCOME DATA:
Net income as a percentage of
  revenues......................      29.1%       24.0%       23.4%       19.8%       21.8%       22.0%       21.5%
Ratio of EBITDA to interest
  expense(3)....................      5.45        2.81        3.31        2.44        2.90        2.24        2.88
Ratio of earnings to fixed
  charges(4)....................      4.89        2.35        2.37        1.90        2.19        2.16        1.98
Return on average assets(5).....       6.2%        5.0%        4.3%        3.7%        4.0%        4.0%        3.7%
Return on average equity(5).....      20.3%       17.0%       16.4%       16.6%       13.3%       12.2%       13.4%	

(1) Certain amounts in the 1996 through 1996 financial information have been restated to conform to the 1997 presentation.
(2) Reflects loss on early extinguishment of a portion of the 1992 Notes, net of applicable tax benefit of $76,000.
16

(3) The ratio of EBITDA to interest expense is required to be calculated for the twelve month period immediately preceding each calculation date, pursuant to the terms of the indentures to which the Company is subject. EBITDA is defined as earnings before deduction of taxes, depreciation, amortization and interest expense (but after deduction for any extraordinary item).
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and extraordinary item and fixed charges. Fixed charges consist of interest charges and the amortization of debt expense.
(5) The return on average assets and average equity for the six month periods are calculated on an annualized basis.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                             DECEMBER 31,
                                      ----------------------------------------------------------     JUNE 30,
                                       1992        1993         1994         1995         1996         1997
                                      -------     -------     --------     --------     --------     --------
BALANCE SHEET DATA:(6)
Total assets......................    $33,980     $54,444     $ 63,487     $112,459     $152,689     $175,310
Loans held for sale(7)............      5,086       5,931       11,094       14,380       12,260       20,475
Other loans(7)....................      3,501      10,306       15,790       33,613       79,996       91,750
Retained interests in loan
  sales(7)........................      9,652      11,764       11,996       22,594       28,912       27,759
Secured debt......................         --          --        5,823        9,836       43,727       40,683
Unsecured debt....................     16,210      32,302       29,896       47,401       46,995       66,382
Stockholders' equity..............     11,813      14,722       16,610       37,396       42,448       47,603

                                                             DECEMBER 31,
                                      ----------------------------------------------------------     JUNE 30,
                                       1992        1993         1994         1995         1996         1997
                                      -------     -------     --------     --------     --------     --------
OTHER FINANCIAL DATA:
Loans purchased and
  originated(8)...................    $32,214     $42,410     $ 59,798     $121,046     $133,750     $ 83,311
Loans sold(8).....................     24,632      28,099       40,116       65,115       54,936       39,501
Serviced Portfolio(9).............     58,968      84,360      105,013      176,650      242,445      281,965
Loans serviced for others.........     43,623      59,720       72,731      111,117      129,619      138,771
Dealer/developer reserves.........      3,512       4,926        6,575        9,644       10,628       10,626
Allowance for loan losses(10).....        498       1,064        1,264        3,715        4,528        5,541
Allowance ratio(11)...............        .84%       1.26%        1.20%        2.10%        1.87%        1.97%
Delinquency ratio(12).............        .94%        .61%         .93%        1.92%        1.34%         .99%
Net charge-off ratio(8)(13).......        .37%        .69%         .38%         .67%         .94%         .69%
Non-performing asset ratio(14)....       1.09%       1.48%        1.02%        1.35%        1.57%         .98%	

(6) In 1997 the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Consequently, certain amounts included in the 1992 through 1996 financial statements have been reclassified to conform with the 1997 presentation: "Subordinated pass through certificates held to maturity," "Excess servicing asset" and "Allowance for loans sold" have been reclassified as "Retained interests in loan sales." In addition, "Loans held for investment" have been reclassified as "Other loans."
(7) Amount indicated is net of allowance for losses and recourse obligation on retained interests in loan sales.
(8) During the relevant period.
(9) The Serviced Portfolio consists of the principal amount of loans serviced by or on behalf of the Company.
(10) The allowance for loan losses includes allowance for losses under the recourse provisions of loans sold. See Note 4 to financial statements.
(11) The allowance ratio is the allowances for loan losses divided by the amount of the Serviced Portfolio.
(12) The Delinquency ratio is the amount of delinquent loans divided by the amount of the Serviced Portfolio. Delinquent loans are those which are 30 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned.
(13) The net charge-off ratio is determined by dividing the amount of net charge-offs for the period by the average Service Portfolio for the period. The June 30, 1997 amount is calculated on an annualized basis.
(14) The non-performing asset ratio is determined by dividing the sum of the amount of those loans which are 90 days or more past due and other real estate owned by the amount of the Serviced Portfolio.
18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Litchfield Financial Corporation is a specialty finance company which provides financing to creditworthy borrowers for assets not typically financed by banks. The Company provides such financing by purchasing consumer loans, by making loans to businesses secured by consumer receivables and by making other secured loans to businesses.
Currently, the Company provides financing for the purchase of rural and vacation properties and vacation ownership interests, popularly known as timeshare interests. The Company also provides financing to rural land dealers, timeshare resort developers and others secured by consumer receivables, to dealers and developers for the acquisition and development of rural land and timeshare resorts and for other secured loans.
The principal sources of the Company's revenues are (i) interest and fees on loans, (ii) gain from the sale of loans and (iii) servicing and other fee income. Gains on sales of loans are based on the difference between the allocated cost basis of the assets sold and the proceeds received, which includes the fair value of any assets or liabilities that are newly created as a result of the transaction. Because a significant portion of the Company's revenues is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues of certain items included in the Company's statements of income.

                                                                             SIX MONTHS
                                                                                ENDED
                                              YEAR ENDED DECEMBER 31,         JUNE 30,
                                             -------------------------     ---------------
                                             1994      1995      1996      1996      1997
                                             -----     -----     -----     -----     -----
Revenues:
  Interest and fees on loans...............   51.6%     65.2%     63.7%     61.8%     66.2%
  Gain on sale of loans....................   44.2      29.6      30.3      31.2      28.8
  Servicing and other fee income...........    4.2       5.2       6.0       7.0       5.0
                                             -----     -----     -----     -----     -----
                                             100.0     100.0     100.0     100.0     100.0
                                             -----     -----     -----     -----     -----
Expenses:
  Interest expense.........................   28.8      35.2      29.7      30.7      35.8
  Salaries and employee benefits...........   16.2      16.0      13.4      12.8      11.7
  Other operating expenses.................   10.6      12.1      13.3      11.9      12.4
  Provision for loan losses................    5.1       5.1       8.1       8.9       5.2
                                             -----     -----     -----     -----     -----
                                              60.7      68.4      64.5      64.3      65.1
                                             -----     -----     -----     -----     -----
Income before income taxes and
  extraordinary item.......................   39.3      31.6      35.5      35.7      34.9
Provision for income taxes.................   14.7      11.8      13.7      13.7      13.4
Income before extraordinary item...........   24.6      19.8      21.8      22.0      21.5
Extraordinary item.........................   (1.2)       --        --        --        --
                                             -----     -----     -----     -----     -----
Net income.................................   23.4%     19.8%     21.8%     22.0%     21.5%
                                             =====     =====     =====     =====     =====	

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues increased 31.1% to $14,098,000 for the six months ended June 30, 1997, from $10,751,000 for the same period in 1996. Net income for the six months ended June 30, 1997 increased 28.1% to $3,025,000 compared to $2,362,000 for the same period in 1996. Loan originations grew 41.3% to $83,311,000 for the six
19

months ended June 30, 1997 from $58,902,000 for the same period in 1996. The Serviced Portfolio increased 39.7% to $281,965,000 at June 30, 1997 from $201,797,000 at June 30, 1996.
Interest and fees on loans increased 40.5% to $9,329,000 for the six months ended June 30, 1997 from $6,640,000 for the same period in 1996, primarily as the result of the increase in other loans and retained interests in loan sales. The average rate earned on loans owned and retained interests in loan sales decreased to 12.4% at June 30, 1997 from 13.0% at June 30, 1996, primarily due to the effect of the growth in Dealer/Other Loans as a percentage of the Serviced Portfolio. Hypothecation Loan yields are usually less than Land Loan or VOI Loan yields, but Hypothecation Loan servicing costs and loan losses are generally less as well.
Gain on the sale of loans increased 21.3% to $4,067,000 for the six months ended June 30, 1997 from $3,354,000 in the same period in 1996. The volume of loans sold increased 65.6% to $39,501,000 for the six months ended June 30, 1997 from $23,848,000 during the corresponding period in 1996. Gain on sale of loans increased less than the volume of loans sold primarily due to the lower amount of discount relating to loans sold and, to a lesser extent, the lower spread between the coupon rate of the loans sold and the pass-through rate. In addition, the yield on the securitization of Hypothecation Loans in the second quarter was significantly less than the typical yield on sales of consumer receivables, primarily due to shorter average maturities.
Loans serviced for others increased 22.8% to $138,771,000 as of June 30, 1997 from $113,037,000 at June 30, 1996. Servicing and other fee income decreased 7.3% to $702,000 for the six months ended June 30, 1997, from $757,000 for the same period in 1996. For the six months ended June 30, 1997, servicing income decreased despite the increase in loans serviced for others due to a decrease in the average servicing fee per loan.
Interest expense increased 52.9% to $5,042,000 during the six months ended June 30, 1997 from $3,297,000 for the same period in 1996. The increase in interest expense primarily reflects an increase in average borrowings which was only partially offset by a slight decrease in average rates. During the six months ended June 30, 1997, borrowings averaged $103,551,000 at an average rate of 9.1% compared to $63,733,000 at an average rate of 9.3% during the same period in 1996. Interest expense includes the amortization of deferred debt issuance costs.
Salaries and employee benefits increased 19.1% to $1,646,000 for the six months ended June 30, 1997 from $1,382,000 for the same period in 1996 because of an increase in the number of employees in 1997 and, to a lesser extent, an increase in salaries. The number of full time equivalents increased to 66 at June 30, 1997 compared to 53 at June 30, 1996. Personnel costs as a percentage of revenues decreased to 11.7% for the six months ended June 30, 1997 from 12.8% for the same period in 1996 primarily as a result of subcontracting of additional servicing to a third party in April, 1996. As a percentage of the Serviced Portfolio, personnel costs decreased to 0.58% for the six months ended June 30, 1997 from 0.68% for the same period in 1996.
Other operating expenses increased 37.0% to $1,756,000 for the six months ended June 30, 1997 from $1,282,000 for the same period in 1996 primarily as the result of subcontracting of servicing to a third party and growth in the Serviced Portfolio. As a percentage of revenues, other operating expenses increased slightly to 12.4% for the six months ended June 30, 1997 compared to 11.9% for the corresponding period in 1996. As a percentage of the Serviced Portfolio, other operating expenses decreased to 0.62% for the six months ended June 30, 1997 from 0.64% for the same period in 1996.
During the six months ended June 30, 1997, the Company decreased its provision for loan losses 23.0% to $735,000 from $954,000 for the same period in 1996. The provision for loan losses increased less than the increase in loans owned and retained interests in loan sales 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 Land Loans and VOI Loans.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues increased 38.5% to $24,183,000 for the year ended December 31, 1996, from $17,461,000 for the year ended December 31, 1995. Net income for the year ended December 31, 1996 increased 52.9% to $5,273,000 compared to $3,449,000 in 1995. Net income as a percentage of revenues was 21.8% for the year
20

ended December 31, 1996 compared to 19.8% for the year ended December 31, 1995. Loan originations grew 10.5% to $133,750,000 in 1996 from $121,046,000 in 1995. Excluding the 1995 purchase of $41,500,000 of loans from the Government Employees Financial Corporation ("GEFCO"), originations increased 68.1%. The Serviced Portfolio increased 37.2% to $242,445,000 at December 31, 1996 from $176,650,000 at December 31, 1995.
Interest and fees on loans increased 35.2% to $15,396,000 in 1996 from $11,392,000 in 1995, primarily as the result of increases in loans held for investment, subordinated pass-through certificates and fees related to Hypothecation Loan originations. The average rate earned on loans owned and subordinated pass-through certificates decreased to 12.5% for the year ended December 31, 1996 from 13.2% in 1995, primarily due to the effect of the growth in Hypothecation Loans as a percentage of the loan portfolio. Hypothecation Loan yields are usually less than Land Loan or VOI Loan yields, but Hypothecation Loan servicing costs and loan losses are generally less as well. Fees on loans representing an adjustment of yield comprised 7.2% of interest and fees on loans in 1996 compared to 6.5% in 1995. Such fees increased 48.4% in 1996 compared to 1995 primarily as the result of the increase in Hypothecation Loans.
Gain on the sale of loans increased 42.0% to $7,331,000 in 1996 from $5,161,000 in 1995. The volume of loans sold decreased 15.6% to $54,936,000 for the year ended 1996 from $65,115,000 in 1995. The primary reason for the increase in the gain on sale of loans despite the decrease in the volume of loans sold was that the Company did not recognize any gain on the sale of $27,155,000 of VOI Loans purchased from GEFCO in the second quarter of 1995.
Loans serviced for others increased 16.7% to $129,619,000 at December 31, 1996 from $111,117,000 at December 31, 1995. Servicing and other fee income increased 60.4% to $1,456,000 for the year ended December 31, 1996, from $908,000 in 1995 because of the higher average Serviced Portfolio in 1996. In connection with the Company's continued growth, the Company decided to subcontract its servicing rights in order to avoid incurring additional fixed overhead costs associated with such servicing. Accordingly, the Company subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995 and the remaining loans in April 1996.
Interest expense increased 17.3% to $7,197,000 for the year ended December 31, 1996, from $6,138,000 in 1995. The increase in interest expense primarily reflects an increase in average borrowings which was only partially offset by a decrease in average rates. During the year ended December 31, 1996, borrowings averaged $71,800,000 at an average rate of 9.3% as compared to $60,500,000 and 9.7%, respectively, during 1995. Interest expense includes the amortization of deferred debt issuance costs.
Salaries and employee benefits increased 15.6% to $3,233,000 for the year ended December 31, 1996 from $2,798,000 in 1995 because of increases in incentive compensation, salaries and the average number of employees in 1996. The average number of employees increased to 56 in 1996 from 45 in 1995, primarily as the result of the GEFCO acquisition. The number of full time equivalents increased to 57 at December 31, 1996 compared to 55 at December 31, 1995. The small increase in the number of full-time equivalents despite the significant growth in originations and the Serviced Portfolio described above is partially the result of subcontracting servicing to a third party. As a result, personnel costs as a percentage of revenues decreased to 13.4% for the year ended December 31, 1996 compared to 16.0% in 1995.
Other operating expenses increased 52.1% to $3,225,000 for the year ended December 31, 1996 from $2,120,000 for the same period in 1995 primarily as the result of the subcontracting of servicing to a third party. As a percentage of revenues, other operating expenses increased to 13.3% in 1996 compared to 12.1% in 1995.
During 1996, the Company increased its provision for loan losses 119.6% to $1,954,000 from $890,000 in 1995, primarily as the result of the overall increase in the Serviced Portfolio as well as the proportionate increase in the percentage of nonguaranteed loans in the Serviced Portfolio. Historically, the loan loss rate for nonguaranteed loans has been higher than the rate for guaranteed loans.
21

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues increased 59.1% to $17,461,000 for the year ended December 31, 1995, from $10,975,000 for the year ended December 31, 1994. Net income for the year ended December 31, 1995 increased 34.0% to $3,449,000 compared to $2,573,000 in 1994. Net income as a percentage of revenues was 19.8% for the year ended December 31, 1995 compared to 23.4% for the year ended December 31, 1994. This decrease was primarily due to the Company's strategy of retaining more of its loans and the increased interest costs associated with long-term debt incurred to support this strategy.
Interest and fees on loans increased 101.0% to $11,392,000 in 1995 from $5,669,000 in 1994, primarily as the result of increases in loans and subordinated pass-through certificates. The average rate earned on loans owned and subordinated pass-through certificates increased to 13.2% for the year ended December 31, 1995 from 12.6% in 1994, primarily due to the effect of the higher yield of the VOI Loans. Fees on loans comprised 6.5% of interest and fees on loans in 1995 compared to 11.0% in 1994. Such fees increased 18.8% in 1995 compared to 1994.
Gain on the sale of loans increased 6.5% to $5,161,000 in 1995 from $4,847,000 in 1994. The volume of loans sold increased 62.3% to $65,115,000 for the year ended 1995 from $40,116,000 in 1994. The primary reason the gain on sale of loans increased less than the volume of loans sold was that the Company did not recognize any gain on the sale of $27,155,000 of VOI Loans purchased from GEFCO consistent with the purchase method of accounting.
Loans serviced for others increased 52.8% to $111,117,000 as of December 31, 1995 from $72,731,000 at December 31, 1994. This growth resulted in a 97.8% increase in servicing and other fee income to $908,000 for the year ended December 31, 1995, from $459,000 in 1994. In connection with the Company's continued growth, the Company made a strategic decision to subcontract a portion of its servicing rights in order to avoid incurring additional fixed overhead costs associated with such servicing. Accordingly, the Company subcontracted the servicing of VOI Loans to an unaffiliated third party in 1995 and its remaining loans in April 1996.
Interest expense increased to $6,138,000 for the year ended December 31, 1995, from $3,158,000 in 1994. The increase in interest expense primarily reflects an increase in borrowings. During the year ended December 31, 1995, borrowings averaged $60,500,000 at an average rate of 9.7% as compared to $32,000,000 and 9.3%, respectively, during 1994. Interest expense includes the amortization of deferred debt issuance costs.
Salaries and employee benefits increased 57.5% to $2,798,000 for the year ended December 31, 1995 from $1,776,000 in 1994 due to hiring additional staff to support an increase in the Serviced Portfolio and an increase in certain incentive based compensation. As a result of the Company's growth, the Company increased total full-time equivalent employees to 55 in 1995 from 36 in 1994. Personnel costs as a percentage of revenues remained relatively constant at 16.0% for the year ended December 31, 1995 compared to 16.2% in 1994.
Other operating expenses increased 82.1% to $2,120,000 for the year ended December 31, 1995 from $1,164,000 for the same period in 1994. As a percentage of revenues, other operating expenses increased to 12.1% in 1995 as compared to 10.6% in 1994. This increase is attributable to additional overhead incurred with the significant growth of the Company primarily in connection with the purchase of the GEFCO portfolio.
During 1995, the Company increased its provision for loan losses 59.2% to $890,000 from $559,000 in 1994 primarily as the result of the increase in the Serviced Portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires continued access to short and long-term sources of debt financing and equity capital. The Company's principal cash requirements arise from loan originations, repayment of debt on maturity, payments of operating and interest expenses and loan repurchases. The Company's primary sources of liquidity are loan sales, short-term borrowings under secured lines of credit, long-term debt and equity offerings and cash flows from operations.
22

In connection with certain loan sales, the Company commits to repurchase from investors any loans that become 90 days or more past due. This obligation is subject to various terms and conditions, including, in some instances, a limitation on the amount of loans that may be required to be repurchased. There were approximately $8,936,000 of loans at June 30, 1997 and $8,780,000 at December 31, 1996 which the Company could be required to repurchase in the future should such loans become 90 days or more past due. The Company repurchased $454,000 compared to $514,000 of such loans under the recourse provisions of loan sales during the months ended June 30, 1997 and 1996, respectively. The Company repurchased $991,000, $448,000, and $259,000 of such loans under the recourse provisions of loan sales in 1996, 1995, and 1994, respectively. As of June 30, 1997, $20,136,000 of the Company's cash was restricted as credit enhancement for certain securitization programs.
The Company funds its loan purchases in part with borrowings under various bank lines of credit. Lines are paid down when the Company receives the proceeds from the sale of the loans or when cash is otherwise available. In May 1997, a secured line of credit was renewed and amended to include an increase in the amount of the line from $30,000,000 to $50,000,000 and an extension of the maturity to April 2000. Outstanding borrowings under the line of credit were $28,000,000 and $26,200,000 at June 30, 1997 and December 31, 1996, respectively. This line of credit is secured by consumer receivables and other secured loans.
In January 1997, an additional secured line of credit was increased from $5,000,000 to $8,000,000 with another financial institution. This line of credit matures in January 1998. There were no outstanding borrowings on this line of credit at June 30, 1997 and December 31, 1996. This line of credit is secured by consumer receivables and other secured loans.
In January 1997, an additional secured line of credit was increased from $15,000,000 to $20,000,000. There were no outstanding borrowings under this facility at June 30, 1997. At December 31, 1996, the outstanding borrowings were $8,300,000. This facility is secured by certain retained interests in loan sales, restricted cash and certain other loans and matures in September 1999.
On March 5, 1997, the Company entered into an additional $25,000,000 secured line of credit. The outstanding borrowings at June 30, 1997 were $6,058,000. The facility is secured by loans to developers of VOI resorts for the acquisition and development of VOI resorts ("Facility A") and the related financing of consumer purchases of VOIs ("Facility B"). Although the maximum amount that can be borrowed on each facility is $15,000,000, the aggregate outstanding borrowings cannot exceed $25,000,000. This facility expires in March 2000.
On March 21, 1997, the Company entered into a $3,000,000 secured line of credit with an additional financial institution. This line of credit is secured by consumer receivables and other secured loans and matures in March 1998. There were no outstanding borrowings at June 30, 1997.
Interest rates on the above lines of credit range from the Eurodollar or LIBOR rate plus 2% to the prime rate plus 1.25%. The Company is not required to maintain compensating balances or forward sales commitments under the terms of these lines of credit.
The Company also has a revolving line of credit and sale facility as part of an asset backed commercial paper facility with a multi-seller commercial paper issuer ("Conduit A"). In October 1996 the Company amended the facility to increase the facility from $75,000,000 to $100,000,000, reduce certain credit enhancement requirements and expand certain loan eligibility criteria. The outstanding aggregate balance of the loans pledged and sold under the facility at any time cannot exceed $100,000,000. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to purchase loans from the Company. LMSC either pledges the loans on a revolving line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues commercial paper or other indebtedness to fund the purchase or pledge of loans from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of June 30, 1997, the outstanding balance of eligible loans sold under the facility was $83,200,000. Outstanding borrowings under the line of credit at June 30, 1997 and
23

December 31, 1996 were $229,000 and $1,799,000, respectively. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates.
On March 21, 1997, the Company closed an additional revolving line of credit and sale facility of $25,000,000 with another multi-seller commercial paper conduit ("Conduit B"). The facility, which expires in March 2000, is subject to certain terms and conditions, credit enhancement requirements and loan eligibility criteria. The outstanding balance of the loans pledged and sold under the facility at any time cannot exceed $25,000,000.
In connection with the facility, the Company formed a wholly owned subsidiary, Litchfield Capital Corporation 1996 ("LCC"), to purchase loans from the Company. LCC either pledges the loans on a revolving line of credit with Conduit B or sells the loans to Conduit B. Conduit B issues commercial paper or other indebtedness to fund the purchase or pledge of loans from LCC. Conduit B is not affiliated with the Company or its affiliates. As of June 30, 1997 the outstanding balance of the eligible loans previously sold under the facility was $13,767,000. There were no outstanding borrowings under the line of credit as of June 30, 1997. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates.
During the first quarter of 1995, the Company issued a 10.43% promissory note with an initial balance of $12,500,000 to an insurance company. Principal is payable monthly based on collection of the underlying collateral. The note is redeemable only with the approval of the noteholder. The note is collateralized by certain of the Company's retained interests in loan sales and cash. The balance outstanding on the note was $6,396,000 and $7,428,000 at June 30, 1997 and December 31, 1996, respectively. As of June 30, 1997 the approximate value of the underlying collateral was $14,231,000.
In April 1997, the Company issued unsecured notes with an initial principal balance of $20,000,000. Interest is payable at 9.3% semiannually in arrears. The notes require principal reductions of $7,500,000, $6,000,000, $6,000,000 and $500,000 in March 2001, 2002, 2003 and 2004, respectively. The proceeds were used to repay the outstanding balance on certain of the Company's lines of credit.
In June 1997, the Company completed its first securitization of $15,325,000 of Hypothecation Loans in a private placement with a bank.
The Company manages its exposure to changes in interest rates by attempting to match its proportion of fixed versus variable rate assets, liabilities and loan sale facilities. The Company has further mitigated its interest rate exposure due to interest rate declines by instituting interest rate floors on certain of its adjustable rate loans. The Company has also mitigated its interest rate exposure due to basis risk attributable to differences between the prime rate and the commercial paper and LIBOR rates by entering into interest rate swap agreements.
Historically, the Company has not required major capital expenditures to support its operations.
CREDIT QUALITY AND ALLOWANCES FOR LOAN LOSSES
The Company maintains allowances for loan losses and recourse obligations on retained interests in loan sales at levels which, in the opinion of management, provide adequately for current and possible future losses on such assets. Delinquent loans (loans 30 days or more past due which are not covered by dealer/developer reserves and guarantees) as a percentage of the Serviced Portfolio were .99% as of June 30, 1997 compared with 1.34% at December 31, 1996 and 1.74% at June 30, 1996. 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. 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 $5,541,000 at June 30, 1997 compared to $4,528,000 at December 31, 1996. The allowance ratio (the allowances for loan losses divided by the amount of the Serviced Portfolio) at June 30, 1997 increased slightly to 1.97% from 1.87% at December 31, 1996.
24

As part of the Company's financing of Land Loans and VOI Loans, arrangements are entered into with dealers and resort developers, whereby reserves are established to protect the Company from potential losses associated with such loans. As part of the Company's agreement with the dealers and resort developers, a portion of the amount payable to each dealer and resort developer for a Land Loan or a VOI Loan is retained by the Company and is available to the Company to absorb loan losses for those loans. The Company negotiates the amount of the reserves with the dealers and developers based upon various criteria, two of which are the financial strength of the dealer or developer and credit risk associated with the loans being purchased. Dealer/developer reserves amounted to $10,626,000 and $10,628,000 at June 30, 1997 and December 31, 1996, respectively. The Company generally returns any excess reserves to the dealer/developer on a quarterly basis as the related loans are repaid by borrowers.
INFLATION
Inflation has not had a significant effect on the Company's operating results to date.
25

BUSINESS
OVERVIEW
The Company purchases and services Land Loans which are typically secured by three to twenty acre rural parcels. The Company also purchases and services VOI Loans which finance the purchase of ownership interests in a fully furnished vacation property. The Company makes Hypothecation Loans to rural land dealers and resort developers and other businesses secured by consumer receivables consisting primarily of Land Loans and VOI Loans. The Company also makes A&D Loans to rural land dealers and resort developers in order to finance additional receivables generated by these A&D Loans. The Company sells substantially all the Land Loans and VOI Loans it purchases and certain of the Hypothecation Loans it originates either as whole loans or securitizations. The principal sources of the Company's revenues are (i) interest and fees on loans, (ii) gain from the sale of loans and (iii) servicing and other fee income. Because a significant portion of the Company's revenues is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations.
CHARACTERISTICS OF THE SERVICED PORTFOLIO, LOAN PURCHASES AND ORIGINATIONS
The following table shows the growth in the diversity of the Serviced Portfolio from primarily Purchased Loans to a mix of Purchased Loans, Hypothecation Loans, A&D Loans and Other Loans:

                                                 DECEMBER 31,
                                 ---------------------------------------------     JUNE 30,
                                 1992      1993      1994      1995      1996        1997
                                 -----     -----     -----     -----     -----     --------
Purchased Loans................   98.3%     89.0%     85.3%     81.6%     67.1%       60.8%
Hypothecation Loans............     --       5.0       9.0      12.5      20.7        24.2
A&D Loans......................    1.7       4.3       3.3       3.1       8.7        11.8
Other Loans....................     --       1.7       2.4       2.8       3.5         3.2
                                 -----     -----     -----     -----     -----       -----
          Total................  100.0%    100.0%    100.0%    100.0%    100.0%      100.0%
                                 =====     =====     =====     =====     =====       =====	

The following table shows the growth in the diversity of the Company's originations from primarily Purchased Loans to a mix of Purchased Loans, Hypothecation Loans, A&D Loans and Other Loans:

                                                                                 SIX MONTHS
                                                                                    ENDED
                                        YEAR ENDED DECEMBER 31,                   JUNE 30,
                             ---------------------------------------------     ---------------
                             1992      1993      1994      1995      1996      1996      1997
                             -----     -----     -----     -----     -----     -----     -----
Purchased Loans............   96.6%     77.8%     67.6%     71.4%     49.9%     52.8%     39.3%
Hypothecation Loans........     --      11.8      22.2      20.9      29.6      28.6      35.9
A&D Loans..................    3.4       7.1       6.0       3.1      14.4       9.8      18.0
Other Loans................     --       3.3       4.2       4.6       6.1       8.8       6.8
                             -----     -----     -----     -----     -----     -----     -----
          Total              100.0%    100.0%    100.0%    100.0%    100.0%    100.0%    100.0%
                             =====     =====     =====     =====     =====     =====     =====	

(1) Purchased Loans
The Company provides indirect financing to consumers through a large number of experienced land dealers and resort developers from which it regularly purchases loans. The dealers and resort developers make loans to consumers using Litchfield's standard forms and subject to its terms. Then the Company purchases the loans from the land dealers and resort developers on an individually approved basis in accordance with its credit guidelines.
Each land dealer and resort developer from whom Litchfield purchases loans must be interviewed by the Company's management and approved by its credit committee. Management evaluates each land dealer's and resort developer's experience, financial statements and credit references and personally inspects a substantial portion of the land dealer's and resort developer's inventory of land and VOIs prior to approval of loan purchases.
26

In order to enhance the creditworthiness of loans purchased from land dealers and resort developers, Litchfield requires most land dealers and resort developers to guarantee payment of the loans and ordinarily retains a portion of the amount payable by the Company to each land dealer and resort developer on purchase of the loan. The retained portion, or reserve, is released to the land dealer or resort developer as the related loan is repaid.
Litchfield also engages in the purchase of portfolios of seasoned loans from land dealers, resort developers and financial institutions. Most purchases are from land dealers and resort developers, most of which guarantee the loans sold and from which the Company ordinarily withholds a reserve. 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.
Prior to purchasing such loans, Litchfield evaluates the credit and payment history of each borrower in accordance with the Company's underwriting guidelines, performs a sampling of borrower interviews, reviews the documentation supporting the loans for completeness and obtains an appropriate opinion from local legal counsel. Out of a land dealer's or resort developer's total portfolio, Litchfield selects only individual loans which meet its credit standards. In addition, Litchfield evaluates the dealer's or developer's credit references, experience and financial statements and inspects a substantial portion of the dealer's inventory prior to approval.
The Company, from time to time, acquires loan portfolios from financial institutions and certain land dealers and resort developers secured by rural and vacation land. In evaluating the portfolios, the Company conducts its normal review of the borrower's documentation, payment history and underlying collateral. Although the Company reviews loans included in these portfolios, the Company may not always be able to reject individual loans, but rather must purchase the entire portfolio offered. When the Company does not receive guarantees, it adjusts its purchase price to reflect anticipated losses and its required yield.
The Company's portfolio of Purchased Loans is secured by property located in 39 states.

                                                              PRINCIPAL AMOUNT OF LOANS
                                                   ------------------------------------------------
                                                              DECEMBER 31,
                                                   ------------------------------------    JUNE 30,
                                                   1992    1993    1994    1995    1996      1997
                                                   ----    ----    ----    ----    ----    --------
Southwest........................................   17%     18%     19%     16%     26%        31%
South............................................   36      33      37      31      31         30
West.............................................   --       2       3      20      20         17
Mid-Atlantic.....................................   16      17      16      16      10         10
Northeast........................................   31      30      25      17      13         12
                                                   ---     ---     ---     ---     ---        ---
     Total.......................................  100%    100%    100%    100%    100%       100%
                                                   ===     ===     ===     ===     ===        ===	

a. Land Loans
Dealers from whom the Company purchases Land Loans are typically closely-held firms with annual revenues of less than $3.0 million. Dealers generally purchase large rural tracts (generally 100 or more acres) from farmers or other owners and subdivide the property into five 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. The aggregate principal amount of Land Loans purchased from individual dealers during the six months ended June 30, 1997 varied significantly from a low of approximately $2,000 to a high of approximately $2.4 million. As of June 30, 1997, the five largest dealers accounted for approximately 22.3% of the principal amount of the Land Loans in the Serviced Portfolio, and no single dealer accounted for more than 5.5%.
27

As of June 30, 1997, 48.5% of the Serviced Portfolio consisted of Land Loans with an average principal balance of approximately $12,600. The following table sets forth as of June 30, 1997 the distribution of Land Loans in the Company's Serviced Portfolio:

                                                            PERCENTAGE OF                   PERCENTAGE OF
                                            PRINCIPAL         PRINCIPAL       NUMBER OF       NUMBER OF
PRINCIPAL BALANCE                             AMOUNT           AMOUNT           LOANS           LOANS
-----------------                          ------------     -------------     ---------     -------------
Less than $10,000........................  $ 24,469,000          17.9%           4,973           45.8%
$10,000-$19,999..........................    54,816,000          40.1            4,010           37.0
$20,000 and greater......................    57,413,000          42.0            1,867           17.2
                                           ------------         -----           ------          -----
     Total...............................  $136,698,000         100.0%          10,850          100.0%
                                           ============         =====           ======          =====	

As of June 30, 1997, the weighted average interest rate of the Land Loans included in the Company's Serviced Portfolio was 12.2% and the weighted average remaining maturity was 12.0 years. The following table sets forth as of June 30, 1997 the distribution of interest rates payable on the Land Loans:

                                                                                       PERCENTAGE OF
                                                                                         PRINCIPAL
INTEREST RATE                                                     PRINCIPAL AMOUNT        AMOUNT
-------------                                                     ----------------     -------------
Less than 12.0%.................................................    $ 46,341,000            33.9%
12.0%-13.9%.....................................................      56,320,000            41.2
14.0% and greater...............................................      34,037,000            24.9
                                                                    ------------           -----
     Total......................................................    $136,698,000           100.0%
                                                                    ============           =====	

A Land Loan borrower generally uses the property which secures the loan as a site for a lower-cost primary residence, often consisting of manufactured housing, as a site for a vacation or retirement home or for recreational purposes. As of June 30, 1997, the Company's Land Loan borrowers resided in 50 states, the District of Columbia and two territories or foreign countries.
b. VOI Loans
The Company purchases VOI Loans from various resort developers. The Company generally targets small to medium size resorts with completed amenities and established property owners associations. These resorts participate in programs that permit purchasers of VOIs to exchange their time intervals for time intervals in other resorts around the world. During the six months ended June 30, 1997, the Company acquired approximately $1.9 million of VOI Loans. As of June 30, 1997, the five largest developers accounted for approximately 52.3% of the principal amount of the VOI Loans in the Serviced Portfolio, and no single developer accounted for more than 15.0%.
As of June 30, 1997, 12.3% of the Serviced Portfolio consisted of VOI Loans, with an average principal balance of approximately $3,800. The following table sets forth as of June 30, 1997 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..........................  $ 9,030,000          26.1%           4,676           50.8%
$4,000-$5,999.............................   10,967,000          31.7            2,472           26.9
$6,000 and greater........................   14,601,000          42.2            2,068           22.3
                                            -----------         -----            -----          -----
     Total................................  $34,598,000         100.0%           9,216          100.0%
                                            ===========         =====            =====          =====	

28

As of June 30, 1997, the weighted average interest rate of the VOI Loans included in the Company's Serviced Portfolio was 14.6% and the weighted average remaining maturity was 3.9 years. The following table sets forth as of June 30, 1997 the distribution of interest rates payable on the VOI Loans:

                                                                                    PERCENTAGE OF
                                                                     PRINCIPAL        PRINCIPAL
INTEREST RATE                                                         AMOUNT           AMOUNT
-------------                                                       -----------     -------------
Less than 14.0%...................................................  $ 9,203,000           26.6%
14.0%-15.9%.......................................................   12,317,000           35.6
16.0% and greater.................................................   13,078,000           37.8
                                                                    -----------          -----
     Total........................................................  $34,598,000          100.0%
                                                                    ===========          =====	

As of June 30, 1997, the Company's VOI borrowers resided in 50 states, the District of Columbia and eight territories or foreign countries.
(2) Hypothecation Loans
The Company extends Hypothecation Loans to land dealers and resort developers and other businesses secured by consumer receivables. During the six months ended June 30, 1997, the Company extended or acquired approximately $29.9 million of Hypothecation Loans, of which $12.3 million, or 41.1%, were secured by Land Loans and $17.6 million, or 58.9%, were secured by VOI Loans.
The Company typically extends Hypothecation Loans to land dealers and resort developers based on advance rates of 75% to 85% of the eligible consumer receivables which serve as collateral. The Company's Hypothecation Loans are typically made at variable rates based on the prime rate of interest plus 2% to 4%. As of June 30, 1997, the Company had $66.6 million of Hypothecation Loans outstanding, none of which were 90 days or more past due. Hypothecation Loans are secured by receivables from timeshare resorts and rural land in 25 states. Hypothecation Loans range in size from $3,000 to $7.5 million with an average principal balance of $1,004,000. The five largest Hypothecation Loans represent 8.5% of the Serviced Portfolio.
In addition, the Company has recently expanded its marketing of Hypothecation Loans to include loans to other finance companies secured by other types of collateral. The Company'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. These loans may be larger than the Company's average Hypothecation Loans and may provide the Company with an option to take an equity position in the borrower.
(3) A&D Loans
The Company also makes A&D Loans to dealers and developers in order to finance the receivables generated from the sale of the properties. During the six months ended June 30, 1997, the Company made $15.0 million of A&D Loans to land dealers and resort developers, of which $8.0 million, or 53.6%, were secured by land and $7.0 million, or 46.4%, were secured by resorts under development.
The Company makes A&D Loans to land dealers and resort developers based on loan to value ratios of 60% to 80% at variable rates based on the prime rate plus 2% to 4%. As of June 30, 1997, the Company had $36.0 million of A&D Loans outstanding, none of which were 90 days or more past due. A&D Loans are secured by timeshare resort developments and rural land subdivisions in 19 states. A&D Loans range in size from $10,000 to $4.7 million with an average principal balance of $742,000. The five largest A&D Loans represent 5.6% of the Serviced Portfolio.
(4) Other Loans
Other Loans consist primarily of consumer home improvement loans, consumer construction loans and other secured commercial loans. Throughout its history the Company has made or acquired certain other secured and unsecured loans to identify additional lending opportunities or lines of business for possible future expansion as it did with VOI Loans and Hypothecation Loans. As of June 30, 1997, the Company had $8.9
29

million of such loans, 0.04% of which were 90 days or more past due. Commercial Other Loans range in size from $50,000 to $900,000 with an average principal balance of $445,000. The five largest Other Loans represent 1.1% of the Serviced Portfolio.
LOAN UNDERWRITING
Litchfield has established loan underwriting criteria and procedures designed to reduce credit losses on its portfolio. The loan underwriting process includes reviewing each borrower's credit history. In addition, Litchfield's underwriting staff routinely conducts telephone interviews with a selected sample of borrowers. The primary focus of the Company's underwriting is to assess the likelihood that the borrower will repay the loan as agreed by examining the borrower's credit history through standard 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, the Company will also consider purchasing such loans in excess of $50,000. As of June 30, 1997, the Company had 160 Loans exceeding $50,000 representing 4.0% of the number of such loans in the Serviced Portfolio, for a total of $11.5 million. There were no VOI Loans exceeding $50,000 as of June 30, 1997. The Company will originate Hypothecation Loans up to $15 million and A&D Loans up to $10 million. From time to time the Company may have the opportunity to originate larger Hypothecation Loans or A&D Loans in which case the Company would seek to participate such loans with other financial institutions. All loans greater than $100,000 must be approved by the Credit Committee which is comprised of the Chief Executive Officer, Executive Vice President, Chief Financial Officer and two Senior Vice Presidents.
COLLECTIONS AND DELINQUENCIES
Management believes that the relatively low delinquency ratio for the Serviced Portfolio is attributable primarily to the application of its underwriting criteria, as well as to dealer guarantees and reserves received. No assurance can be given that these delinquency ratios can be maintained in the future.
Collection efforts are managed and delinquency information is analyzed at the corporate headquarters. Unless circumstances otherwise dictate, collection efforts are generally made by mail and telephone. Collection efforts begin when an account is four days past due when the Company sends out a late notice. When an account is sixteen days past due the Company attempts to contact the borrower to determine the reason for the delinquency and to attempt to cause the account to become current. If the status of the account continues to deteriorate, an analysis of that delinquency is undertaken by the collection supervisor 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 nonaccrual status and the collection supervisor 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. The Company has not restructured a material number of problem loans. When a dealer program loan becomes 60 days past due, in addition to the Company's collection procedures, the Company also has the assistance of the dealer or developer in collecting the loan.
The Company extends a limited number of its loans for reasons the Company considers acceptable such as temporary loss of employment or serious illness. In order to qualify for a one to three month extension, the customer must make three timely payments without any intervention from the Company. For extensions of four to six months, the customer must make four to six timely payments, respectively, without any intervention from the Company. The Company will not extend a loan more than two times for an aggregate six months over the life of the loan. The Company has extended approximately one percent of its loans through June 30, 1997. The Company does not generally modify any other loan terms such as interest rates or payment amounts.
Regulations and practices regarding the rights of the mortgagor in default vary greatly from state to state. To the extent permitted by applicable law, the Company collects late charges and return-check fees and records these items as additional revenue. Only if a delinquency cannot otherwise be cured will the Company decide that foreclosure is the appropriate course of action. If the Company determines that purchasing a
30

property securing a mortgage loan will minimize the loss associated with such defaulted loan, the Company may accept a deed in lieu of foreclosure, take legal action to collect on the underlying note or bid at the foreclosure sale for such property.
Serviced Portfolio
The following table shows the Company's delinquencies, net of dealer/developer reserves and guarantees for the Serviced Portfolio:

                                                                                            SIX MONTHS
                                         YEAR ENDED DECEMBER 31,                              ENDED
                  ----------------------------------------------------------------------     JUNE 30,
                     1992          1993           1994           1995           1996           1997
                  -----------   -----------   ------------   ------------   ------------   ------------
Serviced
  Portfolio.....  $58,968,000   $84,360,000   $105,013,000   $176,650,000   $242,445,000   $281,965,000

Delinquent
  loans(1)......      553,000       511,000        981,000      3,398,000      3,255,000      2,788,000

Delinquency as a
  percentage of
  Serviced
  Portfolio.....          .94%          .61%           .93%          1.92%          1.34%           .99%	

(1) Delinquent loans are those which are 30 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned.
Land Loans
The following table shows the Company's delinquencies, net of dealer/developer reserves and guarantees for Land Loans in the Serviced Portfolio:

                                                                                            SIX MONTHS
                                          YEAR ENDED DECEMBER 31,                             ENDED
                    --------------------------------------------------------------------     JUNE 30,
                       1992          1993          1994          1995           1996           1997
                    -----------   -----------   -----------   -----------   ------------   ------------
Land Loans in
  Serviced
  Portfolio.......  $58,668,000   $77,258,000   $90,502,000   $97,266,000   $119,370,000   $136,698,000

Delinquent Land
  Loans(1)........      553,000       511,000       981,000     1,059,000      1,920,000      1,771,000

Delinquency as a
  percentage of
  Land Loans in
  Serviced
  Portfolio.......          .94%          .66%         1.08%         1.09%          1.61%          1.30%	

(1) Delinquent loans are those which are 30 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned.

31

VOI Loans
The following table shows the Company's delinquencies, net of dealer/developer reserves and guarantees for VOI Loans in the Serviced Portfolio:

                                                                                           SIX MONTHS
                                             YEAR ENDED DECEMBER 31,                          ENDED
                         ---------------------------------------------------------------    JUNE 30,
                           1992        1993         1994          1995          1996          1997
                         --------   ----------   -----------   -----------   -----------   -----------
VOI Loans in Serviced
  Portfolio............  $300,000   $1,434,000   $ 2,851,000   $46,700,000   $43,284,000   $34,598,000

Delinquent VOI
  Loans(1).............        --           --            --     1,958,000     1,316,000       860,000

Delinquency as a
  percentage of VOI
  Loans in Serviced
  Portfolio............        --           --            --          4.19%         3.04%         2.49%	

(1) Delinquent loans are those which are 30 days or more past due which are not covered by dealer/developer reserves or guarantees and not included in other real estate owned.
Hypothecation, A&D and Other Loans
The Company did not have any delinquent Hypothecation Loans or A&D Loans for the years ended December 31, 1992 through December 31, 1996 or for the six months ended June 30, 1997. The Company did not have significant amounts of Other Loans during these periods and the delinquency rates did not exceed .25% at the end of any period.
ALLOWANCE FOR LOAN LOSSES, NET CHARGE-OFFS AND DEALER RESERVES
The following is an analysis of the total allowances for all loan losses:

                                                                                            SIX MONTHS
                                              YEAR ENDED DECEMBER 31,                         ENDED
                           --------------------------------------------------------------    JUNE 30,
                             1992         1993         1994         1995         1996          1997
                           ---------   ----------   ----------   ----------   -----------   ----------
Allowance, beginning of
  year...................  $ 299,000   $  498,000   $1,064,000   $1,264,000   $ 3,715,000   $4,528,000

Provision for loan
  losses.................    270,000      620,000      559,000      890,000     1,954,000      735,000

Net charge-offs of
  uncollectible
  accounts(1)............   (179,000)    (493,000)    (359,000)    (946,000)   (1,965,000)    (904,000)

Allocation of purchase
  adjustment(2)..........    108,000      439,000           --    2,507,000       824,000    1,182,000
                           ---------   ----------   ----------   ----------    ----------   ----------
Allowance, end of year...  $ 498,000   $1,064,000   $1,264,000   $3,715,000   $ 4,528,000   $5,541,000
                           =========   ==========   ==========   ==========    ==========   ==========	

(1) Net of recoveries of $20,000, $10,000, $47,000, $11,000, $310,000 and $182,000 in 1992, 1993, 1994, 1995, 1996 and 1997, respectively.
(2) Represents allocation of purchase adjustment related to purchase of certain nonguaranteed loans.
32

The following is an analysis of net charge-offs (recoveries) by major loan and collateral types experienced by the Company:

                                                                                            SIX MONTHS
                                                  YEAR ENDED DECEMBER 31,                     ENDED
                                   ------------------------------------------------------    JUNE 30,
                                     1992       1993       1994       1995        1996         1997
                                   --------   --------   --------   --------   ----------   ----------
Land Loans.......................  $179,000   $493,000   $359,000   $546,000   $  669,000    $411,000
VOI Loans........................        --         --         --     45,000    1,284,000     498,000
Hypothecation Loans..............        --         --         --         --           --          --
A&D Loans........................        --         --         --    352,000       (8,000)     (2,000)
Other Loans......................        --         --         --      3,000       20,000      (3,000)
                                   --------   --------   --------   --------   ----------    --------
Total net charge-offs............  $179,000.. $493,000   $359,000   $946,000   $1,965,000    $904,000
                                   ========   ========   ========   ========   ==========    ========
Net charge-offs as a percentage
  of the average Serviced
  Portfolio......................      .37%       .69%       .38%       .67%         .94%        .69%	

As part of the Company's financing of Land Loans and VOI Loans, arrangements are entered into with most land dealers and resort developers, whereby reserves are established to protect the Company from potential losses associated with such loans. As part of the Company's agreement with the land dealers and resort developers, a portion of the amount payable to them for a Land Loan or a VOI Loan is retained by the Company and is available to the Company to absorb loan losses for those loans. The Company negotiates the amount of the reserves with the land dealers and resort developers based upon various criteria, two of which are the financial strength of the land dealers and resort developers and the credit risk associated with the loans being purchased. Dealer reserves for Land Loans amounted to $6,112,000, $6,420,000 and $7,555,000 at December 31, 1994, 1995 and 1996, respectively, and $7,909,000 at June 30, 1997. Developer reserves for VOI Loans amounted to $463,000, $3,224,000 and $3,072,000 at December 31, 1994, 1995 and 1996, respectively, and $2,664,244 at June 30, 1997. Historically, most dealers and developers have provided personal and, when relevant, corporate guarantees to further protect the Company from loss.
LOAN SERVICING AND SALES
The Company retains the right to service all the loans it originates. Servicing includes collecting payments from borrowers, remitting payments to investors who have purchased the loans, accounting for principal and interest, contacting delinquent borrowers and supervising foreclosure and bankruptcies in the event of unremedied defaults. Substantially all servicing results from the origination and purchase of loans by the Company, and the Company has not historically purchased loan servicing rights except in connection with the purchase of loans. Servicing rates generally approximate .5% to 2% of the principal balance of a loan.
In connection with the Company's continuing growth, the Company decided to subcontract its servicing rights in order to avoid incurring additional fixed overhead costs associated with such servicing. Accordingly, the Company subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995 and the remaining loans in April 1996. The Company retains responsibility for servicing all loans as master servicer.
In 1990, the Company began privately placing issues of pass-through certificates evidencing an undivided beneficial ownership interest in pools of mortgage loans which have been transferred to trusts. The principal and part of the interest payments on the loans transferred to the trust are collected by the Company, as the servicer of the loan pool, remitted to the trust for the benefit of the investors, and then distributed by the trust to the investors in the pass-through certificates.
As of June 30, 1997, the Company had sold or securitized a total of approximately $289.0 million in loans. In certain of the Company's issues of pass-through certificates, credit enhancement was achieved by dividing the issue into a senior portion which was sold to the investors and a subordinated portion which was retained by the Company. In certain other of the Company's private placements, credit enhancement was achieved through cash collateral. If borrowers default in the payment of principal or interest on the mortgage loans underlying these issues of pass-through certificates, losses would be absorbed first by the subordinated
33

portion or cash collateral account retained by the Company and might, therefore, have to be charged against the allowance for loan losses to the extent dealer guarantees and reserves are not available.
The Company also has a $100.0 million revolving line of credit and sale facility as part of an asset backed commercial paper facility with a multi-seller commercial paper conduit. The facility expires in June 1998. As of June 30, 1997, the outstanding balance of the sold or pledged loans securing this facility was $83.4 million. The Company has an additional revolving line of credit and sale facility of $25.0 million with another multi-seller commercial paper conduit. The facility expires in March 2000. As of June 30, 1997, the outstanding aggregate balance of the sold or pledged loans under the facility was $13.8 million.
MARKETING AND ADVERTISING
The Company markets its program to rural land dealers and resort developers through brokers, referrals, dealer and developer solicitation, and targeted direct mail. The Company employs three marketing executives based in Denver, Colorado and five marketing executives based in Stamford, Vermont. In the last 5 years the Company has closed loans with over 250 different dealers and developers.
Management believes that the Company benefits from name recognition as a result of its referral, advertising and other marketing efforts. Referrals have been the strongest source of new business for the Company and are generated in the states in which the Company operates by dealers, brokers, attorneys and financial institutions. Management and marketing representatives also conduct seminars for dealers and brokers and attend trade shows to improve awareness and understanding of the Company's programs.
REGULATION
The Company is licensed as a mortgage banker in 15 of the states in which it operates, and in those states its operations are subject to supervision by state authorities (typically state banking or consumer credit authorities). Expansion into other states may be dependent upon a finding of financial responsibility, character and fitness of the Company and various other matters. The Company is generally subject to state regulations, examination and reporting requirements, and licenses are revocable for cause. The Company is subject to state usury laws in all of the states in which it operates.
The Company's consumer finance activities are subject to the Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements designed to provide consumers with uniform, understandable information with respect to the terms and conditions of loans and credit transactions in order to give them the ability to compare credit terms. Failure to comply with the requirements of the Truth-in-Lending Act may give rise to a limited right of rescission on the part of the borrower. The Company believes that it is in substantial compliance in all material respects with the Truth-in-Lending Act.
The Company is also required to comply 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 consumer 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 consumer finance business include commercial banks, credit unions, thrift institutions, industrial banks and finance companies, many of which have considerably greater financial, technical and marketing resources than the Company. As a result of consolidation and the failure of certain financial institutions, the number of financial institutions is
34

being reduced. There can be no assurance that the Company will not face increased competition from remaining institutions or new financial institutions.
The Company believes that it competes on the basis of providing competitive rates and prompt, efficient and complete service, and by emphasizing customer service on a timely basis to attract borrowers whose needs are not met by traditional financial institutions.
EMPLOYEES
As of June 30, 1997, the Company had 66 full-time equivalent employees. None of the Company's employees is covered by a collective bargaining agreement. The Company considers its relations with its employees to be good.
FACILITIES
The Company owns an aggregate of approximately 13,000 square feet of office space in Stamford, Vermont, which is used as the Company's headquarters. The Company also occupies an aggregate of approximately 5,100 square feet of office space in Lakewood, Colorado, pursuant to a lease expiring in January 1998, with an option to renew until 2001, providing for an annual rental of approximately $40,000, including utilities and exterior maintenance expenses. The Company has acquired a leasehold interest in approximately 26,000 square feet of office space in Williamstown, Massachusetts for its planned headquarters which it is currently renovating for occupancy in early 1998. The initial ten year lease term expires in May 2007 and is renewable at the Company's option for two additional ten year periods. The initial lease provides for an annual rental of $20,000.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
35

MANAGEMENT
The following table sets forth the name, age and position with the Company of each person who is an executive officer or director of the Company as of September 30, 1997:

               NAME                    AGE                   POSITION
-----------------------------------    ----    ------------------------------------
Richard A. Stratton................     47     Chief Executive Officer, President
                                               and Director
Heather A. Sica....................     35     Executive Vice President, Treasurer
                                               and Director
Ronald E. Rabidou..................     46     Chief Financial Officer
Wayne M. Greenholtz................     56     Senior Vice President
James H. Shippee...................     37     Senior Vice President
Michael A. Spadacino...............     36     Senior Vice President
Joseph S. Weingarten...............     32     Senior Vice President
James A. Yearwood..................     49     First Vice President
John A. Costa(2)...................     41     Director
Donald R. Dion, Jr.................     42     Director
David J. Ferrari(1), (2)...........     61     Director
Gerald Segel(1), (2)...............     76     Director
James Westra(2)....................     45     Director	

(1) Member of Audit Committee and Compensation Committee
(2) Member of Stock Option Committee
EXECUTIVE OFFICERS
Richard A. Stratton, 47 years old, has been a director of the Company since 1988. Mr. Stratton was a cofounder of the Company and has been the Chief Executive Officer of the Company since 1996 and President of the Company since 1988. Prior to joining the Company, Mr. Stratton served as Vice President of Finance for Patten Corporation and Vice President of Marketing for Summit Software Technology, Inc. and held senior marketing and management positions with the Gillette Company and the American Appraisal Company in Boston, Massachusetts. Mr. Stratton is a graduate of The College of The Holy Cross.
Heather A. Sica, 35 years old, has been a director of the Company since 1995. Ms. Sica has been the Executive Vice President and Treasurer of the Company since 1991. She served as Chief Financial Officer of the Company from 1991 to 1995. She served as a Vice President of the Company from 1989 to 1991. Prior to joining the Company, Ms. Sica was an associate with the Real Estate Group of General Electric Investment Corporation and a certified public accountant with KPMG Peat Marwick. Ms. Sica received her B.S. in Business Administration from the University of Vermont and her MBA from the Wharton School of the University of Pennsylvania.
Ronald E. Rabidou, 46 years old, has been Chief Financial Officer of the Company since May 1995. Prior to joining the Company, Mr. Rabidou was a certified public accountant with Ernst & Young LLP from 1987 to May 1995. Mr. Rabidou received his MBA and BA from the University of Massachusetts.
Wayne M. Greenholtz, 56 years old, has been a Senior Vice President of the Company since April 1995. Prior to joining the Company, Mr. Greenholtz was the Senior Vice President of Operations for Government Employees Financial Corporation, a subsidiary of GEICO Corporation, from 1989 to 1995. Mr. Greenholtz is a graduate of the University of Maryland.
Jim Shippee, 37 years old, has been Senior Vice President of Mortgage Operations since 1989. Prior to joining the Company, Mr. Shippee was Vice President of Patten Financial Services from 1987 to 1989.
36

Michael A. Spadacino, 36 years old, has been a Senior Vice President of the Company since January 1994 after joining the Company in 1992 as a Vice President in charge of land portfolio acquisitions. Prior to joining the Company, Mr. Spadacino attended law school from 1989 to 1992 at the Albany Law School of Union University where he received a JD. Mr. Spadacino received a BBA in Accounting from St. Bonaventure University and MS in Taxation from Georgetown University and is also a CPA.
Joseph S. Weingarten, 32 years old, has been a Senior Vice President of the Company since 1997. Prior to joining the Company, Mr. Weingarten served from 1993 to 1997 in the Structured Finance Group of ING Capital, most recently as a Vice President, originating and managing structured lending and asset-backed securitization transactions, with an emphasis on specialty finance companies. Previously, he served as the Manager of Portfolio Administration for US West Financial Services, Inc., and as a CPA with Arthur Andersen & Co. Mr. Weingarten received his B.A. from New York University.
James A. Yearwood, 49 years old, has been a First Vice President of the Company since 1996 after joining the Company in 1992 as a Vice President in charge of vacation ownership receivable funding. Prior to joining the Company, Mr. Yearwood was a Vice President with Del-Val Capital Corporation from 1989 to 1991 where he specialized in vacation ownership receivable lending. Mr. Yearwood graduated from Southern Connecticut State University.
DIRECTORS
John A. Costa, 41 years old, has been a director of the Company since 1995. Mr. Costa has been at Cardholder Management Services, L.P., a credit card servicing business since 1995, serving first as Managing Director of Planning and Business Development, and presently as Senior Vice President. Mr. Costa served as a consultant to corporate clients from 1992 to 1995 in areas that include mergers and acquisitions, financial modeling, asset securitization and lending facility development. Previously, he served as Director of Consumer Finance with US West Financial Services, Inc. in 1992 and as Director of Structured Finance for Arsht & Company, Inc. from 1990 to 1992. Mr. Costa received his B.A. from New York University.
Donald R. Dion, Jr., 42 years old, has been a director of the Company since 1988. Mr. Dion is Chairman and Chief Executive Officer of Dion Money Management Advisors, Inc. Mr. Dion served as Chief Executive Officer of the Company until 1995 and Treasurer of the Company until 1991. Prior to joining the Company, Mr. Dion served as an Executive Vice President of Finance, Treasurer and Director of Patten Corporation, an attorney with Warner & Stackpole in Boston, Massachusetts and a certified public accountant with Ernst & Young. He is a graduate of Saint Michaels College, holds a J.D. from the University of Maine Law School, and an
LL.M. from Boston University School of Law.
David J. Ferrari, 61 years old, has been a director of the Company since 1988. Mr. Ferrari is President and a founder of Argus Management Corporation of Natick, Massachusetts. Argus Management Corporation provides consulting and management services to underperforming and troubled companies. Mr. Ferrari is a Director of several companies, including Malden Mills Industries, Inc., and Printed Circuit Corp. Prior to founding Argus, Mr. Ferrari was a certified public accountant with Arthur Andersen & Co. He received a B.A. from Johns Hopkins University and an MBA from Babson College.
Gerald Segel, 76 years old, has been a Director of the Company since 1989. Prior to his retirement in May 1990, Mr. Segel was Chairman of Tucker Anthony Incorporated from January 1987 to May 1990. From 1983 to January 1987 he served as President of Tucker Anthony Incorporated. Mr. Segel is also a Director of Hologic, Inc., Vivid Technologies, Inc. and Boston Communications Group, Inc. Mr. Segel received his A.B. from Harvard College.
James Westra, 45 years old, has been a director of the Company since 1995. Mr. Westra is a stockholder of the law firm of Hutchins, Wheeler & Dittmar, A Professional Corporation, where he has practiced law since 1977. Mr. Westra serves as a Director of several companies, including Bertucci's, Inc. Mr. Westra graduated from Harvard College in 1973 and from Boston University Law School in 1977.
37

PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of shares of Common Stock of the Company, as of September 30, 1997, by all stockholders of the Company known to be beneficial owners of more than 5% of the outstanding Common Stock of the Company, by each director, each of the Named Executive Officers (as defined herein) and all directors and officers of the Company as a group:

                                                                  AMOUNT AND NATURE
                                                                    OF BENEFICIAL       Percentage
                              NAME                                  OWNERSHIP(a)         of Class
----------------------------------------------------------------  -----------------     ----------
Nicholas Company, Inc. .........................................       643,459             11.4%
  700 North Water Street
  Milwaukee, WI 53202

Arthur D. Charpentier...........................................       582,229             10.3%
  660 White Plains Road, Suite 400
  Tarrytown, NY 10591

Wellington Management Co. ......................................       457,902              8.1%
  75 State Street
  Boston, MA 02109

J.P. Morgan Inv. Mgt., Inc. ....................................       451,060              8.0%
  522 Fifth Ave.
  New York, NY 10036

Richard A. Stratton(b)..........................................       420,055(c)           7.2%
  Chief Executive Officer, President and Director

Heather A. Sica(b)..............................................       110,098(d)           1.9%
  Executive Vice President, Treasurer and Director\

Michael A. Spadacino(b).........................................        39,407(e)             *
  Senior Vice President

Gerald Segel....................................................        23,137(f)             *
  Director
  Tucker Anthony Incorporated
  One Beacon Street
  Boston, MA 02108

Donald R. Dion, Jr. ............................................        17,181(g)             *
  Director
  Dion Money Management, Inc.
  279 Main Street
  Williamstown, MA 01267

Ronald E. Rabidou(b)............................................        15,531(h)             *
  Chief Financial Officer

Wayne M. Greenholtz(b)..........................................         7,263(i)             *
  Senior Vice President

James Westra....................................................         5,411(j)             *
  Director
  Hutchins, Wheeler & Dittmar, A Professional Corporation
  101 Federal Street
  Boston, MA 02110

David J. Ferrari................................................         5,123(k)             *
  Director
  Argus Management
  207 Union Street
  South Natick, MA 01760

John Costa......................................................         4,116(j)             *
  Director
  Cardholder Management Services
  55 E. Ames Ct.
  Plainview, NY 11803
All directors and executive officers as a group (13 persons)....       687,078(l)          11.3%	

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* Less than one percent.
(a) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Shares of common stock subject to options and warrants currently exercisable or exercisable within 60 days of September 30, 1997 are deemed outstanding for computing the percentage of stock owned by a person holding such options but are not deemed outstanding for computing the percentage of stock owned by any other person. Except as otherwise specified below, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
(b) Address: 789 Main Road, Stamford, VT 05352.
(c) Includes 194,892 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(d) Includes 107,783 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(e) Includes 39,407 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(f) Includes 18,812 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(g) Includes 9,181 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(h) Includes 15,531 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(i) Includes 7,263 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(j) Includes 3,675 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(k) Includes 5,123 shares of Common Stock issuable upon exercise of options. Such options are exercisable within 60 days.
(l) In addition to the shares of Common Stock and options to purchase Common Stock deemed to be beneficially owned by the directors and officers, as set forth above, includes options to purchase Common Stock held by the following executive officers in the following amounts: James Shippee -- 30,112 shares; and James Yearwood -- 9,645 shares. Such options are exercisable currently or within 60 days.
39

DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued under the Indenture, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following statements, unless the context otherwise requires, are summaries of the substance or general effect of certain provisions of the Indenture and are qualified in their entirety by reference to the Indenture. Unless otherwise defined herein, capitalized terms used in this Prospectus have the same meaning as defined in the Indenture.
The Notes will be limited in aggregate principal amount to $51,750,000 (including Notes issuable upon exercise of the Underwriters' over-allotment option) and will be issued as fully-registered Notes only in integral multiples of $1,000. The Notes will bear interest at the rate of % per annum from and after the date of delivery, and payments of interest will be made monthly in arrears beginning December 1, 1997 to Noteholders of record as of the close of business on the 15th day of the preceding month. At the option of the Company, interest may be paid by Company checks mailed to registered holders of the Notes.
The Notes will mature on November 1, 2002 and payments of the principal of the Notes will be made at the main office of the Trustee in New York, New York. The Notes are also exchangeable and transferable at such office, without charge therefor, except for any tax or other governmental charge connected therewith. The Notes are direct unsecured obligations of the Company.
The Company intends to furnish to holders of the Notes annual reports containing audited financial information.
NOTEHOLDERS' RIGHTS TO PREPAYMENT
If requested by a Noteholder, the Company will prepay, during the period from the date of issuance through December 1, 1998, and thereafter in any subsequent twelve-month period ending December 1 (in either case, a "Prepayment Period") an aggregate maximum per Prepayment Period of 5% of the original aggregate principal amount of the Notes issued under the Indenture, subject to certain limitations. Any such prepayment shall be at a price of 100% of the principal amount plus accrued interest to the date of prepayment. In the case of deceased Noteholders (including tenants by the entirety, joint tenants and tenants in common) or beneficial owners, commencing immediately upon issuance of the Notes, such prepayment will take place within 60 days of the Trustee's receipt of a prepayment request from the personal representative or surviving tenant of any such deceased Noteholder or beneficial owner. In the case of other Noteholders, the prepayment of those Notes tendered on or prior to September 30 in any Prepayment Period will take place on the immediately succeeding December 1, commencing December 1, 1998.
The Company is not obligated to prepay more than $25,000 of the Notes tendered by any single Noteholder or the personal representative or surviving tenant of a deceased Noteholder or beneficial owner in any Prepayment Period, except that in the case of Notes registered in the name of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the $25,000 limitation applies to each beneficial owner of Notes held by any Qualified Institution.
A Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder, and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder. The death of a person who, during his lifetime, was entitled to substantially all of the beneficial ownership interest of a Note, will be deemed the death of a holder, regardless of the registered holder, if such beneficial interest can be established to the satisfaction of the Trustee. Such beneficial interest will be deemed to exist in typical cases of street name or nominee ownership, ownership by a custodian for the benefit of a minor under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between a husband and wife (including individual retirement accounts or Keogh plans maintained solely by or for the decedent, or by or for the decedent and spouse) and trusts and certain other arrangements whereby a person has substantially all of the beneficial ownership interests in the Notes during
40

his lifetime. Beneficial interests shall include the power to sell, transfer or otherwise dispose of a Note and the right to receive the proceeds therefrom, as well as interest and principal payable with respect thereto. Prepayments to the personal representatives or surviving tenants of deceased Noteholders or beneficial owners on or prior to December 1 of any Prepayment Period will be subject to the aggregate limit applicable to such Prepayment Period of 5% of the original aggregate principal amount of the Notes issued under the Indenture.
Except in the case of Qualified Institutions and the personal representative or surviving tenant of a deceased Noteholder, no particular form of request for prepayment or authority to request payment is necessary. However, in order for Notes to be validly tendered for prepayment, the Trustee must have received: (1) a written request for prepayment signed by the Noteholder or his authorized representative, (2) the Notes to be prepaid, and (3) in the case of a surviving tenant or personal representative of a deceased Noteholder or beneficial owner, appropriate evidence of death and such other additional documents as the Trustee shall require, including, but not limited to, inheritance or estate tax waivers and evidence of authority of the personal representative. Any Notes tendered or any request for prepayment may be withdrawn by written request received by the Trustee on or prior to the last day of September in the Prepayment Period or, in the case of Notes presented by reason of death of a Noteholder or beneficial owner, prior to the issuance of a check in payment thereof. Except in the case of a deceased Noteholder or beneficial owner, Notes not prepaid because they are not validly presented on or prior to the last day of September in a Prepayment Period or because of the foregoing dollar limitations, will be held for prepayment during the following Prepayment Period, subject to the $25,000 of 5% of original aggregate principal amount limitations, in order of receipt until prepaid, unless sooner withdrawn by the Noteholder. In the case of a deceased Noteholder or beneficial owner and the personal representative or surviving tenant of a deceased Noteholder, Notes tendered for prepayment in accordance with the preceding paragraph and not prepaid because of the $25,000 or 5% of original aggregate principal amount limitations, will be held for prepayment in order of receipt, subject to such $25,000 or 5% of original aggregate principal amount limitations, within 60 days following the commencement of the next succeeding Prepayment Period until paid, unless sooner withdrawn by the personal representative or surviving tenant of such deceased Noteholder or beneficial owner. Requests for prepayment covering Notes not paid will remain in effect unless withdrawn. A Noteholder who has tendered a Note for prepayment shall continue to receive all monthly interest payments prior to the date of prepayment.
Notes tendered in the manner described in the preceding paragraph will be prepaid, up to the $25,000 per Noteholder or beneficial owner or 5% of original aggregate principal amount limitations, in the following order: (i) Notes tendered by the personal representative or surviving tenant of a deceased Noteholder or beneficial owner shall be prepaid first, and (ii) other Notes will be prepaid in the order of the Trustee's receipt of a written request for prepayment executed by the Noteholder or his duly authorized representative. Notes that are properly tendered but not prepaid during any Prepayment Period because of the $25,000 or 5% of original aggregate principal amount limitations will be held for prepayment in the next Prepayment Period in order of receipt (except in the case of a deceased Noteholder or beneficial owner, whose tenders will be given priority as discussed above) unless withdrawn by the Noteholder. If the $25,000 per holder limitation has been reached and the 5% aggregate limitation has not been reached, if Notes have been properly presented for payment on behalf of beneficial holders who are natural persons, each in an aggregate principal amount exceeding $25,000, the Company will redeem such Notes in order of their receipt (except Notes presented for payment in the event of death of a holder, which will be given priority in order of their receipt), up to the aggregate limitation of 5% notwithstanding the $25,000 limitation.
In the case of Notes held by Qualified Institutions on behalf of beneficial owners, the $25,000 per Prepayment Period limitation shall apply to each such beneficial owner. Such Qualified Institutions in their request for prepayment on behalf of such a beneficial owner must submit evidence, satisfactory to the Trustee, that they hold Notes on behalf of such beneficial owner and that the aggregate requests for prepayment tendered by such Qualified Institution on behalf of such beneficial owner per Prepayment Period do not exceed $25,000.
The Company's obligation to prepay Notes properly tendered for prepayment is not cumulative. Although the Company is obligated to prepay in any Prepayment Period up to 5% of the original aggregate principal amount of the Notes issued under the Indenture, it is not required to establish a sinking fund or otherwise set
41

aside funds for that purpose, and the Company has no present intention of setting aside funds for prepayment of Notes prior to maturity. The Company intends to prepay Notes tendered out of its internally-generated funds or, if necessary, short-term or other long-term borrowings. The obligation to prepay the Notes, however, is an unsecured obligation of the Company.
Nothing in the Indenture prohibits the Company from purchasing any Notes on the open market. However, the Company may not use any Notes purchased on the open market as a credit against amounts the Company is otherwise obligated under the Indenture to repay.
NOTEHOLDERS' RIGHTS TO PREPAYMENT AFTER FUNDAMENTAL STRUCTURAL CHANGE OR SIGNIFICANT SUBSIDIARY DISPOSITION
In the event of any Fundamental Structural Change of the Company (as defined herein below) or a Significant Subsidiary Disposition (as defined herein below), each holder of Notes will have the right, at the holder's option and subject to the terms and conditions of the Indenture, to require the Company to purchase for cash all or any part (provided the principal amount of such part is $1,000 or an integral multiple thereof) of the holder's Notes on the date that is 75 days after the occurrence of the Fundamental Structural Change or Significant Subsidiary Disposition (the "Repurchase Date") at a price equal to 100% of the principal amount thereof plus accrued interest to the Repurchase Date, unless on or before the date that is 40 days after the occurrence of the Fundamental Structural Change or Significant Subsidiary Disposition, the Notes have received a rating of Baa3 or better by Moody's Investors Service, Inc., or BBB- or better by either Standard & Poor's Corporation or Duff & Phelps Credit Rating Co. Neither the Board of Directors of the Company nor the Trustee has the ability to waive the Company's obligation to redeem a holder's Notes upon request in the event of a Fundamental Structural Change or Significant Subsidiary Disposition. Exercise of this redemption option by a holder is irrevocable.
If within 40 days after the Fundamental Structural Change or Significant Subsidiary Disposition the Notes have not received a rating as described in the immediately preceding paragraph, the Company is obligated to provide promptly, but in any event within three business days after expiration of such 40 day period, notice to the Trustee, who shall promptly (and in all events within five days after receipt of notice from the Company) notify all holders of the Notes, of the Fundamental Structural Change or Significant Subsidiary Disposition, which notice shall state, among other things (i) the availability of the redemption option, (ii) the date before which a holder must notify the Trustee of such holder's intention to exercise the redemption option (which date shall be no more than three business days prior to the Repurchase Date), and (iii) the procedure such holder must follow to exercise such right. To exercise this right, the holder must deliver to the Trustee on or before the close of business on the Repurchase Date, written notice of such holder's redemption election signed by such holder or its authorized representative and the Note or Notes to be redeemed free of liens or encumbrances.
Under the Indenture, a "Fundamental Structural Change" in the Company is deemed to have occurred at such time as (i) the Company shall consolidate with or merge into any other corporation or partnership, or convey, transfer or lease all or substantially all of its assets to any person other than as part of a loan securitization or sale entered into in the ordinary course of business,
(ii) any person shall consolidate with or merge into the Company pursuant to a transaction in which at least a majority of the common stock of the Company then outstanding is changed or exchanged or in which the number of shares of common stock issued by the Company in the transaction to persons who were not stockholders of the Company immediately prior to such transaction is greater than the number of shares outstanding immediately prior to the transaction,
(iii) any person shall purchase or otherwise acquire in one or more transactions beneficial ownership of 50% or more of the common stock of the Company outstanding on the date immediately prior to the last purchase or other acquisition, (iv) the Company or any subsidiary shall purchase or otherwise acquire in one or more transactions during the twelve month period preceding the date of the last such purchase or other acquisition an aggregate of 25% or more of the common stock of the Company outstanding on the date immediately prior to the last such purchase or acquisition, or (v) the Company shall make a distribution of cash, property or securities to holders of common stock in their capacity as such (including by means of dividend, reclassification or recapitalization) which, together with all other distributions during such 12 month period preceding the
42

date of such distribution, has an aggregate fair market value in excess of an amount equal to 25% of the fair market value of common stock of the Company outstanding on the date immediately prior to such distribution.
Under the Indenture, a "Significant Subsidiary Disposition" shall be deemed to have occurred upon (i) the merger, consolidation, or conveyance or transfer of all or substantially all of the assets of a Significant Subsidiary, or (ii) the issuance, sale, transfer, assignment, pledge or other disposition of the capital stock of a Significant Subsidiary or securities convertible or exchangeable into shares of capital stock of such Significant Subsidiary. A Significant Subsidiary is any subsidiary of the Company the consolidated assets of which constitute 20% or more of the Company's consolidated assets. The Company does not currently have any Significant Subsidiaries.
Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to repurchase such Notes as a result of conveyance, transfer or lease of less than all of the assets of the Company or a Significant Subsidiary to another person may be uncertain.
Except as described above with respect to a Fundamental Structural Change or Significant Subsidiary Disposition, the Indenture does not contain any other provisions that permit the holders of the Notes to require that the Company repurchase the Notes in the event of a takeover or similar transaction. Moreover, a recapitalization of the Company or a transaction entered into by the Company with management or their affiliates would not necessarily be included within the definition of a "Fundamental Structural Change" or a "Significant Subsidiary Disposition." Accordingly, while such definitions cover a wide variety of arrangements which have traditionally been used to effect highly-leveraged transactions, the Indenture does not afford the holders of Notes protection in all circumstances from highly leveraged transactions, reorganizations, restructurings, mergers or similar transactions involving the Company and its Significant Subsidiaries that may adversely affect holders of Notes.
The indentures pursuant to which the 1992 Notes, the 1993 Notes and the 1995 Notes in the aggregate principal amounts of $15,065,000, $17,570,000 and $18,400,000, respectively, were issued permit the holders thereof to require the Company to repurchase such 1992 Notes, 1993 Notes and 1995 Notes upon the occurrence of events which are substantially identical to those described in the definitions of "Fundamental Structural Change" and "Significant Subsidiary Disposition" above. The 1992 Notes, 1993 Notes and 1995 Notes rank on a parity with the Notes. No assurance can be given that if a Fundamental Structural Change or Significant Subsidiary Disposition were to occur, there would be sufficient funds available to the Company to pay the amounts outstanding under the Notes, the 1992 Notes, the 1993 Notes, the 1995 Notes and any other instruments or facilities then outstanding which are senior to or on a parity with the Notes.
The Fundamental Structural Change purchase feature of the Notes may, in certain circumstances, make more difficult or discourage a takeover of the Company and thus removal of incumbent management. The Fundamental Structural Change purchase feature, however, is not the result of management's knowledge of any specific effort to obtain control of the Company or part of a plan by management to adopt a series of anti-takeover provisions. Rather, the terms of the Fundamental Structural Change purchase feature is a result of negotiations between the Company and the Underwriters.
To the extent that the right of redemption by a holder in the event of a Fundamental Structural Change constitutes a tender offer under Section 14(e) of the Exchange Act and the rules thereunder, the Company will comply with all applicable tender offer rules.
OPTIONAL REDEMPTION BY THE COMPANY
Beginning November 1, 1999, the Company shall have the option to redeem, upon not less than 30 and not more than 60 days' notice, all or any portion of the Notes.
43

If the Company redeems the Notes prior to maturity, it will pay in cash a redemption price equal to the following percentages of the principal amount of the Notes redeemed, plus interest to the date fixed for redemption:

IF REDEEMED DURING                                                  REDEMPTION
THE 12 MONTHS BEGINNING                                               PRICE
--------------------------                                          ----------
November 1, 1999..................................................    103.0 %
November 1, 2000..................................................    101.5 %
November 1, 2001 and thereafter...................................    100.0 %	

If less than all the Notes are redeemed, the particular Notes to be redeemed will be selected by lot by the Trustee. Notice of redemption will be mailed to each holder of Notes to be redeemed at the address appearing in the registry books for the Notes maintained by the Company.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The following will be Events of Default: (a) default in the payment of principal, or premium, if any, when due; (b) default in the payment of any interest when due, continued for five days; (c) default in the meeting of any redemption payment when due, continued for five days; (d) default in the performance of any other covenant or warranty of the Company, continued for 30 days (or, in certain circumstances, 60 days) after written notice to the Company by the Trustee or to the Company and the Trustee by the holders of 10% in principal amount of the outstanding Notes; (e) any default by the Company under the terms of any instrument under which Indebtedness in an aggregate principal amount in excess of $1,000,000 outstanding is accelerated and such acceleration is not rescinded or annulled within 10 days after written notice to the Company from the Trustee or to the Trustee and the Company from the holders of not less than 25% in principal amount of the outstanding Notes; or (f) certain events of bankruptcy, insolvency or reorganization. If any Event of Default shall occur and be continuing, the Trustee or the holders of not less than 25% in principal amount of outstanding Notes may declare the Notes immediately due and payable.
The Company is required to deliver quarterly to the Trustee an officers' certificate as to the absence or existence of any default in the performance of any covenant contained in the Indenture during the preceding quarter and is also required to provide the Trustee notice within ten business days after the Company knew or should have known of a default under the Indenture or any other Indebtedness of the Company.
The Indenture provides that the Trustee will, within 60 days after obtaining notice of the occurrence of a default, give the holders of Notes (and to certain other persons and former noteholders) notice of all uncured defaults known to it; but, except in the case of a default in the payment of principal, or premium, if any, or interest on any of the Notes, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of such holders.
The holders of a majority of the aggregate principal amount of outstanding Notes may on behalf of the holders of all Notes waive certain past defaults, not including a default in payment of principal, or premium, if any, or interest on any Note.
RESTRICTIONS ON ADDITIONAL INDEBTEDNESS
In the Indenture, the Company has covenanted that on each of June 30, December 31 and any day on which the Company directly or indirectly incurs any Indebtedness (as defined in the Indenture), the Company will maintain a Ratio equal to or in excess of 2:1. The term "Ratio" means the ratio of (A) the Company's earnings before deduction of taxes, depreciation, amortization and interest expense (but after deduction for any extraordinary item) for the twelve month period immediately preceding the date such Ratio is calculated (as shown by a pro forma consolidated income statement of the Company) to (B) the aggregate dollar amount of interest paid by the Company on the Notes and all other Indebtedness of the Company or its subsidiaries during such twelve month period, in each case, after giving effect to the incurrence of such Indebtedness and, if applicable, the application of the proceeds therefrom. The Company is required to deliver to the Trustee, within 30 days after each June 30 and December 31, and each incurrence of Indebtedness, an
44

officer's certificate containing appropriate calculations of the Ratio and the compliance of the Company with this covenant. At June 30, 1997, the Company's Ratio was 2.88.
LIQUIDITY MAINTENANCE REQUIREMENT
The Company is not required to establish a sinking fund for the purpose of redeeming the Notes. The Company has, however, covenanted to maintain on or before ten days prior to and until the next Interest Payment Date, Permitted Investments the fair market value of which is equal to or in excess of the product of the aggregate amount of interest payable with respect to the Notes for the next succeeding Interest Payment Date multiplied by three. The Company is required to deliver to the Trustee, within 30 days after the end of each fiscal quarter, an officer's certificate as to compliance with this covenant.
LIMITATION ON DIVIDENDS AND OTHER PAYMENTS
The Company has agreed pursuant to the Indenture that it will not make, pay or declare any of the following (each a "Restricted Payment"): (i) any dividend or other distribution of property or assets other than dividends paid solely in the Company's stock, (ii) a repayment or defeasance of any indebtedness which is subordinate to the Notes (except, so long as the Notes are not in default, scheduled payments of principal and interest thereon), (iii) an exchange of equity for debt issued subsequent to October 31, 1997, or (iv) any stock repurchase, unless such Restricted Payment is less than the sum of (A) $2,000,000 plus (B) 45% of the Company's and its subsidiaries' cumulative net income earned during the period commencing October 31, 1997 and ending on the date of such Restricted Payment, plus (C) the cumulative cash and non-cash proceeds to the Company of all public or private equity offerings during such time. In addition, the Company is prohibited by the Indenture from making any Restricted Payment if, by so doing, the Company will be in violation of any other provisions of the Indenture or any other loan agreement or indenture to which the Company is a party.
MERGER, CONSOLIDATION OR SALE OF ASSETS; SUCCESSOR CORPORATION
The Company has covenanted that it will not merge or consolidate with, or sell all or substantially all of its assets to, any person, firm or corporation unless the Company is the continuing corporation in such transaction and, immediately thereafter, is not in default under the Indenture or, if it is not the continuing corporation, the successor corporation expressly assumes the Company's obligations under the Indenture and, immediately after such transaction, the successor corporation is not in default under the Indenture. Any successor corporation shall succeed to and be substituted for the Company as if such successor corporation has been named as the Company in the Indenture.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the holders of 66 2/3% in principal amount of outstanding Notes, provided that no such modification or amendment may (i) reduce the principal amount of or interest on any Note or change the stated maturity of the principal or the interest payment dates or change the currency in which the Notes are to be paid, without the consent of each holder of any Note affected thereby, or (ii) reduce the percentage of holders of Notes necessary to modify or alter the Indenture, without the consent of the holders of all Notes then outstanding.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. Its mailing address is 101 Barclay Street, New York, NY 10286.
The Indenture contains a provision pursuant to which the Company will indemnify the Trustee against any and all losses or liabilities incurred by the Trustee in connection with its execution and performance of the Indenture; provided, however, that such indemnification will not extend to losses resulting from a breach of the Trustee's duties under the Indenture. The Indenture provides that the holders of a majority in principal
45

amount of the outstanding Notes may direct 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, subject to certain limitations set forth in the Indenture. The Trustee is not required to take any action at the direction of the holders of the Notes unless such holders have provided the Trustee with a reasonable indemnity.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain federal income tax consequences to persons purchasing the Notes. The discussion relates only to the material federal income tax consequences regarding the purchase of the Notes and is not necessarily inclusive of all matters which may be of interest to an individual investor. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO SUCH INVESTOR AND NOT COMMON TO INVESTORS AS A WHOLE, AND ALSO AS TO ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES REGARDING HOLDING AND DISPOSING OF THE NOTES.
SALE OR REDEMPTION
The difference between the holder's tax basis in a Note and the amount realized upon the sale of a Note that is held as a capital asset (including the redemption of such a Note or the payment of its principal amount at maturity), will be recognized as capital gain or loss.
MARKET DISCOUNT
Prospective purchasers of the Notes should be aware that a holder's sale of the Notes may be affected by the "market discount" rules of the Code. If a Note is purchased by a subsequent holder for less than the original issue price, the Note will have been acquired at a "market discount" (except that the "market discount" will be considered to be zero if it is less than 0.25% of stated redemption price of the Notes multiplied by the number of complete years to maturity from the date of the subsequent purchase). Upon the later disposition of a Note (including payment by the issuer at or before maturity) acquired at a "market discount," the holder must treat any gain, to the extent of the accrued "market discount," as ordinary income. "Market discount" will accrue ratably from the date following the date the holder acquired the Note to the date of its maturity. The holder may elect, however, to accrue "market discount" at a constant interest rate in lieu of ratable accrual, which will result in smaller accruals of "market discount" in the earlier years and larger accruals in the later years.
Under the "market discount" rules, a portion of the deduction for interest expense on indebtedness incurred or continued to purchase or carry the Notes may have to be deferred to the extent of any "market discount" accruing on the Notes. A holder may avoid such a deferral of interest expense deductions, however, if the holder elects to include "market discount" on all "market discount" instruments held by such holder in income as it accrues, rather than when the instruments are sold or redeemed.
BACKUP WITHHOLDING
The Company is required to comply with information reporting requirements imposed by the Code and will be required to withhold 31% of the interest payable to holders of the Notes who are subject to the backup withholding rules and who
(i) fail to provide to the Company their correct taxpayer identification number under penalty of perjury, (ii) fail to comply with federal income tax reporting obligations, or (iii) under certain circumstances, fail to provide the Company with a certified statement, under penalty of perjury, that the holder is not subject to backup withholding. The certification required by (iii) above should include a certified statement, under penalties of perjury, that (a) the holder has not been notified by the Internal Revenue Service that he is subject to backup withholding due to under reporting of dividends or interest, and (b) the taxpayer identification number provided to the Company is the holder's correct number. Any amounts so withheld from payments on the Notes will be paid over to the Internal Revenue Service and will be allowed as a credit against the Noteholder's federal income tax.
46

UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and conditions thereof, the Underwriters named below have agreed, severally, to purchase from the Company the principal amount of Notes set forth below opposite their respective names.

                                                                     AMOUNT
                      NAME OF UNDERWRITERS                          OF NOTES
-----------------------------------------------------------------  ----------
McDonald & Company Securities, Inc...............................  $
J.C. Bradford & Co. Inc..........................................
Tucker Anthony Incorporated......................................
                                                                   -----------
          Total..................................................  $
                                                                   ===========	

In the Underwriting Agreement, the Underwriters have agreed, subject to the terms and conditions therein set forth, to purchase all the principal amount of Notes offered hereby if any of such Notes are purchased.
The Company has granted to the Underwriters an option, exercisable during the 30 days after the date of this Prospectus, to purchase up to $6,750,000 in aggregate principal amount of the Notes at the Price to Public set forth on the cover page hereof less an underwriting discount. The Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, incurred in the sale of Notes offered hereby.
The Underwriters have advised the Company that they propose initially to offer the Notes to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such a price less a concession not in excess of % of the principal amount. The Underwriters may allow and such dealers may reallow a concession not in excess of % of the principal amount to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed.
The offering of the Notes is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offer without notice. The Underwriters reserve the right to reject any order for the purchase of Notes.
There is no public market for the Notes, and the Company does not intend to apply for listing of the Notes on the Nasdaq stock market or any Securities exchange. The Company has been advised by the Underwriters that, following the public offering of the Notes, the Underwriters presently intend to make a market in the Notes; however, the Underwriters are not obligated to do so, and any market-making activity with respect to the Notes may be discontinued at any time without notice. There can be no assurances as to the liquidity of the public market for the Notes or that an active public market for the Notes will develop. If an active market does not develop, the market price and liquidity of the Notes may be adversely affected.
The Underwriting Agreement provides that the Company will indemnify the Underwriters, and controlling persons, if any, against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments which the Underwriters or any such controlling persons may be required to make in respect thereof.
47

LEGAL MATTERS
Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal Street, Boston, Massachusetts, will render an opinion on the legality of the Notes being offered hereby. Bass, Berry & Sims, 2700 First American Center, Nashville, Tennessee, will pass upon certain legal matters for the Underwriters. James Westra, a shareholder of Hutchins, Wheeler & Dittmar, is a Director of the Company. Mr. Westra owns 1,735 shares of the Company's Common Stock, and has options to acquire another 5,512 shares.
EXPERTS
The consolidated financial statements of Litchfield Financial Corporation incorporated by reference in Litchfield Financial Corporation's Annual Report (Form 10-K) for the year ended December 31, 1996, 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 upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (herein, with all amendments and exhibits thereto, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement or the exhibits and schedules thereto, certain portions having been omitted pursuant to the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract or other document are not necessarily complete; with respect to each such contract or other document filed with the Commission as an exhibit to the Registration Statement, or incorporated by reference to exhibits previously filed, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the Public Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, Seven World Trade Center, New York, New York 10048 and Chicago Regional Office, Northwestern Atrium Center, 500 West Madison, Room 3190, Chicago, Illinois 60661. Copies of such material can also be obtained at prescribed rates by writing to the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission at http://www.sec.gov. The Company's Common Stock is listed on The Nasdaq Stock Market's National Market, and such reports, proxy statements and other information can also be inspected at the Offices of Nasdaq Operations, 1735 K Street, N.W., Washington D.C. 20006.
No person is authorized to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus in connection with the offer made by this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized. This Prospectus does not constitute an offer or solicitation by anyone in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. The delivery of this Prospectus at any time shall not under any circumstances create an implication that there has been no change in the affairs of the Company since the date hereof.
48

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                                        PAGE
                                                                                        ----
Report of Independent Auditors.........................................................  F-2
Financial Statements at December 31, 1996
  Consolidated Balance Sheets..........................................................  F-3
  Consolidated Statements of Income....................................................  F-4
  Consolidated Statements of Stockholders' Equity......................................  F-5
  Consolidated Statements of Cash Flows................................................  F-6
  Notes to Consolidated Financial Statements...........................................  F-7
Financial Statements at June 30, 1997
  Consolidated Balance Sheets.......................................................... F-20
  Consolidated Statements of Income.................................................... F-21
  Consolidated Statements of Stockholders' Equity...................................... F-23
  Consolidated Statements of Cash Flows................................................ F-24
  Notes to Consolidated Financial Statements........................................... F-25	

F-1

REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LITCHFIELD FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Litchfield Financial Corporation as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Litchfield Financial Corporation at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP Boston, Massachusetts
January 31, 1997
F-2

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS

                                                                          DECEMBER 31,
                                                                  -----------------------------
                                                                      1996             1995
                                                                  ------------     ------------
                                            ASSETS
Cash and cash equivalents.......................................  $  5,557,000     $ 18,508,000
Restricted cash.................................................    18,923,000       16,345,000
Loans held for sale, net of allowance for loan losses of
  $817,000 and $1,100,000 in 1996 and 1995, respectively........    12,260,000       14,380,000
Loans held for investment, net of allowance for loan losses of
  $1,200,000 and $413,000 in 1996 and 1995, respectively........    79,996,000       33,613,000
Subordinated pass-through certificates held to maturity, net of
  allowance for loan losses of $1,400,000 and $1,270,000 in 1996
  and 1995, respectively........................................    18,004,000       13,468,000
Excess servicing asset..........................................    12,019,000       10,058,000
Other...........................................................     7,041,000        7,019,000
                                                                  ------------     ------------
          Total assets..........................................  $153,800,000     $113,391,000
                                                                  ============     ============

                             LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Lines of credit...............................................  $ 36,299,000     $         --
  Term note payable.............................................     7,428,000        9,836,000
  Accounts payable and accrued liabilities......................     3,811,000        4,442,000
  Dealer/developer reserves.....................................    10,628,000        9,644,000
  Allowance for loans sold......................................     1,111,000          932,000
  Deferred income taxes.........................................     5,080,000        3,740,000
                                                                  ------------     ------------
                                                                    64,357,000       28,594,000
                                                                  ------------     ------------
  10% Notes due 2002............................................    12,785,000       12,888,000
  8 7/8% Notes due 2003.........................................    15,930,000       16,113,000
  10% Notes due 2004............................................    18,280,000       18,400,000
                                                                  ------------     ------------
                                                                    46,995,000       47,401,000
                                                                  ------------     ------------
Stockholders' equity:
  Preferred stock, $.01 par value; authorized 1,000,000 shares,
     none issued and outstanding................................            --               --
  Common stock, $.01 par value; authorized 8,000,000 shares,
     5,444,399 shares issued and outstanding in 1996; 5,223,715
     shares issued and 5,174,715 shares outstanding in 1995.....        54,000           52,000
  Additional paid in capital....................................    34,633,000       31,873,000
  Retained earnings.............................................     7,761,000        6,065,000
  Less 49,000 common shares held in treasury, at cost, in
     1995.......................................................            --         (594,000)
                                                                  ------------     ------------
          Total stockholders' equity............................    42,448,000       37,396,000
                                                                  ------------     ------------
          Total liabilities and stockholders' equity............  $153,800,000     $113,391,000
                                                                  ============     ============	

See accompanying notes to consolidated financial statements.
F-3

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

                                                                YEAR ENDED DECEMBER 31,
                                                      -------------------------------------------
                                                         1996            1995            1994
                                                      -----------     -----------     -----------
Revenues:
  Interest and fees on loans........................  $15,396,000     $11,392,000     $ 5,669,000
  Gain on sale of loans.............................    7,331,000       5,161,000       4,847,000
  Servicing and other fee income....................    1,456,000         908,000         459,000
                                                      -----------     -----------     -----------
                                                       24,183,000      17,461,000      10,975,000
                                                      -----------     -----------     -----------
Expenses:
  Interest expense..................................    7,197,000       6,138,000       3,158,000
  Salaries and employee benefits....................    3,233,000       2,798,000       1,776,000
  Other operating expenses..........................    3,225,000       2,120,000       1,164,000
  Provision for loan losses.........................    1,954,000         890,000         559,000
                                                      -----------     -----------     -----------
                                                       15,609,000      11,946,000       6,657,000
                                                      -----------     -----------     -----------
Income before income taxes and extraordinary item...    8,574,000       5,515,000       4,318,000
Provision for income taxes..........................    3,301,000       2,066,000       1,619,000
Income before extraordinary item....................    5,273,000       3,449,000       2,699,000
Extraordinary item (net of applicable tax benefit of
  $76,0000).........................................           --              --        (126,000)
                                                      -----------     -----------     -----------
Net income..........................................  $ 5,273,000     $ 3,449,000     $ 2,573,000
                                                      ===========     ===========     ===========
Primary per common share amounts:
  Income before extraordinary item..................  $       .93     $       .76     $       .63
  Extraordinary item................................           --              --            (.03)
                                                      -----------     -----------     -----------
  Net income........................................  $       .93     $       .76     $       .60
                                                      ===========     ===========     ===========
Primary weighted average number of shares...........    5,674,264       4,522,983       4,280,006
Fully-diluted per common share amounts:
  Income before extraordinary item..................  $       .92     $       .76     $       .63
  Extraordinary item................................           --              --            (.03)
                                                      -----------     -----------     -----------
  Net income........................................  $       .92     $       .76     $       .60
                                                      ===========     ===========     ===========
Fully-diluted weighted average number of shares.....    5,736,467       4,543,009       4,280,006	

See accompanying notes to consolidated financial statements.
F-4

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                              ADDITIONAL
                                   COMMON       PAID IN       RETAINED      TREASURY
                                    STOCK       CAPITAL       EARNINGS        STOCK         TOTAL
                                   -------    -----------    -----------    ---------    -----------
Balance, December 31, 1993.......  $36,000    $ 9,662,000    $ 5,024,000    $      --    $14,722,000
  Issuance of 178,313 shares in
     connection with 5% stock
     dividend....................    2,000      2,183,000     (2,185,000)          --             --
  Issuance of 12,995 shares......       --         23,000             --           --         23,000
  Repurchase of 49,100 shares....       --             --             --     (595,000)      (595,000)
  Dividends ($.03 per share).....       --             --       (113,000)          --       (113,000)
  Net income.....................       --             --      2,573,000           --      2,573,000
                                   -------    -----------    -----------    ---------    -----------
Balance, December 31, 1994.......   38,000     11,868,000      5,299,000     (595,000)    16,610,000
  Issuance of 186,819 shares in
     connection with 5% stock
     dividend....................    2,000      2,473,000     (2,475,000)          --             --
  Issuance of 1,282,551 shares
     (including reissuance of 100
     shares held in treasury)....   12,000     17,532,000             --        1,000     17,545,000
  Dividends ($.04 per share).....       --             --       (208,000)          --       (208,000)
  Net income.....................       --             --      3,449,000           --      3,449,000
                                   -------    -----------    -----------    ---------    -----------
Balance, December 31, 1995.......   52,000     31,873,000      6,065,000     (594,000)    37,396,000
  Issuance of 259,124 shares in
     connection with 5% stock
     dividend....................    3,000      3,301,000     (3,304,000)          --             --
  Issuance of 10,560 shares
     (including reissuance of ten
     shares held in treasury)....       --         52,000             --           --         52,000
  Retirement of 48,990 shares
     held in treasury............   (1,000)      (593,000)            --      594,000             --
  Dividends ($.05 per share).....       --             --       (273,000)          --       (273,000)
  Net income.....................       --             --      5,273,000           --      5,273,000
                                   -------    -----------    -----------    ---------    -----------
Balance, December 31, 1996.......  $54,000    $34,633,000    $ 7,761,000    $      --    $42,448,000
                                   =======    ===========    ===========    =========    ===========	

See accompanying notes to consolidated financial statements.
F-5

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                         YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------------
                                                                  1996             1995            1994
                                                              ------------     ------------     -----------
Cash flows from operating activities:
  Net income................................................  $  5,273,000     $  3,449,000     $ 2,573,000
  Adjustments to reconcile net income to net cash provided
    by (used in) operating activities:
    Gain on sale of loans...................................    (7,331,000)      (5,161,000)     (4,847,000)
    Loss on retirement of 10% Notes due 2002................            --               --          88,000
    Amortization and depreciation...........................       520,000          511,000         490,000
    Amortization of excess servicing asset..................     3,444,000        2,267,000       1,996,000
    Provision for loan losses...............................     1,954,000          890,000         559,000
    Provision for deferred income taxes.....................     1,340,000        1,209,000       1,101,000
    Net changes in operating assets and liabilities:
      Restricted cash.......................................    (2,578,000)      (4,957,000)     (6,791,000)
      Loans held for sale...................................      (532,000)     (11,978,000)      2,220,000
      Dealer/developer reserves.............................       984,000        3,069,000       1,649,000
      Net change in other assets and liabilities............    (2,701,000)         881,000      (3,549,000)
                                                              ------------     ------------     -----------
    Net cash provided by (used in) operating activities.....       373,000       (9,820,000)     (4,511,000)
                                                              ------------     ------------     -----------
Cash flows from investing activities:
  Purchase of investments held to maturity..................            --       (5,595,000)     (2,011,000)
  Redemption of investments held to maturity................       118,000        9,232,000       7,890,000
  Net originations and principal payments on loans held for
    investment..............................................   (47,170,000)     (18,022,000)     (7,051,000)
  Sale of loans originally held for investment..............            --               --       1,011,000
  Collections on subordinated pass-through certificates.....       590,000               --              --
  Capital expenditures and other assets.....................      (126,000)      (1,676,000)     (1,697,000)
                                                              ------------     ------------     -----------
    Net cash used in investing activities...................   (46,588,000)     (16,061,000)     (1,858,000)
                                                              ------------     ------------     -----------
Cash flows from financing activities:
  Net borrowings (repayments) on lines of credit............    36,299,000       (5,823,000)      5,823,000
  Proceeds from issuance of long-term notes.................            --       18,400,000              --
  Redemption of long-term notes.............................      (406,000)        (895,000)     (2,406,000)
  Proceeds from term note...................................            --       12,500,000              --
  Payments of term note.....................................    (2,408,000)      (2,664,000)             --
  Net proceeds from issuance of common stock................        52,000       17,544,000          23,000
  Reissuance (purchase) of treasury stock...................            --            1,000        (595,000)
  Dividends paid............................................      (273,000)        (208,000)       (113,000)
                                                              ------------     ------------     -----------
    Net cash provided by financing activities...............    33,264,000       38,855,000       2,732,000
                                                              ------------     ------------     -----------
Net (decrease) increase in cash and cash equivalents........   (12,951,000)      12,974,000      (3,637,000)
Cash and cash equivalents, beginning of period..............    18,508,000        5,534,000       9,171,000
                                                              ------------     ------------     -----------
Cash and cash equivalents, end of period....................  $  5,557,000     $ 18,508,000     $ 5,534,000
                                                              ============     ============     ===========
Supplemental Schedule of Noncash Financing and Investing
  Activities:
  Exchange of loans for subordinated pass-through
    certificates............................................  $  3,540,000     $  8,842,000     $        --
                                                              ============     ============     ===========
  Exchange of loans for investments held to maturity........  $         --     $    358,000     $        --
                                                              ============     ============     ===========
  Transfers from loans to real estate acquired through
    foreclosure.............................................  $  1,654,000     $  1,991,000     $   843,000
                                                              ============     ============     ===========
Supplemental Cash Flow Information:
  Interest paid.............................................  $  6,674,000     $  5,766,000     $ 2,972,000
                                                              ============     ============     ===========
  Income taxes paid.........................................  $  1,411,000     $  1,151,000     $   448,000
                                                              ============     ============     ===========	

See accompanying notes to consolidated financial statements.
F-6

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Litchfield Financial Corporation (the "Company") is a specialty consumer finance company which provides financing for the purchase of rural and vacation properties ("Land Loans") and financing of vacation ownership interests ("VOI Loans"), popularly known as timeshare interests. In addition, the Company makes loans to rural land dealers and resort developers secured by consumer receivables and other secured loans (collectively, "Dealer/Other Loans".)
Basis of Presentation
The consolidated financial statements include the accounts of Litchfield Financial Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Interest income
Interest income from loans and subordinated pass-through certificates held to maturity is recognized using the interest method. Accrual of interest is suspended when collection is doubtful and, in any event, when a loan is contractually delinquent for ninety days and it is determined that amounts cannot be recovered from dealer/developer reserves or guarantees. The accrual is resumed when the loan becomes contractually current as to principal and interest and past-due interest is recognized at that time.
Gain on sale of loans
Loans are typically sold to investors with the Company retaining a participation in cash flows derived from the loans sold. Gain on sales of loans are recorded on the settlement date based upon the difference between the selling price and the carrying value of the loans sold using the specific identification method. The gain is increased by the present value of the differential between the interest to be collected from the borrower and the interest to be passed on to the purchaser of the loan during the estimated average life of the loans, less fees for normal servicing of the loans (referred to as excess servicing asset). The excess servicing asset is calculated using prepayment, default, and interest rate assumptions prevalent in the marketplace at the time of sale for similar instruments. The Company provides an allowance for expected losses under the recourse provisions at the time of the loan sale. The excess servicing asset is amortized over the estimated life of the loans using the interest method. Because a significant portion of the Company's revenues is comprised of gains realized upon sales of loans, the timing of such sales has a significant effect on the Company's results of operations.
On a quarterly basis, the Company assesses the carrying value of the excess servicing asset by comparing actual versus assumed prepayment rates on a disaggregated basis reflecting factors such as origination dates of the loans and the types of loans. The Company will adjust the carrying value of the excess servicing asset for any unfavorable changes.
Loans
Loans held for sale are carried at the lower of aggregate cost or market value. Market value is determined by outstanding commitments from investors or current investor yield requirements.
F-7

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Provisions for loan losses and impairment of loans
Provisions for loan losses are charged to income in amounts sufficient to maintain the allowances at levels considered adequate to cover anticipated losses on outstanding loans, including loans sold and subordinated pass-through certificates. Management evaluates allowance requirements on a quarterly basis by examining current delinquencies, historical loan losses, the value of the underlying collateral and general economic conditions and trends. Management also evaluates the availability of dealer/developer reserves to absorb loan losses. The Company determines those loans that are uncollectible based upon detailed review of all loans and any charge-offs are charged to the allowance for loan losses.
Land Loans and VOI Loans which consist of large groups of smaller balance loans are evaluated collectively for impairment and are stated at the lower of cost or fair value.
Dealer/Other Loans are evaluated individually for impairment based on the factors described above. No such loans were impaired at December 31, 1996 or 1995.
Loan origination fees and related costs
The Company defers the excess of loan origination fees over related direct costs and recognizes such amount as interest income over the estimated life of the related loans using the interest method.
Real estate acquired through foreclosure
Real estate acquired through foreclosure is carried at the lower of fair value less estimated costs to sell or cost. On a quarterly basis, the Company evaluates the carrying value of the real estate and establishes a valuation allowance if the fair value of the asset less the estimated costs to sell the asset is less than the carrying value of the asset. Subsequent increases in the fair market value less the estimated cost to sell the asset would reduce the valuation allowance, but not below zero. There was no such valuation allowance at December 31, 1996 or 1995. Other real estate owned of $1,775,000 and $1,288,000 is included in other assets at December 31, 1996 and 1995, respectively.
Dealer/developer reserves
As part of the Company's financing of loans through dealer/developers, the Company retains a portion of the proceeds from the purchased loans as a reserve to offset potential losses on those loans. The Company negotiates the amount of reserves with the dealer/developers based upon various criteria, including the credit risk associated with the dealer/developer and the loans being purchased. The Company generally returns any excess reserves to the dealer/developer on a quarterly basis as the related loans are repaid by borrowers.
Income taxes
The Company uses the liability method of accounting for income taxes in its financial statements.
Net income per common share
Primary and fully diluted earnings per share were computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding for each period.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Restricted cash
Restricted cash and cash equivalents represent accounts established as credit enhancements for certain loan sales and escrow deposits held for customers.
F-8

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments held to maturity and Subordinated pass-through certificates held to maturity
Management determines the appropriate classification of debt securities at the time of purchase. Debt securities are classified as held to maturity when the Company has the intent and ability to hold the investments to maturity. Investments held to maturity are carried at amortized cost and are included in other assets.
The Company classifies its subordinated pass-through certificates as held to maturity based on its ability and expressed intent to hold the certificates of maturity. Historically, the Company has not sold its subordinated pass-through certificates and cannot sell such certificates without the consent of the senior certificate holders. In addition, the Company has pledged certain pass-through certificates as collateral for certain liabilities and cannot sell such certificates without the further consent of the lenders.
Subordinated pass-through certificates held to maturity are carried at amortized cost less an allowance for loan losses. On a quarterly basis, the Company assesses the carrying value of the subordinated pass-through certificates for impairment. The Company considers the affect of changes in prepayment, default and interest rates on the cash flows underlying the subordinated pass-through certificates. The Company will adjust the carrying value for any impairment of carrying value that it considers to be other than-temporary.
Deferred debt issuance costs
Deferred debt issuance costs are amortized over the life of the related debt. The unamortized balance of $1,820,000 and $2,211,000 is included in other assets at December 31, 1996 and 1995, respectively. The amount of the accumulated amortization was $1,051,000 and $675,000 at December 31, 1996 and 1995 respectively.
Mortgage servicing rights
In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." The Company adopted the provisions of the standard in 1996. The standard requires the Company to allocate the cost of purchasing or originating mortgage loans to the mortgage servicing rights and the loans (without the servicing rights) based on their relative fair values if the Company sells or securitizes the loans and retains the servicing rights. Any cost allocated to mortgage servicing rights is recognized as a separate asset. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income and are evaluated for impairment based on their fair value.
In the absence of fair market values for the servicing of Land and VOI Loans, the Company uses fair values derived from cash flows to estimate fair value. Such estimates consider assumptions about prepayments, defaults and interest rates consistent with those used in the Company's gain on sale of loan models described above.
Because estimated future cash flows from servicing approximate the cost of servicing the related Land and VOI Loans, the Company did not allocate any cost to mortgage servicing rights in 1996.
Reclassification
Certain amounts in the 1994 and 1995 financial statements have been reclassified to conform to the 1996 presentation.
New accounting standards
In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." In general, the provisions of this standard are effective for financial statements for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and shall be
F-9

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applied prospectively. In future periods, the Company's excess servicing asset will be reclassified as interest only strips and will be accounted for under the provisions of the Statement of Financial Accounting Standards No. 115 "Accounting For Certain Investments in Debt and Equity Securities."
2. INVESTMENTS HELD TO MATURITY AND SUBORDINATED PASS-THROUGH CERTIFICATES HELD TO MATURITY
The following is a summary of investments and subordinated pass-through certificates held to maturity:

                                                        GROSS UNREALIZED
                                                      --------------------
DECEMBER 31, 1996                        COST          GAINS       LOSSES      FAIR VALUE
-----------------                     -----------     --------     -------     -----------
Mortgage-backed securities..........  $   142,000     $     --     $    --     $   142,000
Subordinated pass-through
  certificates......................   18,004,000      185,000          --      18,189,000
                                      -----------     --------     -------     -----------
          Total debt securities.....  $18,146,000     $185,000     $    --     $18,331,000
                                      ===========     ========     =======     ===========

                                                        GROSS UNREALIZED
                                                      --------------------
DECEMBER 31, 1995                        COST          GAINS       LOSSES      FAIR VALUE
-----------------                     -----------     --------     -------     -----------
Mortgage-backed securities..........  $   260,000     $     --     $    --     $   260,000
Subordinated pass-through
  certificates......................   13,468,000       15,000          --      13,483,000
                                      -----------     --------     -------     -----------
          Total debt securities.....  $13,728,000     $ 15,000     $    --     $13,743,000
                                      ===========     ========     =======     ===========	

The amortized cost and estimated fair value of debt securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Mortgage-backed securities are included in other assets.

                                                     ESTIMATED
                                                       COST         FAIR VALUE
                                                    -----------     -----------
Due in one year or less...........................  $        --     $        --
Due after one year through five years.............   18,146,000      18,331,000
                                                    -----------     -----------
          Total debt securities...................  $18,146,000     $18,331,000
                                                    ===========     ===========	

In 1990, the Company began privately placing issues of pass-through certificates evidencing an undivided beneficial ownership interest in pools of loans held by a trust. The principal and part of the interest payments on the loans transferred to the trust are collected by the Company, as the servicer of the loan pool, remitted to the trust for the benefit of the investors, and then distributed by the trust to the investors in the pass-through certificates.
In certain of the Company's issues of pass-through certificates, credit enhancement was achieved by dividing the issue into a senior portion which was sold to the investors and a subordinated portion which was retained by the Company. The Company had investments in pass-through certificates of $18,004,000 and $13,468,000 at December 31, 1996 and 1995, respectively. In certain other of the Company's private placements, credit enhancement was achieved through cash collateral. The Company had $18,647,000 and $16,179,000 of restricted cash at December 31, 1996 and 1995 representing credit enhancements.
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 retained by the Company and might, therefore, have to be charged against the allowance for the loan losses to the extent dealer/developer guarantees and reserves are not available.
F-10

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LOANS
Loans at December 31, 1996 and 1995 consisted of the following:

                                                   DECEMBER 31,
                                            ---------------------------
LOANS HELD FOR SALE                            1996            1995
-------------------                         -----------     -----------
Land......................................  $11,833,000     $ 9,125,000
VOI.......................................    2,194,000       7,546,000
Discount, net of accretion................     (950,000)     (1,191,000)
Allowance for loan losses.................     (817,000)     (1,100,000)
                                            -----------     -----------
Loans, net................................  $12,260,000     $14,380,000
                                            ===========     ===========

                                                   DECEMBER 31,
                                            ---------------------------
LOANS HELD FOR INVESTMENT                      1996            1995
-------------------------                   -----------     -----------
Land......................................  $ 1,861,000     $ 1,429,000
VOI.......................................    1,313,000       3,698,000
Dealer/Other..............................   79,374,000      30,140,000
Discount, net of accretion................   (1,352,000)     (1,241,000)
Allowance for loan losses.................   (1,200,000)       (413,000)
                                            -----------     -----------
Loans, net................................  $79,996,000     $33,613,000
                                            ===========     ===========	

Contractual maturities of loans as of December 31, 1996 are as follows:

                                                           DECEMBER 31,
                                                              1996
                                                           ------------
1996.....................................................  $ 13,654,000
1997.....................................................    14,669,000
1998.....................................................    10,517,000
1999.....................................................     3,690,000
2000.....................................................     4,613,000
Thereafter...............................................    45,113,000
                                                           ------------
                                                           $ 92,256,000
                                                           ============	

It is the Company's experience that a substantial portion of the loans will be repaid before contractual maturity dates. Consequently, the above tabulation is not to be regarded as a forecast of future cash collections.
4. ALLOWANCES FOR LOAN LOSSES
An analysis of the allowances for loan losses follows:

                  LOANS OWNED AND                               YEAR ENDED DECEMBER 31,
                    SUBORDINATED                        ----------------------------------------
             PASS-THROUGH CERTIFICATES                     1996            1995          1994
----------------------------------------------------    -----------     ----------     ---------
Allowance at beginning of period....................    $ 2,783,000     $  384,000     $ 464,000
Net charge-offs of uncollectible accounts(1)........     (1,395,000)      (539,000)      (80,000)
Provision for loan losses...........................      1,735,000        761,000            --
Allocation of purchase adjustment(2)................        294,000      2,177,000            --
                                                        -----------     ----------     ---------
Allowance at end of period..........................    $ 3,417,000     $2,783,000     $ 384,000
                                                        ===========     ==========     =========	

F-11

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                                                YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------
LOANS SOLD                                                 1996            1995          1994
----------                                              -----------     ----------     ---------
Allowance at beginning of period....................    $   932,000     $  880,000     $ 600,000
Net charge-offs of uncollectible accounts(3)........       (570,000)      (407,000)     (279,000)
Provision for loan losses...........................        219,000        129,000       559,000
Allocation of purchase adjustment(2)................        530,000        330,000            --
                                                        -----------     ----------     ---------
Allowance at end of period..........................    $ 1,111,000     $  932,000     $ 880,000
                                                        ===========     ==========     =========	

(1) Net of recoveries of $240,000 in 1996 and $42,000 in 1994. There were no recoveries in 1995.
(2) Represents allocation of purchase adjustment related to the purchase of pools of certain loans including the GEFCO portfolio in 1995. (See Note 12.)
(3) Net of recoveries of $70,000, $11,000 and $5,000 in 1996, 1995 and 1994, respectively.
Net charge-offs by major loan and collateral types experienced by the Company are summarized as follows:

                                                  YEAR ENDED DECEMBER 31,
                                            ------------------------------------
                                               1996          1995         1994
                                            ----------     --------     --------
Land......................................  $  669,000     $546,000     $359,000
VOI.......................................   1,284,000       45,000           --
Dealer/Other..............................      12,000      355,000           --
                                            ----------     --------     --------
Total.....................................  $1,965,000     $946,000     $359,000
                                            ==========     ========     ========	

5. EXCESS SERVICING ASSET
The activity in the excess servicing asset is summarized as follows:

                                                YEAR ENDED DECEMBER 31,
                                      -------------------------------------------
                                         1996            1995            1994
                                      -----------     -----------     -----------
Balance, beginning of period........  $10,058,000     $ 8,925,000     $ 4,931,000
Gain on sale of loans...............    4,641,000       3,232,000       5,971,000
Recapture on repurchase of loans....      (70,000)        (52,000)       (366,000)
Amortization........................   (2,610,000)     (2,047,000)     (1,611,000)
                                      -----------     -----------     -----------
Balance, end of period..............  $12,019,000     $10,058,000     $ 8,925,000
                                      ===========     ===========     ===========	

6. DERIVATIVE FINANCIAL INSTRUMENT HELD FOR PURPOSES OTHER THAN TRADING
In June, 1994, the Company entered into an interest rate cap agreement with a bank in order to manage its exposure to certain interest rate increases. The Company's objective in managing interest rate exposure is to match its proportion of fixed versus variable rate assets, liabilities and loan sale facilities. The interest rate cap entitles the Company to receive an amount, based upon an amortizing notional amount, when commercial paper rates exceed 8%. The notional amount was $5.4 million at December 31, 1996.
The premium paid for this interest rate cap agreement is amortized ratably in the interest expense during the life of the agreement of seven years. Payments to be received as a result of the cap agreement are accrued as a reduction of interest expense. The unamortized cost of the premium is included in other assets. The Company is exposed to credit loss in the event of nonperformance by the cap provider. The balance of the unamortized premium at December 31, 1996 was $196,000.
F-12

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT
Financial data relating to the Company's lines of credit is as follows:

                                                     YEAR ENDED DECEMBER 31,
                                                   ----------------------------
                                                      1996             1995
                                                   -----------      -----------
Lines of credit available:
  Unsecured lines of credit......................  $        --      $        --
  Secured lines of credit(1).....................   51,799,000       15,000,000
                                                   -----------      -----------
          Total lines of credit available........  $51,799,000      $15,000,000
                                                   ===========      ===========
Borrowings outstanding at end of period:
  Unsecured lines of credit......................  $--.........     $        --
  Secured lines of credit(1).....................  36,299,000..              --
                                                   -----------      -----------
          Total borrowings outstanding at end of
            period...............................  $36,299,000      $        --
                                                   ===========      ===========
Weighted average interest rate at end of period:
  Unsecured lines of credit......................           --%              --%
  Secured lines of credit........................          7.9%             9.5%
          Total weighted average interest rate...          7.9%             9.5%
Maximum borrowings outstanding at any month end:
  Unsecured lines of credit......................  $        --      $ 3,000,000
  Secured lines of credit........................  $36,299,000      $ 5,000,000
Average amount outstanding during period:
  Unsecured lines of credit......................  $        --      $   231,000
  Secured lines of credit........................  $15,948,000      $ 2,306,000
Weighted average interest rate during the period
  (determined by dividing interest expense by
  average borrowings):
  Unsecured lines of credit......................           --%            13.0%
  Secured lines of credit........................          7.6%             9.8%
          Total weighted average interest rate
            during the period....................          7.6%            10.1%	

(1) Amount includes $1,799,000 of outstanding borrowings at December 31, 1996 on the revolving line of credit with Holland Limited Securities, Inc. (See Note 11.)
The Company had a secured line of credit of $30,000,000 from the Bank of Boston as lead agent, and Fleet Bank. The Company can elect to borrow all or part of the outstanding balance on the line of credit at either the Bank's prime interest rate or the Eurodollar rate plus 2%. Outstanding borrowings under this line of credit at December 31, 1996 were $26,200,000. The line of credit matures in April 1997, with renewal at the lender's discretion.
The Company also entered into an additional secured line of credit of $5,000,000 with another financial institution at that institution's prime rate of interest plus 1.25%. This line of credit matures in July 1997. There were no outstanding borrowings on this line of credit at December 31, 1996. In January 1997, the secured line of credit was increased to $8,000,000 and the maturity was extended to January 1998. The above lines of credit are secured by consumer receivables and other secured loans.
The Company also entered into a $15,000,000 line of credit facility with the Bank of Scotland. The outstanding borrowings under this facility at December 31, 1996 were $8,300,000. This facility is secured by certain subordinated pass-through certificates, excess servicing assets, cash collateral accounts and certain
F-13

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other loans and matures in September 1999. Interest is payable quarterly in arrears at the Bank's prime interest rate plus 1%. In January 1997, this facility was increased to $20,000,000.
The Company is not required to maintain compensating balances or forward sales commitments under the terms of these lines of credit. As described in Note 11, the Company also has line of credit as part of an asset backed commercial paper facility.
At December 31, 1995 the secured line of credit from the Bank of Boston as lead agent was $15,000,000 at the Bank's prime interest rate plus 1%. There were no outstanding borrowings at December 31, 1995.
During the first quarter of 1995, the Company entered into a 10.43%, $12,500,000 debt placement with an insurance company. Principal is payable monthly based on collection of the underlying collateral. The note is redeemable only with the approval of the noteholder. The note is collateralized by certain of the Company's investments in subordinated pass-through certificates, excess servicing assets, and cash. At December 31, 1996 and 1995, the balance outstanding on the note was $7,428,000 and $9,836,000 and the approximate value of the underlying collateral was $13,772,000 and $17,700,000, respectively.
On March 15, 1995, the Company completed a public offering of $18,400,000 of 10% Notes due 2004 ("1995 Notes"). The 1995 Notes allow for a maximum annual redemption at the election of the noteholders of $920,000 and contain certain restrictions regarding the payment of cash dividends and require the maintenance of certain financial ratios. On April 1, 1996 the noteholders redeemed, and the Company paid $120,000 of the 1995 Notes.
Previously, the Company completed public offerings of $15,065,000 in November 1992 ("1992 Notes") and $17,570,000 in May 1993 ("1993 Notes"). The 1992 Notes and the 1993 Notes bear interest at 10% and 8 7/8%, respectively, and are due 2002 and 2003, respectively. The 1992 Notes and the 1993 Notes are unsecured obligations of the Company and each such issuance allows for a maximum annual redemption by noteholders of 5% of the original principal amount thereof. On November 1, 1996, the Company repaid $103,000 of the 1992 Notes due 2002 pursuant to the noteholders' annual redemption rights. On August 1, 1996 and June 1, 1996, the Company repaid $20,000 and $163,000, respectively of the 1993 Notes due 2003 pursuant to the noteholders' annual redemption rights.
8. RETIREMENT PLANS
Effective January 1, 1996, the Company implemented the Litchfield Financial Corporation Employee 401(k) Plan ("the Plan"), a defined contribution plan for all eligible employees at least 21 years of age and who have been employed by the Company for at least six months. Participating employees may elect to defer up to fifteen percent of their annual gross earnings. The Company will match an amount equal to one hundred percent of the employee's pretax contributions up to five percent of the employee's eligible compensation contributed into the Plan. Contributions made by the Company in 1996 were $101,000.
The Company established a Simplified Employee Pension (SEP) Plan in 1992. The SEP is a defined contribution plan for all eligible employees at least 21 years of age and who have worked for the Company in at least three of the immediately preceding five years. Contributions to the SEP were made entirely at the discretion of the Company. Contributions to the SEP in 1994 were $92,000. There were no contributions in 1995 and the plan was discontinued in 1996.
F-14

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

                                                            DECEMBER 31,
                                                      -------------------------
                                                         1996           1995
                                                      ----------     ----------
Deferred Tax Assets:
  Loan loss allowance...............................  $  350,000     $  348,000
  Other.............................................     282,000        109,000
                                                      ----------     ----------
     Total deferred tax assets......................     632,000        457,000
          Valuation allowance.......................          --             --
                                                      ----------     ----------
          Net deferred tax assets...................     632,000        457,000
                                                      ----------     ----------
Deferred Tax Liabilities:
  Depreciation......................................      50,000         28,000
  Mortgage loan income recognition..................   3,696,000      2,746,000
  Accretion income..................................   1,662,000      1,423,000
  Other.............................................     304,000             --
                                                      ----------     ----------
     Total deferred tax liabilities.................   5,712,000      4,197,000
                                                      ----------     ----------
          Net deferred tax liabilities..............  $5,080,000     $3,740,000
                                                      ==========     ==========	

Significant components of the provision for income taxes attributable to continuing operations are as follows:

                                                 YEAR ENDED DECEMBER 31,
                                         ----------------------------------------
                                            1996           1995           1994
                                         ----------     ----------     ----------
Current:
  Federal..............................  $1,911,000     $  819,000     $  462,000
  State................................      50,000         38,000         56,000
                                         ----------     ----------     ----------
          Total Current................   1,961,000        857,000        518,000
                                         ----------     ----------     ----------
Deferred:
  Federal..............................   1,288,000      1,191,000      1,098,000
  State................................      52,000         18,000          3,000
                                         ----------     ----------     ----------
          Total Deferred...............   1,340,000      1,209,000      1,101,000
                                         ----------     ----------     ----------
                                         $3,301,000     $2,066,000     $1,619,000
                                         ==========     ==========     ==========	

The reconciliation of income tax attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense is:

                                                       YEAR ENDED DECEMBER 31,
                                                       ------------------------
                                                       1996      1995      1994
                                                       ----      ----      ----
Tax at U.S. statutory rates..........................  35.0%     34.0%     34.0%
State income taxes, net of federal tax benefit.......   3.4       3.4       3.5
Other -- net.........................................   0.1       0.1        --
                                                       ----      ----      ----
                                                       38.5%     37.5%     37.5%
                                                       ====      ====      ====	

F-15

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY AND STOCK OPTION PLANS
Stockholders' Equity
In July 1996, the Board of Directors declared a five percent stock dividend of the Company's Common Stock paid August 9, 1996 to stockholders of record on July 23, 1996. Accordingly, weighted average share and per share amounts have been restated for periods presented. The Company also declared 5% stock dividends in 1995 and 1994.
Stock Option Plans
The Company has reserved 1,122,319 shares of common stock for issuance to officers, directors and employees on exercise of options granted under a stock option plan established in 1990. Options were granted at prices equal to or in excess of the fair market value of the stock on the date of the grant. There were 615,000 and 384,000 shares exercisable at December 31, 1996 and 1995, respectively.
Information with respect to options granted is as follows:

                                                    NUMBER         EXERCISE
                                                      OF             PRICE
                                                    SHARES         PER SHARE
                                                    -------     ---------------
Outstanding at December 31, 1993..................  503,644
  Granted.........................................  200,656     $11.11 - $11.67
  Canceled or exercised...........................  (26,831)     $1.15 - $11.23
                                                    -------
Outstanding at December 31, 1994..................  677,469
  Granted.........................................   81,588      $9.98 - $11.56
  Canceled or exercised...........................  (43,385)     $1.44 - $11.67
                                                    -------
Outstanding at December 31, 1995..................  715,672
  Granted.........................................  204,311     $11.55 - $14.05
  Canceled or exercised...........................  (13,175)     $1.15 - $11.55
                                                    -------
Outstanding at December 31, 1996..................  906,808
                                                    =======	

In April 1995, the Company established the Stock Option Plan for Non-Employee Directors which provides for the grant of options to purchase 5,513 shares of common stock to each non-employee director serving on the Board at the time the plan was approved and to each new non-employee director elected in the five year period commencing April 1995. The maximum number of shares for which options may be granted under the plan is 66,150 shares. Options for 22,052 shares were granted at an exercise price of $12.02 per share in 1995 which was the fair market value on the date of grant. There were 22,052 options outstanding at December 31, 1996 and 1995. There were 7,352 options that were exercisable at December 31, 1996. There were no options exercisable at December 31, 1995.
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation." The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with
F-16

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the following weighted-average assumptions for 1996 and 1995, respectively:
risk-free interest rates of 6.23% and 6.31%; a dividend yield of .35%, volatility factors of the expected market price of the Company's common stock of .24; and a weighted-average expected life of the option of 7.5 years.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:

                                                         1996           1995
                                                      ----------     ----------
Pro forma net income................................  $4,983,000     $3,363,000
Pro forma earnings per share
  Primary...........................................  $      .88     $      .74
  Fully-diluted.....................................  $      .87     $      .74	

Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1997.
11. SALE OF LOANS
The Company has sold $249,451,000 and $194,515,000 of loans at face value through December 31, 1996 and 1995, respectively. The principal amount remaining on the loans sold was $129,619,000 and $111,117,000 at December 31, 1996 and 1995, respectively. The Company guarantees, through replacement or repayment, loans in default up to a specified percentage of loans sold. Dealer/developer guaranteed loans are secured by repurchase or replacement guarantees in addition to, in most instances, dealer/developer reserves.
The Company's exposure to loss on loans sold in the event of nonperformance by the consumer, the dealer/developer on its guarantee, and the determination that the collateral is of no value was $8,780,000, $10,259,000, and $12,456,000 at December 31, 1996, 1995 and 1994, respectively. Such amounts have not been discounted. The Company repurchased $991,000, $448,000 and $259,000 of loans under the recourse provisions of loan sales in 1996, 1995, and 1994, respectively. Net charge-offs on loans repurchased under recourse provisions were $570,000, $407,000, and $279,000 in 1996, 1995, and 1994, respectively. In addition, when the Company sells loans through securitization programs, the Company commits either to replace or repurchase any loans that do not conform to the requirements thereof in the operative loan sale document.
The Company's Serviced Portfolio is geographically diversified with collateral and consumers located in 41 and 50 states, respectively. At December 31, 1996, 14.3% of the collateral by principal balance was located in Texas and 14.4% and 12.2% of the borrowers by collateral location were located in Texas and Florida, respectively. No other state accounted for more than 10.0% of the total.
The Company has a revolving line of credit and sale facility as part of an asset backed commercial paper facility with Holland Limited Securitization, Inc. ("HLS") a multi-seller commercial paper issuer sponsored by Internationale Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October 1996, the Company amended the facility to increase the facility to $100,000,000, subject to certain terms and conditions, reduce credit enhancement requirements and expand certain loan eligibility criteria. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to purchase loans from the Company. LMSC either pledges the loans on a revolving line of credit with HLS or sells the loans to HLS. HLS issues commercial paper or other
F-17

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indebtedness to fund the purchase or pledge of loans from LMSC. HLS is not affiliated with the Company or its affiliates. As of December 31, 1996, the outstanding balance of the loans sold under this facility was $77,521,000 and outstanding borrowings under the line of credit were $1,799,000. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates.
12. PORTFOLIO ACQUISITION
On April 27, 1995, the Company purchased a portfolio of VOI Loans, loans to developers secured by VOI Loans, other performing and non performing loans, and other related assets from GEFCO. The purchase price and allocation of the purchase price was as follows:

Purchase Price:
  Cash paid to GEFCO............................................  $37,985,000
  Net liabilities assumed from GEFCO............................    1,688,000
  Other direct costs of acquisition.............................    1,263,000
                                                                  -----------
          Total.................................................  $40,936,000
                                                                  ===========
Allocation of purchase price:
  VOI Loans.....................................................  $34,138,000
  Loans secured by VOI Loans....................................    2,799,000
  Other loans and assets........................................    3,999,000
                                                                  -----------
          Total.................................................  $40,936,000
                                                                  ===========	

13. MARKET FOR COMMON STOCK (UNAUDITED)
The Company's Common Stock is traded on The Nasdaq Stock Market's National Market under the symbol "LTCH." The following table sets forth, for the periods indicated, the high and low stock prices of the Company's Common Stock. All share prices have been adjusted for a 5% stock dividend in each of 1996, 1995 and 1994.

                                                               HIGH     LOW     DIVIDENDS
                                                               ----     ---     ---------
1994
1st Quarter..................................................  $12  3/8 $ 9 1/4      --
2nd Quarter..................................................   11  7/8  10 3/8      --
3rd Quarter..................................................   13  3/8  10 3/8      --
4th Quarter..................................................   11  3/8   9 1/2   $ .03
1995
1st Quarter..................................................  $10  7/8 $ 9 5/8      --
2nd Quarter..................................................   12  7/8  10          --
3rd Quarter..................................................   16       12 3/8      --
4th Quarter..................................................   15  1/4  12 3/8   $ .04
1996
1st Quarter..................................................  $13  5/8 $11          --
2nd Quarter..................................................   14  1/4  12 7/8      --
3rd Quarter..................................................   15       11 1/2      --
4th Quarter..................................................   15       12 1/2   $ .05	

F-18

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

                                        FIRST        SECOND       THIRD        FOURTH        TOTAL
                                      ----------   ----------   ----------   ----------   -----------
1994
Total revenues......................  $1,952,000   $2,979,000   $3,672,000   $2,372,000   $10,975,000
Total expenses......................   1,435,000    1,670,000    1,579,000    1,973,000     6,657,000
Income before extraordinary item....     318,000      805,000    1,346,000      230,000     2,699,000
Extraordinary item (net of
  applicable taxes).................          --     (125,000)      (2,000)       1,000      (126,000)
Net income..........................     318,000      680,000    1,344,000      231,000     2,573,000
Income before extraordinary item per
  common share......................         .07          .19          .31          .05           .63
Extraordinary item per common
  share.............................          --         (.03)          --           --          (.03)
Net income per common share.........         .07          .16          .31          .05           .60
Weighted average number of shares
  outstanding.......................   4,293,753    4,308,684    4,287,744    4,236,444     4,280,006

1995
Total revenues......................  $2,750,000   $4,574,000   $5,464,000   $4,673,000   $17,461,000
Total expenses......................   2,157,000    3,013,000    3,137,000    3,639,000    11,946,000
Net income..........................     370,000      975,000    1,454,000      650,000     3,449,000
Net income per common share.........         .09          .22          .33          .13           .76
Weighted average number of shares
  outstanding.......................   4,233,442    4,345,396    4,412,366    5,198,700     4,543,009

1996
Total revenues......................  $4,715,000   $6,261,000   $7,136,000   $6,071,000   $24,183,000
Total expenses......................   3,420,000    3,720,000    3,967,000    4,502,000    15,609,000
Net income..........................     798,000    1,564,000    1,946,000      965,000     5,273,000
Primary net income per common
  share.............................         .14          .27          .34          .17           .93
Primary weighted average number of
  shares outstanding................   5,637,643    5,708,160    5,697,094    5,706,037     5,674,264
Fully-diluted net income per common
  share.............................         .14          .27          .34          .17           .92
Fully-diluted weighted average
  number of shares outstanding......   5,700,891    5,708,191    5,720,924    5,754,250     5,736,467	

A significant portion of the Company's revenues consists of gains on sales of loans. Thus, the timing of loan sales has a significant effect on the Company's results of operations. Accruals of approximately $510,000 and $285,000 for salary compensation as the result of the realization of performance criteria by certain executive and management personnel were recorded in the fourth quarter of 1995 and 1994. In 1996, such amounts were accrued throughout the year including $128,000 in the fourth quarter.
F-19

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
 (IN 000'S EXCEPT SHARE AMOUNTS)

                                                                       JUNE 30,     DECEMBER 31,
                                                                         1997           1996
                                                                       --------     ------------
                                                                       (UNAUDITED)
                                             ASSETS
Cash and cash equivalents............................................  $  7,061       $  5,557
Restricted cash......................................................    21,364         18,923
Loans held for sale, net of allowance for loan losses of $1,406 in
  1997 and $817 in 1996..............................................    20,475         12,260
Other loans, net of allowance for loan losses of $1,500 in 1997 and
  $1,200 in 1996.....................................................    91,750         79,996
Retained interests in loan sales.....................................    27,759         28,912
Other................................................................     6,901          7,041
                                                                       --------       --------
          Total assets...............................................  $175,310       $152,689
                                                                       ========       ========
                              LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Lines of credit....................................................  $ 34,287       $ 36,299
  Term note payable..................................................     6,396          7,428
  Accounts payable and accrued liabilities...........................     3,981          3,811
  Dealer/developer reserves..........................................    10,626         10,628
  Deferred income taxes..............................................     6,035          5,080
                                                                       --------       --------
                                                                         61,325         63,246
                                                                       --------       --------
  9.3% Notes.........................................................    20,000             --
  10% Notes due 2002.................................................    12,785         12,785
  8 7/8% Notes due 2003..............................................    15,317         15,930
  10% Notes due 2004.................................................    18,280         18,280
                                                                       --------       --------
                                                                         66,382         46,995
                                                                       --------       --------
Stockholders' equity:
     Preferred stock, $.01 par value; authorized 1,000,000 shares,
      none issued and outstanding....................................        --             --
     Common stock, $.01 par value; authorized 8,000,000 shares,
      5,616,372 shares issued and outstanding in 1997 and 5,444,399
      shares issued and outstanding in 1996..........................        56             54
     Additional paid in capital......................................    36,238         34,633
     Net unrealized gain on retained interests in loan sales.........       523             --
     Retained earnings...............................................    10,786          7,761
                                                                       --------       --------
          Total stockholders' equity.................................    47,603         42,448
                                                                       --------       --------
          Total liabilities and stockholders' equity.................  $175,310       $152,689
                                                                       ========       ========	

See accompanying notes to unaudited consolidated financial statements.
F-20

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 (IN 000'S EXCEPT SHARE AND PER SHARE AMOUNTS)

UNAUDITED

                                                                    THREE MONTHS ENDED JUNE 30,
                                                                    ---------------------------
                                                                       1997             1996
                                                                    ----------       ----------
Revenues:
  Interest and fees on loans......................................  $    4,783       $    3,348
  Gain on sale of loans...........................................       2,563            2,474
  Servicing and other fee income..................................         345              279
                                                                    ----------       ----------
                                                                         7,691            6,101
                                                                    ----------       ----------
Expenses:
  Interest expense................................................       2,648            1,768
  Salaries and employee benefits..................................         833              645
  Other operating expenses........................................         853              618
  Provision for loan losses.......................................         300              529
                                                                    ----------       ----------
                                                                         4,634            3,560
                                                                    ----------       ----------
Income before income taxes........................................       3,057            2,541
Provision for income taxes........................................       1,177              977
                                                                    ----------       ----------
Net income........................................................  $    1,880       $    1,564
                                                                    ==========       ==========
Primary and fully-diluted net income per common share.............  $      .32       $      .27
                                                                    ==========       ==========
Fully-diluted weighted average number of shares...................   5,917,911        5,708,191	

See accompanying notes to unaudited consolidated financial statements.
F-21

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 (IN 000'S EXCEPT SHARE AND PER SHARE AMOUNTS)

UNAUDITED

                                                                      SIX MONTHS ENDED JUNE 30,
                                                                      -------------------------
                                                                        1997            1996
                                                                      ---------       ---------
Revenues:
  Interest and fees on loans........................................  $   9,329       $   6,640
  Gain on sale of loans.............................................      4,067           3,354
  Servicing and other fee income....................................        702             757
                                                                      ---------       ---------
                                                                         14,098          10,751
                                                                      ---------       ---------
Expenses:
  Interest expense..................................................      5,042           3,297
  Salaries and employee benefits....................................      1,646           1,382
  Other operating expenses..........................................      1,756           1,282
  Provision for loan losses.........................................        735             954
                                                                      ---------       ---------
                                                                          9,179           6,915
                                                                      ---------       ---------
Income before income taxes..........................................      4,919           3,836
Provision for income taxes..........................................      1,894           1,474
                                                                      ---------       ---------
Net income..........................................................  $   3,025       $   2,362
                                                                      =========       =========
Primary and fully-diluted net income per common share...............  $     .52       $     .41
                                                                      =========       =========
Fully-diluted weighted average number of shares.....................  5,861,180       5,698,866	

See accompanying notes to unaudited consolidated financial statements.
F-22

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 (IN 000'S)

UNAUDITED

                                                                NET UNREALIZED
                                                                   GAIN ON
                                                 ADDITIONAL        RETAINED
                                      COMMON      PAID IN        INTERESTS IN      RETAINED
                                      STOCK       CAPITAL         LOAN SALES       EARNINGS       TOTAL
                                      ------     ----------     --------------     ---------     -------
Balance, December 31, 1996..........   $ 54       $ 34,633           $ --           $ 7,761      $42,448
  Issuance of 171,973 shares of
     common stock...................      2          1,605             --                --        1,607
  Net unrealized gain on retained
     interests in loan sales........     --             --            523                --          523
  Net income........................     --             --             --             3,025        3,025
                                        ---        -------           ----           -------      -------
Balance, June 30, 1997..............   $ 56       $ 36,238           $523           $10,786      $47,603
                                        ===        =======           ====           =======      =======	

See accompanying notes to unaudited consolidated financial statements.
F-23

LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN 000'S)

UNAUDITED

                                                                           SIX MONTHS ENDED
                                                                               JUNE 30,
                                                                         ---------------------
                                                                           1997         1996
                                                                         --------     --------
Cash flows from operating activities:
  Net income.........................................................    $  3,025     $  2,362
  Adjustments to reconcile net income to net cash used in operating
     activities:
     Gain on sale of loans...........................................      (4,067)      (3,354)
     Amortization and depreciation...................................         332          296
     Amortization of retained interests in loan sales................       2,061        1,364
     Provision for loan losses.......................................         735          954
     Deferred income taxes...........................................         955          130
     Net changes in operating assets and liabilities:
       Restricted cash...............................................      (2,441)         133
       Loans held for sale...........................................      (8,300)       1,327
       Retained interests in loan sales..............................         470       (3,071)
       Dealer/developer reserves.....................................          (2)        (414)
       Net change in other assets and liabilities....................         753       (2,891)
                                                                         --------     --------
     Net cash used in operating activities...........................      (6,479)      (3,164)
                                                                         --------     --------
Cash flows from investing activities:
  Redemption of investments held to maturity.........................          32           71
  Net originations and principal payments on other loans.............     (27,379)     (19,834)
  Other loans sold...................................................      15,325           --
  Collections on retained interests in loan sales....................       2,534          142
  Capital expenditures and other assets..............................        (479)         (72)
                                                                         --------     --------
     Net cash used in investing activities...........................      (9,967)     (19,693)
                                                                         --------     --------
Cash flows from financing activities:
  Net borrowings (payments) on lines of credit.......................      (2,012)      11,145
  Proceeds from issuance of 9.3% Notes...............................      20,000           --
  Retirement of long-term Notes......................................        (613)        (283)
  Payments on term note..............................................      (1,032)      (1,067)
  Net proceeds from issuance of common stock.........................       1,607           42
                                                                         --------     --------
     Net cash provided by financing activities.......................      17,950        9,837
                                                                         --------     --------
Net increase (decrease) in cash and cash equivalents.................       1,504      (13,020)
Cash and cash equivalents, beginning of period.......................       5,557       18,508
                                                                         --------     --------
Cash and cash equivalents, end of period.............................    $  7,061     $  5,488
                                                                         ========     ========
Supplemental Schedule of Noncash Financing and Investing Activities:
  Exchange of loans for retained interests in loan sales.............    $    364     $  2,785
                                                                         ========     ========
  Transfers from loans to real estate acquired through foreclosure...    $    516     $    170
                                                                         ========     ========
Supplemental Cash Flow Information:
  Interest paid......................................................    $  4,339     $  3,059
                                                                         ========     ========
  Income taxes paid..................................................    $    937     $    840
                                                                         ========     ========	

See accompanying notes to unaudited consolidated financial statements.
F-24

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements as of June 30, 1997 and for the three and six month periods ended June 30, 1997 and 1996 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1997, are not necessarily indicative of the results expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in Litchfield Financial Corporation's annual report on Form 10-K for the year ended December 31, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Primary earnings per share will be replaced by basic earnings per share. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. Under the new standard, basic earnings per share would have been $.02 per share higher for each of the quarters ended June 30, 1997 and 1996 and $.03 and $.02 per share higher for the six months ended June 30, 1997 and 1996, respectively. There would be no impact on the calculation of diluted earnings per share for these periods.
B. GAIN ON SALE OF LOANS AND RETAINED INTERESTS IN LOAN SALES
As of January 1, 1997, the Company adopted the requirements of Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" for transfers of receivables. This standard had no effect on net income for the three or six months ended June 30, 1997. The Company has reclassified certain subordinated pass-through certificates, interest only strips and recourse obligations as retained interests in loan sales to conform with this standard.
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. Newly created interests which consist primarily of interest only strips and recourse obligations are initially recorded at fair value. The previous carrying amount is allocated between the assets sold and any retained interests based on their relative fair values at the date of transfer. Retained interests in transferred assets consist primarily of subordinate portions of the principal balance of transferred assets.
The Company estimates fair value using discounted cash flow analysis (using a discount rate commensurate with the risks involved), because quoted market prices are not available. The Company's analysis incorporates assumptions that market participants would be expected to use in their estimates of future cash flows including assumptions about interest, defaults and prepayment rates. The Company considers retained interests in loan sales, such as subordinated pass-through certificates and interest only strips, as available for sale because such assets are subject to prepayment.
There is generally no servicing asset or liability because the Company estimates that the benefits of servicing are just adequate to compensate it for its servicing responsibilities.
Since its inception, the Company has sold $288,952,000 of loans at face value ($249,451,000 through December 31, 1996). In June 1997, the Company completed its first securitization of $15,325,000 of dealer hypothecation loans in a private placement with a bank. Dealer hypothecation loans are loans to rural land dealers and VOI resort developers secured by consumer receivables. The principal amount remaining on the loans sold was $138,771,000 at June 30, 1997 and $129,619,000 at December 31, 1996. In connection with
F-25

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain loan sales, the Company guarantees, through replacement or repayment, loans in default up to a specified percentage of loans sold. Dealer/developer guaranteed loans are secured by repurchase or replacement guarantees in addition to, in most instances, dealer/developer reserves.
The Company's undiscounted exposure to loss on loans sold in the event of nonperformance by the borrower, default by the dealer/developer on its guarantee, and the determination that the collateral is of no value was $8,936,000 at June 30, 1997 ($8,780,000 at December 31, 1996). The Company repurchased $119,000 and $359,000 of loans under the recourse provisions of loan sales during the three months ended June 30, 1997 and 1996. Loans repurchased during the six months ended June 30, 1997 and 1996 were $454,000 and $514,000, respectively, and $991,000 during the year ended December 31, 1996. In addition, when the Company sells loans through securitization programs, the Company commits either to replace or repurchase any loans that do not conform to the requirements thereof in the operative loan sale documents. As of June 30, 1997, $20,136,000 of the Company's cash was restricted as credit enhancements in connection with certain securitization programs.
The Company's Serviced Portfolio is geographically diversified with collateral and consumers located in 43 and 50 states, respectively. The Serviced Portfolio consists of the current principal balance of Land, VOI and Dealer/Other Loans serviced by or on behalf of the Company. At June 30, 1997, 15.4% of the portfolio by collateral location was located in Texas, and 17.7% and 12.4% of the portfolio by borrower location was located in Texas and Florida, respectively. No other state accounted for more than 9.0% of the total by either collateral or borrower location.
C. ALLOWANCE FOR LOAN LOSSES
The total allowance for loan losses consists of the following:

                                                      JUNE 30,      DECEMBER 31,
                                                        1997            1996
                                                     ----------     ------------
Allowance for losses on loans held for sale........  $1,406,000      $  817,000
Allowance for losses on other loans................   1,500,000       1,200,000
Recourse obligation on retained interests in loan
  sales............................................   2,635,000       2,511,000
                                                     ----------      ----------
                                                     $5,541,000      $4,528,000
                                                     ==========      ==========	

D. DEBT
In May 1997, a secured line of credit was renewed and amended to include an increase in the amount of the line from $30,000,000 to $50,000,000 and an extension of the maturity to April 2000. Outstanding borrowings under the line of credit were $28,000,000 and $26,200,000 at June 30, 1997 and December 31, 1996, respectively. This line of credit is secured by consumer receivables and other secured loans.
In January 1997, an additional secured line of credit was increased from $5,000,000 to $8,000,000 with another financial institution. This line of credit matures in January 1998. There were no outstanding borrowings on this line of credit at June 30, 1997 and December 31, 1996. This line of credit is secured by consumer receivables and other secured loans.
In January 1997, an additional secured line of credit was increased from $15,000,000 to $20,000,000. There were no outstanding borrowings under this facility at June 30, 1997. At December 31, 1996, the outstanding borrowings were $8,300,000. This facility is secured by certain retained interests in loan sales, cash collateral accounts and certain other loans and matures in September 1999.
On March 5, 1997, the Company entered into an additional $25,000,000 secured line of credit. The outstanding borrowings at June 30, 1997 were $6,058,000. The facility is secured by loans to developers of
F-26

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
VOI resorts for the acquisition and development of VOI resorts ("Facility A") and the related financing of consumer purchases of VOIs ("Facility B"). Although the maximum amount that can be borrowed on each facility is $15,000,000, the aggregate outstanding borrowings cannot exceed $25,000,000. This facility expires in March 2000.
On March 21, 1997, the Company entered into a $3,000,000 secured line of credit with an additional financial institution. This line of credit is secured by consumer receivables and other secured loans and matures in March 1998. There were no outstanding borrowings at June 30, 1997.
Interest rates on the above lines of credit range from the Eurodollar or LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to maintain compensating balances or forward sales commitments under the terms of these lines of credit.
The Company also has a revolving line of credit and sale facility as part of an asset backed commercial paper facility with a multi-seller commercial paper issuer ("Conduit A"). In October 1996 the Company amended the facility to increase the facility from $75,000,000 to $100,000,000, subject to certain terms and conditions, reduce certain credit enhancement requirements and expand certain loan eligibility criteria. The outstanding aggregate balance of the loans pledged and sold under the facility at any time cannot exceed $100,000,000. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to purchase loans from the Company. LMSC either pledges the loans on a revolving line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues commercial paper or other indebtedness to fund the purchase or pledge of loans from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of June 30, 1997, the outstanding balance of eligible loans sold under the facility was $83,200,000. Outstanding borrowings under the line of credit at June 30, 1997 and December 31, 1996 were $229,000 and $1,799,000, respectively. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates.
On March 21, 1997, the Company closed an additional revolving line of credit and sale facility of $25,000,000 with another multi-seller of commercial paper conduit ("Conduit B"). The facility, which expires in March 2000, is subject to certain terms and conditions, credit enhancement requirements and loan eligibility criteria. The outstanding aggregate balance of the loans pledged and sold under the facility at any time cannot exceed $25,000,000.
In connection with the facility, the Company formed a wholly owned subsidiary, Litchfield Capital Corporation 1995 ("LCC"), to purchase loans from the Company. LCC either pledges the loans on a revolving line of credit with Conduit B or sells the loans to Conduit B. Conduit B issues commercial paper or other indebtedness to fund the purchase or pledge of loans from LCC. Conduit B is not affiliated with the Company or its affiliates. As of June 30, 1997, the outstanding balance of the eligible loans previously sold under the facility was $13,767,000. There were no outstanding borrowings under the line of credit as of June 30, 1997. Interest is payable on the line of credit at an interest rate based on certain commercial paper rates.
During the first quarter of 1995, the Company issued a 10.43% promissory note with an initial balance of $12,500,000 to an insurance company. Principal is payable monthly based on collection of the underlying collateral. The note is redeemable only with the approval of the noteholder. The note is collateralized by certain of the Company's retained interests in loan sales and cash. The balance outstanding on the note was $6,396,000 and $7,428,000 at June 30, 1997 and December 31, 1996, respectively. As of June 30, 1997 the approximate value of the underlying collateral was $14,231,000.
In April 1997, the Company issued unsecured notes with an initial principal balance of $20,000,000. Interest is payable at 9.3% semiannually in arrears. The notes require principal reductions of $7,500,000,
F-27

LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$6,000,000, $6,000,000 and $500,000 in March 2001, 2002, 2003 and 2004, respectively. The proceeds were used to repay the outstanding balance on certain of the Company's the lines of credit.
In June 1997, the Company entered into interest rate swap agreements whereby it pays the counterparty interest at the prime rate on a notional amount of $110,000,000 and it receives from the counterparty interest at the commercial paper rate plus a spread on a notional amount of $80,000,000 and interest at the LIBOR rate plus a spread on a notional amount of $30,000,000. The swap agreements expire in June 2000.
F-28

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

                                        PAGE
                                        ----
Prospectus Summary....................    3
The Company...........................   11
Risk Factors..........................   12
Incorporation by Reference............   16
Forward-Looking Statements............   16
Use of Proceeds.......................   17
Capitalization........................   17
Selected Consolidated Financial
  Information.........................   18
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   20
Business..............................   27
Management............................   37
Principal Stockholders................   39
Description of Notes..................   41
Certain Federal Income Tax
  Considerations......................   47
Underwriting..........................   48
Legal Matters.........................   49
Experts...............................   49
Additional Information................   49
Index to Financial Statements.........  F-1	

$45,000,000
% NOTES DUE 2002
[LOGO]

PROSPECTUS

MCDONALD & COMPANY
SECURITIES, INC.
J.C. BRADFORD & CO.
TUCKER ANTHONY
INCORPORATED
, 1997

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...........................  $ 15,682.00
NASD filing fee.................................................  $  5,675.00
Legal fees and expenses.........................................  $150,000.00
Accounting fees and expenses....................................  $ 25,000.00
Printing and engraving..........................................  $120,000.00
Miscellaneous...................................................  $ 23,643.00
          Total.................................................  $340,000.00	

* All 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

Article 7 of the Amended and Restated By-Laws of the Company provides that:
Each director and officer (and his heirs and personal representatives) shall be indemnified by the Company 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 the Company. "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 the Company 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 the Company are insured against liabilities which they incur in their capacity as such under policies of insurance carried by the Company.
ITEM 16. EXHIBITS

NUMBER                                 DESCRIPTION OF EXHIBIT
------   ----------------------------------------------------------------------------------
  1.1    Form of Underwriting Agreement.
  4.7    Form of Indenture pursuant to which the Company's      % Notes are to be issued.
  4.8    Form of      % Note (included in Exhibit 4.7)
  5.1    Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation.
 12.1*   Statement Re: Computation of Ratios.
 23.1    Consent of Independent Accountants.
 23.2    Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
         Exhibit 5.1).
 24.1*   Power of Attorney (included in signature page).
 25.1*   Form T-1, Statement of Eligibility of and Qualification under the Trust Indenture
         Act of 1939 of The Bank of New York as Trustee.
 27.1*   Financial Data Schedule	

* Previously filed.
II-2

ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, as amended (the "Securities Act"), 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 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 Securities and Exchange Commission 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 the initial bona fide offering thereof.
The undersigned registrant further undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be represented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.
II-3

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 Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on the 22nd day of October, 1997.
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 Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

                                                           TITLE                     DATE
                                                  ------------------------     -----------------

           /s/ RICHARD A. STRATTON                President, Chief              October 22, 1997
---------------------------------------------     Executive Officer, and
             Richard A. Stratton                  Director

                      *                           Executive Vice President,     October 22, 1997
---------------------------------------------     Clerk, Treasurer, and
               Heather A. Sica                    Director

                      *                           Chief Financial Officer       October 22, 1997
---------------------------------------------
              Ronald E. Rabidou

                      *                           Director                      October 22, 1997
---------------------------------------------
             Donald R. Dion, Jr.

                      *                           Director                      October 22, 1997
---------------------------------------------
              David J. Ferrari

                      *                           Director                      October 22, 1997
---------------------------------------------
                Gerald Segel

                      *                           Director                      October 22, 1997
---------------------------------------------
                John A. Costa

                      *                           Director                      October 22, 1997
---------------------------------------------
                James Westra

        *By: /s/ RICHARD A. STRATTON
---------------------------------------------
             Richard A. Stratton

             As Attorney-in-fact	

II-4

EXHIBIT INDEX

NUMBER                                 DESCRIPTION OF EXHIBIT
------   ----------------------------------------------------------------------------------
  1.1    Form of Underwriting Agreement.
  4.7    Form of Indenture pursuant to which the Company's      % Notes are to be issued.
  4.8    Form of      % Note (included in Exhibit 4.7)
  5.1    Opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation.
 12.1*   Statement Re: Computation of Ratios.
 23.1    Consent of Independent Accountants.
 23.2    Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in
         Exhibit 5.1).
 24.1*   Power of Attorney (included in signature page).
 25.1*   Form T-1, Statement of Eligibility of and Qualification under the Trust Indenture
         Act of 1939 of The Bank of New York as Trustee.
 27.1*   Financial Data Schedule	

* Previously filed.

EXHIBIT 1.1
LITCHFIELD FINANCIAL CORPORATION
$45,000,000
% NOTES DUE 2002

UNDERWRITING AGREEMENT
_______________, 1997
MCDONALD & COMPANY SECURITIES, INC.
J.C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
 c/o McDonald & Company Securities, Inc.
800 Superior Avenue
Cleveland, OH 44114
Ladies and Gentlemen:
Litchfield Financial Corporation, a Massachusetts corporation (the "Company"), proposes to sell to the underwriters named in Schedule I hereto (the "Underwriters") for whom you are acting as the representative (the "Representatives") an aggregate $45,000,000 principal amount of its ___% Notes Due 2002 (the "Firm Notes"). The Firm Notes are to be sold to the Underwriters, acting severally and not jointly, in such amounts as are set forth in Schedule I hereto opposite the name of such Underwriter. In addition, for the sole purpose of covering overallotments in connection with the Firm Notes, the Company also proposes to grant to the Underwriters an option to purchase up to an additional $6,750,000 in principal amount of the % Notes Due 2002 (the "Option Notes"). The Firm Notes and the Option Notes to be purchased pursuant to this Underwriting Agreement are herein called "the Notes." The Notes are to be issued pursuant to an Indenture, to be dated as of November ___, 1997, between the Company and The Bank of New York, New York, New York as trustee (the "Trustee"). Such Indenture, as amended and supplemented, is herein referred to as the "Indenture."

1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has 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. 333-37963, including the related preliminary prospectus and a Form T-1 (File No. 22-_____) pursuant to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required, relating to the Notes. 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 you. Such registration statement, including the prospectus, Part II, all financial schedules and exhibits thereto, all information incorporated by reference thereto, and all information deemed to be a part of such Registration Statement pursuant to Rule 430A under the Securities Act, as amended at the time when it shall become effective, is herein referred to as the "Registration Statement," and the prospectus 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 included as part of the Registration Statement on the date when the Registration Statement became effective is referred to herein as the "Effective Prospectus." Any prospectus 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, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the Trust Indenture 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 by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the first sentence of the last paragraph on the cover page and in the fourth and fifth 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
2

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, the Trust Indenture Act and the Rules and Regulations and will comply with the requirements of the Securities Act, the Exchange Act, the Trust Indenture 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 by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the first sentence of the last paragraph on the cover page and in the fourth and fifth 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 an ownership interest) is duly organized and validly existing and in good standing under the laws of the respective jurisdictions of their organization or incorporation, as the case may be, with full power and authority (corporate, partnership and other, as the case may be) to own their properties and conduct their businesses as now conducted and are duly qualified or authorized to do business and are in good standing in all jurisdictions wherein the nature of their business or the character of property owned or leased may require them to be qualified or authorized to 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 is owned by the Company, 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 Notes have been duly and validly authorized and, when executed and authenticated in accordance with the Indenture and delivered and paid for by the Underwriters pursuant to this Agreement, will constitute legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture, and will conform in all material
3

respects to the description thereof contained in the Effective Prospectus and the Final Prospectus.
(f) The Company has full legal right, power and authority to enter into this Agreement and the Indenture and to sell and deliver the Notes to the Underwriters as provided herein, and this Agreement and the Indenture have been duly authorized, executed and delivered by the Company and constitute valid and binding agreements of the Company enforceable against the Company in accordance with their terms. The Indenture conforms in all material respects to the requirements of and has been qualified under the Trust Indenture Act. 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 Indenture by the Company or the consummation by the Company of the transactions contemplated hereby or thereby, except such as have been obtained and such as may be required by the National Association of Securities Dealers, Inc. or under the Securities Act, the Trust Indenture Act or state securities or Blue Sky laws in connection with the purchase and distribution of the Notes by the Underwriters. The issue and sale of the Notes by the Company, the Company's performance of this Agreement and the Indenture and the consummation of the transactions contemplated hereby or thereby will not result in a breach or violation of, or conflict with, any of the terms and provisions of, or constitute a default by the Company or any of its subsidiaries under, 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 the Company or any of its subsidiaries or any of their respective properties is subject, the Articles of Organization or bylaws of the Company or any of its subsidiaries or any statute or any judgment, decree, order, rule or regulation of any court or governmental agency or body applicable to the Company, or any subsidiary or any of their respective properties. Neither the Company nor any subsidiary is in violation of its Articles of Organization, partnership agreement or joint venture agreement, as the case may be, or bylaws or any law, administrative rule or regulation or arbitrators' or administrative or court decree, judgment or order or in violation 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.
(g) The consolidated financial statements and the related notes of the Company included 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 included in or as schedules to the Registration Statement conform to the requirements of the Securities Act, the Exchange Act and the Rules and Regulations
4

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 "Prospectus Summary," "Use of Proceeds," "Capitalization," "Selected Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and "Principal Stockholders" fairly presents the information set forth therein on the basis stated in the Effective Prospectus and the Final Prospectus. Ernst & Young, whose reports appear or are incorporated by reference in the Effective Prospectus and the Final Prospectus, are independent accountants as required by the Securities Act and the Rules and Regulations.
(h) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and its Quarterly Reports filed on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, and its current reports filed on Form 8-K dated July 7, 1997 and July 22, 1997, respectively, at the time of filing with the Commission, conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable and the Rules and Regulations and none of such documents or statements contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(i) Subsequent to December 31, 1996, neither the Company nor any subsidiary has sustained any material loss or interference with its business or properties from fire, flood, hurricane, 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 or incorporated by reference 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 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, obligations under capital leases or short-term borrowings 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 general affairs, management, business, prospects, financial position, net worth or results of operations of the Company or its subsidiaries, except in each case as described or incorporated by reference in or contemplated by the Effective Prospectus and the Final Prospectus.
(j) Except as described or incorporated by reference 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
5

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.
(k) There are no contracts or other documents required by the Securities Act or by the Rules and Regulations to be described or incorporated by reference 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, incorporated by reference, or filed as required.
(l) Except as described or incorporated by reference 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.
(m) 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.
(n) The Company and its subsidiaries have filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and have paid all taxes shown as due therefrom; and there is no tax deficiency that has been, nor does the Company or any subsidiary have knowledge of any tax deficiency which is likely to be, asserted against the Company or its subsidiaries, which if determined adversely could materially and adversely affect the earnings, assets, affairs, business prospects or condition (financial or other) of the Company or its subsidiaries.
(o) The Company and its subsidiaries operate their business 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 business 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
6

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.
(p) 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.
(q) 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 effect the condition (financial or otherwise), results of operations, properties, affairs, management, business affairs or business prospects of the Company or any of its subsidiaries.
(r) 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.
(s) The Company has not taken, directly or indirectly, any action designed, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Notes to facilitate the sale of the Notes, and
7

the Company is not aware of any such action taken or to be taken by any affiliates of the Company.
2. Purchase, Sale and Delivery of the Notes.
(a) On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each of the Underwriters, and each of the Underwriters, severally and not jointly, agrees to purchase at a purchase price of $_______ per each $1,000 principal amount, the number of Firm Notes set forth opposite such Underwriter's name in Schedule I hereto.
(b) The Company also grants to the Underwriters an option to purchase, solely for the purpose of covering overallotments in the sale of Firm Notes, all or any portion of the Option Notes at the purchase price set forth above. The option granted hereby may be exercised as to all or any part of the Option Notes at any time (but only once) within 30 days after the date the Registration Statement becomes effective. The Underwriters shall not be under any obligation to purchase any Option Notes prior to the exercise of such option. The option granted hereby may be exercised by the Underwriters by the Representatives giving written notice to the Company setting forth the amount of Option Notes to be purchased and the date and time for delivery of an payment for such Option Notes and stating that the Option Notes referred to therein are to be used for the purpose of covering overallotments in connection with the distribution and sale of the Firm Notes. 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, 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 two full business days thereafter. In either event, the date so set forth shall not be more than 10 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 amount of Option Notes specified in such notice. Option Notes shall be purchased for the accounts of the Underwriters in proportion to the number of Firm Notes set forth opposite such Underwriter's name in Schedule I hereto, except that the respective purchase obligations of each Underwriter shall be adjusted so that no Underwriter shall be obligated to purchase fractional Option Notes.
(c) Certificates in definitive form for the Notes which each Underwriter has agreed to purchase hereunder shall be delivered by or on behalf of the Company to the Underwriters for the account of such Underwriter against payment by such Underwriter or on its behalf of the purchase price therefor by certified or official bank check payable in next day funds to the order of the Company, at the offices of McDonald & Company Securities, Inc. ("McDonald"), 800 Superior Avenue, Cleveland, Ohio 44114, or at such
8

other place as may be agreed upon by McDonald and the Company, at 10:00
A.M., Nashville time, on the third full business day after this Agreement becomes effective, or at such other time not later than the seventh full business day thereafter as the Representatives and the Company may determine, 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." Certificates in definitive form for the Option Notes which each Underwriter shall have agreed to purchase hereunder shall be similarly delivered by or on behalf of the Company on the Option Closing Date. The certificates in definitive form for the Notes to be delivered will be in good delivery form and in such denominations and registered in such names as McDonald may request not less than 48 hours prior to the First Closing Date or the Option Closing Date, as the case may be. Such certificates will be made available for checking and packaging at a location in New York, New York as may be designated by you, at least 24 hours prior to the First Closing Date or the Option Closing Date, as the case may be. It is understood that you may (but shall not be obligated to) make payment on behalf of any Underwriter or Underwriters for the Notes to be purchased by such Underwriter or Underwriters. No such payment shall relieve such Underwriter or Underwriters from any of its or their obligations hereunder.
3. Offering by the Underwriters. After the Registration Statement becomes effective, the several Underwriters propose to offer for sale to the public the Firm Notes and any Option Notes which may be sold at the price and upon the terms set forth in the Final Prospectus.
4. Covenants of the Company. The Company covenants and agrees with each of the Underwriters that:
(a) The Company shall comply with the provisions of and make all requisite filings with the Commission pursuant to Rules 424 and 430A of the Rules and Regulations and to notify you promptly (in writing, if requested) of all such filings. The Company shall notify you 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; the Company shall prepare and file with the Commission, promptly upon your request, any amendments of or supplements to the Registration Statement, the Effective Prospectus or the Final Prospectus which, in your opinion, may be necessary or advisable in connection with the distribution of the Notes; 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 you after reasonable notice thereof. The Company shall advise you 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 Notes for offering or sale in any jurisdiction, or of the institution of any proceedings for any such purpose; and the Company shall use its best efforts to prevent the issuance of any stop order
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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) The Company will take or cause to be taken all necessary action and furnish to whomever you direct such information as may be reasonably required in qualifying the Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Underwriters may designate (which shall not include the State of New York unless the Company otherwise requests) and will continue such qualifications in effect for as long as may be reasonably necessary to complete the distribution. The Company shall not be required to qualify as a foreign corporation or 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.
(c) Within the time during which a Final Prospectus relating to the Notes is required to be delivered under the Securities Act, the Company shall 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 Notes 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 shall promptly notify you 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) The Company will furnish without charge to the Representatives 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 will deliver to each Underwriter a copy of each document incorporated by reference in the effective Prospectus and the Final Prospectus which has not previously been furnished.
(e) The Company will (i) deliver to you at such office or offices as you may designate as many copies of the Preliminary Prospectus and Final Prospectus as you 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 you may reasonably request.
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(f) The Company shall 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 earning 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) The Company will apply the net proceeds from the sale of the Notes as set forth under the caption "Use of Proceeds" in the Final Prospectus.
(h) During a period of five years from the effective date of the Registration Statement, the Company will furnish to the Representatives copies of all reports and other communications (financial or other) furnished by the Company to its shareholders and, as soon as available, copies of any reports or financial statements furnished or filed by the Company to or with the Commission or any national securities exchange on which any class of securities of the Company may be listed.
(i) The Company will not at any time, directly or indirectly, take any action designed, or which might reasonably be expected to cause or result in, or which will constitute, stabilization or manipulation of the price of the Notes to facilitate the sale or resale of any of the Notes. The Company will not make bids for or purchases of or induce bids for or purchases of, directly or indirectly, any Notes until the distribution of all Notes has been completed.
5. Expenses. The Company agrees with the Underwriters that (a) 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 hereunder, including, but not limited to, (i) the Commission's registration fee,
(ii) the expenses of printing (or reproduction) and distributing the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), each Preliminary Prospectus, the Effective Prospectus, the Final Prospectus, any amendments or supplements thereto, and this Agreement and other underwriting documents, including Underwriter's Questionnaires, Underwriter's Powers of Attorney, Blue Sky Memoranda and Agreements Among Underwriters, (iii) fees and expenses of accountants and counsel for the Company, (iv) expenses of registration or qualification of the Notes under state Blue Sky and securities laws, including the fees and disbursements of counsel to the Underwriters in connection therewith, (v) filing fees paid or incurred by the Underwriters and related fees and expenses of counsel to the Underwriters in connection with filings with the National Association of Securities Dealers, Inc. ("NASD"), (vi) all travel, lodging and reasonable living expenses incurred by the Company in connection with marketing, dealer and other meetings attended by the Company and the Underwriters in marketing the Notes, (vii) the costs and charges of the Company's transfer agent, registrar, paying agent, and redemption agent, and the cost of preparing the certificates for the Notes, (viii) the fees and expenses of the Trustee in connection with the Indenture and the Notes, and (ix) all other costs and expenses
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incident to the performance of their obligations hereunder not otherwise provided for in this Section; and (b) all out-of-pocket expenses, including counsel fees, disbursements and expenses, incurred by the Underwriters in connection with investigating, preparing to market and marketing the Notes and proposing to purchase and purchasing the Notes under this Agreement, will be borne and paid by the Company if the sale of the Notes provided for herein is not consummated by reason of the termination of this Agreement by the Company pursuant to Section 12(a)(i), or because of any failure or refusal on the part of the Company to comply with the terms or fulfill any of the conditions of this Agreement. Except as provided in this Section 5, the Underwriters shall pay all of their own expenses.
6. Conditions of the Underwriters' Obligations. The respective obligations of the Underwriters to purchase and pay for the Firm Notes shall be subject, in their discretion, to the accuracy of the representations and warranties of the Company 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 of all of their covenants and agreements hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto shall have become effective not later than 5:30 P.M., Washington, D.C. time, on the day following the date of this Agreement, or such later time and date as shall have been consented to by the Representative and all filings required by Rule 424, Rule 430A and Rule 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 your satisfaction; and the NASD, upon review of the terms of the public offering of the Notes, shall not have objected to such offering, such terms or the Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company 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 your judgment, is material, or omits to state a fact which, in your judgment, is material and is required to be stated therein or necessary to make the statements therein not misleading and the Company shall not have cured such untrue statement of fact or stated a statement of fact required to be stated therein.
(c) The Representatives shall have received an opinion, dated the Closing Date, from Hutchins, Wheeler & Dittmar, counsel for the Company, substantially to the effect that:
(i) The Company has been duly organized and is validly existing in good standing as a corporation under the laws of the Commonwealth of
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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. 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.
(ii) Each of the Company's subsidiaries is validly existing and in good standing under the laws of the state of its incorporation or organization, as the case may be, with power and authority to own its properties and conduct its business as now conducted, and is duly qualified or authorized to do business and is in good standing in all other jurisdictions where the failure to so qualify would have a material adverse effect upon the business of the Company and its subsidiaries taken as a whole. The outstanding stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable. All of the outstanding stock of each of the corporate subsidiaries is owned beneficially and of record by the Company, free and clear of all liens, encumbrances, equities and claims. 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. 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.
(iii) The Indenture has been duly authorized, executed and delivered, and constitutes a legal, valid and binding instrument enforceable against the Company in accordance with its terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other laws affecting creditors' rights generally. The Indenture has been qualified under the Trust Indenture Act. The Notes have been duly and validly authorized and when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Underwriters as provided herein will constitute legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture, and conformed to the description thereof contained in the Effective Prospectus and the Final Prospectus.
(iv) 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 consummation by the Company of the transactions contemplated hereby, except such as have been obtained under the Securities Act and such as may be required by the NASD and under state securities
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or Blue Sky laws in connection with the purchase and distribution of the Notes by the several Underwriters. The performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not conflict with or result in a breach or violation by the Company of any of the terms or provisions of, or constitute a default by the Company under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument known to such counsel to which the Company is a party or to which the Company or its properties is subject, the Articles of Organization or bylaws of the Company, any statute, or any judgment, decree, order, rule or regulation known to such counsel of any court or governmental agency or body applicable to the Company or any of its subsidiaries or their properties.
(v) The Company has full legal right, power and authority to enter into this Agreement and the Indenture and to issue, sell and deliver the Notes to be sold by it to the Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by general equitable principles, bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other laws affecting creditors' rights generally.
(vi) 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.
(vii) To the best knowledge of such counsel, no default exists, and no event has occurred which with notice or after the lapse of time to cure or both, would constitute a default, in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or to which they or their properties are subject, or of the Articles of Organization or bylaws of the Company or any of its subsidiaries.
(viii) 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
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or any decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries.
(ix) 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, Rule 430A and Rule 462 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.
(x) The information in the Effective Prospectus and the Final Prospectus under the caption "Description of the Notes," insofar as it purports to summarize the provisions of the Notes, is correct in all material respects.
In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Registration Statement, the Effective Prospectus and the Final Prospectus or any amendment or supplement thereto contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein).
(d) The Underwriters shall have received an opinion or opinions, dated the Closing Date, of Bass, Berry & Sims, counsel for the Underwriters, with respect to the Registration Statement and the Final Prospectus, and such other related matters as the Underwriters may require, and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. Such counsel may rely on Hutchins, Wheeler & Dittmar as to matters of Massachusetts law.
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(e) The Representatives shall have received from Ernst & Young, 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 Representatives, 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:
(i) In their opinion, the financial statements and schedules examined by them and included 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;
(ii) On the basis of a reading of the latest available interim consolidated financial statements (unaudited) of the Company and its subsidiaries, a reading of the minute books of the Company and its subsidiaries, inquiries of officials of the Company responsible for financial and accounting matters and other specified procedures, all of which have been agreed to by the Representative, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the Registration Statement do not comply as to form in all material respects with the accounting requirements of the federal securities laws and the related published rules and regulations thereunder or are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with the basis for the audited financial statements contained in the Registration Statement;
(B) any other unaudited financial statement data included or incorporated by reference in the Final Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which data was derived and any such unaudited data were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited financial statements included 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
16

balance sheets included 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 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.
(iii) They have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information specified by you 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, that such changes, decreases or increases as are set forth in such letters do not reflect a material adverse change in the stockholders' equity or long-term debt of the Company as compared with the amounts shown in the latest consolidated balance sheets of the Company included in the Final Prospectus, or a material adverse change in total revenues or net income, of the Company, in each case as compared with the corresponding period of the prior year.
(f) There shall have been furnished to you a certificate, dated the Closing Date and addressed to you, signed by the Chief Executive Officer and by the Chief Financial Officer of the Company to the effect that:
(i) the representations and warranties of the Company in Section 1 of this Agreement are true and correct, as if made at and as of the Closing Date, and the Company has 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;
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(ii) 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;
(iii) all filings required by Rule 424, Rule 430A and Rule 462 of the Rules and Regulations have been made;
(iv) 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
(v) 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.
(g) Subsequent to the respective dates as of which information is given in the Registration Statement and the Final Prospectus, and except as stated therein, the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, 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 and its subsidiaries taken as a whole, 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 and its subsidiaries taken as a whole, which loss, interference, litigation or change, in your judgment shall render it unadvisable to commence or continue the offering of the Notes at the offering price to the public set forth on the cover page of the Prospectus or to proceed with the delivery of the Notes.
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 Representative and its counsel. The Company shall furnish to the Representative such conformed copies of such opinions, certificates, letters and documents in such quantities as the Representative shall reasonably request.
The respective obligations of the Underwriters to purchase and pay for the Option Notes shall be subject, in their discretion, to each of the foregoing conditions to purchase the Firm Notes, 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 Closing Date.
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7. Condition of the Company's Obligations. The obligations hereunder of the Company are subject to the condition set forth in Section 6(a) hereof.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter, and each person, if any, who controls any Underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter 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 contained herein, (ii) any failure of the Company to perform its 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 Notes 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 such 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 the Company will not 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 by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the last sentence of the first paragraph on the cover page and in the fourth and fifth paragraphs under the caption "Underwriting" in any Preliminary Prospectus and the Final Prospectus and the Effective Prospectus).
(b) Each Underwriter will indemnify and hold harmless 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 against any losses, claims, damages or liabilities to which the Company 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
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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 by any Underwriter specifically for use therein (it being understood that the only information so provided is the information included in the last sentence of the first paragraph on the cover page and in the fourth and fifth paragraphs under the caption "Underwriting" in any Preliminary Prospectus and in the Effective Prospectus and the Final Prospectus);
(c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, including governmental proceedings, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this
Section 8 notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; and after notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation except that the indemnified party shall have the right to employ separate counsel if, in its reasonable judgment, it is advisable for the indemnified party and any other Underwriter to be represented by separate counsel, and in that event the fees and expenses of separate counsel shall be paid by the indemnifying party. The Company shall not, without the prior written consent of each Underwriter, settle or compromise or consent to the entry of any judgment in any pending or threatened action or claim or related cause of action or portion of such cause of action in respect of which the Company reasonably believes any Underwriter may seek indemnification hereunder (whether or not such Underwriter is a party of such action or claim), unless such settlement, compromise or consent includes an unconditional release of such Underwriter from all liability arising out of such action or claim (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 or the Company or is insufficient to hold
20

harmless an indemnified party, then the Company shall contribute to the damages paid by the Underwriters, and the Underwriters shall contribute to the damages paid by the Company 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 Notes (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 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 (even if the Underwriters were treated as one entity for such purpose). No Underwriter or person controlling such Underwriter shall be obligated to make contribution hereunder which in the aggregate exceeds the underwriting discount applicable to the Notes purchased by such Underwriter under this Agreement, less the aggregate amount of any damages which such Underwriter and its controlling persons have otherwise been required to pay in respect of the same or any similar claim. The Underwriters' obligations to contribute hereunder are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, shall have the same rights to contribution as the Company.
9. Default of Underwriters. If any Underwriter defaults in its obligation to purchase Notes hereunder and if the total amount of Notes which such defaulting Underwriter agreed but failed to purchase is ten percent or less of the total amount of Notes to be sold hereunder, the non-defaulting Underwriters shall be obligated severally to purchase (in the respective proportions which the amount of Notes set forth opposite the name of each non-defaulting Underwriter in Schedule I hereto bears to the total amount of Notes set forth opposite the names of all the non-defaulting Underwriters), the Notes which such defaulting Underwriter or Underwriters agreed but failed to purchase. If any Underwriter so defaults and the total amount of Notes with respect to which such default or defaults occur is more than ten percent of the total amount of Notes to be sold hereunder, and arrangements satisfactory to the other Underwriters and the Company for the purchase of such Notes by other persons (who may include the non-defaulting Underwriters) are not made within 36 hours after such default, this Agreement, insofar as it relates to the sale of the Notes, will terminate without liability on the part of the non-defaulting Underwriters or the Company except for (i) the provisions of Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the Company pursuant to
Section 5. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 9. Nothing herein shall relieve a defaulting Underwriter from liability for its default.
21

10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers and the Underwriters set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, any Underwriter or any controlling person, (ii) any termination of this Agreement and (iii) delivery of and payment for the Notes.
11. Effective Date. This Agreement shall become effective at whichever of the following times shall first occur after execution of this Agreement: (i) at 11:30 A.M., Washington, D.C. time, on the next full business day following the date on which the Registration Statement becomes effective or
(ii) at such time after the Registration Statement has become effective as the Representative shall release the Firm Notes for sale to the public; provided, however, that the provisions of Sections 5, 8, 10 and 11 hereof shall at all times be effective. For purposes of this Section 11, the Firm Notes shall be deemed to have been so released upon the release by the Representative for publication, at any time after the Registration Statement has become effective, of any newspaper advertisement relating to the Firm Notes or upon the release by the Representatives of telegrams offering the Firm Notes for sale to securities dealers, whichever may occur first.
12. Termination.
(a) The Company's obligations under this Agreement may be terminated by the Company by notice to the Representatives (i) at any time before it becomes effective in accordance with Section 11 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 Representatives by notice to the Company (i) at any time before it becomes effective in accordance with Section 11 hereof; (ii) in the event that at or prior to the first Closing Date the Company shall have failed, refused or been unable to perform any agreement on the part of the Company 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 your reasonable judgment, makes it inadvisable to commence or continue the offering of the Notes to the public.
22

(c) This Agreement shall automatically terminate upon satisfaction and discharge of the Notes by the Company in accordance with the Indenture.
(d) Termination of this Agreement pursuant to this
Section 12 shall be without liability of any party to any other party other than as provided in Sections 5 and 8 hereof.
13. 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 the Representatives, McDonald & Company Securities, Inc., 800 Superior Avenue, Cleveland, Ohio 44114, Attention: Mark W. Biche or if sent to the Company shall be mailed, delivered or telegraphed and confirmed in writing to the Company at 789 Main Road, Stamford, Vermont 05352, Attention:
Richard A. Stratton.
14. Miscellaneous. This Agreement shall inure to the benefit of and be binding upon the several Underwriters, the Company 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 and the several Underwriters and for the benefit of no other person except that (i) the representations and warranties of the Company and contained in this Agreement shall also be for the benefit of any person or persons who control any Underwriter 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. No purchaser of Notes from any Underwriter 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 Ohio. 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. You hereby represent and warrant to the Company that you have authority to act hereunder on behalf of the several Underwriters, and any action hereunder taken by you will be binding upon all the Underwriters.
23

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 and each of the several Underwriters.
Very truly yours,
LITCHFIELD FINANCIAL CORPORATION
By:

Title:
Confirmed and accepted as of the
date first above written.
MCDONALD & COMPANY SECURITIES, INC.
J.C. BRADFORD & CO.
TUCKER ANTHONY INCORPORATED
 For themselves and as
Representative of the Several
Underwriters
By:
Title:

24

SCHEDULE I
UNDERWRITERS

                                                          Principal Amount
                                                        of Firm Notes to Be
                     Underwriter                              Purchased
-------------------------------------------------    ---------------------------
McDonald & Company Securities, Inc...............
                                                     ---------------------------
J.C. Bradford & Co...............................
                                                     ---------------------------
Tucker Anthony Incorporated......................
                                                     ---------------------------
               TOTAL.............................       $
                                                     ===========================	

25

EXHIBIT 4.7

LITCHFIELD FINANCIAL CORPORATION
AND
THE BANK OF NEW YORK

TRUSTEE

INDENTURE
Dated as of November __, 1997

$51,750,000
____ % NOTES
DUE NOVEMBER 1, 2002

Litchfield Financial Corporation
____% Notes due November 1, 2002
TIE-SHEET
of provisions of Trust Indenture Act of 1939 and the Indenture dated as of November ____, 1997, between Litchfield Financial Corporation and The Bank of New York, Trustee.

                TRUST INDENTURE
                  ACT OF 1939
                    SECTION                                                      INDENTURE SECTION
-----------------------------------------------              ---------------------------------------------------------
310(a)(1)(2)(3)................................              10.1 and 10.12
   (a)(4)......................................              Not applicable
   (b).........................................              10.8 and 10.9
   (c).........................................              Not applicable

311(c).........................................              Not applicable

312(a).........................................              4.1(A) and (B)
   (b).........................................              4.1(C)
   (c).........................................              4.1(D)

313(a).........................................              4.3
   (b).........................................              Not applicable
   (c).........................................              4.3
   (d).........................................              4.3

314(a).........................................              4.2(A) and (B)
   (b).........................................              Not applicable
   (c).........................................              15.3
   (d).........................................              Not applicable
   (e).........................................              15.3

315(a).........................................              10.2(A)
   (b).........................................              7.2
   (c).........................................              10.2(B)
   (d).........................................              10.2(C)
   (e).........................................              7.13

316(a)(1)......................................              7.6 and 7.16
   (a)(2)......................................              Not applicable
   (b).........................................              7.12

317(a).........................................              7.8 and 7.10
   (b).........................................              3.2(B) and (C)	

318(a).........................................              15.6	

This tie-sheet does not constitute a part of the Indenture.

TABLE OF CONTENTS

ARTICLE 1

         DEFINITIONS
         SECTION 1.1..............................................................................................9
                  Act.............................................................................................9
                  affected .......................................................................................9
                  Affiliate.......................................................................................9
                  Authenticating Agent...........................................................................10
                  Board of Directors or "Board"..................................................................10
                  business day...................................................................................10
                  capital stock..................................................................................10
                  Certified Resolution...........................................................................10
                  common stock...................................................................................10
                  Company........................................................................................10
                  Company Order" and "Company Request............................................................10
                  corporation....................................................................................10
                  Daily Newspaper................................................................................10
                  date of this Indenture.........................................................................10
                  day............................................................................................10
                  Default........................................................................................11
                  Defaulted Interest.............................................................................11
                  Event of Default...............................................................................11
                  Executive Officer..............................................................................11
                  Federal Bankruptcy Act.........................................................................11
                  Fundamental Structural Change..................................................................11
                  Indebtedness...................................................................................11
                  Indenture......................................................................................12
                  Interest Payment Date..........................................................................12
                  Lien ..........................................................................................12
                  main office....................................................................................12
                  maturity" or "mature...........................................................................12
                  Note" or "Notes................................................................................12
                  Note Co-Registrar..............................................................................12
                  Note Register" and "Note Registrar.............................................................12
                  Noteholder," "holder of the Notes," "Holder" or "holder".......................................12
                  Officers' Certificate..........................................................................12
                  Original Issue Date............................................................................12
                  Original Purchasers............................................................................12
                  Outstanding....................................................................................13
                  Overallotment Option...........................................................................13	

i

                  paying agent...................................................................................13
                  Permitted Investments..........................................................................13
                  person.........................................................................................13
                  place of payment...............................................................................13
                  predecessor Note...............................................................................13
                  Proceeding.....................................................................................14
                  Redemption Date................................................................................14
                  Regular Record Date............................................................................14
                  Responsible Officers...........................................................................14
                  Significant Subsidiary.........................................................................14
                  Significant Subsidiary Disposition.............................................................14
                  Special Record Date............................................................................14
                  Stated Maturity................................................................................14
                  Subsidiary.....................................................................................14
                  supplemental indenture or indenture supplemental hereto........................................14
                  Trustee  ......................................................................................15
                  Trust Indenture Act or "TIA"...................................................................15

ARTICLE 2

         ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
         AND EXCHANGE OF NOTES
         SECTION 2.1  Designation, Amount and Issue of Notes.....................................................15
         SECTION 2.2  Form of Notes..............................................................................15
         SECTION 2.3  Denominations, Dates, Interest Payment and Record Dates....................................15
         SECTION 2.4  Numbers and Legends on Notes...............................................................17
         SECTION 2.5  Execution of Notes.........................................................................17
         SECTION 2.6  Registration of Transfer of Notes..........................................................18
         SECTION 2.7  Exchange and Registration of Transfer of Notes.............................................18
         SECTION 2.8  Temporary Notes............................................................................19
         SECTION 2.9  Recognition of Registered Holders of Definitive Notes and Temporary
                  Notes..........................................................................................19
         SECTION 2.10  Mutilated, Destroyed, Lost or Stolen Notes................................................19
         SECTION 2.11  Form and Authentication of Notes..........................................................20
         SECTION 2.12  Surrender and Cancellation of Notes.......................................................20

ARTICLE 3

         PARTICULAR COVENANTS OF THE COMPANY
         SECTION 3.1  Will Punctually Pay Principal, Premiums and Interest on the Notes..........................20
         SECTION 3.2.............................................................................................21
                  (A)  Office or Agency..........................................................................21	

ii

                  (B)      Appointment of Trustee as Paying Agent; Duty of Paying Agent Other
                           Than Trustee..........................................................................21
                  (C)      Duty of Company Acting as Paying Agent................................................21
                  (D)      Delivery to Trustee...................................................................22
                  (E)      All Sums to be Held Subject to Section 15.2...........................................22
         SECTION 3.3  Will Pay Indebtedness......................................................................22
         SECTION 3.4  Will Maintain Office.......................................................................22
         SECTION 3.5  Will Keep, and Permit Examination of, Records and Books of Account
                  and Will Permit Visitation of Property.........................................................22
         SECTION 3.6  Corporate Existance........................................................................23
         SECTION 3.7  Maintenance of Properties..................................................................23
         SECTION 3.8  Payment of Taxes and Other Claims..........................................................23
         SECTION 3.9  Notice of Default .........................................................................24
         SECTION 3.10  Restrictions on Indebtedness..............................................................24
         SECTION 3.11  Liquidity Maintenance Requirement.........................................................24
         SECTION 3.12  Limitation on Dividends and Other Payments................................................25

ARTICLE 4

         NOTEHOLDER LISTS AND REPORTS BY THE COMPANY
         AND THE TRUSTEE
         SECTION 4.1  Noteholder lists, etc......................................................................25
         SECTION 4.2  Reports by Company.........................................................................27
         SECTION 4.3  Reports by Trustee.........................................................................28

ARTICLE 5

         REDEMPTION OF NOTES AT COMPANY'S OPTION
         SECTION 5.1  Election by Company to Redeem Notes........................................................28
         SECTION 5.2  Redemption of Part of Notes................................................................28
         SECTION 5.3  Notice of Redemption.......................................................................29
         SECTION 5.4  Deposit of Redemption Price................................................................29
         SECTION 5.5  Date on Which Notes Cease to Bear Interest, Etc............................................29
         SECTION 5.6  All Notes Delivered........................................................................30

ARTICLE 6

         REDEMPTION OF NOTES AT HOLDER'S OPTION

         SECTION 6.1  Redemption Right at Holder's Option........................................................30
         SECTION 6.2  Redemption Procedure.......................................................................31
         SECTION 6.3  Withdrawal.................................................................................32
         SECTION 6.4  Redemption Register........................................................................32	

iii

         SECTION 6.5  Redemption Upon Fundamental Structural Change or Significant
              Subsidiary Disposition.............................................................................33
         SECTION 6.6  Redemption of Notes Subject to Article 5...................................................33

ARTICLE 7

         REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT

         SECTION 7.1  Definition of Default and Event of Default.................................................34
         SECTION 7.2  Trustee to Give Noteholders Notice of Defaults.............................................35
         SECTION 7.3  Declaration of Principal and Accrued Interest Due Upon Default; Holders
                  of Specified Percentage of Notes May Waive Default Declaration.................................36
         SECTION 7.4  Power of Trustee to Protect and Enforce Rights.............................................36
         SECTION 7.5  Remedies Cumulative........................................................................36
                  (A)  Delay, Etc. Not a Waiver of Rights........................................................37
                  (B)  Waiver of Default Not to Extend to Subsequent Defaults....................................37
         SECTION 7.6  Holders of Specified Percentage of Notes May Direct Judicial Proceedings
                  by Trustee.....................................................................................37
         SECTION 7.7  Disposition of Proceeds of Sale............................................................37
         SECTION 7.8.............................................................................................38
               (A)     Payment of Principal and Interest to Trustee Upon Occurrence of Certain
                       Defaults; Judgment May be Taken by Trustee................................................38
               (B)     Enforcement of Rights by Trustee During Continuance of an Event of
                       Default...................................................................................38
               (C)     Application of Moneys Collected by Trustee................................................38
         SECTION 7.9   Possession of Notes Unnecessary in Action by Trustee......................................39
         SECTION 7.10  Trustee May File Necessary Proofs.........................................................39
         SECTION 7.11  Limitation Upon Right of Noteholders to Institute Certain Legal
                  Proceedings....................................................................................40
         SECTION 7.12  Right of Noteholder to Receive and Enforce Payment Not Impaired...........................40
         SECTION 7.13  Court May Require Undertaking to Pay Costs................................................41
         SECTION 7.14  Unenforceable Provision Inoperative.......................................................41
         SECTION 7.15  If Enforcement Proceedings Abandoned, Status Quo is Established...........................41
         SECTION 7.16  Noteholders May Waive Certain Defaults....................................................41

ARTICLE 8

         EVIDENCE OF RIGHTS OF NOTEHOLDERS
         AND OWNERSHIP OF NOTES
         SECTION 8.1  Evidence of Ownership of Definitive Notes and Temporary Notes Issued
                  Hereunder in Registered Form...................................................................42	

iv

ARTICLE 9

         CONSOLIDATION, MERGER AND SALE
         SECTION 9.1  Company May Merge, Consolidate, Etc., Upon Certain Terms...................................42
         SECTION 9.2  Successor Corporation to be Substituted....................................................42
         SECTION 9.3.  Opinion of Counsel........................................................................43
         SECTION 9.4  Article 9 Subject to Provision of Section 6.5..............................................43

ARTICLE 10

         CONCERNING THE TRUSTEE
         SECTION 10.1  Requirement of Corporate Trustee, Eligibility.............................................43
         SECTION 10.2  Acceptance of Trust.......................................................................43
         SECTION 10.3  Disclaimer................................................................................45
         SECTION 10.4  Trustee May Own Notes.....................................................................45
         SECTION 10.5  Trustee May Rely on Certificates, Etc.....................................................45
         SECTION 10.6  Money Held in Trust Not Required to be Segregated.........................................46
         SECTION 10.7  Compensation, Reimbursement, Indemnity, Security..........................................47
         SECTION 10.8  Conflict of Interest......................................................................47
         SECTION 10.9  Resignation, Removal, Appointment of Successor Trustee....................................52
         SECTION 10.10  Acceptance by Successor Trustee..........................................................54
         SECTION 10.11...........................................................................................54
         (A)   Notice, Etc. on Behalf of Company Delivered to Trustee............................................54
         (B)   Cash, Securities, Etc. to be Held by Trustee......................................................54
         SECTION 10.12  Merger or Consolidation of Trustee.......................................................54
         SECTION 10.13  Authenticating Agent.....................................................................55

ARTICLE 11

         DISCHARGE OF INDENTURE
         SECTION 11.1  Acknowledgement of Discharge..............................................................56
         SECTION 11.2  Money Held in Trust.......................................................................57

ARTICLE 12

         MEETING OF NOTEHOLDERS
         SECTION 12.1  Purposes for Which Meetings May be Called.................................................57
         SECTION 12.2  Call of Meetings by Trustee; Generally....................................................58
         SECTION 12.3  Call of Meetings by Trustee; Notice.......................................................58
         SECTION 12.4  Meetings, Notice and Entitlement to be Present............................................59
         SECTION 12.5  Regulations May be Made by Trustee........................................................59
         SECTION 12.6  Manner of Voting at Meetings and Record to be Kept........................................60
         SECTION 12.7  Evidence of Action by Holders of Specified Percentage of Notes............................61	

v

         SECTION 12.8  Exercise of Right of Trustee or Noteholders May Not be Hindered or
                  Delayed by Call of Meeting of Noteholders......................................................60

ARTICLE 13

         SUPPLEMENTAL INDENTURES

         SECTION 13.1  Purposes for Which Supplemental Indentures May be Executed by
                  Company and Trustee............................................................................61
         SECTION 13.2  Modification of Indenture by Written Consent of Noteholders...............................62
         SECTION 13.3  Requirements for Execution; Duties and Immunities of Trustee..............................63
         SECTION 13.4  Supplemental Indentures Part of Indenture.................................................63
         SECTION 13.5  Notes Executed After Supplemental Indenture to be Approved by
                  Trustee........................................................................................63
         SECTION 13.6  Supplemental Indentures Required to Comply with Trust Indenture Act
                  of 1939........................................................................................64

ARTICLE 14

         IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
         OFFICERS AND DIRECTORS
         SECTION 14.1  Immunity of Certain Persons...............................................................64

ARTICLE 15

         MISCELLANEOUS
         SECTION 15.1  Benefits Restricted to Parties and to Holders of Notes....................................64
         SECTION 15.2  Deposits for Notes Not Claimed for Specified Period to be Returned to
                  Company on Demand..............................................................................64
         SECTION 15.3  Formal Requirements of Certificates and Opinions Hereunder................................65
         SECTION 15.4  Evidence of Act of the Noteholders........................................................66
         SECTION 15.5  Parties to Include Successors and Assigns.................................................66
         SECTION 15.6  In Event of Conflict with Trust Indenture Act of 1939, Provisions
                  Therein to Control.............................................................................66
         SECTION 15.7  Request, Notices, Etc. to Trustee.........................................................67
         SECTION 15.8  Manner of Notice..........................................................................67
         SECTION 15.9  Severability..............................................................................67
         SECTION 15.10  Payments Due on Days When Banks Closed...................................................67
         SECTION 15.11  Backup Withholding Forms.................................................................68
         SECTION 15.12  Titles of Articles of This Indenture Not Part Thereof....................................68
         SECTION 15.13  Execution in Counterparts................................................................68
         SECTION 15.14  Governing Law............................................................................68	

vi

TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGEMENTS
vii

This INDENTURE, dated as of November ___, 1997, between LITCHFIELD FINANCIAL CORPORATION, a Massachusetts corporation (herein called the "Company") and THE BANK OF NEW YORK, a trust company organized under the laws of the State of New York the mailing address of which is 101 Barclay Street, New York, New York 10286, (herein, together with each successor as such trustee hereunder, called the "Trustee").
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its _____% Notes due November 1, 2002 (hereinafter sometimes called the "Notes") in the aggregate principal amount of up to $51,750,000 and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture;
WHEREAS, the Notes and the Trustee's certificate of authentication to be borne by the Notes are to be substantially in the following forms, respectively:
[FORM OF FACE OF NOTES]
No. Litchfield Financial Corporation $
__% NOTE DUE NOVEMBER 1, 2002
Litchfield Financial Corporation, a corporation organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture referred to on the reverse side hereof), for value received, hereby promises to pay to __________________, or registered assigns, the sum of ____________________ Dollars on or before November 1, 2002, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts, and to pay interest (calculated on the basis of a 360-day year of twelve 30-day months) on the unpaid principal amount hereof in like coin or currency from the Interest Payment Date to which interest hereon has been paid immediately preceding the date hereof (unless the date hereof is an Interest Payment Date to which interest has been paid, in which case from the date hereof) or, if no interest has been paid on this Note since the Original Issue Date hereof, as defined in the Indenture referred to on the reverse side hereof, from such Original Issue Date, at the rate of __% per annum, payable monthly on the first day of each month, commencing December 1, 1997, until the principal hereof shall have been paid or duly provided for. The interest so payable on any Interest Payment Date will be paid to the person in whose name this Note is registered at the close of business on the fifteenth day of the month immediately preceding such Interest Payment Date (whether or not such fifteenth day shall be a regular business day), unless the Company shall default in the payment of interest due on such Interest Payment Date, in which case such defaulted interest shall be paid to the person in whose name this Note is registered at the close of business on a Special Record Date for the payment
1

of such defaulted interest established by notice to the registered holders of Notes given by mail to said holders as their names and addresses appear in the Note Register (as defined in the Indenture referred to on the reverse side hereof) not less than 10 days preceding such Special Record Date. The principal hereof and the interest hereon shall be payable at the main office of The Bank of New York, Trustee under the Indenture referred to on the reverse side hereof, in New York, New York; provided, however, that the interest on this Note may be payable, at the option of the Company, by check mailed to the person entitled thereto as such person's address shall appear on the Note Register (including the records of any Note Co-Registrar).
Reference is hereby made to the further provisions of this Note set forth on the reverse side hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place.
This Note shall not be entitled to any benefit under the Indenture referred to on the reverse side hereof, or be or become valid or obligatory for any purpose, until the authentication certificate endorsed hereon shall have been signed by The Bank of New York, Trustee under such Indenture, or a successor trustee thereto under such Indenture.
IN WITNESS WHEREOF, LITCHFIELD FINANCIAL CORPORATION has caused this Note to be signed in its name by its President and Chief Executive Officer or its Executive Vice President or one of its Vice Presidents by his signature or a facsimile thereof, and its corporate seal to be affixed or printed or engraved hereon, or a facsimile thereof, and attested by its Clerk or one of its Assistant Clerks by his signature or a facsimile thereof.

Dated:                              LITCHFIELD FINANCIAL CORPORATION

                                            By:
                                               ---------------------
                                            Title:
                                                  ------------------
[CORPORATE SEAL]

Attest:

-------------------------

Title:
      -------------------	

2

[FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE]
TRUSTEE'S AUTHENTICATION CERTIFICATE
This Note is one of the Notes described or provided for in the Indenture referred to on the reverse side hereof.
The Bank of New York as Trustee
By:_________________ Authorized Officer
[FORM OF REVERSE OF NOTE]
Litchfield Financial Corporation
__% NOTE DUE NOVEMBER 1, 2002
This Note is one of a duly authorized issue of Notes of the Company designated as its __% Notes due November 1, 2002 (herein called the "Notes"), limited in aggregate principal amount of $51,750,000 (except for Notes authenticated and delivered upon transfer of, or in exchange for or in lieu of other Notes), all issued and to be issued only in fully registered form without coupons under an indenture (herein, together with any indenture supplemental thereto, called the "Indenture"), dated as of November __, 1997, duly executed and delivered by Litchfield Financial Corporation to The Bank of New York, New York, New York, Trustee (the Trustee, together with its successors being herein called the "Trustee"), to which Indenture (which is hereby made a part hereof and to all of which the holder by acceptance hereof assents) reference is hereby made for a description of the respective rights of and restrictions upon the Company and the holders of the Notes, and the rights, limitations of rights, duties and immunities of the Trustee in respect thereof.
The Notes are redeemable at the option of the Company as a whole at any time, or in part from time to time, prior to maturity, commencing November 1, 1999, on not less than 30 nor more than 60 days' notice given as provided in the Indenture, upon payment of the then applicable redemption price (expressed in percentages of the principal amount) set forth below under the heading "General Redemption Prices," together in each case with accrued and unpaid interest to the date fixed for redemption, all subject to the conditions more fully set forth in the Indenture. The General Redemption Prices (expressed in percentages of the principal amount) applicable during the 12-month period beginning November 1 in the years indicated below are as follows:
3

General Redemption Prices
If redeemed during the 12 month period beginning November 1,

1999 ............................ 103.0%

2000 ............................ 101.5%

2001 and thereafter ............. 100.0%	

Unless the Notes have been declared due and payable prior to maturity by reason of an Event of Default, the holder of this Note has the right to present it for payment prior to maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder shall specify), subject to the limitations that the Company will not be obligated to redeem, during the period beginning with the original issuance of the Notes and ending December 1, 1998 (the "Initial Period"), or during any 12-month period ending December 1 thereafter, (i) the portion of a Note or Notes of a holder exceeding an aggregate principal amount of $25,000 or (ii) Notes in an aggregate principal amount exceeding $2,250,000, plus, to the extent that the Original Purchasers exercise the Overallotment Option, up to 5% of the principal amount of the Notes purchased upon exercise of such Option; provided that, in no event, shall the maximum aggregate principal amount of Notes which the Company may be obligated to redeem in any such 12-month period exceed 2,587,500; (further references herein to the 2,250,000 aggregate principal amount limitation shall be deemed to include such higher figure, not exceeding $2,587,500, to the extent the Original Purchasers exercise the Overallotment Option). Such $25,000 and $2,250,000 limitations are non-cumulative. If the $25,000 per holder limitation has been reached and the aggregate $2,250,000 limitation has not been reached, and if Notes have been properly presented for payment on behalf of beneficial holders who are natural persons, each in an aggregate principal amount exceeding $25,000, the Company will redeem such Notes in order of their receipt (except Notes presented for payment in the event of death of a holder, which will be given priority in order of their receipt over Notes presented by other holders), up to the aggregate limitation of $2,250,000, notwithstanding the $25,000 limitation.
Redemption of the Notes presented for payment on or prior to the September 30 immediately preceding the last day of the Initial Period, and of each 12 month period thereafter, will be made on the last day of such period, beginning December 1, 1998. Notes not redeemed in any such period because they have not been presented on or prior to the September 30 immediately preceding the last day (December 1) of that period or because of the $25,000 or $2,250,000 limitations will be held in order of their receipt for redemption during the following 12 month period(s) until redeemed, unless sooner withdrawn by the holder. Holders of Notes presented for redemption shall be entitled to and shall receive scheduled monthly payments of interest thereon on Interest Payment Dates until their Notes are redeemed. Subject to the $25,000 and $2,250,000 limitations, the Company will at any time upon the death of any holder redeem Notes within 60 days following receipt by the Trustee of a written request therefor from such holder's personal representative, or surviving joint tenant(s), tenant by
4

the entirety or tenant(s) in common. Notes will be redeemed in order of their receipt by the Trustee, except Notes presented for payment in the event of death of the holder, which will be given priority in order of their receipt.
In the event that there shall occur a Fundamental Structural Change (as defined in the Indenture) or Significant Subsidiary Disposition (as defined in the Indenture), the holder of this Note shall have the right, subject to certain conditions stated in the Indenture, to present it for payment prior to maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder shall specify). The $25,000 individual and $2,250,000 aggregate redemption limitations shall not apply to any such redemption.
Notes may be presented for redemption by delivering to the Trustee: (i) a written request for redemption, in form satisfactory to the Trustee, signed by the registered holder(s) or his duly authorized representative, (ii) the Note to be redeemed and (iii) in the case of a request made by reason of the death of a holder, appropriate evidence of death and, if made by a representative or surviving joint tenant, tenant by the entirety or tenant in common of a deceased holder, appropriate evidence of authority to make such request. No particular forms of request for redemption or authority to request redemption are necessary. The price to be paid by the Company for all Notes or portions thereof presented to it for redemption (other than at the option of the Company) is 100% of the principal amount or respective portions thereof plus accrued but unpaid interest to the date of payment. Any acquisition of Notes by the Company other than by redemption at the option of any holder shall not be included in the computation of either the $25,000 or $2,250,000 limitation for any period.
For purposes of a holder's request for redemption, a Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder. The death of a person, who, during his lifetime, was entitled to substantially all of the beneficial ownership interests of a Note will be deemed the death of the holder, regardless of the registered holder, if such beneficial interest can be established to the satisfaction of the Trustee. For purposes of a holder's request for redemption and a request for redemption on behalf of a deceased holder, a beneficial interest shall be deemed to exist in cases of street name or nominee ownership, ownership under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between a husband and wife (including individual retirement accounts or Keogh [H.R. 10] plans maintained solely by or for the holder or decedent or by or for the holder or decedent and his spouse), and trusts and certain other arrangements where a person has substantially all of the beneficial ownership interests in the Notes during his lifetime. Beneficial ownership interests shall include the power to sell, transfer or otherwise dispose of a Note and the right to receive the proceeds therefrom, as well as interest and principal payable with respect thereto.
In the case of Notes registered in the names of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the $25,000 limitation shall apply to each beneficial owner of Notes held by a Qualified Institution and the death of such beneficial owner shall entitle a Qualified Institution
5

to seek redemption of such Notes as if the deceased beneficial owner were the record holder. Such Qualified Institution, in its request for redemption on behalf of beneficial owners, must submit evidence, satisfactory to the Trustee, that it holds Notes on behalf of such beneficial owners and must certify that the aggregate amount of requests for redemption tendered by such Qualified Institution on behalf of such beneficial owner in the initial period or in any subsequent 12 month period does not exceed $25,000.
In the case of any Notes which are presented for redemption in part only, upon redemption the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the holder of such Notes, without service charge, a new Note(s), of any authorized denomination or denominations as requested by such holder, in aggregate principal amount equal to the unredeemed portion of the principal of the Notes so presented.
In the case of any Notes or portion thereof which are presented for redemption by a holder and which have not been redeemed at the time the Company gives notice of its election to redeem Notes at its option, such Notes or portion thereof shall first be subject to redemption by the Company at its option as described above and if any such Notes or portion thereof are not redeemed by the Company they shall remain subject to redemption pursuant to presentment by the holder.
Any Notes presented for redemption by the holder (except on account of a Fundamental Structural Change or Significant Subsidiary Disposition) may be withdrawn by the person(s) presenting the same upon delivery of a written request for such withdrawal to the Trustee (a) in cases other than by reason of death of a holder, on or prior to September 30, 1998, in the case of the Initial Period, or on or prior to September 30 in the case of any subsequent 12 month period, or (b) prior to the issuance of a check in payment thereof in the case of Notes presented by reason of the death of a holder.
If the Company shall deposit with the Trustee in trust funds sufficient to pay the principal of all of the Notes, or such of the Notes as have been or are to be called for redemption, any premium, if any, thereon, and all interest payable on such Notes to the date on which they become due and payable, at maturity or upon redemption or otherwise, and shall comply with the other provisions of the Indenture in respect thereof, then from and after said date (or prior thereto as provided in the Indenture), such Notes shall no longer be entitled to any benefit under the Indenture and, as respects the Company's liability thereon, such Notes shall be deemed to have been paid.
To the extent permitted by, and as provided in, the Indenture, the Company may, by entering into an indenture or indentures supplemental to the Indenture, modify, alter, add to or eliminate in any manner any provisions of the Indenture, or the rights of the Noteholders or the rights and obligations of the Company, upon the consent, as in the Indenture provided, of the holders of not less than sixty-six and two-thirds percent (66-2/3%) in principal amount of the Notes then Outstanding. Notwithstanding the foregoing, no supplemental indenture shall, without the consent of the holder of each Outstanding Note affected thereby, change the Stated Maturity of the principal of, or any installment of interest on any Note, or reduce the principal amount thereof or the rate of interest thereon, reduce the percentage of the aggregate principal amount of Outstanding Notes the consent
6

of the holders of which is required for any supplemental indenture or for any waiver of compliance with certain provisions of the Indenture, or modify any of the provisions of the Indenture relating to the foregoing, all except as provided in the Indenture.
If an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of and all interest accrued on all the Notes at any such time Outstanding under the Indenture may be declared, and upon such declaration shall become, immediately due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that such declaration and its consequence may be waived by the holders of a majority in principal amount of the Notes then Outstanding.
The Notes are issuable as registered Notes without coupons in denominations of integral multiples of $1,000. Subject to the provisions of the Indenture, the transfer of this Note is registrable by the registered holder hereof, in person or by his attorney duly authorized in writing, at the main office of The Bank of New York, in New York, New York, on books of the Company to be kept for that purpose at said office, upon surrender and cancellation of this Note duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee, and thereupon a new fully registered Note of the same series, of the same aggregate principal amount and in authorized denominations, will be issued to the transferee or transferees in exchange therefor; and this Note, with or without others of the same series, may in like manner be exchanged for one or more new fully registered Notes of the same series of other authorized denominations but of the same aggregate principal amount; all as provided in the Indenture. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge or expense that may be imposed in relation thereto.
Prior to due presentment for registration of transfer, the Company, the Trustee or any agent of the Company or the Trustee may deem and treat the person in whose name this Note shall be registered at any given time upon the Note Register as the absolute owner of this Note for the purpose of receiving any payment of, or on account of, the principal and interest on this Note and for all other purposes whether or not this Note be overdue; and neither the Company nor the Trustee, nor any agent of the Company or the Trustee shall be bound by any notice to the contrary.
No recourse under any obligation, covenant or agreement contained in the Indenture or in any Note, or because of the creation of the indebtedness represented hereby, shall be had against any incorporator, any past, present or future stockholder, or any officer or director of the Company or any successor corporation, as such under any rule of law, statute or constitution.
In any case where the date fixed for the payment of principal or interest on any of the Notes or the date fixed for redemption thereof shall not be a business day, then payment of such principal or interest need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if made on the date fixed for such payment or redemption, and no interest shall accrue for the period from or after such date.
7

All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
[END OF FORM OF NOTES]
8

WHEREAS, this Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions;
WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee, as in this Indenture provided, and issued, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Notes have in all respects been duly authorized;
NOW THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises, of the purchase and acceptance of the Notes by the holders thereof and of the sum of one dollar duly paid to it by the Trustee at the execution of these presents, the receipt whereof is hereby acknowledged, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes, as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. The terms defined in this Article 1 shall (except as herein otherwise expressly provided) for all purposes of this Indenture, have the respective meanings specified in this Article and include the plural as well as the singular. Any term defined in the Trust Indenture Act of 1939, either directly or by reference therein, and not defined in this Indenture, unless the context otherwise specifies or requires, shall have the meaning assigned to such term therein as in force on the date of this Indenture.
"Act" when used with respect to any Noteholder has the meaning specified in Section 15.4.
"affected" has the meaning specified in Section 13.2.
"Affiliate" means any person which directly or indirectly controls, is controlled by, or is under direct or indirect common control with, the Company. A person shall be deemed to control a corporation, partnership or other entity, for the purpose of this definition, if such person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation, partnership or other entity, whether through the ownership of voting securities, by contract, or otherwise.
9

"Authenticating Agent" means the agent of the Trustee which at the time shall be appointed and acting pursuant to Section 10.13.
"Board of Directors" or "Board" means the Board of Directors of the Company or any committee of such Board of Directors, however designated, authorized to exercise the powers of such Board of Directors in respect of the matters in question.
"business day" means any day which is not a Saturday, Sunday or other day on which banking institutions in the State in which the Trustee shall maintain its principal office are authorized or obligated by law or required by executive order to close.
"capital stock" includes any and all shares, interests, participations or other equivalents (however designated) of corporate stock of any corporation.
"Certified Resolution" means a copy of a resolution or resolutions certified, by the Secretary or an Assistant Secretary of the corporation referred to, as having been duly adopted by the Board of Directors of such corporation or any committee of such Board of Directors, however designated, authorized to exercise the powers of such Board of Directors in respect of the matters in question and to be in full force and effect on the date of such certification.
"common stock" means any capital stock of a corporation which is not preferred as to the payment of dividends or the distribution of assets on any voluntary or involuntary liquidation over shares of any other class of capital stock of such corporation.
"Company" shall mean and include Litchfield Financial Corporation until any successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation.
"Company Order" and "Company Request" mean, respectively, a written order or request signed in the name of the Company by its Chairman of the Board, Vice-Chairman of the Board, President or any Vice President and its Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and delivered to the Trustee.
"corporation" shall mean and include corporations, associations, companies and business trusts.
"Daily Newspaper" shall mean a newspaper in the English language of general circulation in New York, New York and customarily published on each business day of the year, whether or not such newspaper is published on Saturdays, Sundays and legal holidays.
"date of this Indenture" means the date set forth on the cover page of this Indenture.
"day" means a calendar day.
10

"Default" means any act or occurrence of the character specified in
Section 7.1, but excluding any notice or lapse of time, or both, specified therein.
"Defaulted Interest" has the meaning specified in Section 2.3.
"Event of Default" means any act or occurrence of the character specified in Section 7.1.
"Executive Officer" means, with respect to any corporation, the Chairman of the Board, the Vice Chairman of the Board, the President, the Executive Vice President, any other Vice President or the Treasurer of such corporation.
"Federal Bankruptcy Act" means Title I of the Bankruptcy Reform Act of 1978, as amended, and codified at Title 11 of the United States Code and the Federal Rules of Bankruptcy Procedure as in effect as of the date hereof or as hereafter amended.
"Fundamental Structural Change" means the occurrence of any one or more of the following: (A) the Company shall consolidate with or merge into any other corporation or partnership, or convey, transfer or lease all or substantially all of its assets to any person, other than as part of a loan securitization or sale entered into in the ordinary course of its business; (B) any person shall consolidate with or merge into the Company pursuant to a transaction in which at least a majority of the common stock of the Company then outstanding is changed or exchanged or in which the number of shares of common stock issued by the Company in the transaction to persons who were not stockholders of the Company immediately prior to the transaction is greater than the number of shares outstanding immediately prior to the transaction; (C) any person shall purchase or otherwise acquire in one or more transactions beneficial ownership of fifty percent (50%) or more of the common stock of the Company outstanding on the date immediately prior to the last such purchase or other acquisition; (D) the Company or any Subsidiary shall purchase or otherwise acquire in one or more transactions during the 12 month period preceding the date of the last such purchase or other acquisition an aggregate of twenty-five percent (25%) or more of the common stock of the Company outstanding on the date immediately prior to the last such purchase or acquisition; or (E) the Company shall make a distribution of cash, property or securities to holders of common stock (in their capacity as such) (including by means of dividend, reclassification or recapitalization) which, together with all other such distributions during such 12 month period preceding the date of such distribution, has an aggregate fair market value in excess of an amount equal to twenty-five percent (25%) of the fair market value of the common stock of the Company outstanding on the date immediately prior to such distribution.
"Indebtedness" means (i) any liability of any person (a) for borrowed money, (b) evidenced by a note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any property or assets (other than inventory or similar property acquired in the ordinary course of business), including securities, or (c) for the payment of money relating to a capitalized loan obligation; (ii) any guarantee by any person of, or any commitment
11

relating to, any liability of others described in the preceding clause (i); and
(iii) any amendment, renewal, extension or refunding of any liability referred to in clause (i) and (ii) above.
"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes.
"Lien" means any mortgage, lien, pledge, charge or other security interest or encumbrance of any kind.
"main office" with reference to the Trustee shall mean the principal corporate trust office of the Trustee, which office is, on the date of this Indenture, located at 101 Barclay Street, New York, New York 10286.
"maturity" or "mature," when used with respect to any Note, means the date on which the principal of such Note becomes due and payable as therein or herein provided, whether at Stated Maturity or by declaration of acceleration, call for redemption at the option of the Company pursuant to Article 5 or presentment for repayment as provided in Article 6 hereof, or otherwise.
"Note" or "Notes" mean one or more of the notes comprising the Company's issue of Notes issued, authenticated and delivered under this Indenture.
"Note Co-Registrar" has the meaning specified in Section 2.5.
"Note Register" and "Note Registrar" have the respective meanings specified in Section 2.6.
"Noteholder," "holder of the Notes," "Holder" or "holder" or other similar terms mean any person in whose name, as of any particular date, a Note is registered on the Note Register.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, President or a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Each such certificate, to the extent required, shall comply with the provisions of Section 15.3 hereof.
"Original Issue Date" with respect to any Note (or portion thereof) means the earlier of (A) the date of such Note or (B) the date of any Note (or portion thereof) for which such Note was issued (directly or indirectly) on registration of transfer, exchange or substitution.
"Original Purchasers" means the original purchasers of the Notes pursuant to that certain Underwriting Agreement by and among those parties and the Company.
12

"Outstanding" means, as of the date of determination, all Notes which theretofore shall have been authenticated and delivered by the Trustee under this Indenture, except (A) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation, (B) Notes or portions thereof for the payment or redemption of which money in the necessary amount shall have been deposited with the Trustee or any paying agent in trust for the holders of the Notes; provided, however, that in the case of redemption, any notice required shall have been given or have been provided for to the satisfaction of the Trustee, and (C) Notes in exchange or substitution for or in lieu of which other Notes have been authenticated and delivered under any of the provisions of this Indenture. Notwithstanding the foregoing provision of this paragraph, Notes in exchange or substitution for or in lieu of which other Notes have been authenticated and delivered under Section 2.10 hereof and which have not been surrendered to the Trustee for cancellation or the payment of which shall not have been duly provided for, shall be deemed to be Outstanding. In determining whether the Noteholders of the requisite principal amount of Notes Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company, including any Subsidiary, or such other obligor shall be disregarded and deemed not Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee knows to be so owned shall be disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or a Subsidiary or such other obligor.
"Overallotment Option" means the option granted by the Company to the Original Purchasers to purchase up to $6,750,000 aggregate principal amount of the Notes to cover overallotments pursuant to the Underwriting Agreement by and among the Company and such parties dated as of November __, 1997.
"paying agent" means any person authorized by the Company to pay the principal of, premium, if any, and interest on any Notes on behalf of the Company.
"Permitted Investments" means obligations of, or guaranteed as to interest and principal by, the United States Government, open market commercial paper of any corporation incorporated under the laws of the United States of America or any State thereof rated "prime-1" or its equivalent by Moody's Investors Service, Inc. or "A-1" or its equivalent by Standard & Poor's Corporation or bankers acceptances or certificates of deposit issued by commercial banks organized under the laws of the United States of America or any political subdivision thereof rated "Aa" or better by Moody's Investors Service, Inc. or "AA" or better by Standard & Poor's Corporation and having a final maturity of less than one year or instruments issued by investment companies having a portfolio 90% or more consisting of the type and maturity described above.
"person" means any individual, partnership, corporation, trust, unincorporated association, joint venture, government or any department or agency thereof, or any other entity.
"place of payment" means such place as designated in Section 2.3 hereof.
"predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.10 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note.
13

"Proceeding" means any suit in equity, action at law or other legal, equitable, administrative or similar proceeding.
"Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Regular Record Date" has the meaning specified in Section 2.3.
"Responsible Officers" of the Trustee means the Chairman of the Board of Directors, every Vice Chairman of the Board of Directors, the President, the Chairman or any Vice Chairman of the Executive Committee of the Board, the Chairman of the Trust Committee, every Vice President, every Assistant Vice President, the Cashier, every Assistant Cashier, the Secretary, every Assistant Secretary, the Treasurer, every Assistant Treasurer, every Trust Officer, every Assistant Trust Officer, the Controller, every Assistant Controller, and every other officer and assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be any such officers and also means, with respect to a particular corporate trust matter, any other officer to whom such corporate trust matter is referred because of his knowledge and familiarity with a particular subject.
"Significant Subsidiary" means any Subsidiary of the Company the consolidated assets of which constitute twenty percent (20%) or more of the consolidated assets of the Company.
"Significant Subsidiary Disposition" means (A) the merger, consolidation, or conveyance or transfer of all or substantially all of the assets of a Significant Subsidiary, or (B) the issuance, sale, transfer, assignment, pledge or other disposition of the capital stock of a Significant Subsidiary or securities convertible or exchangeable into shares of capital stock of such Significant Subsidiary.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.3.
"Stated Maturity," when used with respect to any Note or any installment of interest thereon, means the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable.
"Subsidiary" means any corporation more than fifty percent (50%) of whose shares of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such corporation irrespective of whether or not at the time stock of any other class or classes shall or might have voting power by reason of the happening of any contingency, is owned or controlled directly or indirectly by the Company.
"supplemental indenture" or "indenture supplemental hereto" mean any indenture hereafter duly authorized and entered into in accordance with the provisions of this Indenture.
14

"Trustee" means The Bank of New York, New York, New York, and, subject to the provisions of the Indenture, shall also include any successor trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in force at the date as of which this instrument was executed.
All accounting terms used in this Indenture shall have the meanings assigned to them in accordance with generally accepted accounting principles and practices employed at the time by the Company.
ARTICLE 2
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
SECTION 2.1 Designation, Amount and Issue of Notes. The Notes shall be designated as set forth in the form of Note hereinabove recited. Notes in the aggregate principal amount of up to $51,750,000 (and as otherwise provided in
Section 2.10), upon the execution of this Indenture, or from time to time within 30 days thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Notes to or upon the written order of the Company, signed by its Chairman of the Board, the President or an Executive Vice President or any Vice President, without any further action by the Company hereunder.
SECTION 2.2 Form of Notes. The Notes and the Trustee's certificate of authentication to be borne by the Notes shall be substantially in the form as in this Indenture hereinabove recited. Any of the Notes may have imprinted thereon such legends or endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) 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 on which the Notes may be listed, or to conform to usage.
SECTION 2.3 Denominations, Dates, Interest Payment and Record Dates. The Notes shall be issuable as registered Notes without coupons in the denominations of $1,000 and any integral multiple of $1,000, and shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plan as the officers of the Company executing the same may determine with the approval of the Trustee.
The Notes shall be dated the date of authentication thereof by the Trustee. The Stated Maturity of the Notes is November 1, 2002. The Notes shall bear interest annually (calculated on the basis of a 360-day year of twelve 30-day months) at the rate set forth in their titles, payable monthly in each year, from the Interest Payment Date immediately preceding the date of such Note
15

to which interest on the Notes has been paid (unless the date of such Note is the date to which interest on the Notes has been paid, in which case from the date of such Note), or, if no interest has been paid on the Notes since the Original Issue Date of such Note, from such Original Issue Date, which interest shall be paid on the first day of each month, commencing December 1, 1997, until payment of the principal thereof becomes due, and at the same rate per annum on any overdue principal and (to the extent legally enforceable) on any overdue installment of interest; and shall be payable as to principal and interest at the main office of the Trustee and at such other office or agency as provided in this Indenture.
Notwithstanding the foregoing, so long as there is no existing default in the payment of interest on the Notes, all Notes authenticated by the Trustee between the Regular Record Date (as hereinafter defined) for any Interest Payment Date and such Interest Payment Date shall bear interest from such Interest Payment Date; provided, however, that if and to the extent that the Company shall default in the payment of the interest due on such Interest Payment Date, then any such Note shall bear interest from the Interest Payment Date immediately preceding the date of such Note to which interest on the Notes has been paid, or if no interest has been paid on such Notes since the Original Issue Date of such Notes from such Original Issue Date or from such other date as shall have been fixed by this Indenture or any supplemental indenture hereto.
Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Note (or one or more predecessor Notes) is registered at the close of business on the Regular Record Date for such interest as specified in this
Section 2.3. The term "Regular Record Date" with respect to a regular monthly Interest Payment Date for the Notes shall mean the close of business on the fifteenth day of the month (whether or not a business day) next preceding such Interest Payment Date.
Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (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 may be paid by the Company, at its election in each case, as provided in clause (A) or clause (B) below:
(A) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective predecessor Notes) are registered at the close of business on a special record date (the "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 Note 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 be not more than twenty (20) nor less than ten (10) days prior to the date of the proposed payment and not less than thirty-five (35) 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
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Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to each Noteholder at his address as it appears in the Note Register, not less than ten (10) days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in a Daily Newspaper in each place of payment, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their respective predecessor Notes) are registered on such Special Record Date and shall no longer be payable pursuant to the following clause (B).
(B) The Company may make payment of any Defaulted Interest in any other lawful manner if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note.
The principal of and the premium, if any, and the interest on the Notes shall be paid at the office or agency of the Company which shall be located at the main office of the Trustee (the "place of payment") in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts; provided, however, that interest on any Notes may be payable, at the option of the Company, by check mailed to the person entitled thereto as such person's address shall appear on the Note Register.
SECTION 2.4 Numbers and Legends on Notes. Notes may bear such numbers, letters or other marks of identification or designation, may be endorsed with or have incorporated in the text thereof such legends or recitals with respect to transferability or in respect of the Note or Notes for which they are exchangeable, and may contain such provisions, specifications and descriptive words, not inconsistent with the provisions of this Indenture, as may be determined by the Company or as may be required to comply with any law or with any rule or regulation made pursuant thereto.
SECTION 2.5 Execution of Notes. Each Note shall be signed in the name and on behalf of the Company by one of its officers. The signature of an officer of the Company may, if permitted by law, be in the form of a facsimile signature and may be imprinted or otherwise reproduced on the Notes. In case any officer of the Company who shall have signed, or whose facsimile signature shall be borne by, any of the Notes shall cease to be such officer of the Company before the Notes so
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executed shall be actually authenticated and delivered by the Trustee, such Notes shall nevertheless bind the Company and may be authenticated and delivered as though the person whose signature appears on such Notes had not ceased to be such officer of the Company.
SECTION 2.6 Registration of Transfer of Notes. The Company shall keep or cause to be kept at the main office of the Trustee books for the registration of transfer of Notes issued hereunder (herein sometimes referred to as the "Note Register") and upon presentation for such purpose at such office the Company will register or cause to be registered the transfer therein, under such reasonable regulations as it may prescribe, of such Notes. The Trustee is hereby appointed "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more "Note Co-Registrars" for such purpose as the Board of Directors may determine where Notes may be presented or surrendered for registration, registration of transfer or exchange and such books, at all reasonable times, shall be open for inspection by the Trustee.
SECTION 2.7 Exchange and Registration of Transfer of Notes. Whenever any Note shall be surrendered to the Company at an office or agency referred to in Section 3.2 hereof, for registration of transfer or exchange, duly endorsed or accompanied by a proper written instrument or instruments of assignment and transfer thereof or for exchange in form satisfactory to the Company and the Trustee, or any Note Registrar or Note Co-Registrar, duly executed by the holder thereof or his attorney duly authorized in writing, the Company shall execute, and the Trustee shall authenticate and deliver, in exchange therefor, a Note or Notes in the name of the designated transferee, as the case may require, for a like aggregate principal amount and of such authorized denomination or denominations as may be requested. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange.
The Company, at its option, may require the payment of a sum sufficient to reimburse it for any stamp tax or other governmental charge or expense that may be imposed in connection with any exchange or transfer of Notes other than exchanges pursuant to Section 2.8 or 13.5 not involving any transfer. No service charge will be made for any such transaction.
The Company shall not be required to issue or to make registrations of transfer or exchanges of Notes for a period of fifteen (15) days immediately preceding the date of any selection of Notes to be redeemed. The Company shall not be required to issue or to make registrations of transfer or exchanges of any Notes which have been selected for redemption in whole or in part, except in the case of any Note to be redeemed in part, for which the Company shall register transfers and make exchanges of the portion thereof not so to be redeemed.
Upon delivery by any Note Co-Registrar of a Note in exchange for a Note surrendered to it in accordance with the provisions of this Indenture, the Note so delivered shall for all purposes of this Indenture be deemed to be duly registered in the Note Register; provided, however, that in making any determination as to the identity of persons who are holders, the Trustee shall, subject
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to the provisions of Section 10.2, be fully protected in relying on the Note Register kept at the main office of the Trustee.
SECTION 2.8 Temporary Notes. Pending the preparation of definitive Notes the Company may execute and, upon Company Order, the Trustee shall authenticate and deliver temporary Notes which may be printed, lithographed, typewritten, mimeographed or otherwise reproduced. Temporary Notes shall be issuable in any authorized denomination, and substantially of the tenor of the definitive Notes in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the officers of the Company executing such Notes as evidenced by their execution of such Notes. Every such temporary Note shall be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. If temporary Notes are issued, without unreasonable delay, the Company will execute and deliver to the Trustee definitive Notes and thereupon any and all temporary Notes may be surrendered in exchange therefor, at the offices referred to in
Section 3.2, and the Trustee shall authenticate and deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes of authorized denominations. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes authenticated and delivered hereunder.
SECTION 2.9 Recognition of Registered Holders of Definitive Notes and Temporary Notes. The Company, the Trustee or any agent of the Company or the Trustee may deem and treat (A) the registered holder of any temporary Note, and (B) the registered holder of any definitive Note, as the absolute owner of such Note in accordance with Section 8.1.
SECTION 2.10 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, then upon the satisfaction of the conditions hereinafter set forth in this Section 2.10 the Company (A) shall, in the case of any mutilated Note, and (B) shall, in the case of any destroyed, lost or stolen Note, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, execute, and upon the written request of the Company, the Trustee shall authenticate and deliver, a new Note of like principal amount bearing a number not contemporaneously outstanding, in exchange and substitution for and upon surrender and cancellation of the mutilated Note or in lieu of and substitution for the Note so destroyed, lost or stolen; provided, however, that if any such mutilated, destroyed, lost or stolen Note shall have become or shall be about to become due and payable, or shall have been selected or called for redemption, the Company may instead of issuing a substituted Note, pay such Note without requiring the surrender thereof, except that such mutilated Note shall be surrendered. The applicant for such substituted Note shall furnish to the Company and to the Trustee evidence satisfactory to them, in their discretion, of the ownership of and the destruction, loss or theft of such Note and shall furnish to the Company and to the Trustee and any Note Registrar such security or indemnity as may be required by them to save each of them harmless, and, if required, shall reimburse the Company for all expenses (including any tax or other governmental charge and the fees and expenses of the Trustee) in connection with the preparation, authentication and delivery of such substituted Note,
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and shall comply with such other reasonable regulations as the Company, the Trustee, or either of them, may prescribe.
Every new Note issued pursuant to this Section 2.10 in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionally with any and all other Notes duly issued hereunder.
The provisions of this Section 2.10 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.11 Form and Authentication of Notes. Subject to the qualifications hereinbefore set forth, the Notes to be secured hereby shall be substantially of the tenor and effect set forth in the recitals hereto, and no Notes shall be secured hereby or entitled to the benefit hereof, or shall be or become valid or obligatory for any purpose unless there shall be endorsed thereon an authentication certificate, substantially in the form set forth in the recitals hereto, executed by the Trustee; and such certificate on any Note issued by the Company shall be conclusive evidence and the only competent evidence that it has been duly authenticated and delivered hereunder.
SECTION 2.12 Surrender and Cancellation of Notes. All Notes surrendered for payment, redemption, transfer, exchange or conversion shall, if surrendered to any person other than the Trustee, be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder, which the Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in this Section 2.12, except as expressly permitted by this Indenture. The Trustee shall deliver all canceled Notes held by it to the Company at least annually.
ARTICLE 3
PARTICULAR COVENANTS OF THE COMPANY
Anything in this Indenture or in any Note to the contrary notwithstanding, the Company, expressly for the equal and ratable benefit of the original and future holders of the Notes, covenants and agrees as follows:
SECTION 3.1 Will Punctually Pay Principal, Premium and Interest on the Notes. The Company will duly and punctually pay, or cause to be paid, the principal, premium, if any, and interest to become due in respect of the Notes Outstanding according to the provisions hereof and thereof.
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SECTION 3.2.
(A) Office or Agency. The Company will maintain an office or agency in the place of payment where Notes may be presented or surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the main office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all of the purposes specified above in this
Section 3.2(A) and may from time to time rescind such designations, as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each place of payment for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such other office or agency.
(B) Appointment of Trustee as Paying Agent; Duty of Paying Agent Other Than Trustee. The Company hereby appoints the Trustee as paying agent and the Company covenants that, if it shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such paying agent shall agree with the Trustee, subject to the provisions of this
Section 3.2,
(1) that such paying agent shall hold all sums held by it as such agent for the payment of the principal of and the premium, if any, or the interest on any of the Notes in trust for the benefit of the holders of such Notes or the Trustee;
(2) that such paying agent shall give the Trustee notice of any Default of the Company in making any payment of the principal of and the premium, if any, or the interest on the Notes when the same shall be due and payable; and
(3) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith to pay to the Trustee all sums so held in trust by such paying agent.
(C) Duty of Company Acting as Paying Agent. The Company covenants and agrees that, if it should at any time act as its own paying agent, it will, on or before each due date of the principal of and the premium if any, or the interest on the Notes set aside and
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segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal and premium, if any, or interest so becoming due until such sums shall be paid to such holders or otherwise disposed of as herein provided and will notify the Trustee of its action or of any failure to take such action.
Whenever the Company shall have one or more paying agents, it will, prior to each due date of the principal of, and premium, if any, or interest on, any Notes, deposit with one or more paying agents 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 holders of Notes 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.
(D) Delivery to Trustee. Anything in this Section 3.2 to the contrary notwithstanding, the Company may at any time, for the purposes of obtaining the satisfaction and discharge of this Indenture or for any other reason, pay, or by Company Order direct any paying agent to pay, to the Trustee all sums held in trust by the Company or any paying agent as required by this Section 3.2, such sums to be held by the Trustee upon the trusts contained in this Indenture. 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.
(E) All Sums to be Held Subject to Section 15.2. Anything in this Section 3.2 to the contrary notwithstanding, the holding of sums in trust as provided in this Section 3.2 is subject to the provisions of Section 15.2 hereof.
SECTION 3.3 Will Pay Indebtedness. The Company will pay or cause to be paid all Indebtedness of the Company and of each Subsidiary (but, in the case of Indebtedness of a Subsidiary on which the Company is not liable, the Company shall be obligated so to do only to the extent that such Subsidiary's assets shall be insufficient for the purpose), as and when same shall become due and payable, and will observe, perform and discharge in accordance with their terms all of the covenants, conditions and obligations which are imposed on it by any and all mortgages, indentures and other agreements evidencing or securing Indebtedness of the Company or pursuant to which such Indebtedness is issued, so as to prevent the occurrence of any act or omission which is a default thereunder, and which remains uncured or is not waived for a period of thirty
(30) days. The Company will notify the Trustee of any breach of the covenants contained in this Section 3.3 within ten (10) days after the Company has knowledge of such breach.
SECTION 3.4 Will Maintain Office. The Company will maintain an office of the Company, which shall be and remain the principal place of business of the Company, in Stamford, Vermont; provided, however, that upon at least thirty (30) days' prior written notice to the Trustee, the Company may move such office and records to any other address as set forth in such notice.
SECTION 3.5 Will Keep, and Permit Examination of, Records and Books of Account and Will Permit Visitation of Property. The Company will (A) keep proper records and books of account
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in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and each Subsidiary, and (B) permit or cause to permit the Trustee, personally or by its agents, accountants and attorneys, to visit or inspect any of the properties, examine the records and books of account and discuss the affairs, finances and accounts, of the Company and each Subsidiary, with the officers of the Company and Subsidiaries at such reasonable times as may be requested by the Trustee. The Trustee shall be under no duty to make any such visit, inspection or examination.
The Company covenants that books of record and account will be kept in which full, true and correct entries will be made of all dealings or transactions of, or in relation to, the properties, business and affairs of the Company.
SECTION 3.6 Corporate Existence. The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and that of each Subsidiary and the rights (charter and statutory) and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries considered as a whole and that the loss thereof is not disadvantageous in any material respect to the holders of the Notes.
SECTION 3.7 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in the connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company or any Subsidiary from discontinuing the operation and maintenance of any such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company or of the Subsidiary concerned, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the holders of the Notes.
SECTION 3.8 Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and the Company shall have set aside on its books adequate reserves with respect thereto (segregated to the extent required by generally accepted accounting principles).
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SECTION 3.9 Notice of Default.
(A) The Company will file with the Trustee, within thirty
(30) days after the end of each fiscal quarter of the Company commencing with the fiscal quarter ending December 31, 1997, an Officers' Certificate stating, as to each signer thereof, that:
(1) a review of the activities of the Company during such quarter and of performance under this Indenture has been made under his supervision; and
(2) to the best of his knowledge, based on such review, the Company has fulfilled all of its obligations under this Indenture throughout such quarter, or, if there has been a Default in the fulfillment of any such obligation, specifying each such Default known to him and the nature and status thereof.
(B) When any Default or Event of Default has occurred and is continuing or if the trustee for or the holder of any other evidence of Indebtedness of the Company gives any notice or takes any other action with respect to a claimed default, the Company shall deliver to the Trustee by registered or certified mail or facsimile transmission followed by hard copy an Officers' Certificate specifying such Default, Event of Default, notice or other action, the status thereof and what actions the Company is taking or proposing to take with respect thereto, within ten business days after the Company knew or should have known of its occurrence.
SECTION 3.10 Restrictions on Indebtedness. The Company covenants that it will not, nor will it permit any Subsidiary to, incur, create, assume or otherwise become liable with respect to (collectively, an "incurrence") any Indebtedness unless as of and for the twelve (12) month period (each, a "Calculation Period") ending on the date of the proposed incurrence of such Indebtedness (a "Calculation Date"), and after giving effect to the proposed incurrence and the application of the proceeds therefrom, (i) the Company is in compliance with all the terms, conditions and provisions of the Indenture, and
(ii) the ratio (the "Ratio") of (A) the Company's earnings before deduction of taxes, depreciation, amortization and interest expense (as shown by a pro forma consolidated income statement of the Company and its consolidated Subsidiaries) to (B) the aggregate amount of interest paid on the Notes and all other Indebtedness of the Company or its Subsidiaries during the relevant Calculation Period is equal to or exceeds 2:1 (the "Minimum Level"). The Company further covenants that it will on such dates maintain the Ratio at the Minimum Level for each twelve (12) month period ending on each June 30 and December 31 subsequent to the date of original issuance of the Notes (and any such twelve (12) month period shall also be considered a Calculation Period), whether or not there is an incurrence of Indebtedness, and any failure to so maintain the Ratio at or above the Minimum Level shall constitute a default hereunder. The Company will deliver to the Trustee, within 30 days after the end of each Calculation Period, an Officer's Certificate, which shall set forth the relevant calculations, stating that the Company is, as of the relevant Calculation Date, in compliance with the provisions of this Section 3.10.
SECTION 3.11 Liquidity Maintenance Requirement. On or before ten days prior to and until the next succeeding Interest Payment Date, the Company shall maintain, at the parent company level, Permitted Investments the fair market value of which are equal to or in excess of the product of (a) the aggregate amount of interest payable with respect to the Notes for the next succeeding Interest Payment Date (b) multiplied by three (3). The Company will deliver to the Trustee, within 30 days after the end of each fiscal quarter, an Officer's Certificate stating that the Company is, and at all times during the prior fiscal quarter has been, in compliance with the provisions of this Section 3.11.
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SECTION 3.12 Limitation on Dividends and Other Payments. The Company will not declare or pay any of the following (each, a "Restricted Payment"): (i) any dividend or other distribution of property or assets other than a dividend payable solely in shares of capital stock of the Company; (ii) a repayment or defeasance of any Indebtedness subordinate in right of payment of interest or principal to the Notes (except so long as the Notes are not in default, scheduled payments of principal and interest may be made in accordance with the terms of such subordinated Indebtedness); (iii) an exchange of capital stock of the Company for an instrument(s) evidencing Indebtedness of the Company incurred after October 31, 1997 or (iv) any repurchase by the Company of its capital stock. Notwithstanding the foregoing, the Company (and any of its Subsidiaries) may declare or pay a Restricted Payment, if such Restricted Payment when aggregated with all other Restricted Payment made by the Company or any Subsidiary after October 31, 1997, is less than the sum of (A) $2,000,000; (B) forty-five percent (45%) of the Company's (and its Subsidiaries') cumulative net income earned during the period commencing on October 31, 1997 and ending on the date on which the Restricted Payment is to be made and (C) the cumulative cash and non-cash proceeds to the Company of all public or private offerings of its capital stock during such period; provided that, notwithstanding the foregoing, the Company shall make no Restricted Payment if the making of the Restricted Payment would cause the Company not to be in compliance with the terms, conditions and provisions of the Indenture or any other indenture or loan agreement to which the Company is a party.
ARTICLE 4
NOTEHOLDER LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
SECTION 4.1 Noteholder lists, etc.
(A) The Company will furnish or cause to be furnished to the Trustee, monthly, not more than fifteen (15) days after each Regular Record Date a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of Notes as of such Regular Record Date, and at such other times, as the Trustee may request in writing, within thirty (30) days after receipt by the Company of any such request, a list of similar form and content as of a date not more than fifteen (15) days prior to the time such list is furnished; provided, however, that so long as the Trustee is the sole Note Registrar, no such list shall be required to be furnished.
(B) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the holders of Notes received by the Trustee in its capacity as Note Registrar contained in the most recent list furnished to it as provided in subdivision (A) of this Section 4.1. The Trustee may destroy any list furnished to it as provided in subdivision (A) of this Section 4.1, upon receipt of a new list so furnished.
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(C) In case three (3) or more holders of Notes (hereinafter called "Applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such Applicant has owned a Note for a period of at least six (6) months preceding the date of such application, and such application states that the Applicants desire to communicate with other holders of Notes with respect to their rights under this Indenture or under the Notes, 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 (5) 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 subdivision (B) of this Section 4.1; or
(2) inform such Applicants as to the approximate number of holders of Notes whose names and addresses appear in the information preserved at the time by the Trustee, in accordance with the provisions of subdivision (B) of this
Section 4.1, and as to the approximate cost of mailing to such Noteholders the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford to such Applicants access to such information, the Trustee shall, upon the written request of such Applicants, mail to each Noteholder whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subdivision (B) of this Section 4.1, 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 (5) days after such tender the Trustee shall mail to such Applicants and file with the Securities and Exchange 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 Notes, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If said 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 (1) or more of such objections, said Commission shall find, after notice and opportunity for a hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such Noteholders 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.
(D) Every holder of the Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee, nor any paying agent shall be held accountable by reason of the disclosure of any such information as to the names
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and addresses of the holders of Notes in accordance with the provisions of subdivision (C) of this Section 4.1, 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 subdivision (C).
SECTION 4.2 Reports by Company. The Company covenants and agrees:
(A) To file with the Trustee within fifteen (15) days after the Company is required to file the same with the Securities and Exchange 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 such Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with such Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents, or reports pursuant to either of such Sections, then the Company will file with the Trustee and the Securities and Exchange Commission, in accordance with rules and regulations prescribed from time to time by said Commission, such of the supplementary and periodic information, documents, and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 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;
(B) To file with the Trustee and the Securities and Exchange Commission, in accordance with the rules and regulations prescribed from time to time by said 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, including, in the case of annual reports, if required by such rules and regulations, certificates or opinions of independent public accountants, conforming to the requirements, if any, of Section 15.3 hereof, as to compliance with conditions or covenants, compliance with which is subject to verification by accountants;
(C) To transmit to the holders of the Notes, in the manner and to the extent provided in subsection (c) Section 313 of the TIA, such summaries of any information, documents, and reports required to be filed by the Company pursuant to subdivision (A) or subdivision (B) as may be required by the rules and regulations promulgated by the Securities and Exchange Commission; and
(D) To furnish to the Trustee with or as a part of each annual report and each other document or report filed with the Trustee pursuant to subdivision (A), (B) or (C) of this Section 4.2, an Officers' Certificate stating that in the opinion of each of the signers such annual report or other document or report complies with the requirements of such subdivision (A), (B) or (C).
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Each certificate furnished to the Trustee pursuant to the provisions of this Section 4.2 shall conform to the requirements of Section 15.3 hereof.
SECTION 4.3 Reports by Trustee. The Trustee shall transmit to the Noteholders as provided in TIA Section 313(c), if required thereunder, within sixty (60) days after January 1, 1998 and each January 1 thereafter, a brief report as provided in TIA Section 313(a). A copy of each such report shall, at the time of such transmission to the Noteholders, be filed by the Trustee with each stock exchange upon which the Notes are listed and also with the Securities and Exchange Commission.
ARTICLE 5
REDEMPTION OF NOTES AT COMPANY'S OPTION
SECTION 5.1 Election by Company to Redeem Notes. The Notes shall be redeemable at any time prior to the Stated Maturity thereof, upon notice as provided in this Article 5, as a whole at any time, or in part from time to time (but only in principal amounts of $1,000 or any integral multiple thereof), at the option of the Company; provided, however, that the Company may not redeem any Notes pursuant to such option prior to November 1, 1999. Any such redemption shall be at the applicable redemption prices (expressed in percentages of the principal amount) set forth in the Notes together with accrued and unpaid interest on the principal amount to be redeemed to the Redemption Date.
The election of the Company to redeem any Notes shall be evidenced by a Certified Resolution. Whenever any of the Notes Outstanding are to be redeemed pursuant to this Section 5.1, the Company shall give the Trustee at least sixty
(60) days' written notice (or such shorter period of time as is acceptable to the Trustee) prior to the Redemption Date of such Redemption Date and of the principal amount of Notes to be redeemed.
SECTION 5.2 Redemption of Part of Notes. In case of the redemption of less than all of the Outstanding Notes, the Notes to be redeemed shall be selected by the Trustee by lot, not more than sixty (60) days prior to the Redemption Date, from the Outstanding Notes not previously called for redemption, which method may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Notes of a principal amount larger than $1,000.
In the case of any partial redemption, the Trustee shall promptly notify the Company in writing of the serial numbers (and, in the case of any Note which is to be redeemed in part only, the portion of the principal amount thereof to be redeemed) of the Notes selected for redemption.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal of such Note which has been or is to be redeemed.
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SECTION 5.3 Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date, to each holder of Notes to be redeemed, at his last address appearing in the Note Register.
All notices of redemption shall state:
(A) The Redemption Date;
(B) The redemption price;
(C) If less than all Outstanding Notes are to be redeemed, the serial numbers (and, in the case of any Note which is to be redeemed in part only, the portion of the principal amount thereof to be redeemed) of the Notes to be redeemed;
(D) That on the Redemption Date the redemption price of each of the Notes to be redeemed will become due and payable, and that interest thereon shall cease to accrue from and after said date; and
(E) The place where such Notes are to be surrendered for payment of the redemption price, which shall be the office or agency of the Company in the place of payment.
Notice of redemption of Notes to be redeemed shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
Failure to give notice of redemption, or any defect therein, to any holder of any Note selected for redemption shall not impair or affect the validity of the redemption of any other Note.
SECTION 5.4 Deposit of Redemption Price. On or before the business day immediately preceding any Redemption Date, the Company shall deposit with the Trustee or with a paying agent (or, if the Company is acting as its own paying agent, segregate and hold in trust as provided in Section 3.2(C) hereof) an amount of money sufficient to pay the redemption price of all principal of, premium, if any, and (unless such Redemption Date is an Interest Payment Date) accrued interest on, the Notes which are to be redeemed on that date.
SECTION 5.5 Date on Which Notes Cease to Bear Interest, Etc. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the redemption price therein specified and from and after such date (unless the Company shall default in the payment of the redemption price) such Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the redemption price together with accrued interest thereon to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or
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prior to the Redemption Date shall be payable to the holders of such Notes, or one or more predecessor Notes, registered as such on the relevant Regular Record Dates according to the terms and provisions of Section 2.3 hereof.
If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal, and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate borne by the Note.
Any Note which is to be redeemed only in part shall be surrendered at the office or agency designated pursuant to Section 3.2(A) hereof (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the holder of such Note, without service charge, a new Note or Notes of any authorized denomination or denominations as requested by such holder in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered.
SECTION 5.6 All Notes Delivered. All Notes redeemed pursuant to Section 5.1 hereof shall be canceled and destroyed by the Trustee in accordance with the existing regulations of (or those hereafter promulgated by) the Securities Exchange Commission, and the Trustee shall deliver its certificate thereof to the Company.
ARTICLE 6
REDEMPTION OF NOTES AT HOLDER'S OPTION
SECTION 6.1 Redemption Right at Holder's Option. Unless pursuant to the terms of Section 7.1 the Notes have been declared due and payable prior to their maturity by reason of an Event of Default and such Event of Default has not been waived and such declaration has not been rescinded or annulled, a holder has the right to present Notes for payment prior to their maturity, and the Company will redeem the same (or any portion of the principal amount thereof which is $1,000 or an integral multiple thereof, as the holder may specify) subject to the limitations that the Company will not be obligated to redeem, during an initial period beginning with the original issuance of the Notes and ending December 1, 1998 (the "Initial Period"), or during any twelve (12) month period ending December 1 thereafter, (A) the portion of a Note or Notes presented by a holder exceeding an aggregate principal amount of $25,000 per holder or (B) Notes in an aggregate principal amount exceeding $2,250,000 (plus, to the extent that the Original Purchasers exercise the Overallotment Option, five percent (5%) of the principal amount of the Notes purchased upon exercise of the Overallotment Option; provided that, in no event, shall the maximum aggregate principal amount of Notes which the Company may be obligated to redeem in any such twelve (12) month period exceed $2,587,500); further references herein to the $2,250,000 aggregate principal amount limitation shall be deemed to include such higher figure, not exceeding $2,587,500, to the extent the Original Purchasers exercise the Overallotment Option.
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If the $25,000 per holder limitation has been reached and the $2,250,000 in the aggregate limitation has not been reached, and if Notes have been properly presented for payment on behalf of beneficial holders who are natural persons, each in an aggregate principal amount exceeding $25,000, the Company will redeem such Notes in order of their receipt (except Notes presented for payment in the event of death of a holder, which will be given priority in order of their receipt), up to the aggregate limitation of $2,250,000 notwithstanding the $25,000 limitation.
SECTION 6.2 Redemption Procedure. Redemption of Notes presented for payment on or prior to the September 30 immediately preceding the last day of the Initial Period and of each twelve (12) month period thereafter will be made on the last day (December 1) of such period, beginning December 1, 1998. Notes not redeemed in any such period because they have not been presented on or prior to the September 30 immediately preceding the last day (December 1) of that period or because of the $25,000 or $2,250,000 limitations will be held in order of their receipt for redemption during the following twelve (12) month period(s) until redeemed, unless sooner withdrawn by the holder. Holders of Notes presented for redemption shall be entitled to and shall receive scheduled monthly payments of interest thereon on scheduled Interest Payment Dates until their Notes are redeemed. Subject to the $25,000 and $2,250,000 limitations, the Company will, at any time upon the death of any holder, redeem Notes within sixty (60) days following receipt by the Trustee of a written request therefor from such holder's personal representative, or surviving joint tenant(s), tenant by the entirety or tenant(s) in common. Notes will be redeemed in order of their receipt by the Trustee, except Notes presented for payment in the event of death of the holder, which will be given priority in order of their receipt.
Notes may be presented for redemption by delivering to the Trustee: (A) a written request for redemption, in form satisfactory to the Trustee, signed by the registered holder(s) or his duly authorized representative, (B) the Note to be redeemed, free and clear of any liens or encumbrances of any kind, and (C) in the case of a request made by reason of the death of a holder, appropriate evidence of death and, if made by a representative of a deceased holder, appropriate evidence of authority to make such request. No particular forms of request for redemption or authority to request redemption are necessary (other than those required of a representative of a deceased holder). The price to be paid by the Company for all Notes or portions thereof presented to it pursuant to the provisions described in this Article 6 is 100% of the principal amount thereof or portion thereof plus accrued but unpaid interest to the date of payment. Any acquisition of Notes by the Company other than by redemption at the option of any holder pursuant to this Section shall not be included in the computation of either the $25,000 or $2,250,000 limitation for any period.
For purposes of this Section 6.2, a Note held in tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be held by a single holder and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a holder. The death of a person, who, during his lifetime, was entitled to substantially all of the beneficial interests of ownership of a Note will be deemed the death of the holder, regardless of the registered holder, if such beneficial interest can be established to the satisfaction of the Trustee. For purposes of a
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holder's request for redemption and a request for redemption on behalf of a deceased holder, such beneficial interest shall be deemed to exist in cases of street name or nominee ownership, ownership under the Uniform Gifts to Minors Act, community property or other joint ownership arrangements between a husband and wife (including individual retirement accounts or Keogh [H.R. 10] plans maintained solely by or for the holder or decedent or by or for the holder or decedent and his spouse), and trusts and certain other arrangements where a person has substantially all of the beneficial ownership interests in the Notes during his lifetime. Beneficial interests shall include the power to sell, transfer or otherwise dispose of a Note and the right to receive the proceeds therefrom, as well as interest and principal payable with respect thereto.
In the case of Notes registered in the names of banks, trust companies or broker-dealers who are members of a national securities exchange or the National Association of Securities Dealers, Inc. ("Qualified Institutions"), the $25,000 limitation shall apply to each beneficial owner of Notes held by a Qualified Institution and the death of such beneficial owner shall entitle a Qualified Institution to seek redemption of such Notes as if the deceased beneficial owner were the record holder. Such Qualified Institution, in its request for redemption on behalf of such beneficial owners, must submit evidence, satisfactory to the Trustee, that it holds Notes on behalf of such beneficial owner and must certify that the aggregate amount of requests for redemption tendered by such Qualified Institution on behalf of such beneficial owner in the initial period or in any subsequent twelve (12) month period does not exceed $25,000.
In the case of any Notes which are presented for redemption in part only, upon such redemption the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the holder of such Notes, without service charge, a new Note(s), of any authorized denomination or denominations as requested by such holder, in aggregate principal amount equal to the unredeemed portion of the principal of the Notes so presented.
Nothing herein shall prohibit the Company from redeeming, in acceptance of tenders made pursuant hereto, Notes in excess of the principal amount that the Company is obligated to redeem, nor from purchasing any Notes in the open market. However, the Company may not use any Notes purchased in the open market as a credit against its redemption obligations hereunder.
SECTION 6.3 Withdrawal. Any Notes presented for redemption at the option of the holder may be withdrawn by the person(s) presenting the same upon delivery of a written request for such withdrawal to the Trustee (A) in cases other than by reason of death of a holder on or prior to September 30, 1998, in the case of the Initial Period, or on or prior to September 30 in the case of any subsequent twelve (12) month period, or (B) prior to the issuance of a check in payment thereof in the case of Notes presented by reason of the death of a holder.
SECTION 6.4 Redemption Register. The Trustee shall maintain at its main office a register (the "Redemption Register") in which it shall record, in order of receipt, all requests for redemption received by the Trustee under Section
6.2. Unless withdrawn, all such requests shall remain in effect
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during the period in which they are received and thereafter from period to period, until the Notes which are the subject of such request have been redeemed.
SECTION 6.5 Redemption Upon Fundamental Structural Change or Significant Subsidiary Disposition. In the event that there shall occur a Fundamental Structural Change with respect to the Company, or in the event of an occurrence of a Significant Subsidiary Disposition, then each holder shall have the right, at the holder's option, to require the Company to redeem such holder's Notes, including any portion thereof which is $1,000 or any integral multiple thereof on the date (the "Repurchase Date") that is seventy-five (75) days after the occurrence of the Fundamental Structural Change or Significant Subsidiary Disposition at the redemption price in cash of 100% of the principal amount thereof or portion thereof plus accrued but unpaid interest to the date of payment, unless on or before the date that is forty (40) days after the occurrence of the Fundamental Structural Change or Significant Subsidiary Disposition, the Notes have received a rating of BBB- or better by Standard & Poor's Corporation or Duff & Phelps Credit Rating Co., Inc. or Baa3 or better by Moody's Investors Service, Inc. (either, a "Required Rating"). Exercise of this redemption option by a holder is irrevocable. The Company's obligation to redeem the Notes pursuant to this Section 6.5 shall not be subject to the $25,000 individual or $2,250,000 aggregate redemption limitations.
Forty (40) days after the occurrence of a Fundamental Structural Change or Significant Subsidiary Disposition, unless the Notes have received a Required Rating, the Company promptly, but in any event within three (3) business days after expiration of such forty (40) day period, shall give notice to the Trustee, who shall promptly, but in any event within five (5) days of receipt of notice from the Company, notify the Noteholders, of the occurrence of such Fundamental Structural Change or Significant Subsidiary Disposition, of the date before which a holder must notify the Trustee of such holder's intention to exercise the redemption option, which date shall be not more than three (3) business days prior to the Repurchase Date and of the procedure which such holder must follow to exercise such right. To exercise the redemption, the holder of a Note or Notes must deliver to the Trustee on or before the Repurchase Date: (A) written notice of such holder's election to redeem pursuant to this Section 6.5; in form satisfactory to the Trustee, signed by the registered holder(s) or his duly authorized representative and (B) the Note or Notes to be redeemed, free and clear of any liens or encumbrances of any kind.
In the case of any Notes which are presented for redemption in part only, upon such redemption the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the holder of such Notes, without service charge, a new Note(s), of any authorized denomination or denominations as requested by such holder, in aggregate principal amount equal to the unredeemed portion of the principal of the Notes so presented.
SECTION 6.6 Redemption of Notes Subject to Article 5. In the case of any Notes or portion thereof which are presented for redemption pursuant to this Article 6 and which have not been redeemed at the time the Company gives notice of its election to redeem Notes pursuant to Article 5, such Notes or portion thereof shall first be subject to redemption pursuant to Article 5 and if any
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such Notes or portion thereof are not redeemed pursuant to Article 5 they shall remain subject to redemption pursuant to Article 6.
ARTICLE 7
REMEDIES OF TRUSTEE AND NOTEHOLDERS UPON DEFAULT
SECTION 7.1 Definition of Default and Event of Default. The following events are hereby defined for all purposes of this Indenture (except where the term is otherwise defined for specific purposes) as "Events of Default" (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(A) Failure to pay the principal of or the premium, if any, on any Note as and when the same shall become due and payable at maturity; or
(B) Failure to pay any installment of interest upon any Note as and when the same shall have become due and payable, and continuance of such default for a period of five (5) days; or
(C) Default in the meeting or satisfaction of any redemption payment with respect to any of the Notes as and when the same shall become due and payable, and continuance of such default for a period of five (5) days; or
(D) The entry of a decree or order by a court or regulatory authority having jurisdiction in the premises adjudging the Company or any Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under the Federal Bankruptcy Act or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Subsidiary, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days; or
(E) The institution by the Company or any Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act or any other applicable Federal or State law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of the Company or any Subsidiary, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally
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as they become due, or the taking of action by the Company or any Subsidiary in furtherance of any such action; or
(F) Default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere specifically dealt with in this Section 7.1), and continuance of such default or breach for a period of thirty (30) days (or, in the case of a default or breach relating to Section 3.11, sixty (60) days) after there has been given, by registered or certified mail, to the Company by the Trustee, or to the Trustee and the Company by the holders of at least ten percent (10%) in principal amount of the Outstanding Notes affected (as such term is defined in Section 13.2), a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
(G) An event of default as defined in any mortgage, indenture or instrument, under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company, whether such Indebtedness now exists or shall hereafter be created, shall happen and shall result in such Indebtedness in an aggregate principal amount in excess of $1,000,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such acceleration shall not be rescinded or annulled within ten (10) days after written notice to the Company from the Trustee, or to the Trustee and the Company from the holders of not less than twenty-five percent (25%) in aggregate principal amount of the Notes then Outstanding.
SECTION 7.2 Trustee to Give Noteholders Notice of Defaults. The Trustee shall, within sixty (60) days after the occurrence thereof, give to (i) the Noteholders, as their names and addresses appear in the Note Register, (ii) such holders of the Notes who have, within the last two (2) years preceding the mailing of such notice, filed their names and addresses with the Trustee for that purpose and (iii) such holders of the Notes whose names and address are provided to the Trustee in accordance with Section 312 of the TIA, notice, by first-class mail, of all defaults known to the Trustee, unless such defaults shall have been cured or waived before the giving of such notice (the term "Defaults" for the purposes of this Section 7.2 being hereby defined to be the events specified in subdivisions (A), (B), (C), (D), (E), (F) and (G) of Section 7.1 hereof, not including any periods of grace provided for in said subdivisions and irrespective of the mailing of any written demand specified in subdivisions (F) and (G) but in the case of any default as specified in subdivisions (B) and
(C) of Section 7.1 hereof, no such notice shall be given until at least ten (10) days after the occurrence thereof, and in the case of any default as specified in subdivisions (F) and (G) of Section 7.1 hereof, no such notice shall be given until at least thirty (30) days after the occurrence thereof); provided, however, that except in the case of default in the payment of the principal of or the premium, if any, or the interest on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as the board of directors, board of trustees, executive committee, or a trust committee of directors, trustees or Responsible Officers, of the Trustee in good faith determines that the withholding of such notice is in the interests of the Noteholders.
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SECTION 7.3 Declaration of Principal and Accrued Interest Due Upon Default; Holders of Specified Percentage of Notes May Waive Default Declaration. If an Event of Default occurs and is continuing as defined in Section 7.1 hereof, the Trustee may, and the holders of not less than twenty-five percent (25%) in principal amount of the Notes at the time Outstanding hereunder may, by notice in writing given to the Company (and to the Trustee if such notice be given by Noteholders) declare the principal of all of the Notes hereby secured and the interest accrued thereon immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable; subject, however, to the right of the holders of a majority in principal amount of all Outstanding Notes, by written notice to the Company and to the Trustee thereafter to consent to a waiver of such past Default before any final judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided and if before such judgment or decree all covenants with respect to which Default shall have been made shall be fully performed or made good to the reasonable satisfaction of the Trustee, and all arrears of interest with interest upon overdue installments of interest (to the extent that payment of such interest is enforceable under applicable law) at the interest rate per annum applicable to the Notes and the principal and premium, if any, of all Outstanding Notes which shall have become due otherwise than by acceleration under this Section 7.3 and all sums paid or advanced by the Trustee hereunder and the reasonable compensation, disbursements, expenses and advances of the Trustee, its agents and attorneys, and all other indebtedness secured hereby, except the principal of any Notes not then due by their terms and except interest accrued on such Notes since the last Interest Payment Date, shall be paid, or the amount thereof shall be paid to the Trustee for the benefit of those entitled thereto. Such Default and its consequences shall thereupon be deemed to have been cured and such declaration of the maturity of the Notes shall be void and of no further effect, but no such cure shall extend to or affect any subsequent Default or impair any right consequent thereon.
SECTION 7.4 Power of Trustee to Protect and Enforce Rights. Upon the occurrence of one or more Events of Default, the Trustee by such officer or agent as it may appoint in its discretion, with or without entry, may proceed to protect and enforce its rights and the rights of holders of the Outstanding Notes by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement contained herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable remedy, as the Trustee shall deem most effectual to protect and enforce any of its rights or duties and the rights of holders of the Outstanding Notes.
Upon the written request of the holders of a majority in principal amount of the then Outstanding Notes, in case an Event of Default shall have occurred and be continuing as aforesaid, subject to Sections 10.2 and 10.5, it shall be the duty of the Trustee upon being indemnified as provided in Section 7.11, to exercise such one or more of the remedies available for the protection and enforcement of its rights and the rights of the Noteholders (including the taking of appropriate judicial proceedings by action, suit or otherwise) as the Trustee shall deem best.
SECTION 7.5 Remedies Cumulative. No remedy herein conferred upon or reserved to the Trustee or the Noteholders is intended to be exclusive of any other right or remedy, but each and
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every such right or remedy shall be cumulative, and shall be in addition to every other remedy given hereunder as now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
(A) Delay, Etc. Not a Waiver of Rights. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient.
(B) Waiver of Default Not to Extend to Subsequent Defaults. No waiver of any Event of Default whether by the Trustee or by the Noteholders, shall extend to or shall affect any subsequent Event of Default or shall impair any rights or remedies consequent thereon.
SECTION 7.6 Holders of Specified Percentage of Notes May Direct Judicial Proceedings by Trustee. The holders of not less than a majority in principal amount of the Notes at the time Outstanding hereunder may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any power conferred upon the Trustee; provided, however, that such direction shall not be otherwise than in accordance with the provisions of law and this Indenture and the Trustee may take any other action deemed proper by them, or either of them, which is not inconsistent with such direction.
SECTION 7.7 Disposition of Proceeds of Sale. The purchase money or proceeds of any sale made pursuant to judicial proceedings for the enforcement of this Indenture, shall be applied, as follows:
First. To the payment of all sums payable to the Trustee hereunder by reason of any expenses or liability incurred or advances made in connection with the management or administration of the trusts hereby created;
Second. To the payment in full of the amounts then due and unpaid for the principal of and the premium, if any, and the interest on the Outstanding Notes, with interest on the overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on overdue installments of interest at the interest rate per annum applicable to the Notes; and in case such proceeds shall be insufficient to pay in full the amounts so due and unpaid, then to the payment thereof ratably, according to the aggregate of such principal, premium and interest, without preference or priority as to any Outstanding Note over any other Outstanding Note or of principal, premium, if any, or interest over principal, premium, if any, or interest, or of any installment of interest over any other installment of interest, upon presentation of such Notes and their surrender if fully paid, or for proper notation if only partially paid; and
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Third. Any surplus thereof remaining to the Company, its successors or assigns or to whosoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.
SECTION 7.8.
(A) Payment of Principal and Interest to Trustee Upon Occurrence of Certain Defaults; Judgment May be Taken by Trustee. The Company covenants that (1) in case default shall be made in the payment of any installment of interest upon any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of two (2) business days, or (2) in case default shall be made in the payment of the principal of, and premium, if any, on, any of the Notes as and when the same shall have become due and payable at maturity, then upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal, and premium, if any, and interest, with interest upon the overdue principal, and premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest at the respective applicable rates borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents and counsel.
In case the Company shall fail to pay the same forthwith upon such demand, the Trustee, in its name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated.
(B) Enforcement of Rights by Trustee During Continuance of an Event of Default. If an Event of Default occurs and is continuing, the Trustee, may in the exercise of discretion proceed to protect and enforce its rights and the rights of the Noteholders by such appropriate judicial proceedings as deemed most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
(C) Application of Moneys Collected by Trustee. Any moneys collected by the Trustee, or either of them, under this Section 7.8 shall be applied by the Trustee:
First. To the payment of the costs and expenses reasonably incurred (including any sums due the Trustee) in the proceedings resulting in the collection of such moneys.
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Second. To the payment of the amounts then due and unpaid upon the Outstanding Notes for principal of and the premium, if any, and the interest on the Outstanding Notes, with interest on the overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on overdue installments of interest at the interest rate per annum applicable to the particular series of Notes; and in case such proceeds shall be insufficient to pay in full the amounts so due and unpaid, then to the payment thereof ratably, according to the aggregate of such principal, premium and interest, without preference or priority as to any Outstanding Note over any other Outstanding Note or of principal, premium, if any, or interest over principal, premium, if any, or interest, or of any installment of interest over any other installment of interest, upon presentation of such Notes and their surrender if fully paid, or for proper notation if only partially paid.
SECTION 7.9 Possession of Notes Unnecessary in Action by Trustee. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee, without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee, shall be brought in its name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Outstanding Notes in respect of which such judgment has been recovered.
SECTION 7.10 Trustee May File Necessary Proofs. The Trustee, (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed and irrespective of whether the Trustee, shall have made any demand for such payment), may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee, and of the Noteholders allowed in any judicial proceedings relative to the Company or its creditors or property. In case of any receivership, insolvency, bankruptcy, reorganization or other similar proceedings affecting the Company or its property, the Trustee, (irrespective of whether the principal of the Notes shall then be due and payable and irrespective of whether the Trustee, shall have made any demand for such payment) shall be entitled and empowered either in its name or as trustee of an express trust or as attorney in fact for the holders of the Notes, or in any one or more of such capacities, to file a proof of claim for the whole amount of principal and interest (with interest upon such overdue principal and, to the extent that payment of such interest is enforceable under applicable law, upon overdue installments of interest at the interest rate per annum applicable to the particular series of Notes) and any premium which may be or become owing and unpaid in respect of the Notes and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee, (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Noteholders allowed in any such proceedings and to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Noteholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee, any
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amount due the Trustee, for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee, under Section 10.7.
Nothing herein contained shall be deemed to authorize the Trustee, to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any holder thereof, or to authorize the Trustee, to vote in respect of the claim of any Noteholder in any such proceeding.
SECTION 7.11 Limitation Upon Right of Noteholders to Institute Certain Legal Proceedings. No Noteholder shall have any right to institute any suit, action or proceeding in equity or at law for the foreclosure of this Indenture, or for the execution of any trust hereunder, including the appointment of a receiver or trustee, or for any other remedy hereunder, including without limitation the institution of nonjudicial foreclosure proceedings, unless (A) such holder previously shall have delivered to the Trustee written notice that one or more Events of Default, which Events of Default shall be specified in such notice, has occurred and is continuing, and (B) the holders of not less than twenty-five percent (25%) in principal amount of the then Outstanding Notes shall have requested the Trustee in writing and shall have afforded to it reasonable opportunity either to proceed to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name, and
(C) one or more Noteholders shall have offered to the Trustee adequate security and indemnity, satisfactory to it, against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee, shall have refused or neglected to act on such notification, request and offer of indemnity for at least sixty (60) days and no direction inconsistent with such notification shall have been given to the Trustee by holders of not less than a majority in principal amount of the Outstanding Notes; and such notification, request and offer of indemnity are hereby declared, in every such case, at the option of the Trustee, to be conditions precedent to the exercise of the powers and trusts of this Indenture and to any action or cause of action for foreclosure, including the appointment of a receiver or trustee, or for any other remedy hereunder; it being understood and intended that no Noteholder shall have any right in any manner whatsoever by his action to affect, disturb or prejudice the rights of any other holder, or obtain or seek to obtain priority or preference over any other holder, or to enforce any right hereunder, except in the manner herein provided to the extent permitted by law, and that all proceedings at law or in equity shall be instituted, had or maintained in the manner herein provided, and for the equal and ratable benefit of all holders of the Outstanding Notes.
SECTION 7.12 Right of Noteholder to Receive and Enforce Payment Not Impaired. Notwithstanding any other provision of this Indenture, the right of any holder of any Note to receive payment of the principal of, premium, if any, and interest on such Note, on or after the respective Stated Maturities expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective Stated Maturities, shall not be impaired or affected without the consent of such holder, except that no Noteholder may institute any such suit if and to the extent that the institution or prosecution thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment, waiver, or loss under this Indenture upon any property subject hereto.
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SECTION 7.13 Court May Require Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Note by his 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, 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, 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 to the extent permitted by law the provisions of this
Section 7.13 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder or group of Noteholders holding in the aggregate more than twenty-five percent (25%) in aggregate principal amount of the Outstanding Notes, or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of, premium, if any, or interest on any Note on or after the respective Stated Maturities expressed in such Note (or, in the case of redemption, on or after the Redemption Date).
SECTION 7.14 Unenforceable Provision Inoperative. To the extent that any provision of this Article 7 may be invalid or unenforceable under any applicable law, such provision shall be deemed inoperative and inapplicable and shall not be included in the terms of this Indenture.
SECTION 7.15 If Enforcement Proceedings Abandoned, Status Quo is Established. In case the Trustee or any Noteholder shall have proceeded to enforce any right or remedy under this Indenture, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee or to such Noteholder, then and in every such case the Company, the Trustee and the Noteholders, subject to any determination in such proceedings, shall be restored severally and respectively to their former positions and rights hereunder, and thereafter all rights, remedies and powers of the Trustee and Noteholders shall continue as if no such proceedings had been instituted.
SECTION 7.16 Noteholders May Waive Certain Defaults. The holders of not less than the required percentage in principal amount of the Outstanding Notes specified in Section 7.3 may on behalf of the holders of all the Notes waive any past Default hereunder and its consequences, except a Default:
(A) in the payment of the principal of (or premium, if any) or interest on any Note, or
(B) in respect of a covenant or provision hereof which under Article 13 cannot be modified or amended without the consent of the holder of each Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
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ARTICLE 8
EVIDENCE OF RIGHTS OF NOTEHOLDERS
AND OWNERSHIP OF NOTES
SECTION 8.1 Evidence of Ownership of Definitive Notes and Temporary Notes Issued Hereunder in Registered Form. Prior to due presentment for registration of transfer of any Note, the Company, the Trustee, any Note Registrar, or any agent of the Company or the Trustee may deem and treat the person in whose name any Note shall be registered at any given time upon the Note Register as the absolute owner of such Note for the purpose of receiving any payment of, or on account of, the principal, premium, if any, and interest on such Note and for all other purposes whether or not such Note be overdue; and neither the Company nor the Trustee, nor any agent of the Company or the Trustee shall be bound by any notice to the contrary. All such payments made in accordance with the provisions of this Section 8.1 shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Note.
ARTICLE 9
CONSOLIDATION, MERGER AND SALE
SECTION 9.1 Company May Merge, Consolidate, Etc., Upon Certain Terms. The Company covenants that it will not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any person, firm or corporation, unless (i) either the Company shall be the continuing corporation, or the successor corporation (if other than the Company) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and premium, if any, and interest on all the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Company, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (ii) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition.
SECTION 9.2 Successor Corporation to be Substituted. In case of any such consolidation, merger, sale or conveyance, and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the Company, and the Company shall thereupon be released from all obligations hereunder and under the Notes and the Company as the predecessor corporation may thereupon or at any time thereafter be dissolved, wound up or liquidated. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Litchfield Financial Corporation any or all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this
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Indenture prescribed, the Trustee shall authenticate and shall deliver any Notes which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Notes which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose.
In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Notes thereafter to be issued as may be appropriate.
SECTION 9.3. Opinion of Counsel. The Trustee, subject to TIA Section
315(a), (c) and (d) and to Section 10.5, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance and any such assumption complies with the provisions of this Article 9.
SECTION 9.4 Article 9 Subject to Provision of Section 6.5. Notwithstanding the foregoing, the transactions contemplated by Article 9 are subject to the redemption provisions of Section 6.5, if applicable.
ARTICLE 10
CONCERNING THE TRUSTEE
SECTION 10.1 Requirement of Corporate Trustee, Eligibility. There shall at all times be a Trustee hereunder which shall be a banking corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $60,000,000 subject to supervision or examination by Federal or State authority, or any affiliate of such a banking corporation, which also is a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000 subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this
Section 10.1 the combined capital and surplus of the Trustee shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 10.1, it shall resign immediately in the manner and with the effect hereinafter specified in this Article 10.
SECTION 10.2 Acceptance of Trust. The Trustee accepts the trusts hereby created upon the terms and conditions in this Indenture specified, to all of which the Company and the holders of Outstanding Notes by their acceptance thereof agree:
(A) Except during the continuance of an Event of Default,
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(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee, and;
(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to it, and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(B) In case an Event of Default has occurred and is continuing, the Trustee shall exercise 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 man would exercise or use under the circumstances in the conduct of his own affairs.
(C) 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) this subdivision shall not be construed to limit the effect of subdivision (A) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it shall be proved that the Trustee was negligent in ascertaining 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 Notes 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;
(4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder 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 adequate indemnity against such risk or liability is not reasonably assured to it; and
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(5) the permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful default.
(D) 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 Section.
SECTION 10.3 Disclaimer. The recitals contained herein and in the Notes (except as contained in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes issued hereunder. The Trustee shall be under no responsibility or duty with respect to the disposition of any Notes authenticated and delivered hereunder or the application or use of the proceeds thereof or the application or use of any moneys paid to the Company under any of the provisions hereof.
SECTION 10.4 Trustee May Own Notes. The Trustee, the paying agent, the Note Registrar or any Note Co-Registrar or other agent of the Company or of the Trustee may become the owner or pledgee of Notes and, subject to Sections 10.9 and 10.10, if operative, may otherwise deal with the Company with the same rights it would have if it were not a Trustee, paying agent, Note Registrar, Note Co-Registrar or other agent of the Company or of the Trustee.
SECTION 10.5 Trustee May Rely on Certificates, Etc. To the extent permitted by Section 10.2 hereof:
(A) The Trustee may rely and shall be protected in acting upon any resolution, certificate, opinion, notice, request, consent, order, appraisal, report, Note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
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(B) The Trustee may consult with counsel, who may be of counsel to the Company, and the written 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 by it hereunder in good faith and in reliance thereon;
(C) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Certified Resolution;
(D) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith, rely upon an Officers' Certificate;
(E) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the holders pursuant to this Indenture, unless such holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred, as the case may be, in compliance with such request or direction;
(F) The Trustee shall not be bound to make any investigation into the facts or matters stated in any such document set forth in
Section 10.5(A), but the Trustee, in its exercise of discretion, may make such further inquiry or investigation into such facts or matters as may seem necessary, and, if the Trustee shall determine to make such further inquiry or investigation, the Trustee shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
(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 hereunder; and
(H) The Trustee shall not be required to give any notes or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises.
SECTION 10.6 Money Held in Trust Not Required to be Segregated. Subject to the provisions of Section 15.2 hereof, all moneys received by the Trustee hereunder or in respect of the Notes 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.
Any interest allowed on or income or other return arising from any such moneys shall be paid from time to time to the Company upon Company Order in accordance with the provisions hereof; provided, however, that the Trustee shall not be required to pay to the Company any interest earned
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by the Trustee on funds received by the Trustee too late in the Trustee's banking day to permit the Trustee to invest such funds overnight for the account of the Company and provided, further, that no such interest, income or return shall be paid to the Company during any period during which an Event of Default has occurred and is continuing.
SECTION 10.7 Compensation, Reimbursement, Indemnity, Security. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive, reasonable compensation for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of all services rendered hereunder, which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust, and except as otherwise expressly provided herein, the Company will upon request of the Trustee reimburse the Trustee for all reasonable advances made or incurred by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel, except any such expense or disbursement as may be attributable to negligence or bad faith). The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending against any claim or liability in connection with the exercise or performance of any of the powers or duties hereunder.
If, and to the extent that the Trustee and its counsel and other agents do not receive compensation for services rendered, reimbursements of its advances, expenses and disbursements, or indemnity, as herein provided, as the result of allowances made in any reorganization, bankruptcy, receivership, liquidation or other proceeding or by any plan of reorganization or readjustment of obligations of the Company or the Trustee shall be entitled, in priority to the holders of the Notes, to receive any distributions of any securities, dividends or other disbursements which would otherwise be made to the holders of Notes in any such proceeding or proceedings and the Trustee is hereby constituted and appointed, irrevocably, the attorney in fact for the holders of the Notes and each of them to collect and receive, in their name, place and stead, such distributions, dividends or other disbursements, to deduct therefrom the amounts due to the Trustee its counsel and other agents on account of services rendered, advances, expenses, and disbursements made or incurred, or indemnity, and to pay and distribute the balance, pro rata, to the holders of the Notes.
SECTION 10.8 Conflict of Interest.
(A) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 10.8, the Trustee shall within ninety (90) days after ascertaining that there is such conflicting interest, either eliminate such conflicting interest or resign in the manner and with the effect hereinafter specified in this Article 10.
(B) In the event that the Trustee shall fail to comply with the provisions of the preceding subdivision (A) of this Section 10.8, the Trustee shall within ten (10) days after
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the expiration of such ninety (90) day period transmit notice of such failure to the Noteholders, in the manner and to the extent provided in
Section 4.3.
(C) For the purposes of this Section, the Trustee shall be deemed to have a conflicting interest if there is an Event of Default (as defined in Section 7.1 but exclusive of any grace period or notice requirement) and:
(1) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company, are outstanding unless such other indenture is a collateral trust indenture under which the only collateral consists of Notes issued under this Indenture; provided, however, that there shall be excluded from the operation of this clause (1) any indenture under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the Company shall have sustained the burden of proving, on application to the Securities and Exchange Commission and after opportunity for hearing thereon, that trusteeship under this Indenture and such other indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture or such other indenture or indentures;
(2) the Trustee or any of the directors or executive officers of the Trustee is an obligor upon the Notes or an underwriter for the Company;
(3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with the Company or an underwriter for the Company;
(4) the Trustee or any of the directors or executive officers of the Trustee is a director, officer, employee, appointee or representative of the Company, or of an underwriter (other than the Trustee) for the Company who is currently engaged in the business of underwriting, except that
(a) one (1) individual may be a director or an executive officer, or both, of the Trustee and a director or an executive officer, or both, of the Company, but may not be at the same time an executive officer of the Trustee and the Company; (b) if and so long as the number of directors of any Trustee in office is more than nine (9), one (1) additional individual may be a director or an executive officer, or both, of such Trustee and a director of the Company; and (c) the Trustee may be designated by the Company or by an underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary or in any other similar capacity or, subject to the provisions of paragraph (1) of this subdivision (C), to act as trustee, whether under an indenture or otherwise;
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(5) ten percent (10%) or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, or executive officer thereof, or twenty percent (20%) or more of such voting securities is beneficially owned, collectively, by any two (2) or more of such persons; or ten percent (10%) or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director or executive officer thereof, or is beneficially owned, collectively, by any two (2) or more such persons;
(6) the Trustee is the beneficial owner of or holds as collateral security for an obligation which is in default (as hereinafter in this subdivision (C) of this Section 10.8 defined), (a) five percent (5%) or more of the voting securities or ten percent (10%) or more of any other class of security of the Company, not including the Notes issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (b) ten percent (10%) or more of any class of security of an underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this subdivision (C) of this Section 10.8 defined), five percent (5%) or more of the voting securities of any person who, to the knowledge of the Trustee owns ten percent (10%) or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company;
(8) the Trustee is the beneficial owner of or holds as collateral security for an obligation which is in default (as hereinafter in this subdivision (C) of this Section 10.8 defined), ten percent (10%) or more of any class of security of any person who, to the knowledge of the Trustee owns fifty percent (50%) or more of the voting securities of the Company;
(9) the Trustee owns on January 1 in any calendar year in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of twenty-five percent (25%) or more of the voting securities or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under clause (6), (7) or (8) of this subdivision (C). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included it, the provisions of the preceding sentence shall not apply for a period of two (2) years from the date of such acquisition, to the extent that such securities included in such estate do not exceed twenty-five percent (25%) of such voting securities or twenty-five percent (25%) of any such class of security. Promptly after January 1, in each calendar year, the Trustee shall make a check of its or his holdings of such securities in any of the above-mentioned capacities as of January 1. If the Company fails to make payment
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in full of principal or interest upon the Notes when and as the same becomes due and payable, and such failure continues for thirty (30) days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such thirty-day period and after such date, notwithstanding the foregoing provisions of this clause (9), all such securities so held by the Trustee with sole or joint control over such securities vested in it or him, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of clauses
(6), (7) and (8) of this subdivision (C); or
(10) the Trustee shall be or become a creditor of the Company (except under the circumstances described under paragraphs (1),
(3), (4), (5) or (6) of Section 311(b) of the TIA.
The specifications of percentages in clauses (5) to (9), inclusive, of this subdivision (C) shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of clause
(3) or (7) of this subdivision (C).
For the purposes of clauses (6), (7), (8) and (9) of this subdivision
(C) only, (a) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms or any certificate of interest or participation in any such note or evidence of indebtedness, (b) an obligation shall be deemed to be in default when a default in payment of principal shall have continued for thirty (30) days or more and shall not have been cured; and (c) the Trustee shall not be deemed to be the owner or holder of (i) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as above defined, or (ii) any security which it holds as collateral security under this Indenture, irrespective of any Default hereunder, or (iii) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity.
(D) The percentages of voting securities and other securities specified in this Section 10.8 shall be calculated in accordance with the following provisions:
(1) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section 10.8 (each of whom is referred to as a "person" in this subdivision (D)) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person.
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(2) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding.
(3) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security.
(4) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition:
(a) securities of an issuer held in a sinking fund relating to securities of the issuer of the same class;
(b) securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise;
(c) securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; or
(d) securities held in escrow if placed in escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof.
(5) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes; and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture.
(E) For the purposes of this Section 10.8, unless otherwise provided:
(1) The term "underwriter" when used with reference to the Company means every person, who, within three (3) years prior to the time as of which the
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determination is made, has purchased from the Company with a view to, or has offered or has sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission.
(2) The term "director" means any director of a corporation, or any individual performing similar functions with respect to any organization whether incorporated or unincorporated.
(3) The term "person" means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision thereof. As used in this clause, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.
(4) The term "voting security" means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person.
(5) The term "Company" means any obligor upon the Notes.
(6) The term "executive officer" means the president, every vice president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors.
SECTION 10.9 Resignation, Removal, Appointment of Successor Trustee.
(A) No resignation or removal of the Trustee, and no appointment of a successor Trustee pursuant to this Article 10 shall become effective until the acceptance of appointment by the successor Trustee under this Section 10.9 and Section 10.10.
(B) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within thirty (30) days after the giving of such notice of resignation,
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the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(C) The Trustee may be removed at any time by Act of the holders of a majority in principal amount of the Outstanding Notes, delivered to the Trustee and to the Company.
(D) If at any time:
(1) the Trustee shall fail to comply with Section 10.8 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note for at least six (6) months, or
(2) the Trustee shall cease to be eligible under
Section 10.1 and shall fail to resign after written request therefor by the Company or by any such Noteholder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a 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, (a) the Company by a Certified Resolution may remove the Trustee or (b) subject to Section 7.13, any Noteholder who has been a bona fide holder of a Note for at least six (6) months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(E) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Trustee for any cause, the Company, by a Certified Resolution, shall promptly appoint a successor Trustee. If, within one (1) year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the holders of a majority in principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Noteholders and accepted appointment in the manner hereinafter provided, any Noteholder who has been a bona fide holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.
(F) The Company shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the holders of Notes in the manner and to the extent
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provided in of Section 4.3. Each notice shall include the name of the successor Trustee and address of the main office of the successor Trustee.
SECTION 10.10 Acceptance by Successor Trustee. Every successor Trustee appointed hereunder 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 request of the Company or the respective successor Trustee, the respective retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such respective successor Trustee all the rights, powers and trusts of the retiring respective Trustee, and shall duly assign, transfer and deliver to such respective successor Trustee all property and money held by such respective retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 10.7. Upon request of any such respective 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, powers and trusts.
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 10 to the extent operative.
SECTION 10.11.
(A) Notice, Etc. on Behalf of Company Delivered to Trustee. Except as herein expressly provided to the contrary, any notice, request, or other writing by or on behalf of the Company delivered to the Trustee shall be deemed to have been delivered to the Trustee hereunder as effectually as if delivered to each of them.
(B) Cash, Securities, Etc. to be Held by Trustee. Notwithstanding anything herein contained to the contrary, all cash collected by, or payable to, the Trustee pursuant to this Indenture shall be paid to and deposited with, and all stocks, debentures and other obligations or securities shall be held by, the Trustee, except as otherwise required by law.
Whenever any moneys, debentures, shares of stock or other obligations are, under any provisions of this Indenture, paid or delivered to or deposited with the Trustee, the same shall be deemed for all purposes hereunder to be part of the security for the Notes issued hereunder, but nothing contained in this Section 10.11 shall be deemed to affect or impair any power or right conferred by any provision of this Indenture upon the Trustee to apply, disburse or otherwise act or deal with respect to any moneys, debentures, shares of stock or other obligations received or held by it as aforesaid.
SECTION 10.12 Merger or Consolidation of Trustee. Any corporation into which the Trustee may be merged 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
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succeeding to all or substantially all 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 10, to the extent operative, without the execution or filing of any paper or the performance of any further act on the part of any other parties hereto, anything herein to the contrary notwithstanding. In case any of the Notes shall have been authenticated, but not delivered, by the Trustee then in office, any such successor to the Trustee by merger, conversion or consolidation may adopt such authentication and deliver the said Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes.
SECTION 10.13 Authenticating Agent. As long as any of the Notes remain Outstanding, upon a Company Order there shall be an authenticating agent appointed by the Trustee for such period as the Company shall elect, to act on behalf of the Trustee and subject to its direction in connection with the authentication of the Notes as set forth in this Indenture. Such authenticating agent shall at all times be a banking corporation organized and doing business under the laws of the United States or any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $60,000,000 subject to supervision or examination by Federal or State authority, or an affiliate of such banking corporation, which is also a corporation organized and doing business under the laws of the United States or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $10,000,000 subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 10.13 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.
Whenever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent.
Any corporation in which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any authenticating agent shall be a party, or any corporation succeeding to the corporate agency business of any authenticating agent, shall continue to be the authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or the authenticating agent.
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 terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible in accordance with the provisions of this Section 10.13, the Trustee promptly shall appoint a successor authenticating agent, shall give written
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notice of such appointment to the Company and shall mail notice of such appointment to all holders of Notes as the names and addresses of such holders appear on the Note Register. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers, duties and responsibilities of its predecessor hereunder. No successor authenticating agent shall be appointed unless eligible under the provisions of this Section 10.13.
The Trustee agrees to pay to the authenticating agent from time to time reasonable compensation for its services, and the Trustee shall be entitled to be reimbursed for such payments from the Company subject to the provisions of
Section 10.7. The provisions of Section 8.1, 10.3 and 10.4 shall be applicable to any authenticating agent.
ARTICLE 11
DISCHARGE OF INDENTURE
SECTION 11.1 Acknowledgement of Discharge. This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Notes herein expressly provided for and rights to receive payments of interest thereon), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction, cancellation and discharge of this Indenture, when
(A) either
(1) all Notes theretofore authenticated and delivered other than (a) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.10, and (b) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 15.2 have been delivered to the Trustee for cancellation; or
(2) all such Notes not theretofore delivered to the Trustee for cancellation
(a) have become due and payable, or
(b) will become due and payable at their Stated Maturity within one (1) year, or
(c) are to be called for redemption within one
(1) year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (a), (b) or (c) above, has deposited or caused to be deposited with the Trustee, as trust funds in trust for the purpose, an amount
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sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal, and premium, if any, and interest to the date of such deposit (in the case of Notes which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be;
(B) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
(C) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture the obligations of the Company to the Trustee under Section 10.7 shall survive.
SECTION 11.2 Money Held in Trust. All money deposited with the Trustee pursuant to Section 11.1 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any paying agent (including the Company acting as its own paying agent), as the Trustee may determine, to the persons entitled thereto, of the principal, and premium, if any, and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. The Trustee shall give notice in the name and at the expense of the Company of the immediate availability of the money deposited with the Trustee pursuant to Section 11.1 to the persons entitled to such money.
ARTICLE 12
MEETING OF NOTEHOLDERS
SECTION 12.1 Purposes for Which Meetings May be Called. A meeting of the Noteholders may be called at any time and from time to time pursuant to the provisions of this Article 12 for any of the following purposes:
(A) To give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any Event of Default hereunder and its consequences, or to take any other action authorized to be taken by the Noteholders pursuant to any of the provisions of Article 2;
(B) To remove the Trustee and appoint a successor trustee pursuant to any of the provisions of Article 10;
(C) To consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Article 13; or
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(D) To take any other action authorized to be taken by or on behalf of Noteholders of any specified aggregate principal amount of the Notes under any other provisions of this Indenture, or authorized or permitted by law.
SECTION 12.2 Call of Meetings by Trustee; Generally. Meetings of Noteholders may be held at such place or places and at such time or times in any place of payment as the Trustee or, in case of its failure to act, the Company or the Noteholders calling the meeting, shall from time to time determine.
SECTION 12.3 Call of Meetings by Trustee; Notice. The Trustee may at any time call a meeting of the Noteholders to take any action specified in
Section 12.1, to be held at such time and at such place designated in Section 12.2 as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, and specifying each series of Notes which would be affected by the proposed action, shall be mailed by the Trustee at the expense of the Company, first class postage prepaid, to the Noteholders at their last addresses as they shall appear upon the Note Register, not less than twenty
(20) nor more than one hundred twenty (120) days prior to the date fixed for the meeting. Any defect in said notice shall not, however, in any way impair or affect the validity of any such meeting.
The Trustee may in its discretion determine, subject to the meaning of the term "affected" as set forth in Section 13.2, whether or not Notes of any particular series would be affected by action proposed to be taken at a meeting and any such determination shall be conclusive upon the holders of Notes of such series and all other series. Subject to the provisions of Section 10.2, the Trustee shall not be liable for any such determination made in good faith.
Any meeting of the Noteholders shall be valid without notice if Noteholders, holding all Notes then Outstanding, which would be affected by the action proposed to be undertaken, are present in person or by proxy or have waived notice before or after the meeting by Noteholders, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice.
In case at any time the Company, pursuant to a Certified Resolution, or Noteholders holding at least ten percent (10%) in aggregate principal amount of the Notes then Outstanding, which would be affected by the action proposed to be undertaken, shall have requested the Trustee to call a meeting of the Noteholders to take any action authorized by Section 12.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within twenty (20) days after receipt of such request, then the Company or Noteholders holding the amount above specified may determine the time and the place for such meeting and may call such meeting for such purpose by giving notice thereof in the manner provided in this Section 12.3.
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SECTION 12.4 Meetings, Notice and Entitlement to be Present. Only Noteholders holding Notes, which would be affected by the action proposed to be undertaken, and persons appointed by an instrument in writing as proxy for such a Noteholder by such a Noteholder are entitled to notice of and to vote at any meeting of the Noteholders. The only persons who shall be entitled to be present or to speak at any meeting of the Noteholders shall be the persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel, and any representatives of the Company and its counsel.
SECTION 12.5 Regulations May be Made by Trustee. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of the Noteholders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate.
Such regulations (A) may provide for the closing of the Note Register for such period as the Trustee may deem necessary or (B) may fix a record and time for determining the record Noteholders of the Notes entitled to vote at such meeting. All Noteholders seeking to attend or vote at a meeting in person or by proxy must, if required by any authorized representative of the Trustee or the Company or by any other Noteholder, produce the Notes claimed to be owned or represented at such meeting, and every one seeking to attend or vote shall, if required as aforesaid, produce such further proof of Note ownership or personal identity as shall be satisfactory to the authorized representative of the Trustee, or if none be present then to the inspectors of votes hereinafter provided for.
The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by the Noteholders as provided in Section 12.3, in which case the Company or the Noteholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting may be elected by vote of Noteholders holding a majority in principal amount of the Notes represented at the meeting and entitled to vote.
At any meeting each Noteholder or proxy shall be entitled to one vote for each $1,000 principal amount of Notes then Outstanding owned by such Noteholder or represented by such proxy; provided, however, that no vote shall be cast or counted at any meeting in respect of any Notes challenged as not Outstanding and ruled by the temporary or permanent chairman of the meeting to be not Outstanding. The temporary or permanent chairman of the meeting shall have no right to vote other than by virtue of Notes held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Noteholders.
At any meeting of Noteholders, the presence of persons holding or representing Notes in an aggregate principal amount sufficient under the appropriate provision of this Indenture to take action upon the business for the transaction of which such meeting was called shall constitute a quorum.
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Any meeting of holders duly called pursuant to Section 12.3 may be adjourned from time to time by vote of the holders (or proxies for the holders) of a majority in aggregate principal amount of the Notes represented at the meeting and entitled to vote, whether or not a quorum shall be present; and the meeting may be held as so adjourned without further notice.
SECTION 12.6 Manner of Voting at Meetings and Record to be Kept. The vote upon any resolution submitted to any meeting of the Noteholders shall be by written ballots on which shall be subscribed the signatures of the Noteholders or of their representatives by proxy and the principal amount of the Notes voted by the ballot. The temporary or permanent chairman of the meeting shall appoint two (2) inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record at least in duplicate of the proceedings of each meeting of the Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one (1) or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 12.3. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one copy thereof shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the matters therein stated.
SECTION 12.7 Evidence of Action by Holders of Specified Percentage of Notes. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes of any 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 specified percentage have joined therein may be evidenced (A) by any instrument or any number of instruments of similar tenor executed by holders in person or by agent or proxy appointed in writing, or (B) by the record of the holders of Notes voting in favor thereof at any meeting of holders duly called and held in accordance with the provisions of this Article 12, or (C) by a combination of such instrument or instruments and any such record of such a meeting of holders.
SECTION 12.8 Exercise of Right of Trustee or Noteholders May Not be Hindered or Delayed by Call of Meeting of Noteholders. Nothing in this Article 12 contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of the Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes.
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ARTICLE 13
SUPPLEMENTAL INDENTURES
SECTION 13.1 Purposes for Which Supplemental Indentures May be Executed by Company and Trustee. Without the consent of the holders of any Notes, the Company, when authorized by a Certified Resolution of its Board of Directors, and the Trustee may at any time and from time to time, enter into an indenture or indentures supplemental hereto, in form satisfactory to the Trustee, for one or more of the following purposes:
(A) To evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article 9 hereof;
(B) To add to the covenants of the Company such further covenants for the protection of the Noteholders, to insure the enforcement of the remedies of the Trustee and Noteholders upon an Event of Default by the Company, or to surrender any right or power herein conferred upon the Company as the Board of Directors shall consider to be necessary for the protection of the Noteholders, and to make the occurrence and continuance of a default under any of such additional covenants a Default permitting the enforcement of all or any of the several remedies provided in this Indenture; provided, however, that in respect of any such additional covenant, 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 of said remedy or remedies upon such default or may limit the remedies available to the Trustee upon such default or may authorize the holders of not less than a majority in aggregate principal amount of the Outstanding Notes to waive such default and prescribe limitations on such rights of waiver; or
(C) To cure any ambiguity or to correct or supplement any provision contained in this Indenture which may be inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture as shall not be inconsistent with the provisions and purposes of this Indenture, provided any such action shall not adversely affect the interest of the Noteholders.
Nothing contained in this Article 13 shall affect or limit the right or obligation of the Company to execute and deliver to the Trustee any instrument of further assurance or other instrument which elsewhere in this Indenture it is provided shall be delivered to the Trustee.
The Trustee is hereby authorized and directed to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be herein contained and to accept the conveyance, transfer and assignment of any property
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thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which, in its opinion, does not afford adequate protection to the Trustee or adversely affects the Trustee's own rights, duties or immunities under this Indenture or otherwise or adversely affects the interests of the Noteholders.
SECTION 13.2 Modification of Indenture by Written Consent of Noteholders. With the consent (evidenced as provided in Article 12) of the holders of not less than sixty-six and two-thirds percent (66-2/3%) in aggregate principal amount of the Notes then Outstanding, by Act of said holders delivered to the Company and the Trustee, the Company (when authorized by a Certified Resolution) and the Trustee at any time and from time to time, by entering into an indenture or indentures supplemental hereto, may modify, alter, add to or eliminate in any manner (with the approval of any governmental agency if required by law) any provisions of this Indenture or the rights of the Noteholders or the rights and obligations of the Company; provided, however, that no such supplemental indenture shall, without the consent of the holder of each Outstanding Note affected thereby:
(A) change the Stated Maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon redemption thereof, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or impair the right to require redemption as set forth in
Section 6.5, or
(B) reduce the percentage(s) of the aggregate principal amount of Outstanding Notes, the consent of the holders of which is required for any such supplemental indenture, or the consent of whose holders is required for any waiver (of compliance with certain provisions of this Indenture or certain Defaults hereunder and their consequences) provided for in this Indenture, or
(C) modify any of the provisions of this Section 13.2 or
Section 7.16, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the holder of each Note affected thereby.
Notes shall be deemed to be "affected" by a supplemental indenture, if such supplemental indenture adversely affects or diminishes the rights of holders thereof against the Company or against the property of the Company. The Trustee may in the exercise of its discretion, subject to Section 10.2, determine whether or not any Notes would be affected by any supplemental indenture and any such determination shall be conclusive upon the holders of all Notes, whether theretofore or thereafter authenticated and delivered hereunder.
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It shall not be necessary for any Act of Noteholders under this Section 13.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
Any supplemental indenture authorized by the provisions of this Section 13.2 shall be executed by the Company and the Trustee in accordance with the terms of Section 13.3.
Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 13.3, the Company shall mail to the holders of the Notes at their last addresses as they shall appear on the Note Register of the Company a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Company 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 13.3 Requirements for Execution; Duties and Immunities of Trustee. Prior to the execution of any supplemental indenture, the Trustee shall receive a Company Request, accompanied by a Certified Resolution authorizing the execution of any supplemental indenture pursuant to Section 13.1 or Section 13.2, and, if pursuant to Section 13.2, evidence filed with the Trustee of the Act of Noteholders as aforesaid.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and subject to Section 10.2 shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and stating such other matters as the Trustee may reasonably request. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's rights, duties or immunities under this Indenture or otherwise.
SECTION 13.4 Supplemental Indentures Part of Indenture. Upon the execution of any supplemental indenture pursuant to the provisions of this Article 13, this Indenture shall be, and shall be deemed to be, modified and amended in accordance therewith and the respective rights, limitations, duties and obligations under this Indenture of the Company, the Trustee and the Noteholders, and each of them, shall thereafter be determined, exercised and enforced hereunder, subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be, and shall be deemed to be, part of the terms and conditions of this Indenture for any and all purposes, as if originally contained herein.
SECTION 13.5 Notes Executed After Supplemental Indenture to be Approved by Trustee. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article 13 may, and shall if required by the Trustee, bear a notation in form approved by the Trustee, as to any matter provided for in such supplemental indenture. If the Company and the Trustee shall so determine, new Notes modified so as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any modification of this Indenture
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contained in any such supplemental indenture, may be prepared by the Company, authenticated by the Trustee and delivered without expense to the holders of the Outstanding Notes, upon surrender of such Notes, the new Notes so issued to be in an aggregate principal amount equal to the aggregate principal amount of those so surrendered.
SECTION 13.6 Supplemental Indentures Required to Comply with Trust Indenture Act of 1939. No supplemental indenture shall be entered into pursuant to any authorization contained in this Indenture which shall not comply with the provisions of the Trust Indenture Act of 1939 as then in effect.
ARTICLE 14
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 14.1 Immunity of Certain Persons. No recourse for the payment of the principal of or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company, contained in this Indenture or in any supplemental indenture, or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or any successor corporation, either directly or through the Company or any 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 all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes.
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 Benefits Restricted to Parties and to Holders of Notes. Except as provided herein, nothing in this Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person other than the parties hereto and the holders of the Notes Outstanding hereunder any right, remedy, or claim under or by reason of this Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements contained in this Indenture by and on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the Notes Outstanding hereunder.
SECTION 15.2 Deposits for Notes Not Claimed for Specified Period to be Returned to Company on Demand. Any moneys deposited with the Trustee or any paying agent, or then held by the Company, in trust for the payment of the principal of, and premium, if any, or interest on any
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Note and remaining unclaimed for six (6) years after the date upon which the principal of and premium, if any, or interest on such Notes shall have become due and payable, shall be paid to the Company upon Company Request, or, if then held by the Company, shall be discharged from such trust; and the holder shall thereafter, as an unsecured general creditor, be entitled to look only to the Company for payment thereof, and all liability of the Trustee or any paying agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that, before being required to make any such payment to the Company, the Trustee, or any paying agent, may, at the expense of the Company, cause to be published once in a Daily Newspaper in such areas as the Trustee, or any paying agent, as the case may be, may deem necessary a notice that such moneys remain unclaimed and that, after a date named in said notice, the balance of such moneys then unclaimed will be returned to the Company.
SECTION 15.3 Formal Requirements of Certificates and Opinions Hereunder.
(A) Each certificate or opinion which is specifically required by the provisions of this Indenture to be delivered to the Trustee with respect to compliance with a condition or covenant herein contained shall include (1) a statement that each person signing 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 opinions are based; (3) a statement that, in the opinion of each 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 each such person such condition or covenant has been complied with.
(B) Every request or Application by the Company for action by the Trustee shall be accompanied by an Officers' Certificate stating that all conditions precedent, if any, to such action, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all conditions precedent, if any, to such action, provided for in this Indenture (including any covenants compliance with which constitutes a condition precedent) have been complied with, except that in the case of any such request or Application as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular request or Application, no additional certificate or opinion need be furnished.
(C) In any case where several matters are required to be certified by, or covered by an opinion of, any specified person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such person, or that they be so certified or covered by only one document, but one such person may certify or give an opinion with respect to some matters and one or more other such persons as to other matters, and any such person may certify or give an opinion as to such matters in one or several documents.
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SECTION 15.4 Evidence of Act of the Noteholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Noteholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent, shall be sufficient for any purpose of this Indenture and (subject to Section 10.2) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
The fact and date of the execution by any person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, or by a fiduciary, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
Any request, demand, authorization, direction, notice, consent, waiver or other action by the holder of any Note shall bind every future holder to the same Note and the holder of every Note issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 15.5 Parties to Include Successors and Assigns. Subject to the provisions of Articles 9 and 10 hereof, whenever in this Indenture any of the parties hereto is named or referred to, such name or reference shall be deemed to include the successors or assigns of such party, and all the covenants and agreements in this Indenture contained by or on behalf of the Company or by or on behalf of the Trustee shall bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not.
SECTION 15.6 In Event of Conflict with Trust Indenture Act of 1939, Provisions Therein to Control. If any provision of this Indenture limits, qualifies, or conflicts with another provision of this Indenture required to be included herein by any of the provisions of the Trust Indenture Act of 1939 such required provision shall control. Provisions required by said Trust Indenture Act to be included herein which are not included herein are hereby incorporated herein by reference to said Trust Indenture Act.
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SECTION 15.7 Request, Notices, Etc. to Trustee. Any request, demand, authorization, direction, notice, consent, waiver or Act of the Noteholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with:
(A) the Trustee by any Noteholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its main office, or
(B) the Company by the Trustee or by any Noteholders shall be sufficient for every purpose hereunder (except as herein otherwise provided) if in writing and mailed, first-class, postage prepaid, to the Company addressed to it at 789 Main Road, Stamford, Vermont 05352, or at any other address previously furnished in writing to the Trustee by the Company.
SECTION 15.8 Manner of Notice. Where this Indenture provides for notice to Noteholders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid, to each Noteholder affected by such event, at his address as it appears on the Note Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Noteholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Noteholder shall affect the sufficiency of such notice with respect to other Noteholders, and any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Noteholders shall be filed with the Trustee, but such filing shall not be condition precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event to Noteholders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice.
SECTION 15.9 Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 15.10 Payments Due on Days When Banks Closed. In any case where the date of any Interest Payment Date or Redemption Date, or the Stated Maturity of any Note, or any date on which any Defaulted Interest is proposed to be paid or any date on which any other payment is
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to be made or any action is to be taken shall not be a business day, then (notwithstanding any other provision of the Notes or this Indenture) payment of the principal of, and premium, if any, or interest on, any Notes or other payment or action need not be made or taken on such date, but may be made or taken on the next succeeding business day with the same force and effect as if made on the nominal date of any such Interest Payment Date or Redemption Date or Stated Maturity or date for the payment of Defaulted Interest or date for any other payment or action, as the case may be, and no interest shall accrue for the period from and after any such nominal date.
SECTION 15.11 Backup Withholding Forms. The Company shall provide the Trustee with Backup Withholding Forms prescribed by the Internal Revenue Service and shall indemnify the Trustee for any penalties, expenses, costs and liabilities assessed against the Trustee for using improper forms.
SECTION 15.12 Titles of Articles of This Indenture Not Part Thereof. The titles of the several Articles of this Indenture and the table of contents shall not be deemed to be any part hereof.
SECTION 15.13 Execution in Counterparts. This Indenture is being executed in several counterparts, each of which shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
SECTION 15.14 Governing Law. This Indenture and each Note issued hereunder shall be governed by the laws of the Commonwealth of Massachusetts as to all matters affecting the duties, liabilities, privileges, rights and obligations of the Noteholders, the Company and the Trustee and any agents of the foregoing, including but not limited to, matters of validity, construction, effect and performance.
IN WITNESS WHEREOF, LITCHFIELD FINANCIAL CORPORATION has caused its name to be hereunto affixed, and this instrument to be signed by its Chairman of the Board, President or any Vice President and its corporate seal to be affixed hereto, and the same to be attested by its Clerk or an Assistant Clerk; and THE BANK OF NEW YORK, in token of its acceptance of the trust hereby
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created, has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents and its corporate seal to be attested by one of its Assistant Secretaries, as of the day and year first written above.
LITCHFIELD FINANCIAL CORPORATION

ATTEST:                                 By:
                                           -------------------------------------
                                           Chairman of the Board, President
                                           or Vice President

-------------------------
Assistant Clerk	

[Seal]
THE BANK OF NEW YORK

ATTEST:                                 By:
                                           -------------------------------------
                                                    Authorized Officer

-------------------------
Attesting Officer	

[Seal]

EXHIBIT 5.1
October 22, 1997
Litchfield Financial Corporation
789 Main Road
Stamford, Vermont 05352
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as amended, of an aggregate of $51,750,000 in principal amount of __% Notes due 2002 of Litchfield Financial Corporation, a Massachusetts corporation (the "Company"), proposed to be sold by the Company, pursuant to an Underwriting Agreement (the "Underwriting Agreement") among the Company, McDonald & Company Securities, Inc., J. C. Bradford & Co. and Tucker Anthony Incorporated, as underwriters (the "Underwriters"), we have examined such corporate records and other documents, including the Registration Statement on Form S-3, File No. 333-37963, relating to such Notes (the Registration Statement as declared effective being hereinafter referred to as the "Registration Statement") and the related prospectus, and have reviewed such matters of law as we have deemed necessary as a basis for the opinion as hereinafter expressed.
Based upon the foregoing and having regard for such legal considerations as we deem relevant, we are of the opinion that:
1. The Company is a corporation validly existing under the laws of the Commonwealth of Massachusetts; and
2. The Notes, when issued under the circumstances contemplated in the Registration Statement, (a) will have been duly and validly issued by the Company, with all requisite authority and action; and (b) will be the legal, valid and binding obligations of the Company.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form S-3 and to the reference to us under the caption "Legal Matters" in the Registration Statement.
Very truly yours,

 /s/ Hutchins, Wheeler & Dittmar
-----------------------------------
HUTCHINS, WHEELER & DITTMAR

A Professional Corporation	

Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to Registration Statement (Form S-3 No. 333-37963) and related Prospectus of Litchfield Financial Corporation for the registration of $51,750,000 Notes payable and to the incorporation by reference therein of our report dated January 31, 1997, 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, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
October 22, 1997