Exhibit 4.16



                        LITCHFIELD FINANCIAL CORPORATION

                               GUARANTEE AGREEMENT

                           LITCHFIELD CAPITAL TRUST I

                            DATED AS OF MAY 19, 1999









                                TABLE OF CONTENTS
<TABLE>


                                                                                                         Page

                                    ARTICLE 1
                                   DEFINITIONS
         <S>                                                                                                      <C>


         SECTION 1.01  DEFINITIONS................................................................................2

                                    ARTICLE 2
                               TRUST INDENTURE ACT

         SECTION 2.01.  TRUST INDENTURE ACT; APPLICATION..........................................................6
         SECTION 2.02.  LISTS OF HOLDERS OF PREFERRED SECURITIES..................................................6
         SECTION 2.03.  REPORTS BY THE GUARANTEE TRUSTEE..........................................................6
         SECTION 2.04.  PERIODIC REPORTS TO THE GUARANTEE TRUSTEE.................................................7
         SECTION 2.05.  EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT
                   ...............................................................................................7
         SECTION 2.06.  EVENTS OF DEFAULT; WAIVER.................................................................7
         SECTION 2.07. DISCLOSURE OF INFORMATION..................................................................7
         SECTION 2.08.  CONFLICTING INTEREST......................................................................8

                                    ARTICLE 3
               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

         SECTION 3.01.  POWERS AND DUTIES OF THE GUARANTEE TRUSTEE................................................9
         SECTION 3.02.  CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE
                               TRUSTEE............................................................................9
         SECTION 3.03  .NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
                               GUARANTEE.........................................................................11
         SECTION 3.04.  GUARANTEE TRUSTEE MAY OWN PREFERRED
                               SECURITIES .......................................................................11
         SECTION 3.05.  MONEYS RECEIVED BY GUARANTEE TRUSTEE TO
                               BE HELD IN TRUST WITHOUT INTEREST.................................................11
         SECTION 3.06.  GUARANTEE TRUSTEE ENTITLED TO
                               COMPENSATION, REIMBURSEMENT AND INDEMNITY.........................................12
         SECTION 3.07.  RIGHT OF GUARANTEE TRUSTEE TO RELY ON
                                CERTIFICATE OF OFFICERS OF GUARANTOR WHERE
                                NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED........................................12

                                    ARTICLE 4
                                GUARANTEE TRUSTEE

         SECTION 4.01.  QUALIFICATIONS...........................................................................12
         SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION
                              OF THE GUARANTEE TRUSTEE...........................................................13

                                       -i-






                                    ARTICLE 5
                                    GUARANTEE

         SECTION 5.01.  GUARANTEE................................................................................13
         SECTION 5.02.  WAIVER OF NOTICE.........................................................................14
         SECTION 5.03.  OBLIGATIONS NOT AFFECTED.................................................................14
         SECTION 5.04.  ENFORCEMENT OF GUARANTEE.................................................................15
         SECTION 5.05.  GUARANTEE OF PAYMENT.....................................................................15
         SECTION 5.06.  SUBROGATION..............................................................................15
         SECTION 5.07.  INDEPENDENT OBLIGATIONS..................................................................16

                                    ARTICLE 6
                    LIMITATION OF TRANSACTIONS; SUBORDINATION

         SECTION 6.01.  LIMITATION OF TRANSACTIONS...............................................................16
         SECTION 6.02.  SUBORDINATION............................................................................16

                                    ARTICLE 7
                                   TERMINATION

         SECTION 7.01.  TERMINATION..............................................................................17

                                    ARTICLE 8
                    LIMITATION OF LIABILITY; INDEMNIFICATION

         SECTION 8.01.  EXCULPATION..............................................................................17
         SECTION 8.02.  INDEMNIFICATION..........................................................................18
         SECTION 8.03.  SURVIVE TERMINATION......................................................................18

                                    ARTICLE 9
                                  MISCELLANEOUS

         SECTION 9.01.  SUCCESSORS AND ASSIGNS...................................................................18
         SECTION 9.02.  AMENDMENTS...............................................................................18
         SECTION 9.03.  NOTICES..................................................................................18
         SECTION 9.04.  GENDERS..................................................................................19
         SECTION 9.05.  BENEFIT..................................................................................19
         SECTION 9.06.  GOVERNING LAW............................................................................19
         SECTION 9.07.  COUNTERPARTS.............................................................................19
         SECTION 9.08.  LIMITED LIABILITY........................................................................19

</TABLE>

                                      -ii-





                               GUARANTEE AGREEMENT

         This  GUARANTEE  AGREEMENT,  dated as of May 19, 1999,  is executed and
delivered by Litchfield Financial Corporation,  a Massachusetts corporation (the
"Guarantor"),  and The Bank of New York, a New York banking corporation,  as the
initial Guarantee Trustee (as defined herein) for the benefit of the Holders (as
defined  herein)  from  time to time of the  Preferred  Securities  (as  defined
herein) of Litchfield  Capital Trust I, a Delaware statutory business trust (the
"Issuer").

         WHEREAS,  pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"),  dated as of May 19, 1999 among the trustees of the Issuer named
therein, Litchfield Financial Corporation, as Sponsor, and the Holders from time
to time of preferred undivided beneficial interests in the assets of the Issuer,
the Issuer may issue up to $25,000,000  aggregate  liquidation amount of its 10%
Series A Trust Preferred  Securities (the "Preferred  Securities")  representing
preferred undivided  beneficial interests in the assets of the Issuer and having
the terms  set  forth in  Exhibit  B to the  Declaration,  of which  $25,000,000
aggregate  liquidation amount of Preferred  Securities is being issued as of the
date hereof; and

         WHEREAS, as incentive for the Holders to purchase Preferred Securities,
the Guarantor  desires to irrevocably and  unconditionally  agree, to the extent
set forth  herein,  to pay to the Holders  the  Guarantee  Payments  (as defined
herein) and to make certain other payments on the terms and conditions set forth
herein; and

         NOW,  THEREFORE,  in  consideration  of the  purchase  by  the  initial
purchasers thereof of Preferred Securities,  which purchase the Guarantor hereby
agrees shall benefit the  Guarantor,  the  Guarantor  executes and delivers this
Guarantee Agreement for the benefit of the Holders from time to time.

                                    ARTICLE 1
                                   DEFINITIONS

         SECTION 1.0.  DEFINITIONS.

         (a) Capitalized terms used in this Guarantee  Agreement but not defined
in the  preamble  above have the  respective  meanings  assigned to them in this
Section 1.01;

         (b) a term defined  anywhere in this  Guarantee  Agreement has the same
meaning throughout;

         (c) all  references to "the  Guarantee  Agreement"  or "this  Guarantee
Agreement" are to this Guarantee Agreement as modified,  supplemented or amended
from time to time;

         (d) all references in this Guarantee Agreement to Articles and Sections
are to  Articles  and  Sections of this  Guarantee  Agreement  unless  otherwise
specified;

                                       -2-





         (e) a term defined in the Trust Indenture Act has the same meaning when
used in this  Guarantee  Agreement  unless  otherwise  defined in this Guarantee
Agreement or unless the context otherwise requires; and

         (f) a reference to the singular includes the plural and vice versa.

         "Affiliate" of any specified  Person means any other Person directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control  with  such  specified  Person.  For the  purposes  of this  definition,
"control"  when used with  respect to any  specified  Person  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

         "Commission" means the Securities and Exchange Commission.

         "Common Securities" means the securities  representing common undivided
beneficial interests in the assets of the Issuer,  having the terms set forth in
Exhibit C to the Declaration.

         "Debentures"   means  the  series  of  unsecured  junior   subordinated
debentures  issued by the Guarantor under the Indenture to the Property  Trustee
and entitled the "10% Series A Junior Subordinated Debentures due 2029."

         "Declaration" has the meaning set forth in the first WHEREAS clause
above.

         "Distributions"  means the periodic  distributions  and other  payments
payable to Holders in accordance with the terms of the Preferred  Securities set
forth in Exhibit B to the Declaration.

         "Event of  Default"  means a  default  by the  Guarantor  on any of its
payment or other obligations under this Guarantee Agreement;  provided, however,
that, except with respect to a default in payment of any Guarantee Payment,  any
such default shall  constitute  an Event of Default only if the Guarantor  shall
have  received  notice of such  default  and shall not have cured  such  default
within 60 days after receipt of such notice.

         "Guarantee   Payments"   shall   mean   the   following   payments   or
distributions, without duplication, with respect to the Preferred Securities, to
the extent not paid or made by or on behalf of the Issuer:  (i) any  accumulated
and unpaid Distributions and the Redemption Price, including all accumulated and
unpaid Distributions to, but excluding, the date of redemption,  with respect to
the Preferred  Securities called for redemption by the Issuer but only if and to
the extent that in each case the  Guarantor  has made a payment to the  Property
Trustee of interest or principal or premium,  if any, on the Debentures and (ii)
upon a voluntary or  involuntary  dissolution,  winding-up or termination of the
Issuer (other than in connection with the  distribution of Debentures to Holders
in exchange for  Preferred  Securities  or the  redemption  of all the Preferred
Securities upon the maturity or redemption of the Debentures as provided in the

                                       -3-





Declaration),  the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid  Distributions on the Preferred Securities to the date of
payment,  to the extent the Issuer has funds on hand legally available therefor,
and (b) the amount of assets of the Issuer remaining  available for distribution
to Holders in liquidation of the Issuer as required by applicable law (in either
case, the "Liquidation Distribution").

         "Guarantee  Trustee"  means  The Bank of New York,  a New York  banking
corporation,  until a Successor  Guarantee  Trustee has been  appointed  and has
accepted such appointment pursuant to the terms of this Guarantee Agreement, and
thereafter means each such Successor Guarantee Trustee.

         "Holder" shall mean any holder,  as registered on the books and records
of  the  Issuer,  of  any  Preferred  Securities;  provided,  however,  that  in
determining  whether  the  holders  of the  requisite  percentage  of  Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.

         "Indemnified  Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, and any officers, directors, shareholders, members, partners,
employees, representatives or agents of the Guarantee Trustee.

         "Indenture" means the Junior Subordinated Indenture dated as of May 19,
1999 between the Guarantor and The Bank of New York, as trustee, as supplemented
by the  Supplemental  Indenture  No. 1  thereto  dated as of May 19,  1999  (the
"Supplemental Indenture"),  pursuant to which the Debentures are to be issued to
the Property Trustee.

         "Liquidation Distribution" has the meaning specified in the definition
of Guarantee Payments.

         "Majority in  liquidation  amount of the Preferred  Securities"  means,
except  as  otherwise   required  by  the  Trust  Indenture  Act,  Holder(s)  of
outstanding  Preferred Securities voting together as a single class, who are the
record owners of Preferred  Securities whose  liquidation  amount (including the
stated amount that would be paid on redemption,  liquidation or otherwise,  plus
accumulated  and  unpaid  Distributions  to  the  date  upon  which  the  voting
percentages are determined)  represents more than 50% of the liquidation  amount
of all outstanding Preferred Securities.

         "Officers'   Certificate"   means,   with  respect  to  any  Person,  a
certificate  signed by the Chairman of the Board,  the Chief Executive  Officer,
the President or a Vice President, and by the Treasurer, an Associate Treasurer,
an  Assistant  Treasurer,  the  Comptroller,   the  Secretary  or  an  Assistant
Secretary,  of such Person, and delivered to the Guarantee  Trustee.  One of the
officers signing an Officers'  Certificate  given pursuant to Section 2.04 shall
be the principal  executive,  financial or accounting  officer of the Guarantor.
Any Officers' Certificate delivered with respect

                                       -4-





 to  compliance  with a condition  or covenant  provided  for in this  Guarantee
Agreement shall include:

         (i) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;

         (ii) a brief  statement of the nature and scope of the  examination  or
investigation undertaken by each officer in rendering the Officers' Certificate;

         (iii) a  statement  that  each  officer  has made such  examination  or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed  opinion as to whether or not such  covenant or condition
has been complied with; and

         (iv) a statement  as to whether,  in the opinion of each such  officer,
such condition or covenant has been complied with.

         "Person" means a legal person,  including any individual,  corporation,
estate, partnership,  joint venture,  association,  joint stock company, limited
liability company, trust, unincorporated association or government or any agency
or political subdivision thereof, or any other entity of whatever nature.

         "Preferred Securities" has the meaning set forth in the first WHEREAS
clause above.

         "Property Trustee" means the Person acting as Property Trustee under
the Declaration.

         "Redemption  Price"  means the  amount  payable  on  redemption  of the
Preferred Securities in accordance with the terms of the Preferred Securities.

         "Responsible  Officer"  means,  when used with respect to the Guarantee
Trustee,  any officer  within the  corporate  trust  department of the Guarantee
Trustee,  including any vice  president,  assistant  vice  president,  assistant
secretary,  assistant  treasurer,  trust  officer  or any other  officer  of the
Guarantee Trustee who customarily  performs functions similar to those performed
by the Persons who at the time shall be such officers,  respectively, or to whom
any corporate trust matter is referred because of such Person's knowledge of and
familiarity with the particular subject and who shall have direct responsibility
for the administration of this Guarantee Agreement.

         "Successor  Guarantee  Trustee"  means a  successor  Guarantee  Trustee
possessing the qualifications to act as a Guarantee Trustee under Section 4.01.

         "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.

                                       -5-






                                    ARTICLE 2
                               TRUST INDENTURE ACT


         SECTION 2.01.  TRUST INDENTURE ACT; APPLICATION.

         (a) This Guarantee  Agreement is subject to the provisions of the Trust
Indenture  Act that are  required  to be part of this  Guarantee  Agreement  and
shall, to the extent applicable, be governed by such provisions;

         (b) if and to the extent that any provision of this Guarantee Agreement
limits,  qualifies  or  conflicts  with the duties  imposed by ss.ss.310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control; and

         (c) the  application  of the  Trust  Indenture  Act to  this  Guarantee
Agreement  shall not  affect the nature of the  Preferred  Securities  as equity
securities  representing  preferred undivided beneficial interests in the assets
of the Issuer.

         SECTION 2.02.  LISTS OF HOLDERS OF PREFERRED SECURITIES.

         (a) The  Guarantor  shall  provide the  Guarantee  Trustee  (unless the
Guarantee  Trustee is otherwise the registrar of the Preferred  Securities)  (i)
within 14 days after each record date for payment of  Distributions,  a list, in
such form as the  Guarantee  Trustee may  reasonably  require,  of the names and
addresses of the Holders  ("List of  Holders") as of such date,  and (ii) at any
other time within 30 days of receipt by the Guarantor of a written request for a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the  Guarantee  Trustee;  provided  that  the  Guarantor  shall  not be
obligated  to provide  such List of Holders at any time that the List of Holders
does not differ  from the most  recent  List of Holders  given to the  Guarantee
Trustee by the Guarantor.  The Guarantee Trustee shall preserve, in as current a
form as is  reasonably  practicable,  all  information  contained in the List of
Holders given to it; provided,  that the Guarantee  Trustee may destroy any List
of Holders previously given to it on receipt of a new List of Holders.

         (b) the  Guarantee  Trustee  shall  comply with its  obligations  under
ss.ss.310(b), 311 and 312(b) of the Trust Indenture Act.

         SECTION 2.03.  REPORTS BY THE GUARANTEE  TRUSTEE.  Within 60 days after
January 15 of each year,  commencing  January 15, 2000,  the  Guarantee  Trustee
shall provide to the Holders such reports as are required by ss.313 of the Trust
Indenture  Act, if any, in the form, in the manner and at the times  provided by
ss.313 of the Trust Indenture Act. The Guarantee  Trustee shall also comply with
the other requirements of ss.313 of the Trust Indenture Act. A copy of each such
report shall, at the time of such  transmission to the Holders,  be filed by the
Guarantee  Trustee with the  Company,  with each stock  exchange  upon which any
Preferred Securities are listed (if

                                       -6-





so  listed)  and also with the  Commission.  The  Company  agrees to notify  the
Guarantee  Trustee  when any  Preferred  Securities  become  listed on any stock
exchange and any delisting thereof.

         SECTION 2.04. PERIODIC REPORTS TO THE GUARANTEE TRUSTEE.  The Guarantor
shall provide to the  Guarantee  Trustee,  the  Commission  and the Holders,  as
applicable,   such   documents,   reports   and   information   as  required  by
ss.314(a)(1)-(3)  (if  any)  of the  Trust  Indenture  Act  and  the  compliance
certificates  required by  ss.314(a)(4)  and (c) of the Trust Indenture Act, any
such  certificates  to be provided  in the form,  in the manner and at the times
required by  ss.314(a)(4)  and (c) of the Trust Indenture Act (provided that any
certificate to be provided  pursuant to  ss.314(a)(4) of the Trust Indenture Act
shall be provided within 120 days of the end of each fiscal year of the Issuer).
Delivery of such reports,  information and documents to the Guarantee Trustee is
for  informational  purposes  only and the Guarantee  Trustee's  receipt of such
shall not constitute  constructive notice of any information  contained therein,
including the Company's  compliance  with any of its covenants  hereunder (as to
which the  Guarantee  Trustee  is  entitled  to rely  exclusively  on  Officers'
Certificates).

         SECTION 2.05.  EVIDENCE OF COMPLIANCE  WITH CONDITIONS  PRECEDENT.  The
Guarantor  shall  provide to the  Guarantee  Trustee such evidence of compliance
with any conditions precedent,  if any, provided for in this Guarantee Agreement
which relate to any of the matters set forth in ss.314(c) of the Trust Indenture
Act. Any certificate or opinion  required to be given by an officer  pursuant to
ss.314(c) may be given in the form of an Officers' Certificate.

         SECTION 2.06.  EVENTS OF DEFAULT; WAIVER.

         (a) The Holders of a Majority in  liquidation  amount of the  Preferred
Securities  may,  by vote,  on behalf of the  Holders,  waive any past  Event of
Default and its consequences.  Upon such waiver, any such Event of Default shall
cease to exist,  and any Event of Default  arising  therefrom shall be deemed to
have been cured,  for every  purpose of this  Guarantee  Agreement,  but no such
waiver shall extend to any  subsequent or other default or Event of Default,  or
impair any right consequent thereon.

         (b) The  right  of any  Holder  to  receive  payment  of the  Guarantee
Payments in accordance with this Guarantee  Agreement,  or to institute suit for
the enforcement of any such payment,  shall not be impaired  without the consent
of each such Holder.

         SECTION 2.07. DISCLOSURE OF INFORMATION.  The disclosure of information
as to the names and  addresses of the Holders in  accordance  with ss.312 of the
Trust  Indenture Act,  regardless of the source from which such  information was
derived,  shall not be deemed to be a violation of any existing  law, or any law
hereafter  enacted  which  does not  specifically  refer to  ss.312 of the Trust
Indenture Act, nor shall the Guarantee  Trustee be held accountable by reason of
mailing any  material  pursuant to a request  made under  ss.312(b) of the Trust
Indenture Act.

         SECTION 2.08.  CONFLICTING INTEREST. The Declaration shall be deemed to
be specifically described in this Guarantee Agreement for the purposes of clause
(i) of the first proviso contained in ss.310(b) of the Trust Indenture Act.

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                                    ARTICLE 3
               POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

         SECTION 3.01.  POWERS AND DUTIES OF THE GUARANTEE TRUSTEE.

         (a) This Guarantee  Agreement shall be held by the Guarantee Trustee in
trust for the benefit of the Holders.  The Guarantee  Trustee shall not transfer
its right, title and interest in this Guarantee Agreement to any Person except a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of
its appointment to act as Guarantee Trustee or to a Holder exercising his or her
rights  pursuant  to Section  5.04(iv).  The right,  title and  interest  of the
Guarantee Trustee to this Guarantee  Agreement shall vest  automatically in each
Person who may hereafter be appointed as Guarantee  Trustee in  accordance  with
Article 4. Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.

         (b)  If an  Event  of  Default  has  occurred  and is  continuing,  the
Guarantee Trustee shall enforce this Guarantee  Agreement for the benefit of the
Holders.

         (c) This  Guarantee  Agreement and all moneys  received by the Property
Trustee in respect of the  Guarantee  Payments will not be subject to any right,
charge,  security  interest,  lien or claim of any kind in favor  of, or for the
benefit of, the Guarantee Trustee or its agents or their creditors.

         (d) The Guarantee Trustee shall, within 90 days after the occurrence of
an Event of Default  known to a Responsible  Officer of the  Guarantee  Trustee,
transmit by mail,  first class postage prepaid,  to the Holders,  as their names
and  addresses  appear  upon the List of  Holders,  notice of all such Events of
Default,  unless such  defaults  shall have been cured before the giving of such
notice;  provided, that, the Guarantee Trustee shall be protected in withholding
such notice if and so long as the board of directors,  the executive  committee,
or a trust committee of directors and/or Responsible  Officers, of the Guarantee
Trustee in good faith  determine  that the  withholding of such notice is in the
interests  of the Holders.  The  Guarantee  Trustee  shall not be deemed to have
knowledge  of any Event of  Default  except any Event of Default as to which the
Guarantee  Trustee shall have received  written notice or a Responsible  Officer
charged with the administration of this Guarantee  Agreement shall have obtained
written notice of such Event of Default.

         (e) The Guarantee  Trustee shall continue to serve as a trustee until a
Successor  Guarantee Trustee has been appointed and accepted that appointment in
accordance with Article 4.

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         SECTION 3.02.  CERTAIN RIGHTS AND DUTIES OF THE GUARANTEE TRUSTEE.

         (a) The Guarantee Trustee, before the occurrence of an Event of Default
and after the curing or waiving of all Events of Default that may have occurred,
shall  undertake  to perform only such duties as are  specifically  set forth in
this  Guarantee  Agreement,  and no  implied  covenants  shall be read into this
Guarantee  Agreement against the Guarantee Trustee.  In case an Event of Default
has occurred (that has not been cured or waived  pursuant to Section 2.06),  the
Guarantee  Trustee shall  exercise such of the rights and powers vested in it by
this  Guarantee  Agreement,  and use the same  degree  of care and  skill in its
exercise  thereof,  as  a  prudent  person  would  exercise  or  use  under  the
circumstances in the conduct of his or her own affairs.

         (b) No  provision  of this  Guarantee  Agreement  shall be construed to
relieve the Guarantee Trustee from liability for its own negligent  action,  its
own negligent failure to act or its own willful misconduct, except that:

                  (i) prior to the  occurrence  of an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:

                           (A)      the duties and obligations of the Guarantee
Trustee shall be determined solely by the express provisions of this Guarantee
Agreement,  and the Guarantee Trustee  shall not be liable  except  for the
performance  of such  duties  and obligations as are  specifically set forth in
this Guarantee  Agreement,  and no implied  covenants or obligations  shall be
read into this  Guarantee  Agreement against the Guarantee Trustee; and

                           (B)      in the absence of bad faith on the part of
the Guarantee  Trustee,  the Guarantee Trustee may conclusively  rely, as to the
truth of the statements and the correctness of the opinions  expressed  therein,
upon any  certificates  or  opinions  furnished  to the  Guarantee  Trustee  and
conforming to the requirements of this Guarantee  Agreement;  but in the case of
any such  certificates  or opinions  that by any  provision  hereof or the Trust
Indenture  Act  are  specifically  required  to be  furnished  to the  Guarantee
Trustee,  the  Guarantee  Trustee  shall be under a duty to examine  the same to
determine  whether or not they  conform to the  requirements  of this  Guarantee
Agreement or the Trust Indenture Act, as the case may be;

                                    (ii)    the Guarantee Trustee shall not be
liable for any error of judgment made in good faith by a Responsible  Officer of
the Guarantee Trustee,  unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was made;

                                   (iii)  the  Guarantee  Trustee  shall not be
liable  with  respect to any  action  taken or omitted to be taken by it in good
faith  in  accordance  with  the  direction  of the  Holders  of a  Majority  in
liquidation  amount of  Preferred  Securities  relating to the time,  method and
place of
                                       -9-





conducting any proceeding for any remedy available to the Guarantee Trustee,  or
exercising any trust or power  conferred  upon the Guarantee  Trustee under this
Guarantee Agreement; and

                                    (iv)  no   provision   of   this   Guarantee
Agreement shall require the
Guarantee  Trustee to expend or risk its own funds or otherwise  incur  personal
financial  liability in the  performance of any of its duties or in the exercise
of any of its  rights  or  powers,  if it  shall  have  reasonable  grounds  for
believing  that the  repayment  of such  funds or  liability  is not  reasonably
assured to it under the terms of this Guarantee  Agreement or adequate indemnity
against such risk or liability is not reasonably assured to it.

                           (c)      Subject to the provisions of Section 3.02(a)
and (b):

                                    (i)     whenever in the administration of
this Guarantee  Agreement,  the Guarantee Trustee shall deem it desirable that a
matter be proved or  established  prior to taking,  suffering  or  omitting  any
action  hereunder,  the  Guarantee  Trustee  (unless  other  evidence  is herein
specifically  prescribed) may, in the absence of bad faith on its part,  request
and rely upon an Officers'  Certificate,  which,  upon receipt of such  request,
shall be promptly delivered by the Guarantor;

                                    (ii) the  Guarantee  Trustee (A) may consult
with counsel (which may be counsel to the Guarantor or any of its Affiliates and
may include any of its employees) selected by it in good faith and with due care
and the written  advice or opinion of such counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance thereon
and in  accordance  with such advice and opinion and (B) shall have the right at
any time to seek  instructions  concerning the  administration of this Guarantee
Agreement from any court of competent jurisdiction;

                                    (iii) the Guarantee  Trustee may execute any
of the  trusts or powers  hereunder  or  perform  any  duties  hereunder  either
directly or by or through agents or attorneys,  and the Guarantee  Trustee shall
not be responsible  for any misconduct or negligence on the part of any agent or
attorney appointed by it in good faith and with due care;

                                    (iv) the Guarantee Trustee shall be under no
obligation to exercise
any of the  rights or powers  vested in it by this  Guarantee  Agreement  at the
request or direction of any Holder, unless such Holder shall have offered to the
Guarantee  Trustee security and indemnity  satisfactory to the Guarantee Trustee
against the costs,  expenses  (including its  attorneys'  fees and expenses) and
liabilities  that might be  incurred  by it in  complying  with such  request or
direction; provided that nothing contained in this clause (iv) shall relieve the
Guarantee Trustee of the obligation,  upon the occurrence of an Event of Default
(which has not been cured or waived) to  exercise  such of the rights and powers
vested in it by this Guarantee Agreement, and to use the same degree of care and
skill in this  exercise  as a prudent  person  would  exercise  or use under the
circumstances in the conduct of his or her own affairs; and

                                      -10-





                                    (v)     any action taken by the Guarantee
Trustee or its agents  hereunder shall bind the Holders and the signature of the
Guarantee  Trustee or its agents  alone shall be  sufficient  and  effective  to
perform any such  action;  and no third party shall be required to inquire as to
the authority of the Guarantee  Trustee to so act, or as to its compliance  with
any of the terms and provisions of this Guarantee Agreement, both of which shall
be conclusively  evidenced by the Guarantee Trustee's or its agent's taking such
action.

         SECTION 3.03.  NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
GUARANTEE.  The recitals contained in this Guarantee Agreement shall be taken as
the  statements of the  Guarantor and the Guarantee  Trustee does not assume any
responsibility   for  their   correctness.   The  Guarantee   Trustee  makes  no
representations as to the validity or sufficiency of this Guarantee Agreement.

         SECTION  3.04.  GUARANTEE  TRUSTEE MAY OWN  PREFERRED  SECURITIES.  The
Guarantee Trustee, in its individual or any other capacity, may become the owner
or pledgee of Preferred  Securities  and may  otherwise  deal with the Guarantor
with the same rights it would have if it were not Guarantee Trustee.

         SECTION 3.05.  MONEYS RECEIVED BY GUARANTEE TRUSTEE TO BE HELD IN TRUST
WITHOUT INTEREST. All moneys received by the Guarantee Trustee shall, until used
or applied as herein provided,  be held in trust for the purposes for which they
were received,  but need not be segregated from other funds except to the extent
required by law. The Guarantee  Trustee shall be under no liability for interest
on any moneys received by it hereunder except such as it may agree in writing to
pay thereon.

         SECTION 3.06.  GUARANTEE TRUSTEE ENTITLED TO COMPENSATION,
REIMBURSEMENT AND INDEMNITY.

         (a) The Guarantor  covenants and agrees to pay to the Guarantee Trustee
from  time to time,  and the  Guarantee  Trustee  shall  be  entitled  to,  such
compensation as the Guarantor and the Guarantee  Trustee shall from time to time
agree in writing  (which shall not be limited by any  provision of law in regard
to the compensation of a Guarantee Trustee of an express trust) for all services
rendered by it in the execution of the trusts hereby created and in the exercise
and  performance  of any of the  powers and duties  hereunder  of the  Guarantee
Trustee,  and the Guarantor will pay or reimburse the Guarantee Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or made
by the  Guarantee  Trustee  in  accordance  with any of the  provisions  of this
Guarantee  Agreement  (including the reasonable  compensation and the reasonable
expenses and  disbursements  of its counsel and of all persons not  regularly in
its employ) except any such expense,  disbursement  or advance as may arise from
its  negligence or bad faith.  The Guarantor also covenants to indemnify each of
the Guarantee  Trustee or any predecessor  Guarantee Trustee and their officers,
agents,  directors and employees for, and to hold them harmless against, any and
all loss, liability,  damage, claim or expense including taxes (other than taxes
based upon, measured by or determined by the income of the Guarantee

                                      -11-





Trustee)  incurred without  negligence or bad faith on the part of the Guarantee
Trustee  and  arising  out  of  or  in   connection   with  the   acceptance  or
administration  of this trust,  including the  reasonable  costs and expenses of
defending  itself  against any claim  (whether  asserted by the  Guarantor,  any
Holder or any other Person) of liability in the premises. The provisions of this
Section 3.06 shall  survive the  termination  of this  Guarantee  Agreement  and
resignation or removal of the Guarantee Trustee.

         (b)  The  obligations  of the  Guarantor  under  this  Section  3.06 to
compensate  and  indemnify  the  Guarantee  Trustee and to pay or reimburse  the
Guarantee  Trustee for expenses,  disbursements  and advances  shall  constitute
additional indebtedness hereunder. Such additional indebtedness shall be secured
by a lien prior to that of the Preferred  Securities upon all property and funds
held or collected by the Guarantee  Trustee as such,  except funds held in trust
for the benefit of the holders of particular Preferred Securities.

         SECTION  3.07.  RIGHT OF GUARANTEE  TRUSTEE TO RELY ON  CERTIFICATE  OF
OFFICERS OF GUARANTOR WHERE NO OTHER EVIDENCE SPECIFICALLY PRESCRIBED. Except as
otherwise  provided  in Section  3.02,  whenever  in the  administration  of the
provisions  of this  Guarantee  Agreement  the  Guarantee  Trustee shall deem it
necessary or
desirable that a matter be proved or established prior to taking or suffering or
omitting to take any action  hereunder,  such matter  (unless other  evidence in
respect  thereof  be herein  specifically  prescribed)  may,  in the  absence of
negligence  or bad faith on the part of the Guarantee  Trustee,  be deemed to be
conclusively proved and established by an Officers' Certificate delivered to the
Guarantee  Trustee and such  certificate,  in the absence of  negligence  or bad
faith  on the  part of the  Guarantee  Trustee,  shall  be full  warrant  to the
Guarantee  Trustee for any action  taken,  suffered or omitted to be taken by it
under the provisions of this Guarantee Agreement upon the faith thereof.

                                    ARTICLE 4
                                GUARANTEE TRUSTEE

         SECTION 4.01.  QUALIFICATIONS. There shall at all times be a Guarantee
Trustee that shall:

         (i)      not be an Affiliate of the Guarantor; and

         (ii) be a national  banking  association or  corporation  organized and
doing  business  under the laws of the United  States of America or any State or
Territory  thereof or of the District of Columbia,  or a  corporation  or Person
permitted by the Commission to act as an  institutional  trustee under the Trust
Indenture Act,  authorized  under such laws to exercise  corporate trust powers,
having a combined  capital and surplus of at least  $50,000,000,  and subject to
supervision  or  examination  by  Federal,  State,  Territorial  or  District of
Columbia authority.  If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority  referred to above,  then for the  purposes of this clause  (ii),  the
combined  capital  and  surplus  of such  corporation  shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published.

                                      -12-




         If at any  time the  Guarantee  Trustee  shall  cease  to  satisfy  the
requirements  of  clauses  (i) and  (ii)  above,  the  Guarantee  Trustee  shall
immediately resign in the manner and with the effect set out in Section 4.02. If
the Guarantee Trustee has or shall acquire any "conflicting interest" within the
meaning of ss.310(b) of the Trust  Indenture Act, the Guarantee  Trustee and the
Guarantor  shall in all respects  comply with the provisions of ss.310(b) of the
Trust Indenture Act.

         SECTION 4.02.  APPOINTMENT, REMOVAL AND RESIGNATION OF THE
GUARANTEE TRUSTEE.

         (a) Subject to Section 4.02(b),  the Guarantee Trustee may be appointed
or removed without cause by the Guarantor upon 60 days' prior written notice.

         (b) The  Guarantee  Trustee  shall not be  removed in  accordance  with
Section   4.02(a)   until  a  Successor   Guarantee   Trustee   possessing   the
qualifications to act as Guarantee Trustee under Section 4.01 has been appointed
and has  accepted  such  appointment  by  written  instrument  executed  by such
Successor  Guarantee  Trustee and  delivered to the  Guarantor and the Guarantee
Trustee being removed.

         (c) The Guarantee  Trustee  appointed to office shall hold office until
its successor shall have been appointed or until its removal or resignation.

         (d) The  Guarantee  Trustee may resign from  office  (without  need for
prior or subsequent  accounting) by an instrument (a  "Resignation  Request") in
writing signed by the Guarantee  Trustee and delivered to the  Guarantor,  which
resignation  shall take effect upon such  delivery or upon such later date as is
specified therein; provided,  however, that no such resignation of the Guarantee
Trustee shall be effective until a Successor  Guarantee  Trustee  possessing the
qualifications to act as Guarantee Trustee under Section 4.01 has been appointed
and has accepted  such  appointment  by  instrument  executed by such  Successor
Guarantee  Trustee and delivered to the  Guarantor  and the resigning  Guarantee
Trustee.

         (e) If no Successor  Guarantee  Trustee  shall have been  appointed and
accepted  appointment  as  provided  in this  Section  4.02 within 60 days after
delivery to the Guarantor of a notice of removal or a Resignation  Request,  the
Guarantee Trustee being removed or resigning as the case may be may petition any
court  of  competent  jurisdiction  for  appointment  of a  Successor  Guarantee
Trustee.  Such court may  thereupon  after such  notice,  if any, as it may deem
proper and  prescribe,  appoint a Successor  Guarantee  Trustee  possessing  the
qualifications to act as Guarantee Trustee under Section 4.01.

                                    ARTICLE 5
                                    GUARANTEE

     SECTION 5.01.  GUARANTEE.  The Guarantor  irrevocably  and  unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid
                                      -13-





by the Issuer), as and when due, regardless of any defense,  right of set-off or
counterclaim which the Issuer may have or assert. The Guarantor's  obligation to
make a Guarantee  Payment may be  satisfied  by direct  payment of the  required
amounts by the  Guarantor  to the  Holders or by causing  the Issuer to pay such
amounts to the Holders.

         SECTION 5.02.  WAIVER OF NOTICE.  The Guarantor hereby waives notice of
acceptance of this Guarantee  Agreement and of any liability to which it applies
or may apply, presentment, demand for payment, any right to require a proceeding
first  against  the Issuer or any other  Person  before  proceeding  against the
Guarantor,  protest,  notice  of  nonpayment,  notice  of  dishonor,  notice  of
redemption  and all other notices and demands.  Notwithstanding  anything to the
contrary herein,  the Guarantor retains all of its rights under the Indenture to
extend the interest payment period on the Debentures and the Guarantor shall not
be  obligated  hereunder  to make any  Guarantee  Payment  during  any  Extended
Interest Payment Period (as defined in the Supplemental  Indenture) with respect
to the Distributions on the Preferred Securities.

         SECTION 5.03.  OBLIGATIONS NOT AFFECTED.  The  obligations,  covenants,
agreements and duties of the Guarantor  under this Guarantee  Agreement shall in
no way be affected or impaired by reason of the  happening  from time to time of
any of the following:

         (a) the release or waiver,  by  operation of law or  otherwise,  of the
performance  or  observance  by the Issuer of any express or implied  agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Issuer;

         (b) the  extension  of time for the payment by the Issuer of all or any
portion of the  Distributions  (other than an  extension  of time for payment of
Distributions that result from any Extended Interest Payment Period), Redemption
Price,  Liquidation  Distribution  (as defined in the  Declaration) or any other
sums payable  under the terms of the  Preferred  Securities  or the extension of
time for the performance of any other  obligation  under,  arising out of, or in
connection with, the Preferred  Securities  (other than an extension of time for
payment of Distributions that result from any Extended Interest Payment Period);

         (c) any  failure,  omission,  delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred  Securities,  or
any action on the part of the Issuer  granting  indulgence  or  extension of any
kind;

         (d) the voluntary or involuntary liquidation,  dissolution, sale of any
collateral, receivership,  insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization,  arrangement, composition or readjustment of debt of,
or other similar proceedings  affecting,  the Issuer or any of the assets of the
Issuer;

         (e)      any invalidity of, or defect or deficiency in, the Preferred
Securities;


                                      -14-





         (f)      the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or

         (g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable  discharge or defense of a guarantor,  it being the intent of
this  Section 5.03 that the  obligations  of the  Guarantor  with respect to the
Guarantee  Payments  shall  be  absolute  and  unconditional  under  any and all
circumstances.

         There  shall be no  obligation  of the  Holders  to give  notice to, or
obtain  consent of, the  Guarantor  with respect to the  happening of any of the
foregoing.

         SECTION 5.04. ENFORCEMENT OF GUARANTEE. The Guarantor and the Guarantee
Trustee  expressly  acknowledge  that  (i)  this  Guarantee  Agreement  will  be
deposited with the Guarantee  Trustee to be held for the benefit of the Holders;
(ii) the Guarantee Trustee has the right to enforce this Guarantee  Agreement on
behalf of the Holders;  (iii) Holders  representing  not less than a Majority in
liquidation  amount of the  Preferred  Securities  have the right to direct  the
time,  method and place of conducting any proceeding for any remedy available to
the Guarantee  Trustee in respect of this Guarantee  Agreement or exercising any
trust or other power  conferred upon the Guarantee  Trustee under this Guarantee
Agreement;  and (iv) if the Guarantee  Trustee  fails to enforce this  Guarantee
Agreement as provided in clauses (ii) and (iii) above,  any Holder may institute
a legal  proceeding  directly  against the Guarantor to enforce its rights under
this Guarantee  Agreement,  without first instituting a legal proceeding against
the Issuer,  the  Guarantee  Trustee or any other  Person.  Notwithstanding  the
foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder may
directly  institute a proceeding  against the Guarantor for  enforcement of this
Guarantee   Agreement  for  such  payment  without  first  instituting  a  legal
proceeding against the Issuer, the Guarantee Trustee or any other Person.

         SECTION 5.05. GUARANTEE OF PAYMENT.  This Guarantee Agreement creates a
guarantee of payment and not merely of collection. This Guarantee Agreement will
not be discharged  except by payment of the Guarantee  Payments in full (without
duplication of amounts  theretofore paid by the Issuer) or upon the distribution
of the Debentures to the Holders as provided in the Declaration.

         SECTION 5.06. SUBROGATION. The Guarantor shall be subrogated to all (if
any) rights of the Holders  against the Issuer in respect of any amounts paid to
the Holders by the Guarantor under this Guarantee Agreement;  provided, however,
that the  Guarantor  shall not  (except  to the  extent  required  by  mandatory
provisions  of law) be entitled to enforce or exercise  any rights  which it may
acquire  by  way  of  subrogation  or  any  indemnity,  reimbursement  or  other
agreement,  in all cases as a result of payment under this Guarantee  Agreement,
if, at the time of any such  payment,  any amounts are due and unpaid under this
Guarantee  Agreement.  If any amount shall be paid to the Guarantor in violation
of the preceding sentence, the Guarantor agrees to hold such amount in trust for
the Holders and to pay over such amount to the Holders.


                                      -15-





         SECTION 5.07. INDEPENDENT OBLIGATIONS.  The Guarantor acknowledges that
its obligations  hereunder are independent of the obligations of the Issuer with
respect to the Preferred  Securities  and that the Guarantor  shall be liable as
principal and as debtor  hereunder to make  Guarantee  Payments  pursuant to the
terms of this Guarantee  Agreement  notwithstanding  the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof.

                                    ARTICLE 6
                    LIMITATION OF TRANSACTIONS; SUBORDINATION

         SECTION  6.01.  LIMITATION  OF  TRANSACTIONS.  So long as any Preferred
Securities remain outstanding,  the Guarantor agrees that it will not declare or
pay  dividends  on, or  redeem,  purchase,  acquire  or make a  distribution  or
liquidation  payment with respect to, any of its common stock or preferred stock
(other than (a) dividends or distributions  in shares of, or options,  warrants,
rights to subscribe for or purchase  shares of,  common stock of the  Guarantor,
(b) any  declaration of a dividend in connection  with the  implementation  of a
shareholders'  rights plan,  or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, (c)
as a  result  of a  reclassification  of the  Guarantor's  capital  stock or the
exchange or the  conversion  of one class or series of the  Guarantor's  capital
stock for another  class or series of the  Guarantor's  capital  stock,  (d) the
payment of accrued dividends and the purchase of fractional  interests in shares
of the  Guarantor's  capital  stock  pursuant  to  the  conversion  or  exchange
provisions of such capital stock or the security  being  converted or exchanged,
or (e) purchases of the Guarantor's  common stock related to the issuance of the
Guarantor's  common stock or rights under any of the  Guarantor's  benefit plans
for its  directors,  officers  or  employees,  any of the  Guarantor's  dividend
reinvestment  plans or stock purchase  plans, or any of the benefit plans of any
of the  Guarantor's  Affiliates,  for such  Affiliate's  directors,  officers or
employees) or make any guarantee  payment with respect thereto,  if at such time
(i) the Guarantor shall be in default with respect to its Guarantee  Payments or
other payment obligations hereunder, (ii) there shall have occurred any event of
default under the  Declaration or (iii) the Guarantor shall have given notice of
its election of an Extended  Interest  Payment  Period and such  period,  or any
extension  thereof,  is  continuing.  In  addition,  so  long  as any  Preferred
Securities remain outstanding,  the Guarantor agrees that it (i) will remain the
sole direct or indirect owner of all of the  outstanding  Common  Securities and
shall not cause or permit the Common Securities to be transferred  except to the
extent  such  transfer  is  permitted  under  Section  9.01 of the  Declaration;
provided that any permitted  successor of the Guarantor  under the Indenture may
succeed to the Guarantor's  ownership of the Common Securities and (ii) will use
reasonable  efforts to cause the Issuer to  continue  to be treated as a grantor
trust for United States federal income tax purposes  except in connection with a
distribution of Debentures as provided in the Declaration.

     SECTION 6.02.  SUBORDINATION.  This Guarantee  Agreement will constitute an
unsecured  obligation of the Guarantor and will rank (i)  subordinate and junior
in right of payment to all other  liabilities  of the  Guarantor,  including the
Debentures, except those made pari passu or
                                      -16-





 subordinate  by their terms,  and (ii) senior to all capital  stock (other than
the most  senior  preferred  stock  issued,  from time to time,  if any,  by the
Guarantor,  which  preferred  stock  will rank pari  passu  with this  Guarantee
Agreement) now or hereafter  issued by the Guarantor and to any guarantee now or
hereafter  entered into by the  Guarantor in respect of any of its capital stock
(other than the most senior  preferred stock issued,  from time to time, if any,
by the Guarantor).  The Guarantor's  obligations under this Guarantee  Agreement
will  rank  pari  passu  with  respect  to  obligations  under  other  guarantee
agreements which it may enter into from time to time to the extent that (i) such
agreements  shall be entered into in  substantially  the form hereof and provide
for  comparable  guarantees by the Guarantor of payment on preferred  securities
issued by other  trusts,  partnerships  or other  entities  affiliated  with the
Guarantor  that are financing  vehicles of the Guarantor and (ii) the debentures
or other evidences of  indebtedness of the Guarantor  relating to such preferred
securities are junior subordinated, unsecured indebtedness of the Guarantor.

                                    ARTICLE 7
                                   TERMINATION

         SECTION 7.01. TERMINATION. This Guarantee Agreement shall terminate and
be of no further force and effect (i) upon full payment of the Redemption  Price
of all Preferred Securities, (ii) upon the distribution of Debentures to Holders
and holders of Common Securities in exchange for all of the Preferred Securities
and Common  Securities  or (iii) upon full  payment  of the  amounts  payable in
accordance with the Declaration upon liquidation of the Issuer.  Notwithstanding
the foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated,  as the case may be, if at any time any Holder must restore  payment
of any sums  paid  with  respect  to the  Preferred  Securities  or  under  this
Guarantee Agreement.

                                    ARTICLE 8
                    LIMITATION OF LIABILITY; INDEMNIFICATION


         SECTION 8.01.  EXCULPATION.

         (a) No Indemnified  Person shall be liable,  responsible or accountable
in damages or otherwise to the  Guarantor or any Holder for any loss,  damage or
claim  incurred  by reason of any act or omission  performed  or omitted by such
Indemnified Person in good faith in accordance with this Guarantee Agreement and
in a manner such Indemnified  Person reasonably  believed to be within the scope
of the  authority  conferred  on  such  Indemnified  Person  by  this  Guarantee
Agreement or by law,  except that an Indemnified  Person shall be liable for any
such  loss,  damage or claim  incurred  by reason of such  Indemnified  Person's
negligence or willful misconduct with respect to such acts or omissions.

         (b) An Indemnified  Person shall be fully  protected in relying in good
faith upon the records of the  Guarantor  and upon such  information,  opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified   Person   reasonably   believes  are  within  such  other  Person's
professional or expert competence and who has been selected with reasonable

                                      -17-





care by or on behalf of the Guarantor, including information,  opinions, reports
or  statements as to the value and amount of the assets,  liabilities,  profits,
losses or any other facts  pertinent to the  existence and amount of assets from
which Distributions to Holders might properly be paid.

         SECTION  8.02.  INDEMNIFICATION.  To the fullest  extent  permitted  by
applicable law, the Guarantor shall indemnify and hold harmless each Indemnified
Person from and against any loss, liability,  expense,  damage or claim incurred
by such Indemnified Person by reason of any act or omission performed or omitted
by such  Indemnified  Person in good  faith in  accordance  with this  Guarantee
Agreement  and in a manner such  Indemnified  Person  reasonably  believed to be
within  the scope of  authority  conferred  on such  Indemnified  Person by this
Guarantee  Agreement,  except that no Indemnified Person shall be entitled to be
indemnified in respect of any loss, liability, expense, damage or claim incurred
by such  Indemnified  Person by reason of negligence or willful  misconduct with
respect to such acts or omissions.

     SECTION 8.03. SURVIVE TERMINATION. The provisions of Sections 8.01 and 8.02
shall survive the termination of this Guarantee  Agreement or the resignation or
removal of the Guarantee Trustee.

                                    ARTICLE 9
                                  MISCELLANEOUS

         SECTION 9.01.  SUCCESSORS  AND ASSIGNS.  All  guarantees and agreements
contained in this  Guarantee  Agreement  shall bind the  successors,  assignees,
receivers,  trustees and representatives of the Guarantor and shall inure to the
benefit  of  the  Holders  then   outstanding.   Except  in  connection  with  a
consolidation,  merger or sale involving the Guarantor  that is permitted  under
Article Ten of the  Indenture,  the Guarantor  shall not assign its  obligations
hereunder.

         SECTION 9.02.  AMENDMENTS.  Except with respect to any changes which do
not  adversely  affect the rights of Holders in any  material  respect (in which
case no consent of Holders will be required),  this Guarantee Agreement may only
be amended with the prior  approval of the Guarantor and the Holders of not less
than  a  Majority  in  liquidation  amount  of  the  Preferred  Securities.  The
provisions of Section 12.02 of the  Declaration  concerning  meetings of Holders
shall apply to the giving of such approval.

         SECTION  9.03.  NOTICES.  Any  notice,  request or other  communication
required or permitted to be given hereunder shall be in writing,  duly signed by
the party giving such notice, and delivered, telecopied or mailed by first class
mail as follows:

         (a) if given to the  Guarantor,  to the address set forth below or such
other address as the Guarantor may give notice of to the Holders:

         Litchfield Financial Corporation, 430 Main Street, P.O. Box 488,
         Williamstown, MA 01267,
         Telecopy: (413) 458-1020


                                      -18-





         (b) if given to the Guarantee  Trustee,  to the address set forth below
or such  other  address  as the  Guarantee  Trustee  may give  notice  of to the
Holders:

         The Bank of New York 101 Barclay Street Floor 21 West New York,
         New York 10286
         Attention: Corporate Trust Trustee Administration Telecopy:
         (212) 815-5915

         (c) if given to any  Holder,  at the address set forth on the books and
records of the Issuer.

         All notices  hereunder shall be deemed to have been given when received
in person,  telecopied  with receipt  confirmed,  or mailed by first class mail,
postage  prepaid,  except that if a notice or other document is refused delivery
or cannot be  delivered  because  of a changed  address  of which no notice  was
given,  such notice or other  document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

     SECTION 9.04.  GENDERS.  The  masculine,  feminine and neuter  genders used
herein shall include the masculine, feminine and neuter genders.

     SECTION  9.05.  BENEFIT.  This  Guarantee  Agreement is solely for the
benefit of the  Holders and  subject to Section  3.01(a) is not  separately
transferable from the Preferred Securities.

     SECTION 9.06.  GOVERNING LAW.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  (WITHOUT  REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS).

      SECTION 9.07.  COUNTERPARTS. This Guarantee Agreement may be executed in
counterparts, each of which shall be an original; but such counterparts shall
together constitute one and the same instrument.

         SECTION 9.08.  LIMITED LIABILITY.  The Holders,  in their capacities as
such,  shall not be personally  liable for any liabilities or obligations of the
Guarantor arising out of this Guarantee Agreement,  and the parties hereby agree
that the Holders,  in their  capacities  as such,  shall be entitled to the same
limitation  of  personal  liability  extended  to the  stockholders  of  private
corporations for profit organized under the General Corporation Law of the State
of Delaware.


                                      -19-




         THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.


                             LITCHFIELD FINANCIAL CORPORATION


                             By:/s/ R. A. Stratton
                                Richard A. Stratton
                                President and Chief Executive Officer


                             THE BANK OF NEW YORK, as Guarantee Trustee



                             By:/s/ Michael Culhane
                                Michael Culhane
                                Vice President


HWD2:  551489-2

                                      -20-