Exhibit 4.13

                        LITCHFIELD FINANCIAL CORPORATION

                                       AND

                              THE BANK OF NEW YORK,

                                   as Trustee

                          SUPPLEMENTAL INDENTURE NO. 1

                            Dated as of May 19, 1999

                                       TO

                          JUNIOR SUBORDINATED INDENTURE


                            Dated as of May 19, 1999
              10% Series A Junior Subordinated Debentures Due 2029

                                   $25,773,200









         SUPPLEMENTAL  INDENTURE  NO. 1, dated as of the 19th day of May,  1999,
between  Litchfield  Financial  Corporation,  a corporation  duly  organized and
existing under the laws of The  Commonwealth of  Massachusetts  (the "Company"),
and The Bank of New  York,  a New York  banking  corporation,  as  trustee  (the
"Trustee").

                                    RECITALS

         The Company has  heretofore  executed  and  delivered  to the Trustee a
Junior  Subordinated  Indenture,  dated as of May 19,  1999  (the  "Indenture"),
providing  for the  issuance  from  time to  time of one or more  series  of its
unsecured junior subordinated debentures (the "Debentures").

         Pursuant to the terms of the Indenture,  the Company desires to provide
for the  establishment of a new series of Debentures to be designated as the 10%
Junior  Subordinated  Debentures due 2029 (the "Series A Debentures"),  the form
and  substance  of such  Series  A  Debentures  and the  terms,  provisions  and
conditions  thereof  to be set  forth  as  provided  in the  Indenture  and this
Supplemental Indenture No. 1.

         The Company has caused Litchfield Capital Trust I ("Litchfield  Capital
Trust I") to be created as a statutory  business  trust under the Business Trust
Act of the State of  Delaware  (12 Del.  Code  ss.3801  et seq.)  pursuant  to a
Declaration of Trust,  dated as of April 12, 1999 (as amended by an Amendment of
the Declaration of Trust, dated as of May 19, 1999, the "Original Declaration"),
and the  filing of a  Certificate  of Trust with the  Secretary  of State of the
State of Delaware on April 12, 1999.

         The Original  Declaration is to be amended and restated in its entirety
pursuant to an Amended  and  Restated  Declaration  of Trust dated as of May 19,
1999 (such Amended and Restated  Declaration  of Trust,  as amended from time to
time, the "Declaration of Trust").

         Litchfield  Capital  Trust I desires  to issue  its 10%  Series A Trust
Preferred  Securities  (the  "Preferred  Securities")  and sell  such  Preferred
Securities to the underwriters set forth in that certain Underwriting  Agreement
dated May 13, 1999 by and among the Company,  Litchfield Capital Trust I and the
underwriters named therein.

         In  connection  with such  purchases  of Preferred  Securities  and the
related  purchase  by the  Company of the Common  Securities  (as defined in the
Declaration of Trust) of Litchfield  Capital Trust I, Litchfield Capital Trust I
will purchase and hold as trust assets the Series A Debentures.

         Pursuant to the  Declaration of Trust,  the legal title to the Series A
Debentures shall be owned and held of record in the name of The Bank of New York
or its  successor  under the  Declaration  of Trust,  as Property  Trustee  (the
"Property  Trustee"),  in trust for the  benefit  of  holders  of the  Preferred
Securities and the Common Securities.

         Upon written  direction of the Company or any subsequent  holder of the
Common Securities, the Regular Trustees (as defined in the Declaration of Trust)
of Litchfield Capital Trust I shall, unless the Series A Debentures are redeemed
as described herein, dissolve Litchfield


<PAGE>



Capital  Trust I and cause to be  distributed  to the  holders of the  Preferred
Securities  and the  Common  Securities,  on a Pro  Rata  basis  (determined  as
provided in the terms of the Preferred Securities and Common Securities attached
as Exhibits B and C to the  Declaration of Trust),  Series A Debentures  and, in
connection  with a Liquidation  Distribution  (as defined in the  Declaration of
Trust), the Regular Trustees may cause to be distributed to holders of Preferred
Securities and Common Securities, on a Pro Rata basis, Series A Debentures (each
a "Dissolution Event").

         Section  2.01 of the  Indenture  provides  that  various  matters  with
respect  to  any  series  of  Debentures  issued  under  the  Indenture  may  be
established in an indenture supplemental to the Indenture.

         Subparagraph  (h) of Section 9.01 of the  Indenture  provides  that the
Company  and the  Trustee  may  enter  into  an  indenture  supplemental  to the
Indenture  to  establish  the form or  terms  of  Debentures  of any  series  as
permitted by Section 2.01 of the Indenture.

         For and in consideration of the premises and the issuance of the series
of Debentures provided for herein, it is mutually covenanted and agreed, for the
equal and proportionate benefit of the holders of the Debentures of such series,
as follows:

                                   ARTICLE ONE
                  Relation to Indenture; Additional Definitions

         SECTION 1.01.  Relation to Indenture. This Supplemental Indenture No.1
constitutes an integral part of the Indenture.

         SECTION 1.02.  Additional Definitions.  For all purposes of this
Supplemental Indenture No. 1:

         (1)      Capitalized terms used herein shall have the meanings
specified herein or in the Indenture, as the case may be;

         (2)      "Additional Interest" has the meaning set forth in Section
2.05(d) hereof;

         (3) "Change in Investment Company Act Law" has the meaning set forth in
the definition of Investment Company Event;

         (4)      "Common Securities" has the meaning set forth in the Recitals
herein;

         (5)      "Compounded Interest" has the meaning set forth in Section
2.05(a) hereof;

         (6)      "Debentures" has the meaning set forth in the Recitals herein;


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         (7)      "Declaration of Trust" has the meaning set forth in the
Recitals herein;

         (8)      "Dissolution Event" has the meaning set forth in the Recitals
herein;

         (9)      "Extended Interest Payment Period" has the meaning set forth
in Section 4.01(a) hereof;

         (10)     "Guarantee Payments" has the meaning set forth in Section
5.01 hereof;

         (11)     "Indenture" has the meaning set forth in the Recitals herein;

         (12)     "Interest Payment Date" has the meaning set forth in Section
2.05(a) hereof;

         (13) "Investment Company Act" means the Investment Company Act of 1940,
as amended;

         (14) "Investment  Company Event" means that the Company and the Regular
Trustees  shall have  received  an opinion of  counsel,  who may be counsel  for
Litchfield  Capital Trust I, the Trustee or the Company,  who may be an employee
of the Company but not an employee of Litchfield Capital Trust I or the Trustee,
and who shall be reasonably  acceptable to the Trustee,  experienced in practice
under the Investment  Company Act that as a result of the occurrence of a change
in law or  regulation or a change in  interpretation  or  application  of law or
regulation by any legislative  body,  court,  governmental  agency or regulatory
authority  (a "Change in  Investment  Company  Act Law"),  there is more than an
insubstantial  risk that Litchfield  Capital Trust I is or will be considered an
"investment  company"  which is required to be registered  under the  Investment
Company Act, which Change in Investment  Company Act Law becomes effective on or
after June 30, 2004;

         (15)     "Liquidation Distribution" has the meaning set forth in the
Recitals herein;

         (16)     "Maturity Date" has the meaning set forth in Section 2.03
hereof;

         (17) "Non Book-Entry Preferred Securities" has the meaning set forth in
Section 2.04(b)(ii) hereof;

         (18)     "Optional Redemption Price" has the meaning set forth in
Section 3.01(a) hereof;

         (19)     "Original Declaration" has the meaning set forth in the
Recitals herein;

         (20)     "Preferred Securities" has the meaning set forth in the
Recitals herein;


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         (21) "Preferred  Securities  Guarantee" means the Guarantee  Agreement,
dated as of May 19,  1999,  between  the Company and The Bank of New York as the
initial Guarantee Trustee thereunder, in respect of the Preferred Securities;

         (22)     "Property Account" has the meaning set forth in Section
2.04(a) hereof;

         (23)     "Property Trustee" has the meaning set forth in the Recitals
herein;

         (24)     "Regular Trustees" has the meaning set forth in the Recitals
herein;

         (25)  "Litchfield  Capital  Trust I" has the  meaning  set forth in the
Recitals herein;

         (26)  "Series A  Debentures"  has the meaning set forth in the Recitals
herein and Section 2.01 hereof;

         (27)     "Special Event" means either a Tax Event or an Investment
Company Event;

         (28) "Tax Event" means that the Company and the Regular  Trustees shall
have received an opinion of counsel,  who may be counsel for Litchfield  Capital
Trust I, the Trustee or the  Company,  who may be an employee of the Company but
not an employee of Litchfield  Capital Trust I or the Trustee,  and who shall be
reasonably acceptable to the Trustee,  experienced in such matters to the effect
that on or after  May 19,  1999 as a result of (a) any  amendment  to, or change
(including any announced  prospective  change) in, the laws (or any  regulations
thereunder)  of  the  United  States  or any  political  subdivision  or  taxing
authority  thereof  or  therein,   (b)  any  amendment  to,  or  change  in,  an
interpretation or application of any such laws or regulations by any legislative
body,  court,   governmental  agency  or  regulatory  authority  (including  the
enactment of any  legislation  and the  publication of any judicial  decision or
regulatory  determination),  (c)  any  interpretation  or  pronouncement  by any
legislative  body,  court,  governmental  agency or  regulatory  authority  that
provides for a position  with respect to such laws or  regulations  that differs
from the theretofore  generally accepted position or (d) any action taken by any
governmental  agency  or  regulatory  authority,  which  amendment  or change is
enacted,   promulgated,   issued  or  announced  or  which   interpretation   or
pronouncement  is issued or announced or which action is taken,  in each case on
or  after  May 19,  1999,  there is more  than an  insubstantial  risk  that (i)
Litchfield  Capital  Trust I is, or will be within 90 days of the date  thereof,
subject to federal  income tax with respect to income accrued or received on the
Series A Debentures,  (ii)  Litchfield  Capital Trust I is, or will be within 90
days of the date  thereof,  subject to more than a de  minimis  amount of taxes,
duties or other governmental charges or (iii) interest payable by the Company to
Litchfield  Capital Trust I on the Series A Debentures is not, or within 90 days
of the date thereof will not be,  deductible  by the Company for federal  income
tax purposes;

         (29) All references  herein to Articles and Sections,  unless otherwise
specified, refer to the corresponding Articles and Sections of this Supplemental
Indenture No. 1; and

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         (30) The terms  "herein,"  "hereof,"  "hereunder"  and  other  words of
similar import refer to this Supplemental Indenture No. 1.

                                   ARTICLE TWO
       General Terms and Conditions of the Series 10% Series A Debentures

         SECTION  2.01.  Title  of  Debentures.  There  shall  be and is  hereby
authorized a series of  Debentures  designated  as the "10% Junior  Subordinated
Debentures due 2029" (the "Series A Debentures").

         SECTION 2.02.  Limitation on Aggregate  Principal Amount. The aggregate
principal  amount of the Series A  Debentures  shall be limited to  $25,773,200;
provided,  however, that the authorized aggregate principal amount of the Series
A Debentures  may be increased  above such amount by a Board  Resolution to such
effect. Each Series A Debenture shall be dated the date of its authentication.

         SECTION 2.03.  Maturity Date. The Series A Debentures  shall mature and
the principal  amount thereof shall be due and payable together with all accrued
and unpaid  interest  thereon,  including  Additional  Interest  and  Compounded
Interest,  if any, on June 30, 2029 (the "Maturity  Date");  provided,  if a Tax
Event occurs,  then the Company will have the right (a) prior to the dissolution
of  Litchfield  Capital  Trust I, to shorten the  Maturity  Date of the Series A
Debentures,  to the minimum extent required,  but not earlier than September 30,
2018, or (b) to direct the Property Trustee to dissolve Litchfield Capital Trust
I (if not  previously  dissolved)  and shorten the Maturity Date of the Series A
Debentures,  to the minimum extent required,  but not earlier than September 30,
2018,  in each case such that in the opinion of counsel to the Company,  who may
be an employee of the Company, experienced in such matters, after shortening the
Maturity Date,  interest paid on the Series A Debentures  will be deductible for
federal income tax purposes.

       SECTION 2.04.  Place of Payment, Registration or Exchange.

         (a) Except as  provided  in Section  2.04(b),  the Series A  Debentures
shall be issued in fully registered  certificated  form without interest coupons
in denominations of $10 or integral multiples thereof. Principal and interest on
the  Series A  Debentures  issued  in  certificated  form will be  payable,  the
transfer  of such  Series A  Debentures  will be  registrable  and such Series A
Debentures will be exchangeable for Series A Debentures  bearing identical terms
and provisions at the Corporate Trust Office of the Trustee; provided,  however,
that  payment  of  interest  may be made at the  option of the  Company by check
mailed  to the  registered  holders  at such  addresses  as shall  appear in the
Debenture  Register and that the payment of principal with respect to the Series
A Debentures  will only be made upon surrender of the Series A Debentures to the
Trustee.  Notwithstanding the foregoing,  so long as the Property Trustee is the
legal  owner and record  holder of the Series A  Debentures,  the payment of the
principal  of  and  interest  (including   Additional  Interest  and  Compounded
Interest, if any) on the Series A Debentures held by the

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Property  Trustee will be made by the Company in immediately  available funds on
the payment date therefor at such place and to the Property  Account (as defined
in the Declaration of Trust)  established and maintained by the Property Trustee
pursuant to the Declaration of Trust.

         (b) In connection with a Dissolution Event:

                  (i) Series A Debentures in certificated  form may be presented
to the  Trustee by the  Property  Trustee  in  exchange  for one or more  Global
Debentures representing the Series A Debentures in an aggregate principal amount
equal to all  Outstanding  Series A Debentures,  to be registered in the name of
the Depositary,  or its nominee,  and delivered by the Trustee to the Depositary
for crediting to the accounts of its  participants  pursuant to the instructions
of the Regular Trustees.  The Company upon any such  presentation  shall execute
one or more  Global  Debentures  representing  the Series A  Debentures  in such
aggregate   principal   amount  and   deliver   the  same  to  the  Trustee  for
authentication   and  delivery  in  accordance   with  the  Indenture  and  this
Supplemental  Indenture No. 1.  Payments on the Series A Debentures  issued as a
Global Debenture will be made to the Depositary; and

                  (ii) if any Preferred  Securities  are held in non  book-entry
certificated  form, Series A Debentures in certificated form may be presented to
the  Trustee by the  Property  Trustee  and any  Definitive  Preferred  Security
Certificate (as defined in the Declaration of Trust) which represents  Preferred
Securities  other than  Preferred  Securities  held by the  Clearing  Agency (as
defined in the  Declaration of Trust) or its nominee ("Non Book- Entry Preferred
Securities")  will be  deemed  to  represent  beneficial  interests  in Series A
Debentures  presented to the Trustee by the Property Trustee having an aggregate
principal amount equal to the aggregate liquidation amount of the Non Book-Entry
Preferred  Securities until such Definitive  Preferred  Security  Certificate is
presented to the  Debenture  Registrar  for transfer or reissuance at which time
such Preferred  Security  Certificate will be canceled and a Series A Debenture,
registered in the name of the holder of the Preferred  Security  Certificate  or
the transferee of the holder of such Preferred Security Certificate, as the case
may be, with an aggregate  principal  amount equal to the aggregate  liquidation
amount  of the  Definitive  Preferred  Security  Certificate  canceled  will  be
executed by the  Company and  delivered  to the Trustee for  authentication  and
delivery in accordance with the Indenture and this Supplemental Indenture No. 1.
Upon  issuance  of  such  Series  A  Debentures,  Series  A  Debentures  with an
equivalent  aggregate  amount that were presented by the Property Trustee to the
Trustee will be deemed to have been canceled.

         SECTION 2.05.  Interest and Interest Rates.

         (a) Each Series A Debenture  will bear  interest at the rate of 10% per
annum from May 19, 1999 until the principal thereof becomes due and payable, and
on any overdue  principal  and (to the extent that  payment of such  interest is
enforceable under applicable law) on any overdue  installment of interest at the
same rate per annum (10%), compounded quarterly ("Compounded Interest"), payable
(subject to the  provisions of Article  Four)  quarterly in arrears on March 31,
June 30,  September 30 and  December 31 of each year (each an "Interest  Payment
Date"),

                                        7





commencing on June 30, 1999, to the person in whose name such Series A Debenture
or any predecessor Series A Debenture is registered, at the close of business on
the regular  record date for such  interest  installment,  which,  except as set
forth  below,  shall be, in  respect  of any  Series A  Debentures  of which the
Property Trustee is the registered  holder or a Global  Debenture,  the close of
business  on the  Business  Day  next  preceding  that  Interest  Payment  Date.
Notwithstanding  the  foregoing  sentence,  if the Preferred  Securities  are no
longer in  book-entry  only form or if  pursuant  to the  provisions  of Section
2.11(c) of the Indenture the Series A Debentures are not represented by a Global
Debenture,  the regular record dates for such interest  installment shall be the
close of  business  on the  fifteenth  day of the month in which  that  Interest
Payment Date occurs.

         (b) Any such interest  installment not punctually paid or duly provided
for shall  forthwith  cease to be  payable  to the  registered  holders  on such
regular  record date,  and shall instead be paid to the person in whose name the
Series A Debenture (or one or more Predecessor  Debentures) is registered at the
close of  business  on a special  record date to be fixed by the Trustee for the
payment  of such  defaulted  interest,  notice  whereof  shall  be  given to the
registered  holders  of the Series A  Debentures  not less than 10 days prior to
such special  record date, or may be paid at any time in any other lawful manner
not inconsistent  with the requirements of any securities  exchange or quotation
system on which the Series A Debentures  may be listed or traded,  and upon such
notice as may be required  by such  exchange or  quotation  system,  all as more
fully provided in Section 2.03 of the Indenture.

         (c) The amount of  interest  payable  for any full  quarterly  interest
period will be computed on the basis of a 360-day year of twelve 30-day  months,
and for any  period  shorter  than a full  quarterly  interest  period for which
interest  is  computed,  interest  shall be  computed on the basis of the actual
number of days elapsed per 90-day  quarter.  In the event that any date on which
interest  is payable  on the Series A  Debentures  is not a Business  Day,  then
payment of  interest  payable on such date shall be made on the next  succeeding
day which is a  Business  Day (and  without  any  interest  or other  payment in
respect of any such  delay),  except that,  if such  Business Day is in the next
succeeding  calendar  year,  such  payment  shall  be  made  on the  immediately
preceding  Business  Day, in each case with the same force and effect as if made
on the date such payment was originally payable.

         (d) If at any time Litchfield  Capital Trust I shall be required to pay
any taxes, duties, assessments or governmental charges of whatever nature (other
than  withholding  taxes)  imposed by the United  States of America or any other
taxing  authority,  then, in any such case,  the Company shall pay as additional
interest  ("Additional  Interest")  on the Series A Debentures  such  additional
amounts as shall be required so that the net amounts  received  and  retained by
Litchfield Capital Trust I after paying any such taxes,  duties,  assessments or
other  governmental  charges  shall be equal to the amounts  Litchfield  Capital
Trust I would have  received  had no such taxes,  duties,  assessments  or other
governmental charges been imposed.


                                        8

         SECTION 2.06. Denomination of Debentures. The Series A Debentures shall
be in registered form without coupons and shall be issuable in  denominations of
$10 and integral multiples thereof.

         SECTION 2.07.  Currency.  Payment of principal and interest on the
Series A Debentures shall be payable in U.S. dollars.

         SECTION 2.08.  Paying Agent.  The Trustee shall initially serve as
paying agent of the Series A Debentures.

         SECTION 2.09.  Sinking Fund Obligations.  The Company has no obligation
to redeem or purchase  any Series A  Debentures  pursuant to any sinking fund or
analogous provisions  (including payments made in cash in anticipation of future
sinking fund obligations) or at the option of a holder thereof.

                                  ARTICLE THREE
                 Optional Redemption of the Series A Debentures

       SECTION 3.01. Optional Redemption on or after June 30, 2004.

         (a) Except as  provided  in  Section  3.02  hereof  and  subject to the
provisions below, Series A Debentures shall not be redeemed by the Company prior
to June 30,  2004.  Subject  to the  terms of  Article 3 of the  Indenture,  the
Company shall have the right to redeem the Series A Debentures,  without premium
or penalty,  in whole or in part, at any time from time to time on or after June
30, 2004,  upon not less than 30 nor more than 60 days' notice to each holder of
the Series A Debentures,  at a redemption  price of 100% of the principal amount
of the Series A  Debentures,  together  with any  accrued  and  unpaid  interest
thereon,  including Compounded Interest and Additional Interest, if any, to, but
excluding, the date of such redemption (the "Optional Redemption Price").

         (b) If the Series A Debentures  are  redeemed on any  Interest  Payment
Date,  accrued and unpaid  interest shall be payable to holders of record on the
relevant record date.

         (c) The  Company  shall not redeem any Series A  Debentures  unless all
accrued  and  unpaid  interest  thereon,   including   Compounded  Interest  and
Additional  Interest,  if any, has been paid for all quarterly  interest periods
terminating on or prior to the date of notice of redemption.

         (d) If the Company  gives a notice of redemption in respect of Series A
Debentures (which notice will be irrevocable), then by 10:00 a.m., New York City
time, on the  redemption  date, the Company shall deposit  irrevocably  with the
Trustee funds  sufficient to pay the applicable  Optional  Redemption  Price and
shall  give  irrevocable   instructions  and  authority  to  pay  such  Optional
Redemption  Price to the  holders  of the  Series A  Debentures.  If  notice  of
redemption  shall  have  been  given  and  funds  deposited  as  required,  then
immediately prior to the

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close of business on the  redemption  date interest shall cease to accrue on the
Series A Debentures  called for  redemption,  such Series A Debentures  shall no
longer be deemed to be  outstanding  and all rights of holders of such  Series A
Debentures so called for redemption shall cease, except the right of the holders
of such Series A Debentures to receive the Optional Redemption Price but without
interest on such Optional Redemption Price.

         (e) If any date fixed for  redemption of any Series A Debentures is not
a Business  Day, then payment of the Optional  Redemption  Price payable on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay) except that, if such
Business Day falls in the next calender  year,  such payment will be made on the
immediately  preceding Business Day, in each case with the same force and effect
as if made on such date fixed for redemption.  If the Company fails to repay the
Series A Debentures  on maturity or the date fixed for  redemption or if payment
of the  Optional  Redemption  Price in  respect of the  Series A  Debentures  is
improperly  withheld  or refused and not paid by the  Company,  interest on such
Series A Debentures  shall continue to accrue from the original  redemption date
to the  date of  payment,  in  which  case  the  actual  payment  date  shall be
considered  the date  fixed for  redemption  for  purposes  of  calculating  the
Optional Redemption Price.

         (f) In the event of any  redemption  in part,  the Company shall not be
required  to (i)  issue,  register  the  transfer  of or  exchange  any Series A
Debentures  during a period  beginning at the opening of business 15 days before
the mailing of a notice of redemption  of Series A Debentures  and ending at the
close of business on the date of such mailing and (ii)  register the transfer of
or exchange any Series A Debentures so selected for  redemption,  in whole or in
part, except the unredeemed portion of any Series A Debentures being redeemed in
part.

         SECTION  3.02.  Optional  Redemption  upon the  Occurrence of a Special
Event. If a Special Event shall occur and be continuing,  the Company shall have
the right at any time to redeem the  Series A  Debentures  in whole,  but not in
part,  for cash at the Optional  Redemption  Price within 90 days  following the
occurrence of such Special Event.

         SECTION 3.03. Partial  Redemption.  If the Series A Debentures are only
partially  redeemed pursuant to this Article Three, the Series A Debentures will
be redeemed pro rata or by lot or by any other  method  utilized by the Trustee.
Notwithstanding  the  foregoing,  if  a  partial  redemption  of  the  Series  A
Debentures  would result in the  delisting of the  Preferred  Securities  by any
national  securities  exchange  or other  organization  on which  the  Preferred
Securities  are then listed or traded,  the Company  shall not be  permitted  to
effect such partial  redemption  and will only redeem the Series A Debentures in
whole.


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                                  ARTICLE FOUR
                      Extension of Interest Payment Period

       SECTION 4.01.  Option to Extend Interest Payment Period.

         (a) So long as the Company is not in default in the payment of interest
on the Series A Debentures,  the Company shall have the right to defer  payments
of interest on the Series A Debentures by extending the interest  payment period
of the  Series A  Debentures  at any  time  and  from  time to time for up to 20
consecutive  quarterly  interest periods (each such period an "Extended Interest
Payment Period"),  at the end of which period the Company shall pay all interest
accrued and unpaid  thereon  (together with  Compounded  Interest and Additional
Interest,  if any); provided that no Extended Interest Payment Period may extend
beyond the Maturity Date or redemption date of the Series A Debentures.

         (b) During any Extended Interest Payment Period,  the Company shall not
(i)  declare  or pay any  dividend  on, or redeem,  purchase,  acquire or make a
distribution  or liquidation  payment with respect to, any of its capital stock,
other than:

                  (A)  dividends  or  distributions  in shares  of, or  options,
warrants,  rights to subscribe for or purchase  shares of, the Company's  common
stock;

                  (B) any  declaration  of a  dividend  in  connection  with the
implementation  of a  shareholders'  rights plan, or the issuance of stock under
any such plan in the future,  or the redemption or repurchase of any such rights
pursuant thereto;

                  (C) as a result of a reclassification of the Company's capital
stock or the exchange or the  conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock;

                  (D) the  payment  of accrued  dividends  and the  purchase  of
fractional  interests in shares of the Company's  capital stock  pursuant to the
conversion or exchange  provisions  of such capital stock or the security  being
converted or exchanged; or

                  (E)  purchases of the  Company's  common stock  related to the
issuance of the  Company's  common  stock or rights  under any of the  Company's
benefit  plans for its  directors,  officers,  employees,  any of the  Company's
dividend reinvestment plans or stock purchase plans, or any of the benefit plans
of any of the Company's Affiliates for such Affiliates'  directors,  officers or
employees;

(ii) make any payment of  principal  or of  interest  or premium,  if any, on or
repay,  repurchase or redeem any debt  security of the Company that,  ranks pari
passu with or junior in interest to the Series A  Debentures;  or (iii) make any
guarantee  payments  with  respect to any  guarantee  by the Company of the debt
securities of any Subsidiary of the Company (other than the Preferred

                                       11





Securities  Guarantee)  if such  guarantee  ranks  pari  passu with or junior in
interest to the Series A Debentures.

         (c) Prior to the termination of any Extended  Interest  Payment Period,
the Company may pay all or any portion of the  interest  accrued on the Series A
Debentures  on any  Interest  Payment  Date to holders of record on the  regular
record date for such Interest  Payment Date or from time to time further  extend
such Extended  Interest  Payment  Period;  provided that such Extended  Interest
Payment  Period  together  with all such further  extensions  thereof  shall not
exceed 20 consecutive  quarterly  interest periods.  Upon the termination of any
Extended  Interest  Payment  Period and the  payment of all  accrued  and unpaid
interest, including any Additional Interest and Compounded Interest, the Company
may commence a new Extended  Interest  Payment Period,  subject to the foregoing
requirements.  No interest shall be due and payable during an Extended  Interest
Payment  Period,  except  at the  end  thereof.  On the  Interest  Payment  Date
occurring at the end of the Extended Interest Payment Period,  the Company shall
pay all accrued and unpaid  interest on the Series A  Debentures,  including any
Additional  Interest  and  Compounded  Interest,  to the holders of the Series A
Debentures  in  whose  names  the  Series A  Debentures  are  registered  in the
Debenture  Register  (regardless  of who the  holders of record may have been on
other dates during the Extended  Interest Payment Period) on the record date for
such Interest Payment Date.

         SECTION 4.02.  Notice of Extension of Interest Payment Period.

         (a) So long as the Property  Trustee is the legal owner and sole holder
of record of the Series A Debentures, at the time the Company elects to begin an
Extended  Interest  Payment  Period,  the Company  shall give both the  Property
Trustee and the Trustee  notice of its election to begin such Extended  Interest
Payment Period one Business Day prior to the earlier of (i) the next  succeeding
date on which  Distributions  (as  defined in the  Declaration  of Trust) on the
Preferred  Securities are payable or (ii) the date Litchfield Capital Trust I is
required to give notice of the record  date or the date such  Distributions  are
payable  to the New York  Stock  Exchange  or other  applicable  self-regulatory
organization  or to holders of the  Preferred  Securities,  but in any event not
less than one Business Day prior to such record date.

         (b) If as a result of a Dissolution Event Series A Debentures have been
distributed to holders of Trust  Securities,  the Company shall give the holders
of the Series A  Debentures  and the Trustee  notice of its election to begin an
Extended  Interest Payment Period at least 10 Business Days prior to the earlier
of (i) the next succeeding Interest Payment Date or (ii) the date the Company is
required to give notice of the record or payment date of such  related  interest
payment to the New York Stock  Exchange  (if the  Series A  Debentures  are then
listed thereon) or other applicable  self-regulatory  organization or to holders
of the Series A Debentures.

         (c) The quarter in which any notice is given  pursuant to Section  4.02
shall be  counted  as one of the  quarters  permitted  in the  maximum  Extended
Interest Payment Period permitted under this Article Four.

                                       12






                                  ARTICLE FIVE
                 Covenants Applicable to the Series A Debentures

         SECTION  5.01.   Prohibited  Actions  while  Preferred  Securities  are
Outstanding.  So long as any Preferred  Securities issued by Litchfield  Capital
Trust I  remain  outstanding,  the  Company  shall  not (i)  declare  or pay any
dividends on, or redeem, purchase, acquire or make a distribution or liquidation
payment with respect to, any of its capital  stock (other than (a)  dividends or
distributions  in shares of, or options,  warrants,  rights to subscribe  for or
purchase  shares of,  common  stock of the  Company,  (b) any  declaration  of a
dividend in connection with the  implementation of a shareholders'  rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase  of  any  such  rights  pursuant  thereto,  (c)  as  a  result  of  a
reclassification  of  the  Company's  capital  stock  or  the  exchange  or  the
conversion  of one class or series of the  Company's  capital  stock for another
class or series of the  Company's  capital  stock,  (d) the  payment  of accrued
dividends  and the purchase of  fractional  interests in shares of the Company's
capital stock pursuant to the conversion or exchange  provisions of such capital
stock or the security  being  converted or  exchanged,  or (e)  purchases of the
Company's  common stock related to the issuance of the Company's common stock or
rights under any of the  Company's  benefit plans for its  directors,  officers,
employees,  any of the Company's  dividend  reinvestment plans or stock purchase
plans,  or any of the benefit plans of any of the Company's  Affiliates for such
Affiliates'  directors,  officers  or  employees),  (ii)  make  any  payment  of
principal or of interest or premium,  if any, on or repay,  repurchase or redeem
any debt  security  of the  Company  that,  ranks  pari  passu with or junior in
interest to the Series A Debentures  or (iii) make any  guarantee  payments with
respect to any guarantee by the Company of the debt securities of any Subsidiary
of the Company  (other than pursuant to the Preferred  Securities  Guarantee) if
such  guarantee  ranks  pari passu  with or junior in  interest  to the Series A
Debentures,  if at such time (x) the Company shall be in default with respect to
its  Guarantee  Payments (as defined in the Preferred  Securities  Guarantee) or
other payment obligations under the Preferred  Securities  Guarantee,  (y) there
shall have occurred any Event of Default with respect to the Series A Debentures
or (z) the Company shall have given notice of its election to defer  payments of
interest on the Series A Debentures by extending the interest  payment period in
accordance with Article Four hereof.

         SECTION 5.02. Listing on NASDAQ. In connection with the distribution of
the Series A  Debentures  to the  holders  of the  Preferred  Securities  upon a
Dissolution  Event,  the Company will use its best efforts to list such Series A
Debentures on the Nasdaq  National Market or on such other exchange or quotation
system as the Preferred Securities are then listed and traded.

         SECTION 5.03.  Compliance  With the  Declaration of Trust.  The Company
covenants and agrees for the benefit of the holders of the Preferred  Securities
to comply fully with all of its obligations and agreements under the Declaration
of  Trust,  including,  without  limitation,  its  obligations  under  Article 4
thereof.


                                       13





         SECTION 5.04.  Covenants  with Respect to  Litchfield  Capital Trust I.
Prior to the  distribution  of Series A  Debentures  to the holders of Preferred
Securities upon a Dissolution  Event,  the Company  covenants and agrees for the
benefit of the holders of the Preferred Securities (i) to remain the sole direct
or indirect owner of all of the outstanding  Common  Securities and not to cause
or permit the Common  Securities  to be  transferred  except as permitted by the
Declaration of Trust, provided that any permitted successor of the Company under
the Indenture may succeed to the Company's  ownership of the Common  Securities,
and (ii) use reasonable  efforts to cause Litchfield Capital Trust I to continue
to be treated as a grantor trust for United States  federal income tax purposes,
except in connection with a Dissolution Event.

                                   ARTICLE SIX
                           Form of Series A Debentures

         SECTION 6.01. The Series A Debentures and the Trustee's  Certificate of
Authentication  to be endorsed  thereon are to be substantially in the following
forms:

                           (FORM OF FACE OF DEBENTURE)

         [IF THE NOTE IS TO BE A GLOBAL DEBENTURE,  INSERT - This Debenture is a
Global Debenture within the meaning of the Indenture hereinafter referred to and
is registered  in the name of a Depositary  or a nominee of a  Depositary.  This
Debenture is  exchangeable  for  Debentures  registered  in the name of a person
other than the  Depositary  or its  nominee  only in the  limited  circumstances
described  in the  Indenture,  and no transfer of this  Debenture  (other than a
transfer  of this  Debenture  as a whole by the  Depositary  to a nominee of the
Depositary  or by a nominee  of the  Depositary  to the  Depositary  or  another
nominee of the Depositary) may be registered except in limited circumstances.

         Unless this Debenture is presented by an authorized  representative  to
The Depository Trust Company (55 Water Street, New York, New York) to the issuer
or its  agent  for  registration  of  transfer,  exchange  or  payment,  and any
Debenture  issued is  registered in the name of Cede & Co. or such other name as
requested by an authorized  representative  of The Depository  Trust Company and
any  payment  hereon is made to Cede & Co.,  ANY  TRANSFER,  PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein.]



                                       14





No.                                                         $

[CUSIP NO.             ____________]

                                LITCHFIELD FINANCIAL CORPORATION

                      __% JUNIOR SUBORDINATED DEBENTURE DUE 2029

         LITCHFIELD  FINANCIAL  CORPORATION,  a corporation  duly  organized and
existing under the laws of The Commonwealth of Massachusetts (herein referred to
as the  "Company",  which term  includes  any  successor  corporation  under the
Indenture  hereinafter referred to), for value received,  hereby promises to pay
to  _____________________________,  or registered assigns,  the principal sum of
___________________  Dollars  on  __________,  2029,  provided,  if a Tax  Event
occurs,  then the Company  will have the right (a) prior to the  dissolution  of
Litchfield  Capital  Trust I, to shorten  the  Maturity  Date of this  series of
Debentures to the minimum extent required, but not earlier than _______________,
or (b) to direct the Property Trustee to dissolve Litchfield Capital Trust I (if
not  previously  dissolved)  and  shorten  the  Maturity  Date of this series of
Debentures to the minimum extent required, but not earlier than _______________,
in each case such that in the opinion of counsel to the Company,  experienced in
such matters,  after shortening the Maturity Date,  interest paid on this series
of Debentures  will be deductible  for federal  income tax purposes,  and to pay
interest on said  principal  sum from  __________,  1999 or from the most recent
interest  payment  date (each such date,  an "Interest  Payment  Date") to which
interest has been paid or duly provided  for,  quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing __________,  1999
at the rate of __% per annum plus Additional  Interest and Compounded  Interest,
if any, until the principal hereof shall have become due and payable, and on any
overdue principal and premium, if any.

         So long as the  Company is not in default in the payment of interest on
this series of Debentures, the Company shall have the right to defer payments of
interest on this series of Debentures by extending the interest  payment  period
of this  series  of  Debentures  at any  time  from  time  to time  for up to 20
consecutive  quarterly  interest periods (each such period an "Extended Interest
Payment Period"),  at the end of which period the Company shall pay all interest
accrued and unpaid  thereon  (together with  Compounded  Interest and Additional
Interest,  if any); provided that no Extended Interest Payment Period may extend
beyond the Maturity Date or redemption date of this series of Debentures.  Prior
to the termination of any Extended Interest Payment Period,  the Company may pay
all or any portion of the interest  accrued on this series of  Debentures on any
Interest  Payment Date to holders of record on the regular  record date for such
Interest  Payment  Date or prepay at any time all or any portion of the interest
accrued  during an  Extension  Period or from time to time  further  extend such
Extended  Interest Payment Period;  provided that such Extended Interest Payment
Period  together  with all such further  extensions  thereof shall not exceed 20
consecutive  quarterly  interest  periods or extend  beyond the Maturity Date or
redemption  date of this  series  of  Debentures.  Upon the  termination  of any
Extended  Interest  Payment  Period and the  payment of all  accrued  and unpaid
interest, including any

                                       15





Additional  Interest  and  Compounded  Interest,  the Company may commence a new
Extended  Interest  Payment Period,  subject to the foregoing  requirements.  No
interest shall be due and payable during an Extended  Interest  Payment  Period,
except at the end thereof.  On the Interest Payment Date occurring at the end of
the Extended  Interest  Payment  Period,  the Company  shall pay all accrued and
unpaid interest on this series of Debentures,  including any Additional Interest
and  Compounded  Interest,  to the holders of this series of Debentures in whose
names  this  series of  Debentures  are  registered  in the  Debenture  Register
(regardless of who the holders of record may have been on other dates during the
Extended  Interest  Payment Period) on the record date for such Interest Payment
Date.

         The amount of interest  payable on any  Interest  Payment Date shall be
computed on the basis of a 360-day  year of twelve  30-day  months,  and for any
period  shorter  than a full  quarterly  interest  period for which  interest is
computed,  interest  shall be computed on the basis of the actual number of days
elapsed  per 90-day  quarter.  In the event that any date on which  interest  is
payable on this series of  Debentures  is not a Business  Day,  then  payment of
interest  payable on such date shall be made on the next succeeding day which is
a Business Day (and without any interest or other payment in respect of any such
delay),  except that,  if such Business Day is in the next  succeeding  calendar
year, such payment shall be made on the immediately  preceding  Business Day, in
each case with the same force and effect as if made on the date such payment was
originally payable.  The interest installment so payable, and punctually paid or
duly  provided  for,  on any  Interest  Payment  Date will,  as  provided in the
Indenture,  be paid to the person in whose name this  Debenture  (or one or more
Predecessor Debentures, as defined in said Indenture) is registered at the close
of business  on the  regular  record  date for such  interest  installment,  [IF
LITCHFIELD  CAPITAL  TRUST I OR ITS PROPERTY  TRUSTEE IS THE HOLDER OF RECORD OF
THIS  DEBENTURE -- which shall be the close of business on the Business Day next
preceding such Interest  Payment Date,  provided if the Preferred  Securities of
Litchfield  Capital Trust I are no longer in book-entry  only form,  the regular
record dates shall be the close of business on the  fifteenth  (15th) day of the
month in which such Interest Payment Date occurs] [IF PURSUANT TO THE PROVISIONS
OF SECTION 2.11(c) OF THE INDENTURE THIS series of Debentures IS NOT REPRESENTED
BY A GLOBAL  DEBENTURE -- which shall be the close of business on the  fifteenth
(15th) day of the month in which such  Interest  Payment Date  occurs.] Any such
interest  installment  not punctually  paid or duly provided for shall forthwith
cease to be payable to the  registered  holders on such regular record date, and
shall instead be paid to the person in whose name this Debenture (or one or more
Predecessor  Debentures)  is  registered  at the close of  business on a special
record  date to be  fixed  by the  Trustee  for the  payment  of such  defaulted
interest, notice whereof shall be given to the registered holders of this series
of Debentures not less than 10 days prior to such special record date, or may be
paid  at any  time  in  any  other  lawful  manner  not  inconsistent  with  the
requirements  of any  securities  exchange  or  quotation  system  on which  the
Debentures  of this series may be listed or traded,  and upon such notice as may
be required by such exchange or quotation system,  all as more fully provided in
Section  2.03  of the  Indenture.  The  principal  of and the  interest  on this
Debenture shall be payable at the Corporate Trust Office of the Trustee,  in any
coin or currency of the United States of America which at the time of payment is
legal tender for payment of public and private debts;

                                       16





provided,  however,  that  payment of interest  may be made at the option of the
Company by check  mailed to the  registered  holder at such  addresses  as shall
appear in the Debenture  Register and that the payment of principal will only be
made upon the surrender of this  Debenture to the Trustee.  Notwithstanding  the
foregoing,  so long as the owner and  record  holder  of this  Debenture  is the
Property Trustee (as defined in the Indenture),  the payment of the principal of
and interest (including  Additional Interest and Compounded Interest, if any) on
this Debenture will be made by the Company in immediately available funds on the
payment date  therefor at such place and to the Property  Account (as defined in
the Indenture)  established and maintained by the Property  Trustee  pursuant to
the Declaration of Trust (as defined in the Indenture).

         The indebtedness evidenced by this Debenture is, to the extent provided
in the  Indenture,  subordinate  and  junior  in right of  payment  to the prior
payment  in full of all Senior  Debt (as  defined  in the  Indenture),  and this
Debenture is issued  subject to the  provisions  of the  Indenture  with respect
thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or  appropriate to acknowledge or
effectuate  the  subordination  so  provided  and (c)  appoints  the Trustee his
attorney-in-fact  for any and all such  purposes.  Each  holder  hereof,  by his
acceptance   hereof,   hereby  waives  all  notice  of  the  acceptance  of  the
subordination provisions contained herein and in the Indenture by each holder of
Senior Debt, whether now outstanding or hereafter incurred,  and waives reliance
by each such holder upon said provisions.

         This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of  Authentication  hereon shall have been signed by or on behalf of
the Trustee.

         The  provisions  of this  Debenture  are  continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.

         IN WITNESS  WHEREOF,  the  Company  has caused  this  Instrument  to be
executed.

Dated:                        LITCHFIELD FINANCIAL CORPORATION


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

Attest:


By:  /s/ Heather A. Sica
     Name:  Heather A. Sica
     Title:  Executive Vice President

                                       17







                          CERTIFICATE OF AUTHENTICATION

     This is one of the Debentures of the series of Debentures  described in the
within-mentioned Indenture.

as Trustee                           or       as Authentication Agent


By:______________________________             By:______________________________
      Authorized Signatory                               Authorized Signatory



                                       18




                         (FORM OF REVERSE OF DEBENTURE)

         This Debenture is one of a duly authorized  series of Debentures of the
Company (herein  sometimes  referred to as the  "Debentures"),  specified in the
Indenture,  all issued or to be issued in one or more series  under and pursuant
to an Indenture dated as of __________, 1999 duly executed and delivered between
the Company and The Bank of New York, a New York banking corporation, as Trustee
(herein  referred to as the  "Trustee"),  as  supplemented  by the  Supplemental
Indenture No. 1 dated as of __________, 1999 between the Company and the Trustee
(said  Indenture  as so  supplemented  being  hereinafter  referred  to  as  the
"Indenture"),  to  which  Indenture  and  all  indentures  supplemental  thereto
reference is hereby made for a description of the rights, limitations of rights,
obligations,  duties and immunities  thereunder of the Trustee,  the Company and
the holders of the Debentures,  and, to the extent specifically set forth in the
Indenture, the holders of Senior Debt and Preferred Securities.  By the terms of
the  Indenture,  the  Debentures  are  issuable  in series  which may vary as to
amount,  date of  maturity,  rate of  interest  and in other  respects as in the
Indenture  provided.  This series of  Debentures  is  designated  the __% Junior
Subordinated Debentures due 2029 and is limited in aggregate principal amount as
specified in said Supplemental Indenture No. 1.

         Except as provided in the next paragraph, the Debentures of this series
shall not be redeemed  by the Company  prior to  __________,  2004.  The Company
shall have the right to redeem  this  Debenture  at the  option of the  Company,
without  premium or penalty,  in whole or in part, at any time from time to time
on or after __________,  2004 (an "Optional Redemption"),  upon not less than 30
nor more than 60 days' notice to the holders of the  Debentures  of this series,
at the  redemption  price of 100% of the  principal  amount  of the  Debentures,
together  with any accrued but unpaid  interest  thereon,  including  Compounded
Interest and Additional  Interest,  if any, to, but excluding,  the date of such
redemption (the "Optional Redemption Price").

         If the  Debentures of this series are redeemed on any Interest  Payment
Date,  accrued and unpaid  interest shall be payable to holders of record on the
relevant record date.

         The Company  shall not redeem any  Debentures of this series unless all
accrued  and  unpaid  interest  thereon,   including   Compounded  Interest  and
Additional  Interest,  if any, has been paid for all quarterly  interest periods
terminating on or prior to the date of notice of redemption.

         If a Tax Event or an Investment Company Event (each, a "Special Event")
shall occur or be  continuing,  the Company  shall have the right at any time to
redeem the Debentures of this series in whole,  but not in part, for cash at the
Optional  Redemption  Price  within 90 days  following  the  occurrence  of such
Special Event.

         "Tax Event" means that the Company and the Regular  Trustees shall have
received an opinion of counsel experienced in such matters to the effect that on
or after  __________,  1999 as a  result  of (a) any  amendment  to,  or  change
(including any announced  prospective  change) in, the laws (or any  regulations
thereunder) of the United States or any political subdivision or taxing

                                       19





authority  thereof  or  therein,   (b)  any  amendment  to,  or  change  in,  an
interpretation or application of any such laws or regulations by any legislative
body,  court,   governmental  agency  or  regulatory  authority  (including  the
enactment of any  legislation  and the  publication of any judicial  decision or
regulatory  determination),  (c)  any  interpretation  or  pronouncement  by any
legislative  body,  court,  governmental  agency or  regulatory  authority  that
provides for a position  with respect to such laws or  regulations  that differs
from the theretofore  generally accepted position or (d) any action taken by any
governmental  agency  or  regulatory  authority,  which  amendment  or change is
enacted,   promulgated,   issued  or  announced  or  which   interpretation   or
pronouncement  is issued or announced or which action is taken,  in each case on
or after  __________,  1999, there is more than an  insubstantial  risk that (i)
Litchfield  Capital  Trust I is, or will be within 90 days of the date  thereof,
subject to federal  income tax with respect to income accrued or received on the
Debentures of this series, (ii) Litchfield Capital Trust I is, or will be within
90 days of the date thereof,  subject to more than a de minimis amount of taxes,
duties or other governmental charges or (iii) interest payable by the Company to
Litchfield Capital Trust I on the Debentures of this series is not, or within 90
days of the date  thereof  will not be,  deductible  by the  Company for federal
income tax purposes;

         "Investment  Company  Event"  means that the  Company  and the  Regular
Trustees shall have received an opinion of counsel experienced in practice under
the Investment Company Act that as a result of the occurrence of a change in law
or regulation or a change in  interpretation or application of law or regulation
by any legislative body, court,  governmental agency or regulatory  authority (a
"Change in  Investment  Company Act Law"),  there is more than an  insubstantial
risk that  Litchfield  Capital Trust I is or will be  considered an  "investment
company" which is required to be registered  under the  Investment  Company Act,
which  Change  in  Investment  Company  Act Law  becomes  effective  on or after
__________, 1999.

         If the  Debentures  of this series are only  partially  redeemed by the
Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro
rata or by lot or in some other  equitable  manner  determined  by the  Trustee;
provided  if, at the time of  redemption,  the  Debentures  of this  series  are
registered as a Global  Debenture,  the Depository shall determine the principal
amount of such Debentures of this series held by each holder of Debentures to be
redeemed  in  accordance  with its  customary  procedures.  Notwithstanding  the
foregoing, if a partial redemption of the Debentures of this series would result
in the delisting of the Preferred Securities by any national securities exchange
or other  organization  on which the  Preferred  Securities  are then  listed or
traded, the Company shall not be permitted to effect such partial redemption and
will only redeem the Debentures of this series in whole.

         In the  event of  redemption  of this  Debenture  in part  only,  a new
Debenture or Debentures  of this series for  unredeemed  portion  hereof will be
issued in the name of the holder hereof upon the cancellation hereof.

         In case an Event of Default,  as defined in the  Indenture,  shall have
occurred  and be  continuing,  the  principal of all of the  Debentures  of this
series may be declared, and upon such

                                       20





declaration shall become,  due and payable,  in the manner,  with the effect and
subject to the conditions provided in the Indenture.

         The Indenture  contains  provisions  for  defeasance at any time of the
entire  indebtedness  of this  Debenture  upon  compliance  by the Company  with
certain conditions set forth therein.

         The  Indenture  contains  provisions  permitting  the  Company  and the
Trustee,  with the  consent  of the  holders  of not  less  than a  majority  in
aggregate principal amount of the Debentures of each series affected at the time
outstanding,  as defined in the Indenture  (and, if this  Debenture is held as a
trust  asset of  Litchfield  Capital  Trust I, such  consent  of  holders of the
Preferred  Securities  and the Common  Securities  as may be required  under the
Declaration  of Trust),  to execute  supplemental  indentures for the purpose of
adding any  provisions  to or changing in any manner or  eliminating  any of the
provisions of the Indenture or of any supplemental  indenture or of modifying in
any manner the rights of the holders of the Debentures;  provided, however, that
no such  supplemental  indenture  shall (i)  extend  the fixed  maturity  of the
Debentures of this series, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of  interest  thereon,  or reduce any premium
payable upon the redemption  thereof,  without the consent of the holder of each
Debenture so affected or (ii) reduce the aforesaid percentage of Debentures, the
holders of which are  required  to consent to any such  supplemental  indenture,
without the consent of the holders of each Debenture  (and, if this Debenture is
held as a trust asset of Litchfield Capital Trust I, such consent of the holders
of the Preferred  Securities and the Common  Securities as may be required under
the Declaration of Trust) then outstanding and affected  thereby.  The Indenture
also  contains  provisions  permitting  the holders of a majority  in  aggregate
principal amount of the Debentures of a series at the time Outstanding  affected
thereby (subject, in the case of a Debenture held as a trust asset of Litchfield
Capital  Trust I and  with  respect  to  which  a  Securities  Exchange  has not
theretofore  occurred,  to such consent of holders of Preferred  Securities  and
Common  Securities as may be required under the Declaration of Trust), on behalf
of the holders of the  Debentures  of such series,  to waive any past default in
the  performance  of  any of  the  covenants  contained  in  the  Indenture,  or
established  pursuant to the  Indenture  with  respect to such  series,  and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest  on any of the  Debentures  of such series as and when the same
shall become due by the terms of the Debentures of such series otherwise than by
acceleration (unless such default has been cured and a sum sufficient to pay all
matured  installments  of  interest  and  principal  and any  premium  has  been
deposited with the Trustee),  or a call for redemption of the Debentures of such
series.  Any such consent or waiver by the  registered  holder of this Debenture
(unless  revoked as provided in the  Indenture)  shall be conclusive and binding
upon such holder and upon all future holders and owners of this Debenture and of
any  Debenture  issued  in  exchange  herefor  or in place  hereof  (whether  by
registration  of  transfer  or  otherwise),  irrespective  of whether or not any
notation of such consent or waiver is made upon this Debenture.

         Subject to Section 13.11 of the Indenture,  no reference  herein to the
Indenture (other than such Section) and no provision of this Debenture or of the
Indenture shall alter or impair the

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obligation  of the  Company,  which is absolute  and  unconditional,  to pay the
principal  of and  interest on this  Debenture at the time and place at the rate
and in the money herein prescribed.

         As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on the
Debenture  Register,  upon  surrender  of this  Debenture  for  registration  of
transfer at the Corporate  Trust Office of the Trustee  accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly  executed by the  registered  holder  hereof or his  attorney  duly
authorized in writing,  and  thereupon one or more new  Debentures of authorized
denominations  and for the same  aggregate  principal  amount and series will be
issued to the designated  transferee or  transferees.  No service charge will be
made for any  such  transfer,  but the  Company  may  require  payment  of a sum
sufficient  to cover any tax or other  governmental  charge  payable in relation
thereto.

         Prior  to  due  presentment  for   registration  of  transfer  of  this
Debenture,  the  Company,  the  Trustee,  any  paying  agent  and any  Debenture
Registrar may deem and treat the registered  holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and  notwithstanding  any
notice of  ownership or writing  hereon made by anyone other than the  Debenture
Registrar)  for  the  purpose  of  receiving  payment  of or on  account  of the
principal hereof and interest due hereon and for all other purposes, and neither
the Company nor the Trustee  nor any paying  agent nor any  Debenture  Registrar
shall be affected by any notice to the contrary.

         No  recourse  shall be had for the payment of the  principal  of or the
interest on this  Debenture,  or for any claim based  hereon,  or  otherwise  in
respect  hereof,  or  based  on or in  respect  of the  Indenture,  against  any
incorporator,  shareholder,  officer or director,  past,  present or future,  as
such, of the Company or of any predecessor or successor corporation,  whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise,  all such liability being, by the acceptance
hereof  and as part of the  consideration  for the  issuance  hereof,  expressly
waived and released.

         [If  certificated  Debentures  -- The  Debentures  of this  series  are
issuable only in registered form without coupons in denominations of $10 and any
integral  multiple  thereto.] [If Global  Debenture -- This Global  Debenture is
exchangeable   for   Debentures  in  definitive   form  under  certain   limited
circumstances  set forth in the  Indenture.  Debentures of this series so issued
are issuable only in registered form without coupons in  denominations of $10 or
any  integral  multiple  thereof.] As provided in the  Indenture  and subject to
certain  limitations  [If Global  Debenture  -- herein  and]  therein set forth,
Debentures  of this series [If Global  Debenture -- so issued] are  exchangeable
for a like  aggregate  principal  amount  of  Debentures  of  this  series  of a
different authorized  denomination,  as requested by the holder surrendering the
same.

         All terms used in this  Debenture  which are  defined in the  Indenture
shall have the meanings assigned to them in the Indenture.

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         The Company and, by its  acceptance  of this  Debenture or a beneficial
interest  therein,  the holder of, and any  Person  that  acquires a  beneficial
interest in, this  Debenture  agree that for United  States  federal,  state and
local tax purposes it is intended that this Debenture constitute indebtedness.

         THE INDENTURE AND THIS DEBENTURE  SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.

                                  ARTICLE SEVEN
                            Miscellaneous Provisions

          SECTION 7.01.  The Indenture,  as  supplemented  by this  Supplemental
     Indenture,  is in all respects  ratified and confirmed.  This  Supplemental
     Indenture  No. 1 shall be deemed part of the Indenture in the manner and to
     the extent herein and therein provided.

          SECTION 7.02.  The recitals  herein  contained are made by the Company
     and not by the Trustee,  and the Trustee assumes no responsibility  for the
     correctness thereof. The Trustee makes no representation as to the validity
     or sufficiency of this Supplemental Indenture No. 1.

          SECTION 7.03. This Supplemental Indenture No. 1 may be executed in any
     number  of  counterparts  each of  which  shall  be an  original;  but such
     counterparts shall together constitute but one and the same instrument.

          SECTION  7.04.  THIS  SUPPLEMENTAL  INDENTURE  NO. 1 AND EACH SERIES A
     DEBENTURE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE
     OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED IN  ACCORDANCE  WITH THE
     LAWS  OF THE  STATE  OF NEW  YORK  WITHOUT  REGARD  TO  CONFLICTS  OF  LAWS
     PRINCIPLES THEREOF.

         IN WITNESS  WHEREOF,  the parties hereto have caused this  Supplemental
Indenture No. 1 to be duly executed,  and their respective corporate seals to be
hereunto  affixed  and  attested,   on  the  date  or  dates  indicated  in  the
acknowledgments and as of the day and year first above written.

Attest:                                  LITCHFIELD FINANCIAL CORPORATION


By:  /s/ Heather A. Sica                 By:  /s/ R.A. Stratton
     Name:  Heather A. Sica                   Name:  Richard A. Stratton
     Title:  Executive Vice President         Title:  President and Chief
                                                      Executive Officer



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Attest:                                       THE BANK OF NEW YORK, as Trustee


By:  /s/ Robert A. Massimillo                 By:  /s/ Michael Culhane
     Name:  Robert A. Massimillo                 Name:  Michael Culhane
     Title:  Assistant Vice President            Title:  Vice President





HWD2:  554670-1

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