Exhibit 4.14
                AMENDED AND RESTATED DECLARATION OF TRUST

                                       OF

                           LITCHFIELD CAPITAL TRUST I

                            DATED AS OF MAY 19, 1999









                                TABLE OF CONTENTS

            (This Table of Contents does not constitute  part of the Amended and
         Restated  Declaration of Trust and should not have any bearing upon the
         interpretation of any of its terms or provisions.)

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                                                                                          Page

                                    ARTICLE 1
                                   Definitions
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Section 1.01.      Definitions.............................................................    2
          Affiliate.........................................................................   2
          Book Entry Interest...............................................................   2
          Business Day......................................................................   2
          Business Trust Act................................................................   2
          Certificate.......................................................................   2
          Certificate of Trust..............................................................   3
          Clearing Agency...................................................................   3
          Clearing Agency Participant.......................................................   3
          Closing Date......................................................................   3
          Code..............................................................................   3
          Commission........................................................................   3
          Common Securities.................................................................   3
          Common Security Certificate.......................................................   3
          Covered Person....................................................................   3
          Creditor..........................................................................   3
          Debenture Trustee.................................................................   3
          Debentures........................................................................   3
          Definitive Preferred Security Certificates........................................   3
          Delaware Trustee..................................................................   4
          Depositary Agreement..............................................................   4
          Distribution......................................................................   4
          DTC...............................................................................   4
          Event of Default..................................................................   4
          Exchange..........................................................................   4
          Exchange Act......................................................................   4
          Fiscal Year.......................................................................   4
          Global Certificate................................................................   4
          Holder............................................................................   4
          Holder Direct Action..............................................................   4
          Litchfield Financial..............................................................   4
          Sponsor...........................................................................   4
          Indemnified Person................................................................   4
          Indenture.........................................................................   4
          Indenture Event of Default........................................................   4






          Investment Company................................................................   5
          Investment Company Act............................................................   5
          Legal Action......................................................................   5
          Liquidation Distribution..........................................................   5
          List of Holders...................................................................   5
          Majority in liquidation amount of the Securities..................................   5
          NASD..............................................................................   5
          Nasdaq............................................................................   5
          1933 Act Registration Statement...................................................   5
          1934 Act Registration Statement...................................................   5
          Officers' Certificate.............................................................   5
          Opinion of Counsel................................................................   6
          Original Declaration..............................................................   6
          Paying Agent......................................................................   6
          Payment Amount....................................................................   6
          Person............................................................................   6
          Preferred Guarantee...............................................................   6
          Preferred Securities..............................................................   6
          Preferred Security Beneficial Owner...............................................   6
          Preferred Security Certificate....................................................   6
          Property Trustee..................................................................   7
          Property Account..................................................................   7
          Quorum............................................................................   7
          Regular Trustee...................................................................   7
          Related Party.....................................................................   7
          Resignation Request...............................................................   7
          Responsible Officer...............................................................   7
          Rule 3a-7.........................................................................   7
          Securities........................................................................   7
          Securities Act....................................................................   7
          Special Event.....................................................................   7
          Successor Delaware Trustee........................................................   7
          Successor Entity..................................................................   7
          Successor Property Trustee........................................................   7
          Successor Securities..............................................................   7
          Super Majority....................................................................   8
          Supplemental Indenture............................................................   8
          10% in liquidation amount of the Securities.......................................   8
          Treasury Regulations..............................................................   8
          Trust.............................................................................   8
          Trustee...........................................................................   8
          Trustees..........................................................................   8
          Trust Indenture Act...............................................................   8
          Underwriting Agreement............................................................   8







                                                     ARTICLE 2
                                                Trust Indenture Act

Section 2.01.      Trust Indenture Act; Application.........................................   8
Section 2.02.      Lists of Holders of Preferred Securities.................................   9
Section 2.03.      Reports by the Property Trustee..........................................   9
Section 2.04.      Periodic Reports to the Property Trustee.................................  10
Section 2.05.      Evidence of Compliance with Conditions Precedent.........................  10
Section 2.06.      Events of Default; Waiver................................................  10
Section 2.07.      Disclosure of Information................................................  12

                                                     ARTICLE 3
                                                   Organization

Section 3.01.      Name.....................................................................  12
Section 3.02.      Office...................................................................  12
Section 3.03.      Issuance of the Securities...............................................  12
Section 3.04.      Purchase of Debentures...................................................  13
Section 3.05.      Purpose..................................................................  13
Section 3.06.      Authority................................................................  14
Section 3.07.      Title to Property of the Trust...........................................  14
Section 3.08.      Powers and Duties of the Regular Trustees................................  14
Section 3.09.      Prohibition of Actions by the Trust and the Trustees.....................  17
Section 3.10.      Powers and Duties of the Property Trustee................................  18
Section 3.11.      Delaware Trustee.........................................................  21
Section 3.12.      Certain Rights and Duties of the Property Trustee........................  21
Section 3.13.      Registration Statement and Related Matters...............................  25
Section 3.14.      Filing of Amendments to Certificate of Trust.............................  26
Section 3.15.      Execution of Documents by the Regular Trustees...........................  26
Section 3.16.      Trustees Not Responsible for Recitals or Issuance of
                   Securities...............................................................  26
Section 3.17.      Duration of the Trust....................................................  26
Section 3.18.      Mergers..................................................................  26
Section 3.19.      Property Trustee May File Proofs of Claim................................  38

                                                     ARTICLE 4
                                                      Sponsor

Section 4.01.      Purchase of Common Securities by the Sponsor.............................  29
Section 4.02.      Expenses.................................................................  29

                                                     ARTICLE 5
                                                     Trustees

Section 5.01.      Number of Trustees; Qualifications.......................................  30






Section 5.02.      Appointment, Removal and Resignation of the Trustees.....................  32
Section 5.03.      Vacancies among the Trustees.............................................  33
Section 5.04.      Effect of Vacancies......................................................  33
Section 5.05.      Meetings.................................................................  34
Section 5.06.      Delegation of Power......................................................  34
Section 5.07.      Merger, Conversion, Consolidation or Succession to
                   Business.................................................................  34

                                                     ARTICLE 6
                                                   Distributions

Section 6.01.      Distributions............................................................  35

                                                     ARTICLE 7
                                            Issuance of the Securities

Section 7.01.      General Provisions Regarding the Securities..............................  35

                                                     ARTICLE 8
                                             Dissolution of the Trust

Section 8.01.      Dissolution of the Trust.................................................  37

                                                     ARTICLE 9
                                               Transfer of Interests

Section 9.01.      Transfer of Securities...................................................  37
Section 9.02.      Transfer of Certificates.................................................  38
Section 9.03.      Deemed Security Holders..................................................  38
Section 9.04.      Book Entry Interests.....................................................  38
Section 9.05.      Notices to Holders of Certificates.......................................  39
Section 9.06.      Appointment of Successor Clearing Agency.................................  39
Section 9.07.      Definitive Preferred Securities Certificates.............................  40
Section 9.08.      Mutilated, Destroyed, Lost or Stolen Certificates........................  40

                                                    ARTICLE 10
                                     Limitation of Liability; Indemnification

Section 10.01.      Exculpation.............................................................  40
Section 10.02.      Indemnification.........................................................  41
Section 10.03.      Outside Business........................................................  41







                                                    ARTICLE 11
                                                    Accounting

Section 11.01.      Fiscal Year.............................................................  42
Section 11.02.      Certain Accounting Matters..............................................  42
Section 11.03.      Banking.................................................................  43
Section 11.04.      Withholding.............................................................  43

                                                    ARTICLE 12
                                              Amendments and Meetings

Section 12.01.      Amendments..............................................................  43
Section 12.02.      Meetings of the Holders of Securities; Action by
                    Written Consent.........................................................  44

                                                    ARTICLE 13
                         Representations of the Property Trustee and the Delaware Trustee

Section 13.01.      Representations and Warranties of the Property
                    Trustee.................................................................  46
Section 13.02.      Representations and Warranties of the Delaware
                    Trustee.................................................................  46

                                                    ARTICLE 14
                                                   Miscellaneous

Section 14.01.      Notices.................................................................  47
Section 14.02.      Undertaking for Costs...................................................  48
Section 14.03.      Governing Law...........................................................  49
Section 14.04.      Headings................................................................  49
Section 14.05.      Partial Enforceability..................................................  49
Section 14.06.      Counterparts............................................................  49
Section 14.07.      Intention of the Parties................................................  49
Section 14.08.      Successors and Assigns..................................................  49
Section 14.09.      No Recourse.............................................................  49


SIGNATURES AND SEALS

EXHIBIT A:         CERTIFICATE OF TRUST
EXHIBIT B:         TERMS OF THE PREFERRED SECURITIES
EXHIBIT C:         TERMS OF THE COMMON SECURITIES


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                              AMENDED AND RESTATED
                              DECLARATION OF TRUST
                                       OF
                           LITCHFIELD CAPITAL TRUST I

AMENDED  AND  RESTATED  DECLARATION  OF TRUST  (this  "Declaration")  dated  and
effective as of May 19, 1999, by John J. Malloy, an individual, Heather A. Sica,
an individual,  and Ronald E. Rabidou,  an individual,  as Regular Trustees (the
"Regular Trustees"),  The Bank of New York, a New York banking  corporation,  as
Property Trustee (the "Property Trustee") and The Bank of New York (Delaware), a
Delaware  banking  corporation,  as Delaware  Trustee (the  "Delaware  Trustee")
(together with all other Persons from time to time duly appointed and serving as
trustees in accordance with the provisions of this Declaration, the "Trustees"),
Litchfield Financial Corporation, a Massachusetts corporation,  as trust sponsor
("Litchfield  Financial"  or the  "Sponsor"),  and by the holders,  from time to
time, of undivided  beneficial interests in the assets of the Trust to be issued
pursuant to this Declaration.

WHEREAS,  the Sponsor and certain of the Trustees  entered into a Declaration of
Trust  dated  as of May 19,  1999  (the  "Original  Declaration")  in  order  to
establish  Litchfield Capital Trust I, a statutory business trust (the "Trust"),
under the Business Trust Act (as hereinafter defined);

WHEREAS,  the Certificate of Trust (the "Certificate of Trust") of the Trust was
filed  with the office of the  Secretary  of State of the State of  Delaware  on
April 12, 1999; and

WHEREAS,  the Trustees and the Sponsor  desire to continue the Trust pursuant to
the Business  Trust Act for the purpose of, as described  more fully in Sections
303 and 304 hereof, (i) issuing and selling Preferred Securities (as hereinafter
defined) representing  preferred undivided beneficial interests in the assets of
the  Trust  for cash and  investing  the  proceeds  thereof  in  Debentures  (as
hereinafter  defined) of  Litchfield  Financial  issued under the  Indenture (as
hereinafter  defined)  to be held as assets of the  Trust and (ii)  issuing  and
selling Common Securities (as hereinafter defined) representing common undivided
beneficial  interests  in the  assets of the Trust to  Litchfield  Financial  in
exchange for cash and  investing the proceeds  thereof in additional  Debentures
issued under the Indenture to be held as assets of the Trust;

NOW,  THEREFORE,  it being the  intention  of the parties  hereto that the Trust
constitute  a business  trust under the  Business  Trust Act,  that the Original
Declaration be amended and restated in its entirety as provided  herein and that
this Declaration constitute the governing instrument of such business trust, the
Trustees declare that all Debentures  referred to in clauses (i) and (ii) of the
previous  paragraph  purchased  by the Trust will be held for the benefit of the
Holders (as  hereinafter  defined)  from time to time, of the  Certificates  (as
hereinafter defined)  representing  undivided beneficial interests in the assets
of the Trust issued hereunder, subject to the provisions of this Declaration.







                                    ARTICLE 1

                                   Definitions

       Section 1.01.  Definitions.

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

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

       (c) all references to "the Declaration" or "this Declaration" are to this
       Amended and Restated  Declaration of Trust (including Exhibits A, B and C
       hereto (the  "Exhibits")) as modified,  supplemented or amended from time
       to time;

       (d) all references in this Declaration to Articles, Sections and Exhibits
       are to Articles and Sections of and Exhibits to this  Declaration  unless
       otherwise specified;

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

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

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

       "Book Entry Interest" means a beneficial interest in a Global Certificate
       registered  in the  name  of a  Clearing  Agency  or a  nominee  thereof,
       ownership  and  transfers of which shall be  maintained  and made through
       book entries by such Clearing Agency as described in Section 9.04.

       "Business  Day" means any day other than a Saturday or Sunday or a day on
       which  banking  institutions  in the Borough of  Manhattan,  The City and
       State of New York or Boston,  Massachusetts are authorized or required by
       law to close.

       "Business  Trust Act" means Chapter 38 of Title 12 of the Delaware  Code,
       12 Del. Code (S) 3801 et seq., as it may be amended from time to time, or
       any successor legislation.

       "Certificate" means a Common Security Certificate or a Preferred Security
 Certificate.

                                        2





       "Certificate of Trust" has the meaning set forth in the second WHEREAS
       clause above.

       "Clearing Agency" means an organization registered as a "Clearing Agency"
       pursuant to Section 17A of the Exchange Act that is acting as  depository
       for the  Preferred  Securities  and in  whose  name  or in the  name of a
       nominee of that organization shall be registered a Global Certificate and
       which shall  undertake to effect book entry  transfers and pledges of the
       Preferred Securities.

       "Clearing  Agency  Participant"  means  a  broker,  dealer,  bank,  other
       financial  institution  or other  Person  for whom  from time to time the
       Clearing  Agency  effects book entry  transfers and pledges of securities
       deposited with the Clearing Agency.

       "Closing  Date" means the Closing Date as  specified in the  Underwriting
       Agreement,  which date is also the date of execution and delivery of this
       Declaration.

       "Code" means the Internal  Revenue Code of 1986,  as amended from time to
       time, or any  successor  legislation.  A reference to a specific  section
       (Sec.) of the Code refers not only to such  specific  section but also to
       any corresponding  provision of any Federal tax statute enacted after the
       date of this  Declaration,  as such  specific  section  or  corresponding
       provision is in effect on the date of  application  of the  provisions of
       this Declaration containing such reference.

       "Commission" means the Securities and Exchange Commission.

       "Common Securities" has the meaning specified in Section 7.01(b).

       "Common  Security  Certificate"  means a definitive  certificate in fully
       registered form representing a Common Security  substantially in the form
       of Annex I to Exhibit C.

       "Covered Person" means (i) any officer, director,  shareholder,  partner,
       member,  representative,  employee or agent of the Trust or of any of its
       Affiliates,   (ii)  any   officer,   director,   shareholder,   employee,
       representative  or  agent  of  Litchfield  Financial  or of  any  of  its
       Affiliates and (iii) the Holders from time to time of the Securities.

       "Creditor" has the meaning specified in Section 4.02(c).

       "Debenture  Trustee"  means  The Bank of New  York,  a New  York  banking
       corporation,  as  trustee  under  the  Indenture  until  a  successor  is
       appointed thereunder and thereafter means such successor trustee.

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

       "Definitive Preferred Security Certificates" has the meaning set forth
in Section 9.04.

                                        3






       "Delaware Trustee" has the meaning set forth in Section 5.01(a)(3).

       "Depositary  Agreement" means the agreement among the Trust, the Property
       Trustee and DTC dated as of the Closing  Date, as the same may be amended
       or supplemented from time to time.

       "Distribution"  means a distribution  payable to Holders of Securities in
       accordance with Section 6.01.

       "DTC" means The Depository Trust Company, the initial Clearing Agency.

       "Event of Default" in respect of the  Securities  means that an Indenture
       Event of Default  has  occurred  and is  continuing  with  respect to the
       Debentures.

       "Exchange" has the meaning specified in Section 3.13.

       "Exchange Act" means the Securities Exchange Act of 1934, as amended from
       time to time, or any successor legislation.

       "Fiscal Year" has the meaning specified in Section 11.01.

       "First  Closing  Date" means the First  Closing  Date as specified in the
       Underwriting Agreement.

       "Global Certificate" has the meaning set forth in Section 9.04.

       "Holder"  means a  Person  in whose  name a  Certificate  representing  a
       Security is registered,  such Person being a beneficial  owner within the
       meaning of the Business Trust Act.

       "Holder Direct Action" has the meaning specified in Section 3.10(e).

       "Indemnified Person" means any Trustee, any Affiliate of any Trustee, any
       Paying Agent, any officers, directors,  shareholders,  members, partners,
       employees,  representatives  or agents of any Trustee or Paying Agent, or
       any employee or agent of the Trust or of any of its Affiliates.

       "Indenture" means the Junior  Subordinated  Indenture dated as of May 19,
       1999,  between   Litchfield   Financial  and  the  Debenture  Trustee  as
       supplemented by the Supplemental  Indenture No. 1 thereto dated as of May
       19, 1999, pursuant to which the Debentures are to be issued.

       "Indenture Event of Default" means that an event or condition  defined as
       an "Event of  Default"  with  respect  to the  Debentures  under  Section
       6.01(a) of the Indenture has occurred and is continuing.


                                        4




       "Investment Company" means an "investment company" as defined in the
       Investment Company Act.

       "Investment  Company Act" means the  Investment  Company Act of 1940,  as
       amended from time to time, or any successor legislation.

       "Legal Action" has the meaning specified in Section 3.08(g).

       "Liquidation  Distribution" has the meaning set forth in Exhibits B and C
       hereto establishing the terms of the Securities.

       "List of Holders" has the meaning specified in Section 2.02(a).

       "Litchfield   Financial"  or  "  Sponsor"  means   Litchfield   Financial
       Corporation,  a  Massachusetts  corporation,   or  any  successor  entity
       resulting from any merger, consolidation,  amalgamation or other business
       combination, in its capacity as sponsor of the Trust.

       "Majority  in  liquidation  amount of the  Securities"  means,  except as
       otherwise  required by the Trust  Indenture Act and except as provided in
       the penultimate  paragraph of paragraph 6 of Exhibit B hereto,  Holder(s)
       of outstanding  Securities  voting  together as a single class or, as the
       context may require,  Holder(s) of  outstanding  Preferred  Securities or
       Common Securities voting separately as a class, who are the record owners
       of a relevant class of Securities whose liquidation amount (including the
       stated amount that would be paid on redemption, liquidation or otherwise,
       plus  accumulated  and  unpaid  Distributions  to the date upon which the
       voting  percentages  are  determined)  represents  more  than  50% of the
       liquidation amount of all outstanding Securities of such class.

       "NASD" has the meaning specified in Section 3.13.

       "Nasdaq" has the meaning specified in Section 3.13.

       "1933 Act Registration Statement" has the meaning specified in Section
       3.13.

       "1934 Act Registration Statement" has the meaning specified in Section
       3.13.

       "Officers' Certificate" means a certificate signed by the Chairman of the
       Board,  the Chief Executive  Officer,  the President or a Vice President,
       and by the Treasurer, an Associate Treasurer, an Assistant Treasurer, the
       Comptroller,  the Secretary or an Assistant Secretary of the Sponsor, and
       delivered to the  appropriate  Trustee.  One of the  officers  signing an
       Officers'  Certificate  given  pursuant  to  Section  2.04  shall  be the
       principal executive,  financial or accounting officer of the Sponsor. Any
       Officers'  Certificate  delivered  with  respect  to  compliance  with  a
       condition or covenant provided for in this Declaration shall include:


                                        5





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

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

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

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

       "Opinion  of  Counsel"  means a written  opinion of  counsel,  who may be
       counsel for the Trust, the Property Trustee or the Sponsor,  which may be
       an  employee  of the  Sponsor  but not an  employee  of the  Trust or the
       Property Trustee, and who shall be reasonably  acceptable to the Property
       Trustee.  Any Opinion of Counsel pertaining to Federal income tax matters
       may rely on published rulings of the Internal Revenue Service.

       "Option  Closing Date" means the Option  Closing Date as specified in the
       Underwriting Agreement.

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

       "Paying Agent" has the meaning specified in Section 3.10(i).

       "Payment Amount" has the meaning specified in Section 6.01.

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

       "Preferred  Guarantee" means the Guarantee  Agreement dated as of May 19,
       1999, of Litchfield Financial in respect of the Preferred Securities.

       "Preferred Securities" has the meaning specified in Section 7.01(b).

       "Preferred Security Beneficial Owner" means, with respect to a Book Entry
       Interest,  a  Person  who is the  beneficial  owner  of such  Book  Entry
       Interest,  as reflected on the books of the  Clearing  Agency,  or on the
       books of a Person  maintaining  an  account  with  such  Clearing  Agency
       (directly as a Clearing Agency Participant or as an indirect participant,
       in each case in accordance with the rules of such Clearing Agency).

       "Preferred Security Certificate" means a definitive  certificate in fully
       registered form  representing a Preferred  Security  substantially in the
       form of Annex I to Exhibit B.

                                        6





       "Property Trustee" means the Trustee meeting the eligibility requirements
       set forth in  Section  5.01(c)  and  having  the duties set forth for the
       Property Trustee herein.

       "Property Account" has the meaning specified in Section 3.10(c)(i).

       "Quorum"  means a majority of the Regular  Trustees or, if there are only
       two Regular Trustees, both such Regular Trustees.

       "Regular  Trustee" means any Trustee other than the Property  Trustee and
       the Delaware Trustee.

       "Related Party" means any direct or indirect  wholly owned  subsidiary of
       Litchfield  Financial  or  any  other  Person  which  owns,  directly  or
       indirectly,  100% of the  outstanding  voting  securities  of  Litchfield
       Financial.

       "Resignation Request" has the meaning specified in Section 5.02(d).

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

       "Rule  3a-7"  means Rule 3a-7  under the  Investment  Company  Act or any
       successor rule thereunder.

       "Securities" means the Common Securities and the Preferred Securities.

       "Securities  Act" means the  Securities Act of 1933, as amended from time
       to time, or any successor legislation.

       "Special  Event" has the meaning set forth in the terms of the Securities
       as set forth in paragraph 4 of Exhibits B and C hereto.

       "Successor Delaware Trustee" has the meaning specified in Section
       5.02(b)(ii).

       "Successor Entity" has the meaning specified in Section 3.18(b)(i).

       "Successor Property Trustee" has the meaning specified in Section
       5.02(b)(i).

      "Successor Securities" has the meaning specified in Section 3.18(b)(i)(B).

                                        7





       "Super Majority" has the meaning specified in Section 2.06(a)(ii).

       "Supplemental Indenture" means the Supplemental  Indenture No. 1 dated as
       of May 19, 1999, between Litchfield  Financial and the Debenture Trustee,
       pursuant to which the Debentures are to be issued.

       "10% in liquidation amount of the Securities" means,  except as otherwise
       required  by the  Trust  Indenture  Act and  except  as  provided  in the
       penultimate  paragraph of  paragraph 6 of Exhibit B hereto,  Holder(s) of
       outstanding  Securities  voting  together  as a single  class  or, as the
       context may require,  Holder(s) of  outstanding  Preferred  Securities or
       Common  Securities,  voting  separately  as a class,  who are the  record
       owners  of a  relevant  class  of  Securities  whose  liquidation  amount
       (including   the  stated  amount  that  would  be  paid  on   redemption,
       liquidation or otherwise,  plus  accumulated and unpaid  Distributions to
       the date upon which the voting percentages are determined) represents 10%
       or more of the liquidation  amount of all outstanding  Securities of such
       class.

       "Treasury  Regulations"  means  the  income  tax  regulations,  including
       temporary  and proposed  regulations,  promulgated  under the Code by the
       United States  Treasury,  as such regulations may be amended from time to
       time (including corresponding provisions of succeeding regulations).

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

       "Trustee"  or  "  Trustees"   means  each  Person  who  has  signed  this
       Declaration as a trustee, so long as such Person shall continue in office
       in accordance  with the terms hereof,  and all other Persons who may from
       time to time be duly  appointed,  qualified  and  serving as  Trustees in
       accordance with the provisions hereof, and references herein to a Trustee
       or the  Trustees  shall refer to such  Person or Persons  solely in their
       capacity as trustees hereunder.

       "Trust  Indenture Act" means the Trust  Indenture Act of 1939, as amended
       from time to time, or any successor legislation.

       "Underwriting Agreement" means the Underwriting Agreement dated as of May
       13, 1999, among the Trust,  the Sponsor and Tucker Anthony  Incorporated,
       as representatives of the several underwriters named therein.

                                    ARTICLE 2

                               Trust Indenture Act

       Section 2.01.  Trust Indenture Act; Application.


                                        8





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

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

       (c) the  Property  Trustee,  to the extent  permitted by  applicable  law
       and/or the rules and  regulations  of the  Commission,  shall be the only
       Trustee which is a trustee for the purposes of the Trust  Indenture  Act;
       and

       (d) the application of the Trust Indenture Act to this Declaration  shall
       not affect the nature of the Securities as equity securities representing
       undivided beneficial interests in the assets of the Trust.

       Section 2.02.  Lists of Holders of Preferred Securities.

       (a) Each of the Sponsor  and the Regular  Trustees on behalf of the Trust
       shall  provide  the  Property  Trustee  unless  the  Property  Trustee is
       registrar for the  Securities,  (i) within 14 days after each record date
       for  payment  of  Distributions,  a list,  in such  form as the  Property
       Trustee may reasonably require, of the names and addresses of the Holders
       ("List of  Holders") as of such record  date,  provided  that neither the
       Sponsor  nor the  Regular  Trustees  on  behalf  of the  Trust  shall  be
       obligated  to  provide  such List of Holders at any time that the List of
       Holders does not differ from the most recent List of Holders given to the
       Property Trustee by the Sponsor and the Regular Trustees on behalf of the
       Trust, and (ii) at any other time, within 30 days of receipt by the Trust
       of a written  request  for a List of Holders as of a date no more than 14
       days before such List of Holders is given to the  Property  Trustee.  The
       Property  Trustee shall  preserve,  in as current a form as is reasonably
       practicable, all information contained in Lists of Holders given to it or
       which it  receives  in the  capacity  as Paying  Agent (if acting in such
       capacity)  provided  that the  Property  Trustee  may destroy any List of
       Holders previously given to it on receipt of a new List of Holders.

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

       Section 2.03.  Reports by the Property Trustee.

       Within 60 days after January 15 of each year, the Property  Trustee shall
       provide to the Holders of the Securities  such reports as are required by
       (S) 313 of the Trust  Indenture  Act, if any, in the form,  in the manner
       and at the times  provided  by (S) 313 of the Trust  Indenture  Act.  The
       Property Trustee shall also comply with the requirements of (S) 313(d) of
       the Trust Indenture Act. A copy of each such report shall, at the time of
       such  transmission to Holders,  be filed by the Property Trustee with the
       Company, with each stock exchange upon which any Preferred

                                        9





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

       Section 2.04.  Periodic Reports to the Property Trustee.

       Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
       provide to the Property  Trustee,  the  Commission and the Holders of the
       Securities,  as applicable,  such  documents,  reports and information as
       required by (S) 314(a)(1)-(3) (if any) of the Trust Indenture Act and the
       compliance  certificates  required by (S)  314(a)(4) and (c) of the Trust
       Indenture Act, any such  certificates  to be provided in the form, in the
       manner and at the times  required by (S)  314(a)(4)  and (c) of the Trust
       Indenture Act (provided that any  certificate to be provided  pursuant to
       (S)  314(a)(4) of the Trust  Indenture  Act shall be provided  within 120
       days  of the  end  of  each  Fiscal  Year).  Delivery  of  such  reports,
       information  and documents to the Property  Trustee is for  informational
       purposes  only and the  Property  Trustee's  receipt  of such  shall  not
       constitute  constructive  notice of any  information  contained  therein,
       including the Company's  compliance  with any of its covenants  hereunder
       (as to which the  Property  Trustee is  entitled to rely  exclusively  on
       Officers' Certificates).

       Section 2.05.  Evidence of Compliance with Conditions Precedent.

       Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
       provide to the Property  Trustee  such  evidence of  compliance  with any
       conditions precedent provided for in this Declaration which relate to any
       of the matters set forth in (S) 314(c) of the Trust  Indenture  Act.  Any
       certificate or opinion required to be given by an officer pursuant to (S)
       314(c) may be given in the form of an Officers' Certificate.

       Section 2.06.  Events of Default; Waiver.

       (a)  The  Holders  of a  Majority  in  liquidation  amount  of  Preferred
       Securities may, by vote, on behalf of the Holders of all of the Preferred
       Securities,  waive any past Event of Default in respect of the  Preferred
       Securities and its  consequences,  provided that, if the underlying Event
       of Default under the Indenture:

       (i) is not waivable under the Indenture,  the Event of Default under this
       Declaration shall also not be waivable; or

       (ii)  requires  the  consent or vote of the  holders  of  greater  than a
       majority  in  aggregate  principal  amount  of the  Debentures  (a "Super
       Majority") to be waived under the  Indenture,  the Event of Default under
       this  Declaration  may only be  waived by the vote of the  Holders  of at
       least the  proportion  in aggregate  liquidation  amount of the Preferred
       Securities  that the relevant Super Majority  represents of the aggregate
       principal amount of the Debentures outstanding.


                                       10





The  foregoing  provisions  of  this  Section  2.06(a)  shall  be in lieu of (S)
316(a)(1)(B) of the Trust  Indenture Act and such (S)  316(a)(1)(B) of the Trust
Indenture  Act is  hereby  expressly  excluded  from  this  Declaration  and the
Securities,  as permitted by the Trust Indenture Act. Upon such waiver, any such
default  shall  cease to exist,  and any Event of  Default  with  respect to the
Preferred  Securities  arising therefrom shall be deemed to have been cured, for
every  purpose  of this  Declaration,  but no such  waiver  shall  extend to any
subsequent or other default or an Event of Default with respect to the Preferred
Securities or impair any right consequent thereon.  Any waiver by the Holders of
the  Preferred  Securities  of an Event of Default with respect to the Preferred
Securities  shall also be deemed to  constitute  a waiver by the  Holders of the
Common  Securities  of any such  Event of  Default  with  respect  to the Common
Securities for all purposes of this Declaration without any further act, vote or
consent of the Holders of the Common Securities.

       (b) The  Holders  of a  Majority  in  liquidation  amount  of the  Common
       Securities  may,  by vote,  on behalf of the Holders of all of the Common
       Securities,  waive any past Event of Default  with  respect to the Common
       Securities and its  consequences,  provided that, if the underlying Event
       of Default under the Indenture:

       (i) is not waivable under the Indenture,  except where the Holders of the
       Common  Securities  are deemed to have waived such Event of Default under
       the  Declaration  as provided  above in Section  2.06(a) or below in this
       Section 2.06(b),  the Event of Default under this Declaration  shall also
       not be waivable; or

       (ii)  requires  the  consent  or vote of a Super  Majority  to be waived,
       except  where the  Holders  of the Common  Securities  are deemed to have
       waived such Event of Default under this  Declaration as provided above in
       Section  2.06(a) or below in this Section  2.06(b),  the Event of Default
       under this  Declaration  may only be waived by the vote of the Holders of
       at least the  proportion  in aggregate  liquidation  amount of the Common
       Securities  that the relevant Super Majority  represents of the aggregate
       principal amount of the Debentures outstanding;

provided,  further, that the Holders of Common Securities will be deemed to have
waived any such Event of Default and all Events of Defaults  with respect to the
Common  Securities  and their  consequences  until all  Events of  Default  with
respect  to the  Preferred  Securities  have been  cured,  waived  or  otherwise
eliminated,  and until  such  Events of  Default  have been so cured,  waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the  Preferred  Securities  and only the Holders of the
Preferred  Securities  will have the right to direct  the  Property  Trustee  in
accordance  with the terms of the Securities.  The foregoing  provisions of this
Section 2.06(b) shall be in lieu of (S)(S)  316(a)(1)(A) and 316(a)(1)(B) of the
Trust Indenture Act and such (S)(S)  316(a)(1)(A)  and 316(a)(1)(B) of the Trust
Indenture  Act are  hereby  expressly  excluded  from this  Declaration  and the
Securities, as permitted by the Trust Indenture Act. In the event that any Event
of Default with respect to the Preferred  Securities is waived by the Holders of
Preferred  Securities  as  provided  in the  Declaration,  the Holders of Common
Securities agree that such waiver shall also constitute the waiver of such Event
of Default with  respect to the Common  Securities  for all  purposes  under the
Declaration without any further

                                       11





act,  vote or consent of the  Holders of the Common  Securities.  Subject to the
foregoing  provisions  of this Section  2.06(b),  upon waiver,  any such default
shall  cease to exist  and any  Event of  Default  with  respect  to the  Common
Securities  arising  therefrom  shall be  deemed  to have  been  cured for every
purpose of this  Declaration,  but no such waiver shall extend to any subsequent
or other  default or Event of Default with respect to the Common  Securities  or
impair any right consequent thereon.

       (c) A waiver of an Event of Default  under the  Indenture by the Property
       Trustee,  at  the  direction  of the  Holders  of  Preferred  Securities,
       constitutes  a waiver of the  corresponding  Event of Default  under this
       Declaration. The foregoing provisions of this Section 2.06(c) shall be in
       lieu  of (S)  316(a)(1)(B)  of the  Trust  Indenture  Act  and  such  (S)
       316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from
       this Declaration and the Securities,  as permitted by the Trust Indenture
       Act.

       Section 2.07.  Disclosure of Information.

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


                                    ARTICLE 3

                                  Organization

       Section 3.01.  Name.

       The Trust  continued by this  Declaration  is named  "Litchfield  Capital
       Trust I" as such name may be  modified  from time to time by the  Regular
       Trustees  following written notice to the Holders of the Securities.  The
       Trust's  activities  may be conducted  under the name of the Trust or any
       other name deemed advisable by the Regular Trustees.

       Section 3.02.  Office.

       The  address  of the  principal  office  of the  Trust is c/o  Litchfield
       Financial  Corporation,  430  Main  Street,  Williamstown,  Massachusetts
       01267. Upon ten days' written notice to the Holders, the Regular Trustees
       may change the location of the Trust's principal office.

       Section 3.03.  Issuance of the Securities.


                                       12





       The  Sponsor,  on  behalf  of the  Trust  and  pursuant  to the  Original
       Declaration, executed and delivered the Underwriting Agreement.

       On the First  Closing Date and  contemporaneously  with the execution and
       delivery  of this  Declaration,  the Regular  Trustees,  on behalf of the
       Trust,  shall  execute and  deliver (i) one or more Global  Certificates,
       registered in the name of the nominee of the initial  Clearing  Agency as
       specified  in Section 9.04 for the benefit of the  underwriters  named in
       the Underwriting Agreement, in an aggregate amount of 2,500,000 Preferred
       Securities having an aggregate liquidation amount of $25,000,000, against
       receipt of the aggregate  purchase price of such Preferred  Securities of
       $25,000,000,  and  (ii) to the  Sponsor,  one or more  Common  Securities
       Certificates,  registered  in the name of the  Sponsor,  in an  aggregate
       amount of 71,320 Common Securities having an aggregate liquidation amount
       of $773,200,  against  receipt of the  aggregate  purchase  price of such
       Common Securities of $773,200.

       On the Option  Closing Date, if any, the Regular  Trustees,  on behalf of
       the Trust, shall execute and deliver (i) one or more Global Certificates,
       registered in the name of the nominee of the initial  Clearing  Agency as
       specified  in Section 9.04 for the benefit of the  underwriters  named in
       the  Underwiting  Agreement,  in an  aggregate  amount  of up to  375,000
       Preferred  Securities  having an  aggregate  liquidation  amount of up to
       $3,750,000,  against  receipt  of the  aggregate  purchase  price of such
       Preferred  Securities of up to $3,750,000 plus accrued  interest from the
       First  Closing  Date,  and  (ii)  to  the  Sponsor,  one or  more  Common
       Securities  Certificates,  registered  in the name of the Sponsor,  in an
       aggregate  amount of up to 11,598 Common  Securities  having an aggregate
       liquidation  amount of up to $115,980,  against  receipt of the aggregate
       purchase price of such Common Securities of up to $115,980.

       Section 3.04.  Purchase of Debentures.

       On the First  Closing Date and  contemporaneously  with the execution and
       delivery  of this  Declaration,  the Regular  Trustees,  on behalf of the
       Trust,  shall purchase from the Sponsor with the proceeds received by the
       Trust from the sale of the  Securities  on such date  pursuant to Section
       3.03,  at a  purchase  price  of 100% of the  principal  amount  thereof,
       Debentures,  registered in the name of the Property Trustee and having an
       aggregate principal amount equal to $25,773,200,  and, in satisfaction of
       the purchase price for such Debentures, the Regular Trustee, on behalf of
       the Trust,  shall deliver or cause to be delivered to the Sponsor the sum
       of $25,773,200.

       On the Option  Closing Date, if any, the Regular  Trustees,  on behalf of
       the Trust,  shall purchase from the Sponsor with the proceeds received by
       the  Trust  from the sale of the  Securities  on such  date  pursuant  to
       Section 3.03, at a purchase price of 100% of the principal amount thereof
       plus accrued interest from the First Closing Date, Debentures, registered
       in the name of the  Property  Trustee and having an  aggregate  principal
       amount equal to up to $3,750,000,  and, in  satisfaction  of the purchase
       price for such Debentures,  the Regular Trustee,  on behalf of the Trust,
       shall  deliver or cause to be  delivered  to the Sponsor the sum of up to
       $3,750,000.

       Section 3.05.  Purpose.

       The exclusive  purposes and  functions of the Trust are:  (a)(i) to issue
       and sell Preferred Securities for cash and use the proceeds of such sales
       to  acquire  from  Litchfield   Financial  Debentures  issued  under  the
       Indenture  having an aggregate  principal  amount equal to the  aggregate
       liquidation  amount of the Preferred  Securities so issued and sold; (ii)
       to enter into such  agreements  and  arrangements  as may be necessary in
       connection  with  the  sale  of  Preferred   Securities  to  the  initial
       purchasers thereof (including the Underwriting Agreement) and to take all
       action, and exercise such discretion, as may be necessary or desirable in
       connection  therewith  and to file such  registration  statements or make
       such other  filings under the  Securities  Act, the Exchange Act or state
       securities  or  "Blue  Sky"  laws as may be  necessary  or  desirable  in
       connection  therewith and the issuance of the Preferred  Securities;  and
       (iii) to issue and sell Common  Securities  to  Litchfield  Financial for
       cash and use the  proceeds of such sale to  purchase  as trust  assets an
       equal  aggregate   principal  amount  of  Debentures   issued  under  the
       Indenture;  and (b) except as otherwise limited herein, to engage in only
       those other  activities  necessary,  convenient  or  incidental  thereto,
       including  such  other   activities   specifically   authorized  in  this
       Declaration.  The Trust  shall not borrow  money,  issue debt or reinvest
       proceeds derived from  investments,  mortgage or pledge any of its assets
       or at any time while the Securities are outstanding,  otherwise undertake
       (or permit to be  undertaken)  any activity that would result in or cause
       the Trust not to be  classified  for  United  States  Federal  income tax
       purposes as a grantor trust.


                                       13





       Section 3.06.  Authority.

       Subject  to the  limitations  provided  in  this  Declaration  and to the
       specific duties of the Property Trustee,  the Regular Trustees shall have
       exclusive and complete  authority to carry out the purposes of the Trust.
       An action taken by the Regular  Trustees in accordance  with their powers
       shall  constitute  the act of and  serve to bind the  Trust and an action
       taken by the Property  Trustee on behalf of the Trust in accordance  with
       its powers shall  constitute  the act of and serve to bind the Trust.  In
       dealing with the Trustees  acting on behalf of the Trust, no Person shall
       be required to inquire  into the  authority  of the  Trustees to bind the
       Trust.  Persons dealing with the Trust are entitled to rely  conclusively
       on  the  power  and  authority  of the  Trustees  as set  forth  in  this
       Declaration.

       Section 3.07.  Title to Property of the Trust.

       Except as provided in Section 3.10 with respect to the Debentures and the
       Property Account or unless otherwise provided in this Declaration,  legal
       title to all  assets of the  Trust  shall be  vested  in the  Trust.  The
       Holders  shall  not have  legal  title to any part of the  assets  of the
       Trust, but shall have undivided beneficial interests in the assets of the
       Trust.

       Section 3.08.  Powers and Duties of the Regular Trustees.

       The Regular Trustees shall have the exclusive  power,  authority and duty
       to cause the Trust, and shall cause the Trust, to engage in the following
       activities:

       (a) to issue Preferred Securities and Common Securities,  in each case in
       accordance with this Declaration;  provided,  however, that the Trust may
       issue no more than one series of  Preferred  Securities  and no more than
       one series of Common Securities,  and, provided further, that there shall
       be no interests in the Trust other than the  Securities  and the issuance
       of Securities  shall be limited to a one-time,  simultaneous  issuance of
       both Preferred Securities and Common Securities on the Closing Date;

       (b) in connection with the issuance of the Preferred  Securities,  at the
       direction of the Sponsor,  to effect or cause to be effected the filings,
       and to  execute  or cause to be  executed,  the  documents,  set forth in
       Section  3.13 and to execute,  deliver and perform on behalf of the Trust
       the Depositary Agreement;

       (c) to acquire as trust assets  Debentures  with the proceeds of the sale
       of the Preferred Securities and the Common Securities; provided, however,
       that  the  Regular  Trustees  shall  cause  legal  title  to  all  of the
       Debentures to be vested in, and the Debentures to be held of record

                                       14





       in the name of, the Property Trustee for the benefit of the Holders of
       the Preferred Securities and the Common Securities;

       (d) if and to the extent  that the Sponsor on behalf of the Trust has not
       already  done so,  to cause  the  Trust  to enter  into the  Underwriting
       Agreement and such other  agreements and arrangements as may be necessary
       or desirable in connection  with the sale of the Preferred  Securities to
       the initial purchasers thereof and the consummation  thereof, and to take
       all action, and exercise all discretion, as may be necessary or desirable
       in connection with the consummation thereof;

       (e) to give the Sponsor and the Property Trustee prompt written notice of
       the  occurrence of a Special  Event;  provided that the Regular  Trustees
       shall consult with the Sponsor and the Property  Trustee before taking or
       refraining to take any Ministerial Action in relation to a Special Event;

       (f) to  establish a record  date with  respect to all actions to be taken
       hereunder  that require a record date be  established,  including for the
       purposes  of (S) 316(c) of the Trust  Indenture  Act and with  respect to
       Distributions,  voting rights,  redemptions,  and exchanges, and to issue
       relevant  notices  to  Holders  of the  Preferred  Securities  and Common
       Securities as to such actions and applicable record dates;

       (g) to bring or defend, pay, collect,  compromise,  arbitrate,  resort to
       legal  action or  otherwise  adjust  claims or demands of or against  the
       Trust ("Legal Action"),  unless pursuant to Section 3.10(e), the Property
       Trustee has the exclusive power to bring such Legal Action;

       (h) to  employ or  otherwise  engage  employees  and  agents  (who may be
       designated as officers with titles) and managers,  contractors,  advisors
       and consultants and pay reasonable compensation for such services;

       (i) to cause the Trust to comply with the Trust's  obligations  under the
Trust Indenture Act;

       (j) to give the  certificate  to the  Property  Trustee  required  by (S)
       314(a)(4) of the Trust  Indenture Act, which  certificate may be executed
       by any Regular Trustee;

       (k) to incur  expenses  which are necessary or incidental to carrying out
       any of the purposes of the Trust;

       (l) to act  as,  or  appoint  another  Person  to act as,  registrar  and
       transfer agent for the Securities,  the Regular Trustees hereby initially
       appointing the Property Trustee for such purposes;

       (m) to take all actions and perform such duties as may be required of the
       Regular  Trustee  pursuant  to the terms of the  Securities  set forth in
       Exhibits B and C hereto;


                                       15




       (n) to take all actions  which may be  necessary or  appropriate  for the
       preservation and the continuation of the Trust's valid existence, rights,
       franchises and privileges as a statutory business trust under the laws of
       the  State of  Delaware  and of each  other  jurisdiction  in which  such
       existence is necessary to protect the limited liability of the Holders of
       the  Securities  or to enable the Trust to effect the  purposes for which
       the Trust has been created;

       (o) to take all actions,  not inconsistent  with this Declaration or with
       applicable law, which the Regular Trustees  determine in their discretion
       to be  necessary  or  desirable in carrying out the purposes of the Trust
       and  the  activities  of the  Trust  as set  out in  this  Section  3.08,
       including, but not limited to:

       (i)  causing  the  Trust not to be  deemed  to be an  Investment  Company
       required to be registered under the Investment Company Act;

       (ii) causing the Trust to be classified  for United States Federal income
       tax purposes as a grantor trust; and

       (iii)  cooperating with the Sponsor to ensure that the Debentures will be
       treated as  indebtedness  of the Sponsor for United States Federal income
       tax purposes;

       (p) to take all actions necessary to cause all applicable tax returns and
       tax information reports that are required to be filed with respect to the
       Trust to be duly prepared and filed by the Regular Trustees, on behalf of
       the  Trust,  and to comply  with any  requirements  imposed by any taxing
       authority on holders of instruments  treated as  indebtedness  for United
       States Federal income tax purposes;

       (q)  subject to the  requirements  of Rule 3a-7 (if the Trust is excluded
       from the  definition  of an Investment  Company  solely by reason of Rule
       3a-7) and (S) 317(b) of the Trust  Indenture  Act, to appoint one or more
       Paying Agents in addition to the Property Trustee; and

       (r) to execute  all  documents  or  instruments,  perform  all duties and
       powers and do all  things  for and on behalf of the Trust in all  matters
       necessary or incidental to the foregoing.

The Regular  Trustees must exercise the powers set forth in this Section 3.08 in
a manner which is  consistent  with the purposes and  functions of the Trust set
out in Section 3.05, and the Regular Trustees shall not take any action which is
inconsistent  with the purposes and  functions of the Trust set forth in Section
3.05.

Subject to this Section 3.08, the Regular Trustees shall have none of the powers
or any of the authority of the Property Trustee set forth in Section 3.10.

The Regular  Trustees shall take all actions on behalf of the Trust that are not
specifically required by this Declaration to be taken by any other Trustee.

                                       16





Any  expenses  incurred by the Regular  Trustees  pursuant to this  Section 3.08
shall be reimbursed by the Sponsor.

       Section 3.09.  Prohibition of Actions by the Trust and the Trustees.

       The Trust shall not, and the Trustees  (including  the Property  Trustee)
       shall  cause the  Trust not to,  engage  in any  activity  other  than in
       connection  with the  purposes  of the Trust or other than as required or
       authorized by this  Declaration.  In particular,  the Trust shall not and
       the Trustees  (including the Property  Trustee) shall not cause the Trust
       to:

       (a) invest any proceeds received by the Trust from holding the Debentures
       but shall promptly distribute from the Property Account all such proceeds
       to Holders of Securities pursuant to the terms of this Declaration and of
       the Securities;

       (b) acquire any assets other than as expressly provided herein;

       (c) possess Trust property for other than a Trust purpose;

       (d) make any loans, other than loans represented by the Debentures;

       (e) possess any power or otherwise act in such a way as to vary the Trust
       assets or the terms of the  Securities in any way  whatsoever,  except as
       otherwise expressly provided herein;

       (f) issue any securities or other  evidences of beneficial  ownership of,
       or beneficial interests in, the Trust other than the Securities;

       (g)  incur any indebtedness for borrowed money;

       (h) (i) direct the time,  method and place of conducting  any  proceeding
       for any remedy available to the Debenture Trustee or exercising any trust
       or power  conferred  upon  the  Debenture  Trustee  with  respect  to the
       Debentures,  (ii) waive any past default that is waivable  under  Section
       6.06 of the Indenture,  or (iii) exercise any right to rescind or annul a
       declaration  of  acceleration  of the  maturity of the  principal  of the
       Debentures,  without,  in each case,  obtaining the prior approval of the
       Holders  of  a  Majority  in  liquidation   amount  of  all   outstanding
       Securities;

       (i) revoke any action previously  authorized or approved by a vote of the
       Holders  of  Preferred  Securities  except  by  subsequent  vote  of such
       Holders;

       (j)  consent  to  any  amendment,  modification  or  termination  of  the
       Indenture or the Debentures, where such consent shall be required, unless
       in the case of this clause (j) the Property  Trustee  shall have received
       an Opinion of Counsel experienced in such matters to the effect that such

                                       17




       amendment,  modification  or  termination  will not  cause  more  than an
       insubstantial risk that for United States Federal income tax purposes the
       Trust will not be classified as a grantor trust;

       (k) take or consent to any action that would result in the placement of a
       lien, pledge,  charge,  mortgage or other encumbrance on any of the Trust
       property;

       (l) vary the  investment  (within  the  meaning  of  Treasury  Regulation
       Section 301.7701-4(c)) of the Trust or of the Holders of Securities; or

       (m) after the date hereof,  enter into any  contract or agreement  (other
       than any  depositary  agreement  or any  agreement  with  any  securities
       exchange or automated  quotation  system) that does not expressly provide
       that the Holders of Preferred  Securities,  in their  capacities as such,
       have limited liability (in accordance with the provisions of the Business
       Trust  Act) for the  liabilities  and  obligations  of the  Trust,  which
       express  provision  shall be in  substantially  the following  form, "The
       Holders of the Preferred  Securities,  in their capacities as such, shall
       not be personally  liable for any liabilities or obligations of the Trust
       arising out of this  Agreement,  and the parties hereto hereby agree that
       the Holders of the  Preferred  Securities,  in their  capacities as such,
       shall be entitled to the same limitation of personal  liability  extended
       to stockholders of private  corporations  for profit  organized under the
       General Corporation Law of the State of Delaware."

       Section 3.10.  Powers and Duties of the Property Trustee.

       (a) The  legal  title  to the  Debentures  shall  be owned by and held of
       record in the name of the  Property  Trustee in trust for the  benefit of
       the  Holders of the  Securities.  The right,  title and  interest  of the
       Property  Trustee  to the  Debentures  shall vest  automatically  in each
       Person who may  hereafter be appointed as Property  Trustee in accordance
       with  Article 5. Such  vesting and  cessation of title shall be effective
       whether or not conveyancing  documents with regard to the Debentures have
       been executed and delivered.

       (b) The Property Trustee shall not transfer its right, title and interest
       in the  Debentures  to the Regular  Trustees or, if the Property  Trustee
       does not also act as the Delaware Trustee, the Delaware Trustee.

       (c)  The Property Trustee shall:

       (i) establish and maintain a segregated non-interest bearing bank account
       (the "Property  Account") in the name of and under the exclusive  control
       of the Property Trustee on behalf of the Holders of the Securities and on
       the receipt of payments of funds made in respect of the  Debentures  held
       by the Property  Trustee,  deposit  such funds into the Property  Account
       and,  without any  further  acts of the  Property  Trustee or the Regular
       Trustees,  promptly  make  payments  to  the  Holders  of  the  Preferred
       Securities and Common  Securities from the Property Account in accordance
       with Section 6.01. Funds in the Property Account shall be held

                                       18





       uninvested,  and without liability for interest thereon,  until disbursed
       in accordance  with this  Declaration.  The Property  Account shall be an
       account which is maintained  with a banking  institution  whose long term
       unsecured  indebtedness is rated by a "nationally  recognized statistical
       rating  organization,"  as such  term is  defined  for  purposes  of Rule
       436(g)(2) under the Securities Act, at least investment grade;

       (ii)  engage in such  ministerial  activities  as shall be  necessary  or
       appropriate to effect promptly the redemption of the Preferred Securities
       and the Common  Securities to the extent the  Debentures  are redeemed or
       mature;

(iii) upon notice of distribution  issued by the Regular  Trustees in accordance
with the terms of the Preferred Securities and the Common Securities,  engage in
such  ministerial  activities  as shall be  necessary or  appropriate  to effect
promptly  pursuant to terms of the Securities the  distribution of Debentures to
Holders of  Securities  upon the election of the Holder of Common  Securities to
distribute the Debentures to Holders of Securities and dissolve the Trust; and

       (iv) have the legal  power to  exercise  all of the  rights,  powers  and
       privileges of a holder of the  Debentures  under the Indenture and, if an
       Event of Default occurs and is continuing,  the Property Trustee, subject
       to  Section  3.10(e),  shall  for  the  benefit  of  the  Holders  of the
       Securities,  enforce  its  rights as holder of the  Debentures  under the
       Indenture,  subject  to the  rights  of  the  Holders  of  the  Preferred
       Securities pursuant to the terms of this Declaration,  the Business Trust
       Act and the Trust Indenture Act.

       (d) The Property  Trustee  shall take all actions and perform such duties
       as may be specifically  required of the Property  Trustee pursuant to the
       terms of the Securities set forth in Exhibits B and C hereto.

       (e) If an Event of  Default  has  occurred  and is  continuing,  then the
       Holders of a Majority in liquidation  amount of the Preferred  Securities
       will have the right to direct the time,  method  and place of  conducting
       any  proceeding  for any remedy  available to the Property  Trustee or to
       direct the  exercise of any trust or power  conferred  upon the  Property
       Trustee under the Declaration, including the right to direct the Property
       Trustee  to  exercise  the  remedies  available  to it as a holder of the
       Debentures. If the Property Trustee fails to enforce its rights under the
       Debentures, a Holder of Preferred Securities,  to the extent permitted by
       applicable  law,  may,  after a period of 30 days has elapsed  since such
       Holder's  written request to the Property Trustee to enforce such rights,
       institute a legal proceeding  directly against the Sponsor to enforce the
       Property  Trustee's rights under the Debentures without first instituting
       any legal  proceeding  against the Property  Trustee or any other Person;
       provided  further,  that,  if an Event of  Default  has  occurred  and is
       continuing  and such event is attributed to the failure of the Sponsor to
       pay interest or principal on the  Debentures on the date such interest or
       principal  is  otherwise  payable (or in the case of  redemption,  on the
       redemption  date),  then a Holder of  Preferred  Securities  may directly
       institute a proceeding  for  enforcement of payment to such Holder of the
       principal  of or interest  on the  Debentures  having a principal  amount
       equal to the aggregate

                                       19




       liquidation amount of the Preferred  Securities of such Holder (a "Holder
       Direct  Action") on or after the  respective  due date  specified  in the
       Debentures.  In connection  with such Holder Direct  Action,  the Sponsor
       will be subrogated  to the rights of such Holder of Preferred  Securities
       to the  extent of any  payment  made by the  Sponsor  to such  Holders of
       Preferred Securities in such Holder Direct Action.  Except as provided in
       the preceding sentences,  the Holders of Preferred Securities will not be
       able to exercise  directly any other  remedy  available to the Holders of
       the Debentures.

       (f) All moneys  deposited in the Property Account and all Debentures held
       by the Property  Trustee for the benefit of the Holders of the Securities
       will not be subject  to any right,  charge,  security  interest,  lien or
       claim of any kind in favor of, or for the benefit of the Property Trustee
       or its agents or their creditors.

       (g) The Property Trustee shall,  within 90 days after the occurrence of a
       default with respect to the  Securities  actually  known to a Responsible
       Officer of the Property  Trustee,  transmit by mail,  first class postage
       prepaid,  to the holders of the Securities,  as their names and addresses
       appear upon the  register,  notice of such  defaults  with respect to the
       Securities known

                                       20





       to the
       Property  Trustee,  unless such defaults shall have been cured before the
       giving of such  notice  (the term  "defaults"  for the  purposes  of this
       Section 3.10(g) being hereby defined to be an Indenture Event of Default,
       not  including  any periods of grace  provided for in the  Indenture  and
       irrespective  of the giving of any notice  provided  therein);  provided,
       that,  except in the case of default in the payment of the  principal  of
       (or premium,  if any) or interest on any of the Debentures,  the Property
       Trustee shall be protected in  withholding  such notice if and so long as
       the board of directors,  the executive  committee or a trust committee of
       directors and/or  Responsible  Officers,  of the Property Trustee in good
       faith  determines that the withholding of such notice is in the interests
       of the  Holders of the  Securities.  The  Property  Trustee  shall not be
       deemed to have  knowledge  of any  default,  except  (i) a default in the
       payment of principal,  premium or interest on the  Debentures or (ii) any
       default as to which the  Property  Trustee  shall have  received  written
       notice or a Responsible  Officer charged with the  administration of this
       Declaration shall have obtained written notice.

       (h) The  Property  Trustee  shall  continue  to serve as a Trustee  until
either:

             (i) the  Trust  has been  completely  liquidated  and the  proceeds
             thereof  distributed  to the Holders of Securities  pursuant to the
             terms of the Securities; or

             (ii) a Successor  Property  Trustee has been appointed and accepted
             that appointment in accordance with Article 5.

       (i) The  Property  Trustee  shall act as paying  agent in  respect of the
       Common Securities and, if the Preferred  Securities are not in book entry
       only form, the Preferred  Securities and, subject to Section 3.08(q), may
       authorize  one  or  more  Persons  (each,   a  "Paying   Agent")  to  pay
       Distributions,  redemption payments or liquidation  payments on behalf of
       the Trust with respect

                                       20





       to the Preferred Securities.  Any such Paying Agent shall comply with (S)
       317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the
       Property Trustee,  after  consultation with the Regular Trustees,  at any
       time and a successor  Paying  Agent or  additional  Paying  Agents may be
       appointed  at any  time  by the  Property  Trustee,  subject  to  Section
       3.08(q).

       (j) The Property  Trustee shall give prompt written notice to the Holders
       of the Securities of any notice received by it from Litchfield  Financial
       of its  election  to defer  payments of  interest  on the  Debentures  by
       extending the interest payment period with respect thereto.

       (k) Subject to this Section 3.10, the Property Trustee shall have none of
       the powers or the authority of the Regular  Trustees set forth in Section
       3.08.

       (l) The Property Trustee shall exercise the powers, duties and rights set
       forth  in this  Section  3.10  and  Section  3.12 in a  manner  which  is
       consistent  with the  purposes  and  functions  of the  Trust  set out in
       Section 3.05, and the Property Trustee shall not take any action which is
       inconsistent  with the purposes  and  functions of the Trust set forth in
       Section 3.05.

       Section 3.11.  Delaware Trustee.

       Notwithstanding  any  other  provision  of this  Declaration  other  than
       Section  5.01(a)(3),  the  Delaware  Trustee  shall  not be  entitled  to
       exercise  any  powers,  nor shall the  Delaware  Trustee  have any of the
       duties  and   responsibilities   of  the   Trustees   described  in  this
       Declaration.  Except as set forth in  Section  5.01(a)(3),  the  Delaware
       Trustee shall be a Trustee for the sole and limited purpose of fulfilling
       the  requirements  of (S) 3807(a) of the  Business  Trust Act. No implied
       covenants or obligations shall be read into this Declaration  against the
       Delaware Trustee.

       Section 3.12.  Certain Rights and Duties of the Property Trustee.

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

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


                                       21





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

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

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

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

       (iii) the Property Trustee shall not be liable with respect to any action
       taken or omitted to be taken by it in good faith in  accordance  with the
       direction  of the  Holders  of not less than a  Majority  in  liquidation
       amount  of the  Securities  relating  to the  time,  method  and place of
       conducting  any  proceeding  for any  remedy  available  to the  Property
       Trustee  hereunder or under the  Indenture,  or  exercising  any trust or
       power conferred upon the Property Trustee under this Declaration; and

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

       (c) Subject to the provisions of Section 3.12(a) and (b):

       (i)  whenever in the  administration  of this  Declaration,  the Property
       Trustee  shall deem it desirable  that a matter be proved or  established
       prior to taking, suffering or omitting any action hereunder, the Property
       Trustee (unless other evidence is herein specifically prescribed) may, in
       the absence of bad faith on its part and,  if the Trust is excluded  from
       the  definition  of  Investment  Company  solely  by means of Rule  3a-7,
       subject to the requirements of Rule 3a-7,

                                       22





       request and rely upon an  Officers'  Certificate  which,  upon receipt of
       such request,  shall be promptly  delivered by the Sponsor or the Regular
       Trustees;

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

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

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

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

(d) The  recitals  contained  herein  shall be taken  as the  statements  of the
Sponsor,  and the Property Trustee assumes no responsibility for the correctness
of the same. The Property Trustee makes no representations as to the validity or
sufficiency of this Declaration.

(e) The Property  Trustee,  in its individual or any other capacity,  may become
the owner or pledgee of Preferred  Securities  and may  otherwise  deal with the
Sponsor with the same rights it would have if it were not the Property Trustee.



                                       23





(f) All moneys received by the Property Trustee shall,  until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be  segregated  from other funds  except to the extent  required by
law. The Property Trustee shall be under no liability for interest on any moneys
received by it hereunder except such as it may agree in writing to pay thereon.

(g) (i) The Sponsor  covenants  and agrees to pay to the  Property  Trustee from
time to time, and the Property  Trustee shall be entitled to, such  compensation
as the Sponsor and the Property Trustee shall from time to time agree in writing
(which  shall  not  be  limited  by  any  provision  of  law  in  regard  to the
compensation  of a  Property  Trustee  of an  express  trust)  for all  services
rendered by it in the execution of the trusts hereby created and in the exercise
and  performance  of any of the  powers  and duties  hereunder  of the  Property
Trustee,  and the Sponsor  will pay or reimburse  the Property  Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or made
by the  Property  Trustee  in  accordance  with  any of the  provisions  of this
Declaration  (including the reasonable  compensation and the reasonable expenses
and disbursements of its counsel and of all persons not regularly in its employ)
except  any  such  expense,  disbursement  or  advance  as may  arise  from  its
negligence  or bad faith.  The Sponsor also  covenants to indemnify  each of the
Property Trustee or any predecessor Property Trustee and their officers, agents,
directors and  employees  for, and to hold them  harmless  against,  any and all
loss,  liability,  damage,  claim or expense  including  taxes (other than taxes
based upon,  measured by or  determined  by the income of the Property  Trustee)
incurred without negligence or bad faith on the part of the Property Trustee and
arising out of or in connection  with the acceptance or  administration  of this
trust,  including the reasonable  costs and expenses of defending itself against
any claim (whether  asserted by the Sponsor,  any Holder or any other Person) of
liability in the  premises.  The  provisions of this subpart (g) of this Section
3.12 shall  survive the  termination  of this  Declaration  and  resignation  or
removal of the Property Trustee.

       (ii) The  obligations  of the  Sponsor  under  this  subpart  (g) of this
       Section 3.12 to compensate and indemnify the Property  Trustee and to pay
       or  reimburse  the  Property  Trustee  for  expenses,  disbursements  and
       advances  shall  constitute  additional  indebtedness   hereunder.   Such
       additional  indebtedness  shall be secured by a lien prior to that of the
       Securities  upon all property and funds held or collected by the Property
       Trustee  as such,  except  funds  held in trust  for the  benefit  of the
       holders of particular Securities.

(h)  Except  as  otherwise  provided  in  this  Section  3.12,  whenever  in the
administration  of the provisions of this Declaration the Property Trustee shall
deem it necessary or desirable that a matter be proved or  established  prior to
taking or  suffering  or  omitting  to take any action  hereunder,  such  matter
(unless other  evidence in respect  thereof be herein  specifically  prescribed)
may,  in the  absence  of  negligence  or bad faith on the part of the  Property
Trustee,  be deemed to be  conclusively  proved and  established by an Officers'
Certificate  delivered  to the  Property  Trustee and such  certificate,  in the
absence of negligence or bad faith on the part of the Property Trustee, shall be
full warrant to the Property  Trustee for any action taken,  suffered or omitted
to be  taken by it under  the  provisions  of this  Declaration  upon the  faith
thereof.


                                       24





       (i) Whether or not expressly stated,  every provision of this Declaration
       pertaining to the Property Trustee shall be subject to this Section 3.12.

       Section 3.13.  Registration Statement and Related Matters.

       In accordance with the Original Declaration, Litchfield Financial, as the
       sponsor of the Trust,  was authorized (i) to file with the Commission and
       execute,  in each  case on  behalf  of the  Trust,  (a) the  Registration
       Statement  on Form  S-3  (File  Nos.  333-76285,  333-76285-01,  and 333-
       76285-02)  (the  "1933  Act   Registration   Statement")   including  any
       pre-effective  or  post-effective  amendments  thereto,  relating  to the
       registration under the Securities Act of the Preferred Securities and (b)
       if Litchfield Financial shall deem it desirable, a Registration Statement
       on Form  8-A or  other  appropriate  form  (the  "1934  Act  Registration
       Statement")  (including all pre-effective and  post-effective  amendments
       thereto)  relating to the registration of the Preferred  Securities under
       Section 12 of the Exchange Act; (ii) if Litchfield  Financial  shall deem
       it desirable, to prepare and file with the New York Stock Exchange or one
       or more national  securities  exchange(s)  (each,  an  "Exchange") or the
       National Association of Securities Dealers, Inc. (the "NASD") and execute
       on  behalf of the Trust a listing  application  or  applications  and all
       other  applications,   statements,  certificates,  agreements  and  other
       instruments  as shall be necessary  or  desirable to cause the  Preferred
       Securities to be listed on any such Exchange or The Nasdaq Stock Market's
       National  Market  ("Nasdaq");  (iii) to file and execute on behalf of the
       Trust such applications,  reports,  surety bonds,  irrevocable  consents,
       appointments  of attorney for service of process and all other papers and
       documents  as  Litchfield  Financial,  on behalf of the  Trust,  may deem
       necessary or desirable to register  the  Preferred  Securities  under the
       securities  or  "Blue  Sky"  laws of  such  jurisdictions  as  Litchfield
       Financial on behalf of the Trust,  may deem  necessary or desirable;  and
       (iv) to  negotiate  the  terms  and  execute  on  behalf of the Trust the
       Underwriting  Agreement.  In the event  that any  filing  referred  to in
       clauses (i)- (iii) above is required by the rules and  regulations of the
       Commission,  any Exchange,  Nasdaq,  the NASD or state securities or blue
       sky laws, to be executed on behalf of the Trust by one or more  Trustees,
       the Regular  Trustees,  in their capacities as Trustees of the Trust, and
       Litchfield  Financial are hereby  authorized  and directed to join in any
       such  filing  and to  execute  on  behalf of the Trust any and all of the
       foregoing. In connection with all of the foregoing,  Litchfield Financial
       and each  Trustee,  solely in its capacity as Trustee of the Trust,  have
       constituted and appointed, and hereby confirm the appointment of, Richard
       A. Stratton,  Ronald E. Rabidou, and Heather A. Sica and each of them, as
       his,  her or its, as the case may be, true and lawful  attorneys-in-fact,
       and  agents,  with full power of  substitution  and  resubstitution,  for
       Litchfield Financial or such Trustee or in Litchfield  Financial' or such
       Trustee's name,  place and stead, in any and all capacities,  to sign any
       and all amendments (including post-effective  amendments) to the 1933 Act
       Registration  Statement  and the 1934 Act  Registration  Statement and to
       file  the  same,  with all  exhibits  thereto,  and  other  documents  in
       connection   therewith,   with  the   Commission,   granting   unto  said
       attorneys-in-fact  and agents full power and  authority to do and perform
       each and  every  act and  thing  requisite  and  necessary  to be done in
       connection therewith,  as fully to all intents and purposes as Litchfield
       Financial or such Trustee might or could do in person,  hereby  ratifying
       and confirming all that said attorneys-in-fact and

                                       25





       agents or any of them, or their or his or her substitute or  substitutes,
       may lawfully do or cause to be done by virtue hereof.

       Section 3.14.  Filing of Amendments to Certificate of Trust.

       The  Certificate  of Trust as filed  with the  Secretary  of State of the
       State of Delaware on April 12, 1999, is attached  hereto as Exhibit A. On
       or after the date of execution of this  Declaration,  the Trustees  shall
       cause the filing with the  Secretary of State of the State of Delaware of
       such  amendments,  if any, to the  Certificate  of Trust as the  Trustees
       shall deem necessary or desirable.

       Section 3.15.  Execution of Documents by the Regular Trustees.

       Except as otherwise  required by the  Business  Trust Act with respect to
       the  Certificate of Trust or otherwise and except as provided in Sections
       7.01(c) and 9.08,  any  Regular  Trustee,  or if there is only one,  such
       Regular  Trustee is  authorized  to execute  and deliver on behalf of the
       Trust  any  documents  which  the  Regular  Trustees  have the  power and
       authority to execute or deliver pursuant to this Declaration.

Section 3.16.  Trustees Not Responsible for Recitals or Issuance of Securities.

The recitals  contained in this Declaration and the Securities shall be taken as
the statements of the Sponsor, and the Trustees do not assume any responsibility
for their  correctness.  The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations  as to the validity or  sufficiency  of this  Declaration or the
Securities.

       Section 3.17.  Duration of the Trust.

       The Trust,  absent  dissolution  pursuant to the  provisions of Article 8
       hereof, shall continue without dissolution until June 30, 2029.

       Section 3.18.  Mergers.

       (a) The Trust  may not merge  with or into,  convert  into,  consolidate,
       amalgamate,  or  be  replaced  by,  or  convey,  transfer  or  lease  its
       properties and assets substantially as an entirety to any Person,  except
       as described in Section 3.18(b) and (c) of this  Declaration or Section 3
       of Exhibit B or Exhibit C.

       (b) The Trust may, at the request of the Sponsor, with the consent of the
       Regular  Trustees  or,  if there are more than  two,  a  majority  of the
       Regular  Trustees  and without the consent of the  Holders,  the Delaware
       Trustee  or the  Property  Trustee,  merge  with or into,  convert  into,
       consolidate,  amalgamate, or be replaced by, or convey, transfer or lease
       its properties and assets

                                       26





       as an entirety or  substantially  as an entirety to, a trust organized as
       such under the laws of any State; provided that:

       (i) such successor entity (the "Successor Entity") either:

       (A)  expressly  assumes  all of the  obligations  of the Trust  under the
       Securities and this Declaration; or

       (B) substitutes for the Securities other securities having  substantially
       the same terms as the Securities (the "Successor  Securities") so long as
       the  Successor  Securities  rank the  same as the  Securities  rank  with
       respect to Distributions  and payments upon  liquidation,  redemption and
       otherwise;

       (ii) the Sponsor  expressly  appoints a trustee of the  Successor  Entity
       that possesses the same powers and duties as the Property  Trustee as the
       holder of the Debentures;

(iii) the Successor  Securities are listed, or any Successor  Securities will be
listed upon  notification of issuance,  on any national  securities  exchange or
with another  organization in which the Preferred  Securities are then listed or
quoted, if any;

       (iv) if the Preferred Securities (including any Successor Securities) are
       rated by any nationally recognized  statistical rating organization prior
       to   such   transaction,   such   merger,   conversion,    consolidation,
       amalgamation,  replacement,  conveyance, transfer or lease does not cause
       the Preferred Securities (including any Successor Securities),  or if the
       Debentures  are  so  rated,  the  Debentures,  to be  downgraded  by  any
       nationally recognized statistical rating organization;

       (v) such merger, conversion,  consolidation,  amalgamation,  replacement,
       conveyance,  transfer  or lease does not  adversely  affect  the  rights,
       preferences  and privileges of the Holders  (including the holders of any
       Successor Securities) in any material respect (other than with respect to
       any dilution of such Holders' interests in the new entity);

       (vi) such Successor Entity has a purpose substantially  identical to that
of the Trust;

(vii)   prior  to  such   merger,   conversion,   consolidation,   amalgamation,
replacement,  conveyance, transfer or lease, the Sponsor has received an Opinion
of Counsel experienced in such matters that:

       (A) such merger, conversion,  consolidation,  amalgamation,  replacement,
       conveyance,  transfer  or lease does not  adversely  affect  the  rights,
       preferences  and privileges of the Holders  (including the holders of any
       Successor Securities) in any material respect (other than with respect to
       any dilution of the Holders' interest in the new entity);


                                       27





       (B)  following  such  merger,  conversion,  consolidation,  amalgamation,
       replacement,  conveyance,  transfer  or lease,  neither the Trust nor the
       Successor  Entity will be required to register as an Investment  Company;
       and

       (C)  following  such  merger,  conversion,  consolidation,  amalgamation,
       replacement,  conveyance,  transfer or lease, the Trust (or the Successor
       Entity)  will  continue to be  classified  as a grantor  trust for United
       States Federal income tax purposes;

(viii) the Sponsor or any permitted successor or assignee owns all of the common
securities of such  Successor  Entity and  guarantees  the  obligations  of such
Successor Entity under the Successor  Securities at least to the extent provided
by the Preferred Guarantee; and

       (ix) there shall have been furnished to the Property Trustee an Officers'
       Certificate  and an  Opinion  of  Counsel,  each to the  effect  that all
       conditions  precedent in this  Declaration to such  transaction have been
       satisfied.

       (c) Notwithstanding Section 3.18(b), the Trust shall not, except with the
       consent  of  Holders  of 100% in  liquidation  amount of the  Securities,
       consolidate, amalgamate, merge with or into, convert into, or be replaced
       by, or convey, transfer or lease its properties and assets as an entirety
       or  substantially as an entirety to, any other Person or permit any other
       Person to consolidate,  amalgamate,  merge with or into, or replace it if
       such  consolidation,   amalgamation,  merger,  conversion,   replacement,
       conveyance,  transfer  or lease  would  cause the Trust or the  Successor
       Entity not to be classified as a grantor trust for United States  Federal
       income tax purposes or would cause the Holders of the  Securities  not to
       be treated as owning an undivided interest in the Debentures.

       Section 3.19.  Property Trustee May File Proofs of Claim.

       In case of the  pendency of any  receivership,  insolvency,  liquidation,
       bankruptcy, reorganization, arrangement, adjustment, composition or other
       similar  judicial  proceeding  relative to the Trust or any other obligor
       upon the Securities or the property of the Trust or of such other obligor
       or their  creditors,  the Property  Trustee  (irrespective of whether any
       Distributions  on the Securities shall then be due and payable as therein
       expressed or by declaration or otherwise and  irrespective of whether the
       Property  Trustee shall have made any demand on the Trust for the payment
       of any past due  Distributions)  shall be entitled and empowered,  to the
       fullest extent  permitted by law, by  intervention  in such proceeding or
       otherwise:

       (a) to file and prove a claim for the whole  amount of any  Distributions
       owing and unpaid in respect of the Securities  (or, if the Securities are
       original  issue  discount  Securities,  such  portion of the  liquidation
       amount as may be specified in the terms of such  Securities)  and to file
       such other  papers or documents as may be necessary or advisable in order
       to have the claims of the Property  Trustee  (including any claim for the
       reasonable compensation, expenses,

                                       28





       disbursements and advances of the Property Trustee, its agents and
       counsel) and of the Holders allowed in such judicial proceeding, and

       (b) to  collect  and  receive  any  moneys or other  property  payable or
       deliverable on any such claims and to distribute the same;

and any custodian,  receiver,  assignee,  trustee,  liquidator,  sequestrator or
other similar official in any such judicial  proceeding is hereby  authorized by
each Holder to make such payments to the Property  Trustee and, in the event the
Property  Trustee shall  consent to the making of such payments  directly to the
Holders to pay to the  Property  Trustee  any  amount due it for the  reasonable
compensation,  expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.

Nothing herein  contained  shall be deemed to authorize the Property  Trustee to
authorize  or  consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or compensation affecting the Securities
or the rights of any Holder thereof to authorize the Property Trustee to vote in
respect of the claim of any Holder in any such proceeding.

                                    ARTICLE 4

                                     Sponsor

       Section 4.01.  Purchase of Common Securities by the Sponsor.

       On the  Closing  Date,  the  Sponsor  will  purchase  all  of the  Common
       Securities  issued  by  the  Trust  at the  same  time  as the  Preferred
       Securities  to be issued on such date are issued,  such purchase to be in
       an amount equal to 3% of the total capital of the Trust.

       Section 4.02.  Expenses.

       (a) In connection  with the purchase of the Debentures by the Trust,  the
       Sponsor,  in its  capacity  as  Sponsor  and not as a  Holder,  shall  be
       responsible for and shall pay for all debts and  obligations  (other than
       with respect to the  Securities)  and all costs and expenses of the Trust
       (including,  but not  limited  to,  costs and  expenses  relating  to the
       organization  of the Trust,  the issuance of the Preferred  Securities to
       initial purchasers thereof,  the fees and expenses (including  reasonable
       counsel fees and expenses) of the Trustees (including any amounts payable
       under  Article 10), the costs and expenses  relating to the  operation of
       the  Trust,  including,   without  limitation,   costs  and  expenses  of
       accountants, attorneys, statistical or bookkeeping services, expenses for
       printing and  engraving and  computing or  accounting  equipment,  paying
       agent(s),  registrar(s),   transfer  agent(s),  duplicating,  travel  and
       telephone  and other  telecommunications  expenses and costs and expenses
       incurred in connection with the disposition of Trust assets).


                                       29





       (b) In connection  with the purchase of the Debentures by the Trust,  the
       Sponsor, in its capacity as Sponsor and not as a Holder, will pay any and
       all taxes (other than United States withholding taxes attributable to the
       Trust or its assets) and all liabilities, costs and expenses with respect
       to such taxes of the Trust.

       (c) The  Sponsor's  obligations  under this Section 4.02 shall be for the
       benefit  of,  and shall be  enforceable  by,  any Person to whom any such
       debts,  obligations,  costs,  expenses and taxes are owed (a  "Creditor")
       whether  or not  such  Creditor  has  received  notice  hereof.  Any such
       Creditor may enforce the  Sponsor's  obligations  under this Section 4.02
       directly against the Sponsor and the Sponsor irrevocably waives any right
       or remedy to require that any such Creditor  take any action  against the
       Trust or any other Person before proceeding against the Sponsor.

       (d) The Sponsor  shall be  subrogated to all (if any) rights of the Trust
       in respect of any amounts paid to any Creditor by the Sponsor  under this
       Section 4.02.

                                    ARTICLE 5

                                    Trustees

       Section 5.01.  Number of Trustees; Qualifications.

       (a) The number of Trustees  initially  shall be five (5). At any time (i)
       before the  issuance  of the  Securities,  the  Sponsor  may,  by written
       instrument,  increase or decrease the number of, and appoint,  remove and
       replace, the Trustees,  and (ii) after the issuance of the Securities the
       number of Trustees may be increased or decreased  solely by, and Trustees
       may be  appointed,  removed or  replaced  solely  by,  vote of Holders of
       Common  Securities  representing a Majority in liquidation  amount of the
       Common Securities voting as a class; provided that in any case:

       (1) the number of Trustees  shall be at least five (5) unless the Trustee
       that acts as the Property Trustee also acts as the Delaware  Trustee,  in
       which case the number of Trustees shall be at least four (4);

       (2) at least a majority of the  Trustees  shall at all times be officers,
       directors or employees of Litchfield Financial;

       (3) if required by the Business  Trust Act,  one Trustee  (the  "Delaware
       Trustee") shall be either a natural person who is a resident of the State
       of  Delaware  or,  if not a  natural  person,  an  entity  which  has its
       principal  place of business in the State of Delaware  and  otherwise  is
       permitted  to act as a Trustee  hereunder  under the laws of the State of
       Delaware,  except that if the Property Trustee has its principal place of
       business in the State of Delaware and  otherwise is permitted to act as a
       Trustee  hereunder  under  the laws of the  State of  Delaware,  then the
       Property  Trustee  shall also be the  Delaware  Trustee and Section  3.11
       shall have no application; and

                                       30





       (4) there shall at all times be a Property Trustee  hereunder which shall
       satisfy the requirements of Section 5.01(c).

Each  Trustee  shall be  either a  natural  person at least 21 years of age or a
legal entity which shall act through one or more duly appointed representatives.

(b) The initial Regular Trustees shall be:

John J. Malloy, Heather A. Sica and Ronald E. Rabidou

c/o LITCHFIELD FINANCIAL CORPORATION, 430 Main Street, Williamstown,
Massachusetts 01267

(c) There  shall at all times be one  Trustee  which  shall act as the  Property
Trustee. In order to act as the Property Trustee hereunder, such Trustee shall:

         (i)  not be an Affiliate of the Sponsor;

         (ii) be a corporation  or national  banking  association  organized and
doing  business  under the laws of the United  States of America or any State or
Territory  thereof or of the District of Columbia,  or a  corporation,  national
banking  association  or  Person  permitted  by  the  Commission  to  act  as an
institutional  trustee under the Trust Indenture Act, authorized under such laws
to exercise corporate trust powers,  having a combined capital and surplus of at
least $50,000,000,  and subject to supervision or examination by Federal, State,
Territorial or District of Columbia  authority.  If such corporation or national
banking association  publishes reports of condition at least annually,  pursuant
to law or to the requirements of the supervising or examining authority referred
to above,  then for the  purposes  of this  Section  5.01(c)(ii),  the  combined
capital  and  surplus  of such  corporation  shall be deemed to be its  combined
capital  and  surplus as set forth in its most  recent  report of  condition  so
published; and

         (iii) if the Trust is excluded  from the  definition  of an  Investment
Company  solely by reason of Rule 3a-7 and to the  extent  Rule 3a-7  requires a
trustee having certain qualifications to hold title to the "eligible assets" (as
defined in Rule 3a-7) of the Trust,  the Property  Trustee  shall  possess those
qualifications.

If at any time the Property  Trustee shall cease to satisfy the  requirements of
clauses  (i)-(iii) above, the Property Trustee shall  immediately  resign in the
manner and with the effect set out in Section  5.02(d).  If the Property Trustee
has or shall acquire any "conflicting interest" within the meaning of (S) 310(b)
of the Trust  Indenture Act, the Property  Trustee and the Holders of the Common
Securities (as if such Holders were the obligor referred to in (S) 310(b) of the
Trust  Indenture  Act) shall in all respects  comply with the  provisions of (S)
310(b) of the Trust Indenture Act. The

                                       31





Preferred  Guarantee  and the  Indenture  shall  be  deemed  to be  specifically
described  in this  Declaration  for the  purposes  of  clause  (i) of the first
proviso contained in (S) 310(b) of the Trust Indenture Act.

The initial Trustee which shall serve as the Property Trustee is The Bank of New
York, a New York banking  corporation,  whose address is as set forth in Section
14.01(b).

       (d) The initial Trustee which shall serve as the Delaware  Trustee is The
       Bank of New  York  (Delaware),  a  Delaware  banking  corporation,  whose
       address is as set forth in Section 14.01(c).

       (e) Any action taken by the Holders of Common Securities pursuant to this
       Article 5 shall be taken at a meeting of the Holders of Common Securities
       convened  for such  purpose or by written  consent as provided in Section
       12.02.

       (f) No  amendment  may be made to this Section 501 which would change any
       rights with respect to the number,  existence or appointment  and removal
       of Trustees, except with the consent of each Holder of Common Securities.

       Section 5.02.  Appointment, Removal and Resignation of the Trustees.

       (a) Subject to Section  5.02(b),  Trustees  may be  appointed  or removed
       without cause at any time:

       (i)  until the issuance of the Securities, by written instrument executed
       by the Sponsor; and

       (ii) after the  issuance  of the  Securities  by vote of the Holders of a
       Majority  in  liquidation  amount of the  Common  Securities  voting as a
       class.

       (b) (i) The  Trustee  that  acts as the  Property  Trustee  shall  not be
       removed in  accordance  with Section  5.02(a)  until a successor  Trustee
       possessing  the  qualifications  to  act as the  Property  Trustee  under
       Section 5.01(c) (a "Successor  Property  Trustee") has been appointed and
       has accepted  such  appointment  by written  instrument  executed by such
       Successor  Property  Trustee and delivered to the Regular  Trustees,  the
       Sponsor and the Property Trustee being removed; and

       (ii) the Trustee that acts as the Delaware  Trustee  shall not be removed
       in accordance with Section 5.02(a) until a successor  Trustee  possessing
       the   qualifications  to  act  as  the  Delaware  Trustee  under  Section
       5.01(a)(3) (a "Successor  Delaware  Trustee") has been  appointed and has
       accepted  such  appointment  by  written  instrument   executed  by  such
       Successor  Delaware  Trustee and delivered to the Regular  Trustees,  the
       Sponsor and the Delaware Trustee being removed.

       (c) A Trustee  appointed  to office  shall  hold  such  office  until his
       successor  shall  have been  appointed  or until his  death,  removal  or
       resignation.

                                       32





       (d) Any  Trustee  may  resign  from  office  (without  need for  prior or
       subsequent  accounting)  by an  instrument (a  "Resignation  Request") in
       writing signed by the Trustee and delivered to the Sponsor and the Trust,
       which resignation shall take effect upon such delivery or upon such later
       date as is specified therein; provided, however, that:

       (i) no such  resignation of the Trustee that acts as the Property Trustee
shall be effective until:

       (A) a Successor Property Trustee has been appointed and has accepted such
       appointment by instrument executed by such Successor Property Trustee and
       delivered to the Regular Trustees, the Sponsor and the resigning Property
       Trustee; or

       (B) if the Trust is excluded from the definition of an Investment Company
       solely by reason of Rule  3a-7,  until the  assets of the Trust have been
       completely liquidated and the proceeds thereof distributed to the Holders
       of the Securities; and

       (ii) no such resignation of the Trustee that acts as the Delaware Trustee
       shall be effective until a Successor  Delaware Trustee has been appointed
       and  has  accepted  such  appointment  by  instrument  executed  by  such
       Successor  Delaware  Trustee and delivered to the Regular  Trustees,  the
       Sponsor and the resigning Delaware Trustee.

       (e) If no Successor  Property Trustee or Successor Delaware Trustee shall
       have been appointed and accepted  appointment as provided in this Section
       5.02  within  60  days  after  delivery  of  a  notice  of  removal  or a
       Resignation  Request,  the  Property  Trustee or Delaware  Trustee  being
       removed or resigning as the case may be may  petition,  at the expense of
       the Sponsor,  any court of competent  jurisdiction  for  appointment of a
       Successor Property Trustee or Successor Delaware Trustee, as the case may
       be. Such court may thereupon after prescribing such notice, if any, as it
       may deem proper and prescribe,  appoint a Successor  Property  Trustee or
       Successor Delaware Trustee, as the case may be.

Section 5.03.  Vacancies among the Trustees.

If a Trustee  ceases to hold office for any reason and the number of Trustees is
not reduced  pursuant to Section  5.01 or if the number of Trustees is increased
pursuant to Section 5.01, a vacancy  shall occur.  A resolution  certifying  the
existence  of such  vacancy  by a  majority  of the  Regular  Trustees  shall be
conclusive  evidence of the  existence  of such  vacancy.  The vacancy  shall be
filled with a Trustee  appointed in  accordance  with the  requirements  of this
Article 5.

Section 5.04.  Effect of Vacancies.

The  death,   resignation,   retirement,   removal,   bankruptcy,   dissolution,
liquidation,  incompetence or incapacity to perform the duties of a Trustee,  or
any one of them,  shall not operate to  dissolve,  terminate or annul the Trust.
Whenever  a vacancy in the number of Regular  Trustees  shall  occur  until such
vacancy is filled as provided in this Article 5, the Regular Trustees in office,
regardless

                                       33





of their number,  shall have all the powers granted to the Regular  Trustees and
shall  discharge  all the  duties  imposed  upon the  Regular  Trustees  by this
Declaration.

Section 5.05.  Meetings.

Meetings of the Regular  Trustees  shall be held from time to time upon the call
of any Regular Trustee.  Regular meetings of the Regular Trustees may be held at
a time and place fixed by resolution of the Regular Trustees.  Notice of any in-
person  meeting of the Regular  Trustees  shall be hand  delivered  or otherwise
delivered  in writing  (including  by  facsimile,  with a hard copy by overnight
courier) not less than 48 hours before such  meeting.  Notice of any  telephonic
meeting of the Regular Trustees or any committee thereof shall be hand delivered
or otherwise  delivered in writing (including by facsimile,  with a hard copy by
overnight  courier) not less than 24 hours before such  meeting.  Notices  shall
contain a brief  statement of the time,  place and  anticipated  purposes of the
meeting.  The presence  (whether in person or by telephone) of a Regular Trustee
at a meeting shall  constitute a waiver of notice of such meeting except where a
Regular  Trustee  attends a meeting for the express  purpose of objecting to the
transaction of any activity on the ground that the meeting has not been lawfully
called or convened. Unless otherwise provided in this Declaration, any action of
the  Regular  Trustees  may be taken at a meeting by vote of a  majority  of the
Regular  Trustees  present  (whether in person or by telephone)  and eligible to
vote with respect to such matter,  provided that a Quorum is present, or without
a meeting by the unanimous written consent of the Regular Trustees.

   Section 5.06.  Delegation of Power.

   (a) Any Regular Trustee may, by power of attorney  consistent with applicable
   law, delegate to any other natural person over the age of 21 his or her power
   for the purpose of executing any registration  statement or amendment thereto
   or other  document or schedule  filed with the Commission or making any other
   governmental filing (including,  without limitation,  the filings referred to
   in Section 3.13).

   (b) The Regular  Trustees  shall have power to delegate  from time to time to
   such of their number or to officers of the Trust the doing of such things and
   the  execution  of such  instruments  either  in the name of the Trust or the
   names of the

Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the
extent such  delegation is not  prohibited by applicable  law or contrary to the
provisions of the Trust, as set forth herein.

Section 5.07.  Merger, Conversion, Consolidation or Succession to Business.

Any  Person  into which the  Property  Trustee  or the  Delaware  Trustee or any
Regular Trustee that is not a natural person,  as the case may be, may be merged
or converted or with which it may be consolidated,  or any Person resulting from
any merger, conversion or consolidation to which the

                                       34





Property  Trustee or the Delaware Trustee or the Regular  Trustees,  as the case
may be, shall be a party, or any Person  succeeding to all or substantially  all
of the corporate trust business of the Property  Trustee or the Delaware Trustee
or the  Regular  Trustee,  as the case may be,  shall  be the  successor  of the
Property  Trustee or the Delaware Trustee or the Regular  Trustees,  as the case
may be,  hereunder,  provided that such Person shall be otherwise  qualified and
eligible under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.

                                    ARTICLE 6

                                  Distributions

   Section 6.01.  Distributions.

   Holders  shall  receive  periodic  distributions,   redemption  payments  and
   liquidation  distributions  in accordance  with the  applicable  terms of the
   relevant  Holder's  Securities  as  set  forth  in  Exhibits  B and C  hereto
   ("Distributions").  If and to the extent that  Litchfield  Financial  makes a
   payment  of  interest  (including  Additional  Interest  (as  defined  in the
   Indenture)),  premium and/or principal on the Debentures held by the Property
   Trustee  (the  amount of any such  payment  being a  "Payment  Amount"),  the
   Property Trustee shall and is directed, to the extent funds are available for
   that  purpose,  to promptly  make a  Distribution  of the  Payment  Amount to
   Holders  in  accordance  with the  terms of the  Securities  as set  forth in
   Exhibits B and C hereto.

                                    ARTICLE 7

                           Issuance of the Securities

   Section 7.01.  General Provisions Regarding the Securities.

   (a) The Regular  Trustees  shall issue on behalf of the Trust  Securities  in
   fully  registered form  representing  undivided  beneficial  interests in the
   assets  of  the  Trust  in  accordance  with  Section  7.01(b)  and  for  the
   consideration specified in Section 3.03.

   (b) The  Regular  Trustees  shall  issue on  behalf of the Trust one class of
   preferred securities representing preferred undivided beneficial interests in
   the assets of the Trust  having such terms as are set forth in Exhibit B (the
   "Preferred Securities") hereto, which terms are incorporated by reference in,
   and made a part of, this Declaration as if specifically set forth herein, and
   one class of  common  securities  representing  common  undivided  beneficial
   interests  in the assets of the Trust  having  such terms as are set forth in
   Exhibit C (the "Common  Securities")  hereto, which terms are incorporated by
   reference in, and made a part of, this  Declaration  as if  specifically  set
   forth herein.  The Trust shall have no  securities or other  interests in the
   assets  of the Trust  other  than the  Preferred  Securities  and the  Common
   Securities.


                                       35





   (c) The  Certificates  shall be signed on behalf of the Trust by the  Regular
   Trustees  (or if there are more than two  Regular  Trustees by any two of the
   Regular Trustees).  Such signatures may be the manual or facsimile signatures
   of the present or any future Regular Trustee.  Typographical  and other minor
   errors or defects in any such  reproduction  of any such signature  shall not
   affect the validity of any Certificate. In case any Regular Trustee who shall
   have signed any of the  Certificates  shall cease to be such Regular  Trustee
   before the  Certificate  so signed  shall be  delivered  by the  Trust,  such
   Certificate  nevertheless  may be  delivered  as though the person who signed
   such  Certificate  had  not  ceased  to be  such  Regular  Trustee;  and  any
   Certificate  may be signed on behalf of the Trust by such  persons as, at the
   actual  date of the  execution  of such  Certificate,  shall  be the  Regular
   Trustees,  although  at the  date  of the  execution  and  delivery  of  this
   Declaration any such person was not a Regular Trustee.  Certificates shall be
   typewritten,  printed,  lithographed  or  engraved  or may be produced in any
   other  manner  as is  reasonably  acceptable  to  the  Regular  Trustees,  as
   evidenced by their execution thereof,  and may have such letters,  numbers or
   other marks of identification or designation and such legends or endorsements
   as the Regular Trustees may deem appropriate, or as may be required to comply
   with any law or with any rule or regulation made pursuant thereto or with any
   rule or regulation  of any stock  exchange or automated  quotation  system on
   which  Securities may be listed or traded,  or with any rule or regulation of
   the  Clearing  Agency,  or to conform to usage.  Pending the  preparation  of
   definitive  Certificates,  the  Regular  Trustees  on behalf of the Trust may
   execute temporary  Certificates  (printed,  lithographed or typewritten),  in
   substantially  the form of the definitive  Certificates in lieu of which they
   are issued,  but with such  omissions,  insertions  and  variations as may be
   appropriate  for  temporary  Certificates,  all as may be  determined  by the
   Regular Trustees. Each temporary Certificate shall be executed by the Regular
   Trustees (or, if there are more than two Regular Trustees,  by any two of the
   Regular  Trustees)  on behalf of the Trust  upon the same  conditions  and in
   substantially   the  same  manner,   and  with  like  effect,  as  definitive
   Certificates.  Without  unnecessary  delay, the Regular Trustees on behalf of
   the Trust will execute and furnish definitive  Certificates and thereupon any
   or all temporary  Certificates  may be  surrendered to the transfer agent and
   registrar  in  exchange  therefor  (without  charge  to  the  Holders).  Each
   Preferred Security  Certificate whether in temporary or definitive form shall
   be countersigned,  upon receipt of a written order of the Trust signed by one
   Regular Trustee,  by the manual  signature of an authorized  signatory of the
   Person acting as registrar and transfer  agent for the Preferred  Securities,
   which shall initially be the Property Trustee.

   (d)  The  consideration  received  by  the  Trust  for  the  issuance  of the
   Securities  shall  constitute a contribution  to the capital of the Trust and
   shall not constitute a loan to the Trust.

   (e) Upon  issuance of the  Securities  as provided in this  Declaration,  the
   Securities  so issued  shall be deemed to be validly  issued,  fully paid and
   non- assessable.

   (f) Every Person, by virtue of having become a Holder or a Preferred Security
   Beneficial Owner in accordance with the terms of this  Declaration,  shall be
   deemed to have  expressly  assented  and agreed to the terms of, and shall be
   bound by this Declaration.


                                       36





   (g) Upon  issuance of the  Securities  as provided in this  Declaration,  the
   Regular Trustees on behalf of the Trust shall return to Litchfield  Financial
   the $10  constituting  initial  trust  assets  as set  forth in the  Original
   Declaration.

                                    ARTICLE 8

                            Dissolution of the Trust

   Section 8.01.  Dissolution of the Trust.

   The Trust shall dissolve:

   (i) when all of the Securities  shall have been called for redemption and the
   amounts necessary for redemption  thereof shall have been paid to the Holders
   of the Securities in accordance with the terms of the Securities; or

   (ii) when all of the Debentures shall have been distributed to the Holders of
   the Securities in exchange for all of the  Securities in accordance  with the
   terms of the Securities;

(iii) upon the expiration of the term of the Trust as set forth in Section 3.17;
or

   (iv) upon a decree of judicial dissolution.

Upon  dissolution  and the  completion  of the  winding up of the affairs of the
Trust,  the Trust and this  Declaration  shall  terminate  when a certificate of
cancellation  is filed by the Trustees  with the Secretary of State of the State
of  Delaware.  The  Trustees  shall  so  file  such a  certificate  as  soon  as
practicable after the occurrence of an event referred to in this Section 8.01.

The  provisions  of  Sections  3.12 and 4.02 and  Article 10 shall  survive  the
termination of the Trust and this Declaration.

                                    ARTICLE 9

                              Transfer of Interests

   Section 9.01.  Transfer of Securities.

   (a)  Securities may only be  transferred,  in whole or in part, in accordance
   with the terms and conditions set forth in this  Declaration and in the terms
   of the  Securities.  To the fullest extent  permitted by law, any transfer or
   purported  transfer  of  any  Security  not  made  in  accordance  with  this
   Declaration shall be null and void.

   (b)  Subject  to  this  Article  9,  Preferred  Securities  shall  be  freely
transferable.

                                       37





   (c)  The  Holder  of the  Common  Securities  may  not  transfer  the  Common
   Securities except (a) in connection with transactions permitted under Section
   10.01 of the  Indenture,  or (b) to the  Sponsor or an  Affiliate  thereof in
   compliance  with  applicable law (including the Securities Act and applicable
   state  securities and blue sky laws). To the fullest extent permitted by law,
   any attempted  transfer of the Common  Securities  other than as set forth in
   the immediately preceding sentence shall be void.

   Section 9.02.  Transfer of Certificates.

   The Regular  Trustees shall provide for the  registration of Certificates and
   of transfers of Certificates,  which will be effected without charge but only
   upon payment  (with such  indemnity  as the Regular  Trustees may require) in
   respect  of any tax or other  government  charges  which  may be  imposed  in
   relation  to  it.  Upon  surrender  for   registration  of  transfer  of  any
   Certificate, the Regular Trustees shall cause one or more new Certificates to
   be issued in the name of the  designated  transferee  or  transferees.  Every
   Certificate  surrendered for registration of transfer shall be accompanied by
   a written instrument of transfer in form satisfactory to the Regular Trustees
   duly  executed by the Holder or such  Holder's  attorney  duly  authorized in
   writing.  Each Certificate  surrendered for registration of transfer shall be
   canceled by the Regular  Trustees.  A transferee  of a  Certificate  shall be
   entitled to the rights and subject to the  obligations of a Holder  hereunder
   upon the receipt by such  transferee  of a  Certificate.  By  acceptance of a
   Certificate,  each  transferee  shall be deemed to have agreed to be bound by
   this Declaration.

   Section 9.03.  Deemed Security Holders.

   The  Trustees  may treat the  Person in whose name any  Certificate  shall be
   registered  on the books and  records of the Trust as the sole holder of such
   Certificate  and  of the  Securities  represented  by  such  Certificate  for
   purposes of receiving  Distributions  and for all other  purposes  whatsoever
   and,  accordingly,  shall not be bound to  recognize  any  equitable or other
   claim to or interest in such Certificate or in the Securities  represented by
   such Certificate on the part of any Person, whether or not the Trustees shall
   have actual or other notice thereof.

   Section 9.04.  Book Entry Interests.

   Unless  otherwise  specified in the terms of the  Preferred  Securities,  the
   Preferred Security Certificates,  on original issuance, will be issued in the
   form of one or more, fully registered, global Preferred Security Certificates
   (each a "Global  Certificate"),  to be delivered to DTC, the initial Clearing
   Agency,  by, or on behalf of,  the  Trust.  Such  Global  Certificates  shall
   initially be  registered on the books and records of the Trust in the name of
   Cede & Co., the nominee of DTC, and no Preferred  Security  Beneficial  Owner
   will receive a definitive  Preferred Security  Certificate  representing such
   Preferred Security Beneficial Owner's interests in such Global  Certificates,
   except as  provided  in  Section  9.07.  Unless and until  definitive,  fully
   registered Preferred Security

                                       38





   Certificates (the "Definitive  Preferred  Security  Certificates")  have been
   issued to the Preferred Security Beneficial Owners pursuant to Section 9.07:

   (i)  the provisions of this Section 9.04 shall be in full force and effect;

   (ii) the Trust and the  Trustees  shall be entitled to deal with the Clearing
   Agency  for all  purposes  of this  Declaration  (including  the  payment  of
   Distributions on the Global  Certificates and receiving  approvals,  votes or
   consents  hereunder) as the Holder of the Preferred  Securities  and the sole
   holder of the Global  Certificates and, except as set forth herein in Section
   9.07 or in Rule  3a-7 (if the Trust is  excluded  from the  definition  of an
   Investment  Company  solely by  reason  of Rule  3a-7)  with  respect  to the
   Property  Trustee,  shall  have  no  obligation  to  the  Preferred  Security
   Beneficial Owners;

(iii) to the extent that the  provisions  of this Section 9.04 conflict with any
other provisions of this Declaration,  the provisions of this Section 9.04 shall
control; and

   (iv)  the  rights  of the  Preferred  Security  Beneficial  Owners  shall  be
   exercised  only  through  the  Clearing  Agency and shall be limited to those
   established by law and agreements between such Preferred Security  Beneficial
   Owners and the Clearing Agency and/or the Clearing Agency  Participants.  DTC
   will make book entry  transfers among the Clearing  Agency  Participants  and
   receive and transmit payments of Distributions on the Global  Certificates to
   such Clearing Agency Participants,  provided, that solely for the purposes of
   determining  whether  the  Holders  of  the  requisite  amount  of  Preferred
   Securities have voted on any matter provided for in this Declaration, so long
   as definitive Preferred Security  Certificates have not been issued (pursuant
   to Section 9.07 hereof),  the Trustees may conclusively rely on, and shall be
   protected in relying on,

any written  instrument  (including  a proxy)  delivered  to the Trustees by the
Clearing Agency setting forth the Preferred Security Beneficial Owners' votes or
assigning the right to vote on any matter to any other  Persons  either in whole
or in part.

   Section 9.05.  Notices to Holders of Certificates.

   Whenever a notice or other  communication  to the  Holders is  required to be
   given under this Declaration,  unless and until Definitive Preferred Security
   Certificates  shall have been issued  pursuant to Section 9.07,  the relevant
   Trustees shall give all such notices and communications,  specified herein to
   be given to Holders of Preferred Securities, to the Clearing Agency and, with
   respect to any  Preferred  Security  Certificate  registered in the name of a
   Clearing  Agency or the nominee of a Clearing  Agency,  the  Trustees  shall,
   except in Rule  3a-7 (if the  Trust is  excluded  from the  definition  of an
   Investment  Company  solely by  reason  of Rule  3a-7)  with  respect  to the
   Property  Trustee,  have no  notice  obligations  to the  Preferred  Security
   Beneficial Owners.

   Section 9.06.  Appointment of Successor Clearing Agency.


                                       39





   If any Clearing  Agency  elects to  discontinue  its  services as  securities
   depository  with respect to the Preferred  Securities,  the Regular  Trustees
   may,  in their sole  discretion,  appoint a  successor  Clearing  Agency with
   respect to the Preferred Securities.

   Section 9.07.  Definitive Preferred Securities Certificates.

   If (i) a Clearing  Agency  elects to  discontinue  its services as securities
   depository with respect to the Preferred  Securities and a successor Clearing
   Agency is not appointed within 90 days after such discontinuance  pursuant to
   Section 9.06 or (ii) the Regular Trustees elect after  consultation  with the
   Sponsor to terminate the book entry system  through the Clearing  Agency with
   respect to the Preferred  Securities,  then (x) Definitive Preferred Security
   Certificates shall be prepared by the Regular Trustees on behalf of the Trust
   with  respect to such  Preferred  Securities  and (y) upon  surrender  of the
   Global  Certificates  by the Clearing  Agency,  accompanied  by  registration
   instructions,  the Regular Trustees shall cause Definitive Preferred Security
   Certificates  to be  delivered  to Preferred  Security  Beneficial  Owners in
   accordance with the instructions of the Clearing Agency. Neither the Trustees
   nor the Trust shall be liable for any delay in delivery of such  instructions
   and each of them may conclusively  rely on, and shall be protected in relying
   on, such instructions.

   Section 9.08.  Mutilated, Destroyed, Lost or Stolen Certificates.

   If (a) any  mutilated  Certificates  should  be  surrendered  to the  Regular
   Trustees,  or if  the  Regular  Trustees  shall  receive  evidence  to  their
   satisfaction of the destruction,  loss or theft of any  Certificate;  and (b)
   there shall be delivered to the Regular  Trustees  such security or indemnity
   as may be required by them to keep each of them harmless, then in the absence
   of notice  that such  Certificate  shall  have been  acquired  by a bona fide
   purchaser,  the  Regular  Trustees  (or if there  are more  than two  Regular
   Trustees  by any two of the  Regular  Trustees)  on behalf of the Trust shall
   execute  and  deliver,  in  exchange  for or in lieu of any  such  mutilated,
   destroyed,   lost  or  stolen   Certificate,   a  new   Certificate  of  like
   denomination.  In connection with the issuance of any new  Certificate  under
   this  Section  9.08,  the Regular  Trustees  may require the payment of a sum
   sufficient to cover any tax or other governmental  charge that may be imposed
   in connection  therewith.  Any duplicate  Certificate issued pursuant to this
   section shall constitute  conclusive evidence of an ownership interest in the
   relevant Securities, as if originally issued, whether or not the lost, stolen
   or destroyed Certificate shall be found at any time.

                                   ARTICLE 10

                    Limitation of Liability; Indemnification

   Section 10.01.  Exculpation.

   (a) No  Indemnified  Person shall be liable,  responsible  or  accountable in
   damages or otherwise to the Trust or any Covered Person for any loss,  damage
   or claim incurred by reason of any act or

                                       40





   omission  performed  or omitted by such  Indemnified  Person in good faith on
   behalf  of the  Trust  and in a manner  such  Indemnified  Person  reasonably
   believed  to  be  within  the  scope  of  the  authority  conferred  on  such
   Indemnified  Person by this Declaration or by law, except that an Indemnified
   Person shall be liable for any such loss,  damage or claim incurred by reason
   of  such  Indemnified  Person's  gross  negligence  (or,  in the  case of the
   Property Trustee, negligence) or willful misconduct with respect to such acts
   or omissions.

   (b) An Indemnified  Person shall be fully  protected in relying in good faith
   upon the records of the Trust and upon such information, opinions, reports or
   statements presented to the Trust by any Person as to matters the Indemnified
   Person  reasonably  believes are within such other Person's  professional  or
   expert  competence  and who has been selected with  reasonable  care by or on
   behalf of the Trust, including information,  opinions,  reports or statements
   as to the value and amount of the assets, liabilities, profits, losses or any
   other  facts  pertinent  to the  existence  and  amount of assets  from which
   Distributions to Holders of Securities might properly be paid.

   (c)  Pursuant  to (S)  3803(a)  of the  Business  Trust Act,  the  Holders of
   Securities,  in their  capacities  as Holders,  shall be entitled to the same
   limitation  of  liability  that  is  extended  to   stockholders  of  private
   corporations  for profit  organized under the General  Corporation Law of the
   State of Delaware.

   Section 10.02.  Indemnification.

   (a) To the fullest  extent  permitted by  applicable  law, the Sponsor  shall
   indemnify  and hold  harmless  each  Indemnified  Person from and against any
   loss, liability, expense, damage or claim incurred by such Indemnified Person
   by reason of any act or  omission  performed  or omitted by such  Indemnified
   Person in good faith on behalf of the Trust and in a manner such  Indemnified
   Person reasonably  believed to be within the scope of authority  conferred on
   such  Indemnified  Person by this  Declaration,  except  that no  Indemnified
   Person shall be entitled to be indemnified in respect of any loss, liability,
   expense,  damage or claim  incurred by such  Indemnified  Person by reason of
   gross  negligence  (or, in the case of the Property  Trustee,  negligence) or
   willful misconduct with respect to such acts or omissions.

   (b) The  provisions of this Section 10.02 shall  survive the  termination  of
   this Declaration or the resignation or removal of any Trustee.

   Section 10.03.  Outside Business.

   The Sponsor and any Trustee (in the case of the Property Trustee,  subject to
   Section  5.01(c))  may  engage in or possess an  interest  in other  business
   ventures of any nature or description,  independently or with others, similar
   or dissimilar to the business of the Trust,  and the Trust and the Holders of
   Securities  shall have no rights by virtue of this Declaration in and to such
   independent  ventures  or the income or profits  derived  therefrom,  and the
   pursuit of any such  venture,  even if  competitive  with the business of the
   Trust, shall not be deemed wrongful or

                                       41





   improper.  Neither the Sponsor nor any Trustee  shall be obligated to present
   any  particular  investment  or other  opportunity  to the Trust even if such
   opportunity is of a character that, if presented to the Trust, could be taken
   by the Trust, and the Sponsor or any Trustee shall have the right to take for
   its own account  (individually  or as a partner or fiduciary) or to recommend
   to others any such particular  investment or other  opportunity.  Any Trustee
   may engage or be interested in any  financial or other  transaction  with the
   Sponsor or any Affiliate of the Sponsor or may act as depository for, trustee
   or agent for, or act on any  committee or body of holders of,  securities  or
   other obligations of the Sponsor or any of its Affiliates.

                                   ARTICLE 11

                                   Accounting

   Section 11.01.  Fiscal Year.

   The fiscal year ("Fiscal  Year") of the Trust shall be the calendar  year, or
   such other year as is required by the Code.

   Section 11.02.  Certain Accounting Matters.

   (a) At all times  during the  existence  of the Trust,  the Regular  Trustees
   shall  keep,  or  cause to be  kept,  full  books  of  account,  records  and
   supporting   documents,   which  shall  reflect  in  reasonable  detail  each
   transaction  of the Trust.  The books of account  shall be  maintained on the
   accrual  method  of  accounting,   in  accordance  with  generally   accepted
   accounting principles,  consistently applied. The Trust shall use the accrual
   method of accounting for United States Federal income tax purposes.

   (b) If required by applicable  law, the Regular  Trustees  shall,  as soon as
   available  after  the  end of each  Fiscal  Year of the  Trust,  cause  to be
   prepared  and  mailed  to  each  Holder  of  Securities  unaudited  financial
   statements  of the Trust for such Fiscal Year,  prepared in  accordance  with
   generally  accepted  accounting  principles;  provided  that if the  Trust is
   required to comply with the periodic reporting  requirements of Section 13(a)
   or 15(d) of the Exchange Act, such financial  statements for such Fiscal Year
   shall be examined and reported on by a firm of independent  certified  public
   accountants selected by the Regular Trustees (which firm may be the firm used
   by the Sponsor).

   (c) The Regular  Trustees  shall cause to be duly prepared and mailed to each
   Holder of Securities any annual United States Federal income tax  information
   statement  required by the Code,  containing such  information with regard to
   the  Securities  held by each  Holder  as is  required  by the  Code  and the
   Treasury Regulations. Notwithstanding any right under the Code to deliver any
   such  statement  at a later date,  the  Regular  Trustees  shall  endeavor to
   deliver all such statements  within 30 days after the end of each Fiscal Year
   of the Trust.


                                       42





   (d) The Regular  Trustees  shall cause to be duly prepared and filed with the
   appropriate  taxing  authority an annual  United  States  Federal  income tax
   return,  on such form as is required by the Code, and any other annual income
   tax returns  required  to be filed by the  Regular  Trustees on behalf of the
   Trust with any state or local taxing authority.

   Section 11.03.  Banking.

   The Trust shall  maintain  one or more bank  accounts in the name and for the
   sole benefit of the Trust;  provided,  however, that all payments of funds in
   respect of the Debentures held by the Property Trustee shall be made directly
   to the Property  Account and no other funds from the Trust shall be deposited
   in the Property  Account.  The sole  signatories  for such accounts  shall be
   designated  by the Regular  Trustees;  provided,  however,  that the Property
   Trustee shall designate the sole signatories for the Property Account.

   Section 11.04.  Withholding.

   The Trust and the  Trustees  shall comply with all  withholding  requirements
   under United States Federal,  State and local law. The Regular Trustees shall
   request,  and  the  Holders  shall  provide  to  the  Trust,  such  forms  or
   certificates as are necessary to establish an exemption from withholding with
   respect to each Holder, and any representations and forms as shall reasonably
   be requested by the Regular Trustees to assist them in determining the extent
   of, and in fulfilling,  the Trust's withholding obligations.  The Trust shall
   file required forms with  applicable  jurisdictions  and, unless an exemption
   from  withholding is properly  established  by a Holder,  shall remit amounts
   withheld  with  respect to the  Holder to  applicable  jurisdictions.  To the
   extent that the Trust is required to withhold and pay over any amounts to any
   authority with respect to  Distributions  or  allocations to any Holder,  the
   amount  withheld  shall be deemed to be a  Distribution  in the amount of the
   withholding  to the  Holder.  In the  event of any  claimed  overwithholding,
   Holders shall be limited to an action against the applicable jurisdiction. If
   the amount to be withheld was not withheld from a Distribution, the Trust may
   reduce subsequent Distributions by the amount of such withholding.

                                   ARTICLE 12

                             Amendments and Meetings

   Section 12.01.  Amendments.

   (a) Except as otherwise  provided in this  Declaration  or by any  applicable
   terms of the Securities,  this  Declaration may be amended by, and only by, a
   written instrument executed by a majority of the Regular Trustees;  provided,
   however,  that (i) no amendment or modification to this Declaration  shall be
   made, and any such purported  amendment  shall be void and  ineffective:  (A)
   unless the  Regular  Trustees  shall have first  received:  (x) an  Officers'
   Certificate  that such  amendment is permitted by, and conforms to, the terms
   of this Declaration; and

                                       43





(y) an Opinion of Counsel that such  amendment is permitted by, and conforms to,
the terms of this Declaration and that all conditions precedent, if any, in this
Declaration to the execution and delivery of such amendment have been satisfied;
and (B) to the extent the  result of such  amendment  would be to: (x) cause the
Trust to fail to continue to be classified for purposes of United States Federal
income taxation as a grantor trust; (y) reduce or otherwise adversely affect the
rights or powers of the Property Trustee in contravention of the Trust Indenture
Act; or (z) cause the Trust to be deemed to be an Investment Company required to
be  registered  under the  Investment  Company Act;  (ii) at such time after the
Trust has issued any Securities  which remain  outstanding,  any amendment which
would  adversely  affect the rights,  privileges or preferences of any Holder of
Securities may be effected only with such additional  requirements as may be set
forth in the terms of such Securities;  (iii) Section 4.02,  Section 9.01(c) and
this  Section  12.01  shall not be  amended  without  the  consent of all of the
Holders of the Securities; (iv) no amendment which adversely affects the rights,
powers and privileges of the Property  Trustee or the Delaware  Trustee shall be
made  without  the  consent of the  Property  Trustee or the  Delaware  Trustee,
respectively;  (v)  Article 4 shall not be amended  without  the  consent of the
Sponsor; and (vi) the rights of the Holders of Common Securities under Article 5
to  increase  or  decrease  the number of,  and to  appoint,  replace or remove,
Trustees  shall not be amended  without  the  consent  of each  Holder of Common
Securities.

   (b) Notwithstanding Section 12.02(a), this Declaration may be amended without
   the consent of the Holders of the Securities to (i) cure any ambiguity,  (ii)
   correct or supplement any provision in this Declaration that may be defective
   or inconsistent  with any other provision of this  Declaration,  (iii) add to
   the covenants,  restrictions  or obligations of the Sponsor,  (iv) conform to
   any changes in Rule 3a-7 (if the Trust is excluded from the  definition of an
   Investment  Company  solely  by  reason  of  Rule  3a-7)  or  any  change  in
   interpretation or application of Rule 3a-7 (if the Trust is excluded from the
   definition  of an  Investment  Company  solely by reason of Rule 3a-7) by the
   Commission,  (v) make  any  other  provisions  with  respect  to  matters  or
   questions arising under this Declaration which shall not be inconsistent with
   the other provisions of this  Declaration,  (vi) modify,  eliminate or add to
   any  provisions of this  Declaration  to such extent as shall be necessary to
   ensure that the Trust will be classified for United States federal income tax
   purposes as a grantor trust at all times that any Securities are  outstanding
   or to ensure that the Trust will not be required to register as an Investment
   Company under the Investment Company Act, and (vii) pursuant to Section 5.02,
   evidence the acceptance of the  appointment of a successor  Trustee or fill a
   vacancy  created by an  increase  in the number of  Regular  Trustees,  which
   amendment  does not  adversely  affect in any  material  respect  the rights,
   preferences or privileges of the Holders.

Section 12.02.  Meetings of the Holders of Securities; Action by Written
Consent.

   (a) Meetings of the Holders of Preferred  Securities and/or Common Securities
   may be called at any time by the  Regular  Trustees  (or as  provided  in the
   terms of the  Securities)  to  consider  and act on any  matter  on which the
   Holders of such class of  Securities  are  entitled to act under the terms of
   this  Declaration,  the  terms of the  Securities  or the  rules of any stock
   exchange or automated quotation system on which the Preferred  Securities are
   then listed,  traded or quoted.  The Regular Trustees shall call a meeting of
   the Holders of Preferred Securities or Common Securities, if

                                       44





   directed  to do so by Holders of at least 10% in  liquidation  amount of such
   class of  Securities.  Such  direction  shall be given by  delivering  to the
   Regular  Trustees  one or more  notices in writing  stating  that the signing
   Holders of Securities  wish to call a meeting and  indicating  the general or
   specific  purpose  for which the  meeting  is to be  called.  Any  Holders of
   Securities  calling a meeting shall specify in writing the Certificates  held
   by the Holders of Securities  exercising the right to call a meeting and only
   those  specified  Certificates  shall be counted for purposes of  determining
   whether  the  required  percentage  set forth in the second  sentence of this
   paragraph has been met.

   (b) Except to the extent  otherwise  provided in the terms of the Securities,
   the following provision shall apply to meetings of the Holders of Securities:

   (i) Notice of any such  meeting  shall be given by mail to all the Holders of
   Securities  having a right to vote  thereat  not less than seven (7) days nor
   more than sixty (60) days prior to the date of such meeting. Whenever a vote,
   consent or approval of the Holders of  Securities  is  permitted  or required
   under  this  Declaration  or the rules of any  stock  exchange  or  automated
   quotation system on which the Preferred Securities are then listed, traded or
   quoted,  such  vote,  consent  or  approval  may be given at a meeting of the
   Holders  of  Securities.  Any  action  that may be taken at a meeting  of the
   Holders of Securities may be taken without a meeting and without prior notice
   if a  consent  in  writing  setting  forth  the  action so taken is signed by
   Holders of Securities owning not less than the minimum aggregate  liquidation
   amount of Securities that would be necessary to authorize or take such action
   at a  meeting  at which  all  Holders  of  Securities  having a right to vote
   thereon  were  present  and  voting.  Prompt  notice of the  taking of action
   without a meeting  shall be given to the  Holders of  Securities  entitled to
   vote who have not consented in writing. The Regular Trustees may specify that
   any written ballot  submitted to the Holders of Securities for the purpose of
   taking any action without a meeting shall be returned to the Trust within the
   time specified by the Regular Trustees.

   (ii) Each  Holder of a  Security  may  authorize  any Person to act for it by
   proxy  on all  matters  in  which a  Holder  of a  Security  is  entitled  to
   participate,   including  waiving  notice  of  any  meeting,   or  voting  or
   participating  at a meeting.  No proxy shall be valid after the expiration of
   11 months from the date thereof unless otherwise provided in the proxy. Every
   proxy  shall be  revocable  at the  pleasure  of the  Holder of the  Security
   executing  it.  Except as  otherwise  provided  herein or in the terms of the
   Securities, all matters relating to the giving, voting or validity of proxies
   shall be  governed by the  General  Corporation  Law of the State of Delaware
   relating to proxies, and judicial interpretations thereunder, as if the Trust
   were  a  Delaware   corporation  and  the  Holders  of  the  Securities  were
   stockholders of a Delaware corporation.

(iii) Each  meeting of the Holders of the  Securities  shall be conducted by the
Regular  Trustees  or by  such  other  Person  that  the  Regular  Trustees  may
designate.

   (iv) Unless otherwise provided in the Business Trust Act, this Declaration or
   the rules of any stock  exchange or automated  quotation  system on which the
   Preferred Securities are then listed, traded or quoted, the Regular Trustees,
   in their sole discretion, shall establish all other provisions

                                       45





   relating to meetings of Holders of Securities,  including notice of the time,
   place or purpose of any  meeting at which any matter is to be voted on by any
   Holders of Securities, waiver of any such notice, action by consent without a
   meeting, the establishment of a record date, quorum  requirements,  voting in
   person or by proxy or any other  matter with  respect to the  exercise of any
   such right to vote.

                                   ARTICLE 13

        Representations of the Property Trustee and the Delaware Trustee

   Section 13.01.  Representations and Warranties of the Property Trustee.

   The  Trustee  which  acts as the  initial  Property  Trustee  represents  and
   warrants to the Trust and to the Sponsor at the date of this Declaration, and
   each Successor  Property Trustee represents and warrants to the Trust and the
   Sponsor at the time of the  Successor  Property  Trustee's  acceptance of its
   appointment as the Property Trustee that:

   (i) The  Property  Trustee is a  national  banking  association  or a banking
   corporation with trust powers,  duly organized,  validly existing and in good
   standing  under the laws of the United States or the laws of the state of its
   incorporation,  with trust power and authority to execute and deliver, and to
   carry out and perform its obligations under the terms of, this Declaration.

   (ii) The execution,  delivery and performance by the Property Trustee of this
   Declaration  have been duly authorized by all necessary  corporate  action on
   the part of the Property Trustee.  The Declaration has been duly executed and
   delivered by the Property Trustee, and constitutes a legal, valid and binding
   obligation of the Property Trustee, enforceable against it in accordance with
   its terms,  subject to  applicable  bankruptcy,  reorganization,  moratorium,
   insolvency and other similar laws affecting  creditors'  rights generally and
   to general  principles of equity and the discretion of the court  (regardless
   of whether the  enforcement of such remedies is considered in a proceeding in
   equity or at law).

(iii)  The  execution,  delivery  and  performance  of this  Declaration  by the
Property Trustee does not conflict with or constitute a breach of the charter or
by-laws of the Property Trustee.

   (iv) No consent, approval or authorization of, or registration with or notice
   to, any banking  authority which supervises or regulates the Property Trustee
   is required  for the  execution,  delivery  or  performance  by the  Property
   Trustee of this Declaration.

   (v) The Property Trustee  satisfies the  qualifications  set forth in Section
5.01(c).

   Section 13.02.  Representations and Warranties of the Delaware Trustee.


                                       46





   The  Trustee  which  acts as the  initial  Delaware  Trustee  represents  and
   warrants  to the Trust and the Sponsor at the date of this  Declaration,  and
   each Successor  Delaware Trustee represents and warrants to the Trust and the
   Sponsor at the time of the  Successor  Delaware  Trustee's  acceptance of its
   appointment as the Delaware Trustee, that:

   (i) The Delaware  Trustee is a corporation  duly organized,  validly existing
   and in good standing under the laws of the State of Delaware,  with corporate
   power and authority to execute and deliver,  and to carry out and perform its
   obligations under the terms of, this Declaration.

   (ii) The execution,  delivery and performance by the Delaware Trustee of this
   Declaration  have been duly authorized by all necessary  corporate  action on
   the part of the Delaware Trustee. This Declaration has been duly executed and
   delivered by the Delaware Trustee and constitutes a legal,  valid and binding
   obligation of the Delaware Trustee, enforceable against it in accordance with
   its terms,  subject to  applicable  bankruptcy,  reorganization,  moratorium,
   insolvency and other similar laws affecting  creditors'  rights generally and
   to general  principles of equity and the discretion of the court  (regardless
   of whether the  enforcement of such remedies is considered in a proceeding in
   equity or at law).

   (iii) No  consent,  approval or  authorization  of, or  registration  with or
   notice to, any banking  authority which  supervises or regulates the Delaware
   Trustee,  if any, is required for the  execution,  delivery or performance by
   the Delaware Trustee of this Declaration.

   (iv) The Delaware  Trustee is a natural person who is a resident of the State
   of Delaware or, if not a natural  person,  an entity which has its  principal
   place of business in the State of Delaware and is a Person that satisfies for
   the Trust (S) 3807(a) of the Business Trust Act.

                                   ARTICLE 14

                                  Miscellaneous

   Section 14.01.  Notices.

   All notices provided for in this Declaration shall be in writing, duly signed
   by the party giving such notice, and shall be delivered, telecopied or mailed
   by first class mail, as follows:

   (a) if given to the Trust,  in care of the  Regular  Trustees  at the Trust's
   mailing  address  set  forth  below (or such  other  address  as the  Regular
   Trustees  on behalf of the Trust  may give  notice of to the  Holders  of the
   Securities):

   Litchfield Capital Trust I c/o Litchfield Financial Corporation, 430 Main
   Street, Williamstown, MA 01267 Attention: Treasurer, Telecopy: (413) 458-1020


                                       47





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

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

   (c) if given to the Delaware Trustee,  at the mailing address of the Delaware
   Trustee set forth below (or such other  address as the  Delaware  Trustee may
   give notice of to the Holders of the Securities):

   White Clay Center Route 273 Newark, Delaware  19711 Attention:  Corporate
   Trust Department

   (d) if given to the Holder of the Common  Securities,  at the mailing address
   of the Sponsor  set forth  below (or such other  address as the Holder of the
   Common Securities may give notice of to the Trust):

   Litchfield Financial Corporation, 430 Main Street, Williamstown,
   Massachusetts 01267, Attention: Treasurer,  Telecopy: (413) 458-1020

   (e) if given to any other  Holder,  at the address set forth on the books and
records of the Trust.

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

   Section 14.02.  Undertaking for Costs.

   All parties to this  Declaration  agree, and each Holder of any Securities by
   his or her acceptance thereof shall be deemed to have agreed,  that any court
   may in its discretion  require,  in any suit for the enforcement of any right
   or remedy under this Declaration, or in any suit against the Property Trustee
   for any action taken or omitted by it as Property Trustee,  the filing by any
   party  litigant in such suit of an undertaking to pay the costs of such suit,
   and that such court may in its discretion assess reasonable costs,  including
   reasonable  attorneys' fees and expenses,  against any party litigant in such
   suit,  having  due  regard  to the  merits  and good  faith of the  claims or
   defenses made by such party litigant; but the provisions of this Section 1402
   shall not apply to any suit instituted by the Property  Trustee,  to any suit
   instituted  by any  Holder of  Preferred  Securities,  or group of Holders of
   Preferred  Securities,  holding more than 10% in aggregate liquidation amount
   of the  outstanding  Preferred  Securities,  or to any suit instituted by any
   Holder of  Preferred  Securities  for the  enforcement  of the payment of the
   principal of (or premium, if any) or interest on the Debentures,  on or after
   the respective due dates expressed in such Debentures.

                                       48





   Section 14.03.  Governing Law.

   This  Declaration,  the  Securities  and the rights of the parties  hereunder
   shall be governed by and interpreted in accordance with the laws of the State
   of  Delaware  and all  rights and  remedies  shall be  governed  by such laws
   without regard to principles of conflict of laws.

   Section 14.04.  Headings.

   Headings  contained  in this  Declaration  are inserted  for  convenience  of
   reference only and do not affect the  interpretation  of this  Declaration or
   any provision hereof.

   Section 14.05.  Partial Enforceability.

   If any provision of this Declaration, or the application of such provision to
   any Person or  circumstance,  shall be held  invalid,  the  remainder of this
   Declaration, or the application of such provision to Persons or circumstances
   other than those to which it is held invalid, shall not be affected thereby.

   Section 14.06.  Counterparts.

   This Declaration may contain more than one counterpart of the signature pages
   and this  Declaration may be executed by the affixing of the signature of the
   Sponsor and each of the Trustees to one of such counterpart  signature pages.
   All of such counterpart signature pages shall be read as though one, and they
   shall have the same force and effect as though all of the  signers had signed
   a single signature page.

   Section 14.07.  Intention of the Parties.

   It is the  intention of the parties  hereto that the Trust not be  classified
   for United States Federal income tax purposes as an association  taxable as a
   corporation or  partnership  but that the Trust be treated as a grantor trust
   for  United  States  federal  income tax  purposes.  The  provisions  of this
   Declaration shall be interpreted to further this intention of the parties.

   Section 14.08.  Successors and Assigns.

   Whenever in this  Declaration  any of the parties hereto is named or referred
   to, the  successors and assigns of such party shall be deemed to be included,
   and all covenants and  agreements in this  Declaration by the Sponsor and the
   Trustees shall bind and inure to the benefit of their  respective  successors
   and assigns, whether so expressed.

   Section 14.09.  No Recourse.


                                       49





The Trust's  obligations  hereunder  are intended to be the  obligations  of the
Trust and no recourse  for the payment of  Distributions,  or for any claim upon
the Securities or otherwise in respect thereof,  shall be had against any Holder
of Securities or any  Affiliate of a Holder of  Securities,  solely by reason of
such  Person's  being a Holder  of  Securities  or an  Affiliate  of a Holder of
Securities, it being understood that the Holder of Securities,  solely by reason
of being a Holder of Securities,  has limited  liability (in accordance with the
provisions of the Business Trust Act) for the liabilities and obligations of the
Trust.  Nothing  contained in this Section 14.09 shall be construed to limit the
exercise or enforcement,  in accordance with the terms of this Declaration,  the
Preferred  Guarantee and the Indenture,  of the rights and remedies  against the
Trust or the Sponsor.

IN WITNESS WHEREOF,  the undersigned has caused these presents to be executed as
of the day and year first above written.


LITCHFIELD FINANCIAL CORPORATION,
as Sponsor


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


/s/ Ronald E. Rabidou
Ronald E. Rabidou, as Regular Trustee


/s/ Heather A. Sica
Heather A. Sica, as Regular Trustee


/s/ John J. Malloy
John J. Malloy, as Regular Trustee


THE BANK OF NEW YORK,
as Property Trustee


By:    /s/ Michael Culhane
       Name:    Michael Culhane
       Title:   Vice President


THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee


By:    /s/ Walter N. Gitlin
       Name:    Walter N. Gitlin
       Title:   Authorized Signatory



                              50





                                    EXHIBIT A

                              CERTIFICATE OF TRUST

                                       OF

                           LITCHFIELD CAPITAL TRUST I

THIS CERTIFICATE OF TRUST of Litchfield Capital Trust I (the "Trust"),  dated as
of April ___,  1999,  is being duly  executed and filed by the  undersigned,  as
trustees,  with  the  Secretary  of State of the  State  of  Delaware  to form a
business trust under the Delaware Business Trust Act (12 Del.
Code (S) 3801 et seq.).

   1.   Name.  The name of the business trust being formed hereby is Litchfield
Capital Trust I.

   2.  Delaware  Trustee.  The name and  business  address of the trustee of the
   Trust with a principal  place of  business  in the State of Delaware  are The
   Bank of New York  (Delaware),  a  Delaware  banking  corporation,  White Clay
   Center, Route 273, Newark, Delaware 19711.

3. Effective Date.  This  Certificate of Trust shall be effective at the time of
its filing with the Secretary of State of the State of Delaware.

IN WITNESS WHEREOF,  the undersigned,  being all of the trustees of the Trust at
the time of filing this Certificate of Trust,  have executed this Certificate of
Trust as of the date first above written.

LITCHFIELD FINANCIAL
CORPORATION,
as Sponsor

By:______________________________
     Name:
     Title:

--------------------------------
John J. Malloy, not in his individual
capacity, but solely as Regular Trustee

--------------------------------
Heather A. Sica, not in her individual
capacity, but solely as Regular Trustee

--------------------------------
Ronald E. Rabidou, not in his individual capacity, but solely as Regular Trustee
THE BANK OF NEW YORK,  not in its  individual  capacity,  but solely as Property
Trustee

By:______________________________
     Name:
     Title:

THE BANK OF NEW YORK
(DELAWARE),
not in its individual capacity, but solely
as Delaware Trustee

By:______________________________
     Name:
     Title:


                                       51





                                                               EXHIBIT B

                                    TERMS OF
                              PREFERRED SECURITIES

Pursuant to Section 7.01(b) of the Amended and Restated  Declaration of Trust of
Litchfield  Capital  Trust I dated as of May 19, 1999 (as  amended  from time to
time, the "Declaration"),  the designations,  rights, privileges,  restrictions,
preferences  and other terms and provisions of the Preferred  Securities are set
forth  below  (each  capitalized  term used but not  defined  herein  having the
meaning set forth in the Declaration):

1. DESIGNATION AND NUMBER.  10% Series A Preferred  Securities of the Trust with
an  aggregate  liquidation  amount at any time  outstanding  with respect to the
assets of the Trust of Twenty-Five  Million  Dollars  ($25,000,000)  and 375,000
Preferred  Securities of the Trust with an aggregate  liquidation  amount at any
time  outstanding with respect to the assets of the Trust of Three Million Seven
Hundred Fifty Thousand Dollars ($3,750,000), each with a liquidation amount with
respect to the  assets of the Trust of $10 per  Preferred  Security,  are hereby
designated as "10% Series A Trust Preferred Securities,." The Preferred Security
Certificates  evidencing the Preferred  Securities shall be substantially in the
form  attached  hereto as Annex I, with such  changes and  additions  thereto or
deletions  therefrom as may be required by ordinary usage, custom or practice or
to conform to the rules of any stock exchange or automated  quotation  system on
which the Preferred Securities are then listed,  traded or quoted. In connection
with  the  issuance  and  sale  of  the  Preferred  Securities  and  the  Common
Securities,  the Trust will  purchase as trust assets  Debentures  of Litchfield
Financial   having  an  aggregate   principal  amount  equal  to  the  aggregate
liquidation  amount of the  Preferred  Securities  and the Common  Securities so
issued and bearing  interest at an annual rate equal to the annual  Distribution
rate on the Preferred  Securities  and the Common  Securities and having payment
and  redemption  provisions  which  correspond  to the  payment  and  redemption
provisions of the Preferred Securities and the Common Securities.

2. DISTRIBUTIONS.  (a) Distributions  payable on each Preferred Security will be
fixed at a rate per annum of ____% (the "Coupon Rate") of the stated liquidation
amount  of $10 per  Preferred  Security,  such rate  being the rate of  interest
payable on the Debentures to be held by the Property  Trustee.  Distributions in
arrears  for  more  than  one  calendar   quarter  will  accumulate   additional
distributions  thereon at the Coupon Rate per annum (to the extent  permitted by
applicable law), compounded  quarterly.  The term "Distributions" as used herein
means such periodic cash  distributions  and any such  additional  distributions
payable unless  otherwise  stated.  A Distribution  will be made by the Property
Trustee  only to the extent that  interest  payments  are made in respect of the
Debentures held by the Property Trustee and to the extent the Trust has funds on
hand legally  available  therefor.  The amount of Distributions  payable for any
period will be computed for any full quarterly  Distribution period on the basis
of a 360-day year of twelve  30-day  months,  and for any period  shorter than a
full  quarterly  Distribution  period  for  which  Distributions  are  computed,
Distributions will be computed on the basis of the actual number of days elapsed
per 90-day quarter.

   (b)  Distributions  on the Preferred  Securities will accumulate from May 19,
   1999,  and will be payable  quarterly in arrears,  on June 30,  September 30,
   December 31, and March 31 of each year, commencing

                                       52



   on June 30, 1999, except as otherwise described below, but only if and to the
   extent that interest  payments are made in respect of the Debentures  held by
   the Property Trustee. So long as Litchfield Financial shall not be in default
   in the payment of interest on the  Debentures,  Litchfield  Financial has the
   right under the Indenture for the Debentures to defer payments of interest on
   the Debentures by extending the interest  payment period at any time and from
   time to time on the  Debentures  for a period not  exceeding  20  consecutive
   quarterly  interest  periods  (each,  an  "Extension  Period"),  during which
   Extension Period no interest shall be due and payable on the Debentures. As a
   consequence of such deferral,  Distributions shall also be deferred.  Despite
   such  deferral,  Distributions  will continue to accumulate  with  additional
   distributions thereon (to the extent permitted by applicable law but not at a
   rate  greater  than  the  rate at  which  interest  is then  accruing  on the
   Debentures) at the Coupon Rate compounded quarterly during any such Extension
   Period;  provided  that no Extension  Period  shall extend  beyond the stated
   maturity of the  Debentures.  Prior to the  termination of any such Extension
   Period,  Litchfield  Financial  may  further  extend such  Extension  Period;
   provided  that such  Extension  Period  together  with all such  previous and
   further extensions  thereof may not exceed 20 consecutive  quarterly interest
   periods.  Upon the termination of any Extension Period and the payment of all
   amounts then due,  Litchfield  Financial may commence a new Extension Period,
   subject to the above requirements. Payments of accumulated Distributions will
   be payable to Holders of Preferred Securities as they appear on the books and
   records of the Trust on the first record date after the end of the  Extension
   Period.

   (c) Distributions on the Preferred Securities will be payable promptly by the
   Property  Trustee  (or  other  Paying  Agent)  upon  receipt  of  immediately
   available  funds to the  Holders  thereof  as they  appear  on the  books and
   records  of the Trust on the  relevant  record  dates.  While  the  Preferred
   Securities remain in book-entry only form, the relevant record dates shall be
   one  business  day  prior  to  the  relevant  Distribution  date,  and if the
   Preferred  Securities  are no longer in  book-entry  only form,  the relevant
   record  dates  will be the  fifteenth  (15th)  day of the month  prior to the
   relevant  Distribution date, which record and payment dates correspond to the
   record and interest payment dates on the Debentures. Distributions payable on
   any Preferred  Securities  that are not punctually  paid on any  Distribution
   payment date as a result of Litchfield  Financial'  having failed to make the
   corresponding  interest  payment on the Debentures will forthwith cease to be
   payable to the person in whose name such Preferred  Security is registered on
   the relevant  record date,  and such defaulted  Distribution  will instead be
   payable to the person in whose name such Preferred  Security is registered on
   the special  record date  established by the Regular  Trustees,  which record
   date shall  correspond  to the special  record date or other  specified  date
   determined  in  accordance  with  the  Indenture;   provided,  however,  that
   Distributions  shall not be considered  payable on any  Distribution  payment
   date falling  within an Extension  Period  unless  Litchfield  Financial  has
   elected  to  make a full  or  partial  payment  of  interest  accrued  on the
   Debentures on such Distribution  payment date. Subject to any applicable laws
   and  regulations  and the  provisions  of the  Declaration,  each  payment in
   respect of the Preferred  Securities will be made as described in paragraph 8
   hereof.  If any date on which  Distributions  are  payable  on the  Preferred
   Securities is not a Business Day, then payment of the Distribution payable on
   such date will be made on the next succeeding day that is a Business Day (and
   without any  interest or other  payment in respect of any such delay)  except
   that, if such Business Day is in the next succeeding calendar year, such

                                       53





   payment shall be made on the immediately preceding Business Day, in each case
   with the same  force  and  effect  as if made on the date  such  payment  was
   originally payable.

   (d) All Distributions  paid with respect to the Preferred  Securities and the
   Common  Securities  will be paid Pro Rata (as  defined  below) to the Holders
   thereof  entitled  thereto.  If an  Event  of  Default  has  occurred  and is
   continuing,  the Preferred  Securities  shall have a priority over the Common
   Securities with respect to Distributions.

   (e) In the event that there is any money or other property held by or for the
   Trust that is not accounted for under the Declaration, such money or property
   shall be distributed  Pro Rata among the Holders of the Preferred  Securities
   and the Common Securities.

3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.  (a) In the event of any voluntary
or involuntary dissolution of the Trust, the Holders of the Preferred Securities
and the Common Securities will be entitled to receive Pro Rata solely out of the
assets of the Trust legally  available for  distribution to Holders of Preferred
Securities  and Common  Securities  after  satisfaction  of  liabilities  to the
creditors  of the  Trust,  an  amount  equal  to  the  aggregate  of the  stated
liquidation  amount of $10 per  Preferred  Security  and  Common  Security  plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being  the  "Liquidation   Distribution"),   unless,  in  connection  with  such
dissolution,  and after  satisfaction  of  liabilities  to the  creditors of the
Trust, Debentures in an aggregate principal amount equal to the aggregate stated
liquidation  amount of such Preferred  Securities and the Common  Securities and
bearing  accrued and unpaid  interest in an amount equal to the  accumulated and
unpaid  Distributions on, such Preferred  Securities and the Common  Securities,
shall be distributed Pro Rata to the Holders of the Preferred Securities and the
Common Securities in exchange for such Securities.

If, upon any such dissolution,  the Liquidation Distribution can be paid only in
part because the Trust has insufficient  assets on hand legally available to pay
in full  the  aggregate  Liquidation  Distribution,  then  the  amounts  payable
directly  by the Trust on the  Preferred  Securities  and the Common  Securities
shall be paid, subject to the next paragraph, on a Pro Rata basis.

Holders  of  Common   Securities   will  be  entitled  to  receive   Liquidation
Distributions  upon any such  dissolution  Pro Rata with  Holders  of  Preferred
Securities,  except that if an Event of Default has occurred and is  continuing,
the Preferred  Securities shall have a priority over the Common  Securities with
respect to such Liquidation Distribution.

   (b) The  Holder of the Common  Securities  shall have the right to direct the
   Property  Trustee  in  writing  at any  time to  dissolve  the  Trust  and to
   distribute  Debentures to Holders in exchange for Securities (which direction
   is  optional  and wholly  within the  discretion  of the Holder of the Common
   Securities).  Upon the receipt of any such  written  direction,  the Property
   Trustee shall  promptly (i) distribute  Debentures in an aggregate  principal
   amount equal to the  aggregate  stated  liquidation  amount of the  Preferred
   Securities and the Common  Securities held by each Holder,  which  Debentures
   bear accrued and unpaid interest in an amount equal to the accumulated and

                                       54





   unpaid Distributions on the Preferred Securities and the Common Securities of
   such Holder,  in exchange for the Preferred  Securities and Common Securities
   of such Holder and (ii) dissolve the Trust.

   (c) On the date fixed for any distribution of Debentures, upon dissolution of
   the  Trust,  (i) the  Preferred  Securities  will no  longer  be deemed to be
   outstanding  and  may  be  canceled  by  the  Regular   Trustees,   and  (ii)
   Certificates  representing  Preferred  Securities will be deemed to represent
   beneficial  interests in the Debentures having an aggregate  principal amount
   equal to the stated  liquidation  amount of, and  bearing  accrued and unpaid
   interest equal to  accumulated  and unpaid  Distributions  on, such Preferred
   Securities until such  Certificates are presented to Litchfield  Financial or
   its agent for transfer or reissuance.

   (d) If Debentures  are  distributed  to Holders of the Preferred  Securities,
   Litchfield  Financial,  pursuant to the terms of the Indenture,  will use its
   best efforts to have the Debentures  listed on the New York Stock Exchange or
   on such other exchange as the Preferred  Securities  were listed  immediately
   prior to the distribution of the Debentures.

4.  REDEMPTION OF DEBENTURES.  The Preferred  Securities may be redeemed only if
Debentures  having  an  aggregate   principal  amount  equal  to  the  aggregate
liquidation  amount of the Preferred  Securities  and the Common  Securities are
repaid or redeemed as set forth below:

   (a) Upon the  repayment of the  Debentures,  in whole or in part,  whether at
   maturity,  upon  redemption at any time or from time to time on or after June
   30, 2004, the proceeds of such  repayment will be promptly  applied to redeem
   Pro Rata  Preferred  Securities  and Common  Securities  having an  aggregate
   liquidation amount equal to the aggregate  principal amount of the Debentures
   so repaid or redeemed,  upon not less than 30 nor more than 60 days'  notice,
   at a redemption price of $10 per Preferred  Security and Common Security plus
   an amount  equal to  accumulated  and unpaid  Distributions  thereon  to, but
   excluding, the date of redemption,  payable in cash (the "Redemption Price").
   The date of any such  repayment or  redemption  of Preferred  Securities  and
   Common  Securities  shall be  established  to coincide  with the repayment or
   redemption date of the Debentures.

   (b) If  fewer  than  all the  outstanding  Preferred  Securities  and  Common
   Securities  are to be so redeemed,  the Preferred  Securities  and the Common
   Securities  will be redeemed Pro Rata and the  Preferred  Securities  will be
   redeemed as described in paragraph  4(f)(ii) below.  If a partial  redemption
   would result in the  delisting of the  Preferred  Securities  by any national
   securities  exchange or other organization on which the Preferred  Securities
   are then listed or traded,  Litchfield  Financial  pursuant to the  Indenture
   will redeem  Debentures only in whole and, as a result,  the Trust may redeem
   the Preferred Securities only in whole.

   (c) If, at any time,  a Tax Event or an  Investment  Company  Event  (each as
   hereinafter  defined,  and  each  a  "Special  Event")  shall  occur  and  be
   continuing,  Litchfield  Financial shall have the right at any time, upon not
   less than 30 nor more than 60 days' notice, to redeem the Debentures in whole

                                       55





   or in part for cash at the  Redemption  Price  within 90 days  following  the
   occurrence of such Special Event,  and promptly  following  such  redemption,
   Preferred  Securities  and Common  Securities  with an aggregate  liquidation
   amount equal to the aggregate  principal amount of the Debentures so redeemed
   will be  redeemed by the Trust at the  Redemption  Price on a Pro Rata basis.
   The  Common   Securities  will  be  redeemed  Pro  Rata  with  the  Preferred
   Securities,  except  that  if  an  Event  of  Default  has  occurred  and  is
   continuing,  the  Preferred  Securities  will have a priority over the Common
   Securities with respect to payment of the Redemption Price.

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

   "Investment  Company  Event" means that the Sponsor and the Regular  Trustees
   shall have received an Opinion of Counsel  experienced  in practice under the
   Investment Company Act that, as a result of the occurrence of a change in law
   or  regulation  or a  change  in  interpretation  or  application  of  law or
   regulation by any legislative body, court,  governmental agency or regulatory
   authority (a "Change in 1940 Act Law"),  there is more than an  insubstantial
   risk that the Trust is or will be considered  an Investment  Company which is
   required to be registered  under the Investment  Company Act, which Change in
   1940 Act Law becomes effective on or after May 19, 1999.

   (d) The  Trust  may not  redeem  fewer  than  all the  outstanding  Preferred
   Securities unless all accumulated and unpaid  Distributions have been paid on
   all Preferred  Securities for all quarterly  Distribution periods terminating
   on or prior to the date of redemption.

   (e)  [Intentionally omitted.]


                                       56





   (f) (i) Notice of any redemption of, or notice of  distribution of Debentures
   in exchange  for,  the  Preferred  Securities  and the Common  Securities  (a
   "Redemption/Distribution  Notice")  will be given by the Regular  Trustees on
   behalf of the Trust by mail to each Holder of Preferred Securities and Common
   Securities to be redeemed or exchanged not less than 30 nor more than 60 days
   prior to the date fixed for redemption or exchange  thereof.  For purposes of
   the  calculation of the date of redemption or exchange and the dates on which
   notices    are   given    pursuant    to   this    paragraph    4(f)(i),    a
   Redemption/Distribution  Notice  shall be  deemed to be given on the day such
   notice is first mailed by first- class mail,  postage prepaid,  to Holders of
   Preferred  Securities  and Common  Securities.  Each  Redemption/Distribution
   Notice shall be addressed to the Holders of Preferred  Securities  and Common
   Securities  at the  address of each such  Holder  appearing  in the books and
   records of the Trust. No defect in the  Redemption/Distribution  Notice or in
   the mailing of either  thereof  with  respect to any Holder  shall affect the
   validity of the redemption or exchange  proceedings with respect to any other
   Holder.

   (ii) In the event that fewer than all the  outstanding  Preferred  Securities
   are to be redeemed,  the Preferred Securities to be redeemed will be redeemed
   Pro Rata from each Holder of Preferred Securities,  it being understood that,
   in  respect of  Preferred  Securities  registered  in the name of and held of
   record  by DTC (or  successor  Clearing  Agency)  or any other  nominee,  the
   Preferred  Securities  will be redeemed  from,  and the  distribution  of the
   proceeds  of such  redemption  will be made to,  DTC (or  successor  Clearing
   Agency).

(iii)    Subject   to    paragraph   8   hereof,    if   the   Trust   gives   a
Redemption/Distribution   Notice  in  respect  of  a  redemption   of  Preferred
Securities  as  provided  in this  paragraph  4 then  (A)  while  the  Preferred
Securities  are  in  book-entry   only  form,  with  respect  to  the  Preferred
Securities,  by 10:00 a.m., New York City time, on the redemption date, provided
that  Litchfield  Financial  has  paid  the  Property  Trustee,  in  immediately
available  funds,  a sufficient  amount of cash in  connection  with the related
redemption  or maturity of the  Debentures,  the  Property  Trustee will deposit
irrevocably with DTC (or successor  Clearing Agency) funds sufficient to pay the
applicable  Redemption  Price with respect to the Preferred  Securities and will
give DTC (or successor Clearing Agency)  irrevocable  instructions and authority
to pay the Redemption  Price to the Holders of the Preferred  Securities and (B)
if the Preferred  Securities are issued in definitive  form, with respect to the
Preferred  Securities  and  provided  that  Litchfield  Financial  has  paid the
Property Trustee, in immediately available funds, a sufficient amount of cash in
connection  with the  related  redemption  or maturity  of the  Debentures,  the
Property  Trustee will pay the relevant  Redemption Price to the Holders of such
Preferred  Securities  by check  mailed to the  address of the  relevant  Holder
appearing  on the books and records of the Trust on the  redemption  date.  If a
Redemption/Distribution  Notice  shall  have been given and funds  deposited  as
required, if applicable,  then immediately prior to the close of business on the
redemption  date,  Distributions  will  cease  to  accumulate  on the  Preferred
Securities  called for redemption,  such Preferred  Securities will no longer be
deemed to be outstanding and all rights of Holders of such Preferred  Securities
so called for  redemption  will  cease,  except the right of the Holders of such
Preferred  Securities to receive the Redemption  Price,  but without interest on
such Redemption  Price.  Neither the Trustees nor the Trust shall be required to
register or cause to be  registered  the  transfer of any  Preferred  Securities
which have been so called for redemption. If any

                                       57





date fixed for  redemption  of Preferred  Securities is not a Business Day, then
payment of the  Redemption  Price  payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay)  except  that,  if such  Business Day falls in the
next  calendar  year,  such  payment will be made on the  immediately  preceding
Business  Day,  in each case with the same  force and  effect as if made on such
date fixed for  redemption.  If payment  of the  Redemption  Price in respect of
Preferred  Securities is  improperly  withheld or refused and not paid either by
the  Property  Trustee or by  Litchfield  Financial  pursuant  to the  Preferred
Guarantee,   Distributions  on  such  Preferred   Securities  will  continue  to
accumulate,  from the original  redemption date to the date of payment, in which
case the actual  payment date will be considered  the date fixed for  redemption
for purposes of calculating the Redemption Price.

   (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on
   behalf of the Trust to DTC or its nominee (or any successor  Clearing  Agency
   or its nominee) if the Global Certificates have been issued or, if Definitive
   Preferred  Security  Certificates  have been  issued,  to the  Holders of the
   Preferred Securities.

   (v)  Subject  to  the  foregoing  and  applicable  law  (including,   without
   limitation,  United States Federal securities laws),  Litchfield Financial or
   any of its  Affiliates  may at any  time  and  from  time  to  time  purchase
   outstanding  Preferred Securities by tender, in the open market or by private
   agreement.

          5. VOTING RIGHTS.  (a) Except as provided  under  paragraph 5(b) below
     and as otherwise  required by law and the  Declaration,  the Holders of the
     Preferred Securities will have no voting rights.

   (b) If any proposed amendment to the Declaration provides for, or the Regular
   Trustees  otherwise  propose to effect,  (i) any action that would  adversely
   affect the powers,  preferences or special rights of the Securities,  whether
   by way of  amendment to the  Declaration,  other than as described in Section
   12.01(b)  of  the  Declaration,   or  otherwise,  or  (ii)  the  dissolution,
   winding-up or  termination  of the Trust,  other than as described in Section
   8.01 of the Declaration,  then the Holders of outstanding  Securities will be
   entitled to vote on such  amendment  or  proposal as a single  class and such
   amendment or proposal shall not be effective  except with the approval of the
   Holders of  Securities  of at least a Majority in  liquidation  amount of the
   Securities, voting together as a single class; provided, however, that (A) if
   any  amendment  or proposal  referred to in clause (i) above would  adversely
   affect only the Preferred Securities or the Common Securities,  then only the
   affected  class of Securities  will be entitled to vote on such  amendment or
   proposal and such  amendment or proposal  shall not be effective  except with
   the  approval of at least a Majority in  liquidation  amount of such class of
   Securities  and (B)  amendments to the  Declaration  shall be subject to such
   further  requirements  as are set  forth in  Sections  12.01 and 12.02 of the
   Declaration.

In the  event  the  consent  of the  Property  Trustee,  as  the  holder  of the
Debentures,  is required  under the  Indenture  with  respect to any  amendment,
modification  or  termination of the Indenture or the  Debentures,  the Property
Trustee shall request the written direction of the Holders of the Securities

                                       58





with  respect to such  amendment,  modification  or  termination.  The  Property
Trustee shall vote with respect to such  amendment,  modification or termination
as  directed  by a  Majority  in  liquidation  amount of the  Securities  voting
together  as a single  class;  provided,  however,  that where  such  amendment,
modification or termination of the Indenture requires the consent or vote of (1)
holders  of  Debentures  representing  a  specified  percentage  greater  than a
majority in principal amount of the Debentures or (2) each holder of Debentures,
the Property Trustee may only vote with respect to that amendment,  modification
or  termination  as  directed  by, in the case of clause (1) above,  the vote of
Holders of Securities  representing  such specified  percentage of the aggregate
liquidation amount of the Securities,  or, in the case of clause (2) above, each
Holder of Securities; and provided,  further, that the Property Trustee shall be
under no obligation to take any action in accordance  with the directions of the
Holders of Securities  unless the Property  Trustee shall have received,  at the
expense of the Sponsor, an Opinion of Counsel experienced in such matters to the
effect that the Trust will not be classified  for United States  Federal  income
tax purposes as other than a grantor trust on account of such action.

So long as any Debentures are held by the Property  Trustee,  the Trustees shall
not (i) direct the time,  method and place of conducting  any proceeding for any
remedy available to the Trustee of the Indenture (the "Debenture  Trustee"),  or
exercising any trust or power  conferred on such Debenture  Trustee with respect
to the  Debentures,  (ii) waive any past default that is waivable  under Section
6.06 of the  Indenture  or  (iii)  exercise  any  right  to  rescind  or annul a
declaration of  acceleration of the maturity of the principal of the Debentures,
without, in each case, obtaining the prior approval of the Holders of a Majority
in  liquidation  amount  of all  outstanding  Preferred  Securities  and  Common
Securities.  The Trustees shall not revoke any action  previously  authorized or
approved  by a vote  of  the  Holders  of the  Preferred  Securities  except  by
subsequent vote of such Holders.  The Property  Trustee shall notify each Holder
of Preferred Securities of any notice of default with respect to the Debentures.
In  addition  to  obtaining  the  foregoing  approvals  of such  Holders  of the
Preferred Securities and Common Securities, prior to taking any of the foregoing
actions,  the Trustees  shall obtain an Opinion of Counsel  experienced  in such
matters to the effect that for United  States  Federal  income tax  purposes the
Trust will not be  classified  as other than a grantor  trust on account of such
action.

If an Event of Default has  occurred  and is  continuing,  then the Holders of a
Majority in liquidation  amount of the Preferred  Securities will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available  to the  Property  Trustee or to direct the  exercise  of any trust or
power conferred upon the Property Trustee under the  Declaration,  including the
right to direct the Property Trustee to exercise the remedies available to it as
a holder of the Debentures.  If the Property Trustee fails to enforce its rights
under the Debentures, a Holder of Preferred Securities,  to the extent permitted
by  applicable  law,  may,  after a period  of 30 days has  elapsed  since  such
Holder's  written  request  to the  Property  Trustee to  enforce  such  rights,
institute  a legal  proceeding  directly  against  the  Sponsor to  enforce  the
Property  Trustee's  rights under the Debentures  without first  instituting any
legal  proceeding  against the Property  Trustee or any other  Person;  provided
further,  that, if an Event of Default has occurred and is  continuing  and such
event is  attributed  to the failure of the Sponsor to pay interest or principal
on the Debentures on the date such

                                       59





interest or principal is otherwise payable (or in the case of redemption, on the
redemption date), then a Holder of Preferred Securities may directly institute a
proceeding  for  enforcement  of payment to such Holder of the  principal  of or
interest on the  Debentures  having a principal  amount  equal to the  aggregate
liquidation amount of the Preferred  Securities of such Holder (a "Holder Direct
Action") on or after the  respective due date  specified in the  Debentures.  In
connection with such Holder Direct Action, the Sponsor will be subrogated to the
rights of such Holder of Preferred  Securities to the extent of any payment made
by the Sponsor to such Holders of  Preferred  Securities  in such Holder  Direct
Action. Except as provided in the preceding sentences,  the Holders of Preferred
Securities will not be able to exercise  directly any other remedy  available to
the Holders of the Debentures.

A waiver  of an  Indenture  Event of  Default  by the  Property  Trustee  at the
direction of the Holders of the Preferred Securities will constitute a waiver of
the  corresponding  Event of  Default  under the  Declaration  in respect of the
Securities.

Any required  approval or direction  of Holders of Preferred  Securities  may be
given at a separate meeting of Holders of Preferred Securities convened for such
purpose, at a meeting of all of the Holders of Securities or pursuant to written
consent.  The  Regular  Trustees  will  cause a notice of any  meeting  at which
Holders of Preferred Securities are entitled to vote to be mailed to each Holder
of record of  Preferred  Securities.  Each such notice will  include a statement
setting forth (i) the date of such meeting, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
and (iii) instructions for the delivery of proxies.

No vote or consent of the Holders of Preferred  Securities  will be required for
the Trust to  redeem  and  cancel  Preferred  Securities  or to  distribute  the
Debentures in accordance with the Declaration.

Notwithstanding  that  Holders of Preferred  Securities  are entitled to vote or
consent under any of the  circumstances  described  above,  any of the Preferred
Securities  at such  time  that are  owned  by  Litchfield  Financial  or by any
Affiliate of Litchfield  Financial  shall not be entitled to vote or consent and
shall,  for  purposes  of such vote or  consent,  be treated as if they were not
outstanding.

Except as provided in this paragraph 5, Holders of the Preferred Securities will
have no rights to  increase  or  decrease  the number of Trustees or to appoint,
remove or replace a Trustee,  which voting rights are vested  exclusively in the
Holders of the Common Securities.

6. PRO RATA TREATMENT. A reference in these terms of the Preferred Securities to
any payment,  Distribution  or treatment as being "Pro Rata" shall mean pro rata
to each Holder of Securities  according to the aggregate  liquidation  amount of
the  Securities  held  by the  relevant  Holder  in  relation  to the  aggregate
liquidation  amount of all  Securities  outstanding  unless,  in  relation  to a
payment,  an Event of Default has occurred and is continuing,  in which case any
funds  available to make such payment  shall be paid first to each Holder of the
Preferred  Securities pro rata according to the aggregate  liquidation amount of
Preferred  Securities  held by the  relevant  Holder  relative to the  aggregate
liquidation  amount of all  Preferred  Securities  outstanding,  and only  after
satisfaction of all amounts owed to the Holders of the Preferred Securities,  to
each Holder of Common Securities

                                       60





pro rata according to the aggregate liquidation amount of Common Securities held
by the  relevant  Holder  relative to the  aggregate  liquidation  amount of all
Common Securities outstanding.

7. RANKING. The Preferred Securities rank pari passu and payment thereon will be
made Pro Rata with the Common  Securities,  except that when an Event of Default
occurs and is  continuing,  the rights of Holders  of  Preferred  Securities  to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise rank in priority to the rights of Holders of the Common Securities.

8.   TRANSFER, EXCHANGE, METHOD OF PAYMENTS.  Payment of Distributions and
payments on redemption of the Preferred Securities will be payable, the transfer
of the Preferred  Securities will be registrable,  and Preferred Securities will
be  exchangeable  for  Preferred  Securities  of other  denominations  of a like
aggregate  liquidation  amount,  at the  corporate  trust office of the Property
Trustee in The City of New York;  provided that payment of Distributions  may be
made at the  option  of the  Regular  Trustees  on  behalf of the Trust by check
mailed to the  address of the persons  entitled  thereto and that the payment on
redemption  of any Preferred  Security will be made only upon  surrender of such
Preferred Security to the Property Trustee.

9.   ACCEPTANCE OF INDENTURE AND PREFERRED GUARANTEE.  Each Holder of
Preferred Securities, by the acceptance thereof, agrees to the provisions of (i)
the Preferred  Guarantee,  including the subordination  provisions therein,  and
(ii) the Indenture and the Debentures, including the subordination provisions of
the Indenture.

10. NO  PREEMPTIVE  RIGHTS.  The Holders of Preferred  Securities  shall have no
preemptive or similar rights to subscribe to any additional Preferred Securities
or Common Securities.

11. MISCELLANEOUS.  These terms shall constitute a part of the Declaration.  The
Trust will provide a copy of the  Declaration  and the  Indenture to a Holder of
Preferred  Securities  without  charge on  written  request  to the Trust at its
principal place of business.



                                       61





                                     Annex I

                     FORM OF PREFERRED SECURITY CERTIFICATE

[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - THIS PREFERRED
SECURITY  IS  A  GLOBAL  CERTIFICATE  WITHIN  THE  MEANING  OF  THE  DECLARATION
HEREINAFTER  REFERRED TO AND IS REGISTERED IN THE NAME OF THE  DEPOSITORY  TRUST
COMPANY ("DTC") OR A NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR
PREFERRED  SECURITIES  REGISTERED  IN THE NAME OF A PERSON OTHER THAN DTC OR ITS
NOMINEE ONLY IN THE LIMITED  CIRCUMSTANCES  DESCRIBED IN THE  DECLARATION AND NO
TRANSFER OF THIS  PREFERRED  SECURITY  (OTHER THAN A TRANSFER OF THIS  PREFERRED
SECURITY  AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR
ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.

UNLESS THIS PREFERRED  SECURITY IS PRESENTED BY AN AUTHORIZED  REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO LITCHFIELD
CAPITAL TRUST I OR ITS AGENT FOR REGISTRATION OF TRANSFER,  EXCHANGE OR PAYMENT,
AND ANY  PREFERRED  SECURITY  ISSUED IS  REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED  REPRESENTATIVE  OF THE DEPOSITORY
TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR  OTHERWISE  BY A PERSON IS  WRONGFUL  SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]

Certificate Number  Number of Preferred Securities: ____________
__________________
Aggregate Liquidation Amount:  $____________

                             CUSIP NO. ____________

                   Certificate Evidencing Preferred Securities

                                       of

                           Litchfield Capital Trust I

                    ____% Series A Trust Preferred Securities
                 (liquidation amount $10 per Preferred Security)

Litchfield Capital Trust I, a statutory business trust created under the laws of
the State of Delaware  (the  "Trust"),  hereby  certifies  that  _________  (the
"Holder") is the registered owner of _____

                                       62





(______)  preferred  securities of the Trust  representing  preferred  undivided
beneficial  interests in the assets of the Trust and designated the ____% Series
A Trust Preferred  Securities  (liquidation  amount $10 per Preferred  Security)
(the "Preferred  Securities").  The Preferred Securities are transferable on the
books and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this Certificate duly endorsed and in proper form for transfer. The
designations, rights, privileges, restrictions,  preferences and other terms and
provisions of the Preferred  Securities  are set forth in, and this  Certificate
and the  Preferred  Securities  represented  hereby  are issued and shall in all
respects be subject to the terms and  provisions  of, the  Amended and  Restated
Declaration of Trust of the Trust dated as of ___________, ____, as the same may
be amended from time to time (the  "Declaration")  including the  designation of
the terms of  Preferred  Securities  as set  forth in  Exhibit  B  thereto.  The
Preferred  Securities and the Common  Securities issued by the Trust pursuant to
the Declaration  represent undivided  beneficial  interests in the assets of the
Trust,  including  the  Debentures  (as  defined in the  Declaration)  issued by
Litchfield  Financial  Corporation,  a  Massachusetts  corporation  ("Litchfield
Financial"),  to  the  Trust  pursuant  to  the  Indenture  referred  to in  the
Declaration.  The Holder is entitled to the benefits of the Guarantee  Agreement
of Litchfield Financial dated as of __________, ____, as the same may be amended
from time to time (the  "Guarantee") to the extent provided  therein.  The Trust
will furnish a copy of the  Declaration,  the Guarantee and the Indenture to the
Holder without charge upon written  request to the Trust at its principal  place
of business or registered office.

The Holder of this Certificate, by accepting this Certificate, is deemed to have
(i) agreed to the terms of the Indenture and the Debentures,  including that the
Debentures are subordinate and junior in right of payment to all Senior Debt (as
defined in the Indenture) as and to the extent  provided in the  Indenture,  and
(ii)  agreed to the terms of the  Guarantee,  including  that the  Guarantee  is
subordinate  and  junior  in  right  of  payment  to all  other  liabilities  of
Litchfield Financial,  including the Debentures, except those made pari passu or
subordinate by their terms, and senior to all capital stock (other than the most
senior  preferred  stock  issued,  from  time to  time,  if any,  by  Litchfield
Financial, which preferred stock will rank pari passu with the Guarantee) now or
hereafter  issued by Litchfield  Financial and to any guarantee now or hereafter
entered  into by  Litchfield  Financial  in respect of any of its capital  stock
(other than the most senior  preferred stock issued,  from time to time, if any,
by Litchfield Financial).

Upon receipt of this Certificate,  the Holder is bound by the Declaration and is
entitled to the benefits thereunder.

IN WITNESS WHEREOF, Trustees of the Trust have executed this Certificate.

                      LITCHFIELD CAPITAL TRUST I


                      --------------------------------
                      Ronald E. Rabidou, as Regular Trustee


                                       63





                      --------------------------------
                      Heather A. Sica, as Regular Trustee

                      --------------------------------
                      John J. Malloy, as Regular Trustee

Dated:

Countersigned and Registered:

Transfer Agent and Registrar

By:___________________________
Authorized Signatory



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                          [FORM OF REVERSE OF SECURITY]

Distributions  payable on each  Preferred  Security  will be fixed at a rate per
annum of ___ % (the "Coupon Rate") of the stated  liquidation  amount of $10 per
Preferred  Security,  such  rate  being  the  rate of  interest  payable  on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one quarter will accumulate additional  distributions thereon at the Coupon
Rate  per  annum  (to  the  extent  permitted  by  applicable  law),  compounded
quarterly.  The term  "Distributions"  as used herein means such  periodic  cash
distributions  and any such additional  distributions  payable unless  otherwise
stated.  A Distribution  is payable only to the extent that payments are made in
respect of the  Debentures  held by the  Property  Trustee and to the extent the
Trust has funds on hand legally available therefor.  The amount of Distributions
payable  for any period  will be computed  for any full  quarterly  Distribution
period on the  basis of a 360-day  year of  twelve  30-day  months,  and for any
period shorter than a full quarterly Distribution period for which Distributions
are computed,  Distributions  will be computed on the basis of the actual number
of days elapsed per 90-day quarter.

Distributions on the Preferred Securities will accumulate from _________,  ____,
and will be payable quarterly in arrears, on ______,  ______,  ______ and ______
of each year,  commencing on ________,  ____, but only if and to the extent that
interest  payments  are made in respect of the  Debentures  held by the Property
Trustee. So long as Litchfield  Financial shall not be in default in the payment
of  interest on the  Debentures,  Litchfield  Financial  has the right under the
Indenture for the  Debentures to defer payments of interest on the Debentures by
extending the interest  payment  period at any time and from time to time on the
Debentures for a period not exceeding 20 consecutive  quarterly interest periods
(each an "Extension Period"), during which Extension Period no interest shall be
due  and  payable  on  the  Debentures.  As  a  consequence  of  such  deferral,
Distributions shall also be deferred. Despite such deferral,  Distributions will
continue to  accumulate  with  additional  distributions  thereon (to the extent
permitted  by  applicable  law but not at a rate  greater than the rate at which
interest is then  accruing  on the  Debentures)  at the Coupon  Rate  compounded
quarterly  during any such Extension  Period;  provided that no Extension Period
shall  extend  beyond  the  stated  maturity  of the  Debentures.  Prior  to the
termination  of any such  Extension  Period,  Litchfield  Financial  may further
extend such Extension Period;  provided that such Extension Period together with
all such previous and further  extensions  thereof may not exceed 20 consecutive
quarterly interest periods. Upon the termination of any Extension Period and the
payment  of all  amounts  then due,  Litchfield  Financial  may  commence  a new
Extension  Period,  subject to the above  requirements.  Payments of accumulated
Distributions will be payable to Holders of Preferred  Securities as they appear
on the books and records of the Trust on the first  record date after the end of
the Extension Period.

The Preferred Securities shall be redeemable as provided in the Declaration.



                                       65





                                   ASSIGNMENT

FOR VALUE  RECEIVED,  the  undersigned  assigns  and  transfers  this  Preferred
Security Certificate to:

(Insert assignee's social security or tax identification number)

(Insert address and zip code of assignee)

and irrevocably appoints

agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.

Date: ______________________________________

Signature: _________________________________

NOTICE:  THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THIS PREFERRED SECURITY
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.



                                       66





                                                             EXHIBIT C

                                    TERMS OF

                                COMMON SECURITIES

Pursuant to Section 7.01(b) of the Amended and Restated  Declaration of Trust of
Litchfield  Capital  Trust I dated as of May 19, 1999 (as  amended  from time to
time, the "Declaration"),  the designations,  rights, privileges,  restrictions,
preferences  and other terms and  provisions  of the Common  Securities  are set
forth  below  (each  capitalized  term used but not  defined  herein  having the
meaning set forth in the Declaration):

1.   DESIGNATION AND NUMBER. 10% Series A Common Securities of the Trust with an
aggregate  liquidation amount at any time outstanding with respect to the assets
of the  Trust  of Seven  Hundred  Seventy-Three  Thousand  Two  Hundred  Dollars
($773,200), and each with a liquidation amount with respect to the assets of the
Trust of $10 per Common Security, and 77,320 Common Securities of the Trust with
an  aggregate  liquidation  amount at any time  outstanding  with respect to the
assets of the Trust of Seven Hundred Seventy-Three  Thousand Two Hundred Dollars
($773,200), and each with a liquidation amount with respect to the assets of the
Trust of $10 per Common  Security for  issuance  upon the exercise of the option
granted to the Underwriters, solely to cover over-allotments, if any, are hereby
designated  as "10%  Series A Trust  Common  Securities."  The  Common  Security
Certificates evidencing the Common Securities shall be substantially in the form
attached hereto as Annex I, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage,  custom or practice.  The Common
Securities are to be issued and sold to Litchfield Financial in consideration of
$773,200 in cash.  In  connection  with the issuance  and sale of the  Preferred
Securities  and the Common  Securities,  the Trust will purchase as trust assets
Debentures of Litchfield Financial having an aggregate principal amount equal to
the  aggregate  liquidation  amount of the Preferred  Securities  and the Common
Securities so issued, and bearing interest at an annual rate equal to the annual
Distribution  rate on the Preferred  Securities  and the Common  Securities  and
having payment and  redemption  provisions  which  correspond to the payment and
redemption provisions of the Preferred Securities and the Common Securities.

2.  DISTRIBUTIONS.  (a)  Distributions  payable on each Common  Security will be
fixed at a rate per annum of 10% (the "Coupon  Rate") of the stated  liquidation
amount of $10 per Common Security,  such rate being the rate of interest payable
on the Debentures to be held by the Property  Trustee.  Distributions in arrears
for more than one calendar  quarter  will  accumulate  additional  distributions
thereon at the  Coupon  Rate per annum (to the extent  permitted  by  applicable
law), compounded  quarterly.  The term "Distributions" as used herein means such
periodic cash distributions and any such additional distributions payable unless
otherwise  stated.  A Distribution  will be made by the Property Trustee only to
the extent that interest  payments are made in respect of the Debentures held by
the  Property  Trustee  and to the  extent  the Trust has funds on hand  legally
available therefor.  The amount of Distributions  payable for any period will be
computed for any full  quarterly  Distribution  period on the basis of a 360-day
year of twelve 30-day  months,  and for any period shorter than a full quarterly
Distribution period for which Distributions are computed,  Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.


                                       67





   (b) Distributions on the Common Securities will accumulate from May 19, 1999,
   and will be payable quarterly in arrears,  on June 30, September 30, December
   31,  and  March 31 of each  year  commencing  on June  30,  1999,  except  as
   otherwise  described  below,  but  only if and to the  extent  that  interest
   payments are made in respect of the Debentures held by the Property  Trustee.
   So long as  Litchfield  Financial  shall not be in default in the  payment of
   interest  on the  Debentures,  Litchfield  Financial  has the right under the
   Indenture for the  Debentures to defer payments of interest on the Debentures
   by extending the interest payment period at any time and from time to time on
   the Debentures for a period not exceeding 20 consecutive  quarterly  interest
   periods  (each,  an "Extension  Period"),  during which  Extension  Period no
   interest shall be due and payable on the Debentures. As a consequence of such
   deferral,  Distributions  shall  also be  deferred.  Despite  such  deferral,
   Distributions  will  continue to  accumulate  with  additional  distributions
   thereon (to the extent  permitted by applicable law but not at a rate greater
   than the rate at which  interest is then accruing on the  Debentures)  at the
   Coupon Rate compounded  quarterly during any such Extension Period;  provided
   that no  Extension  Period  shall  extend  beyond the stated  maturity of the
   Debentures. Prior to the termination of any such Extension Period, Litchfield
   Financial  may  further  extend such  Extension  Period;  provided  that such
   Extension  Period  together  with all such  previous  and further  extensions
   thereof may not exceed 20 consecutive  quarterly  interest periods.  Upon the
   termination of any Extension  Period and the payment of all amounts then due,
   Litchfield  Financial  may commence a new  Extension  Period,  subject to the
   above requirements.  Payments of accumulated Distributions will be payable to
   Holders of Common  Securities  as they appear on the books and records of the
   Trust on the first record date after the end of the Extension Period.

   (c)  Distributions  on the Common  Securities will be payable promptly by the
   Property  Trustee  (or  other  Paying  Agent)  upon  receipt  of  immediately
   available  funds to the  Holders  thereof  as they  appear  on the  books and
   records  of the Trust on the  relevant  record  dates.  While  the  Preferred
   Securities  remain in book-entry only form, the relevant record dates for the
   Common   Securities   shall  be  one  business  day  prior  to  the  relevant
   Distribution  date,  and  if  the  Preferred  Securities  are  no  longer  in
   book-entry  only form,  the relevant  record dates for the Common  Securities
   will  be the  fifteenth  (15th)  day  of  the  month  prior  to the  relevant
   Distribution  date,  which record and payment dates  correspond to the record
   and interest  payment dates on the Debentures.  Distributions  payable on any
   Common  Securities that are not punctually paid on any  Distribution  payment
   date  as a  result  of  Litchfield  Financial'  having  failed  to  make  the
   corresponding  interest  payment on the Debentures will forthwith cease to be
   payable to the person in whose name such Common Security is registered on the
   relevant record date, and such defaulted Distribution will instead be payable
   to the person in whose name such Common Security is registered on the special
   record date  established  by the Regular  Trustees,  which  record date shall
   correspond to the special record date or other  specified date  determined in
   accordance with the Indenture;  provided,  however,  that Distributions shall
   not be considered payable on any Distribution  payment date falling within an
   Extension  Period unless  Litchfield  Financial has elected to make a full or
   partial  payment of interest  accrued on the Debentures on such  Distribution
   payment  date.  Subject  to any  applicable  laws  and  regulations  and  the
   provisions  of the  Declaration,  each  payment  in  respect  of  the  Common
   Securities  will be made as described  in paragraph 8 hereof.  If any date on
   which  Distributions  are payable on the Common  Securities is not a Business
   Day, then payment of the

                                       68





   Distribution  payable  on such date will be made on the next  succeeding  day
   that is a Business Day (and without any interest or other  payment in respect
   of any  such  delay)  except  that,  if  such  Business  Day  is in the  next
   succeeding  calendar  year,  such  payment  shall be made on the  immediately
   preceding  Business  Day,  in each case with the same  force and effect as if
   made on the date such payment was originally payable.

   (d) All  Distributions  paid with  respect to the Common  Securities  and the
   Preferred  Securities will be paid Pro Rata (as defined below) to the Holders
   thereof  entitled  thereto.  If an  Event  of  Default  has  occurred  and is
   continuing,  the Preferred  Securities  shall have a priority over the Common
   Securities with respect to Distributions.

   (e) In the event that there is any money or other property held by or for the
   Trust that is not accounted for under the Declaration, such money or property
   shall be distributed  Pro Rata among the Holders of the Preferred  Securities
   and the Common Securities.

3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION.  (a) In the event of any voluntary
or involuntary dissolution of the Trust, the Holders of the Preferred Securities
and the Common Securities will be entitled to receive Pro Rata solely out of the
assets of the Trust legally  available for  distribution to Holders of Preferred
Securities  and Common  Securities  after  satisfaction  of  liabilities  to the
creditors  of the  Trust,  an  amount  equal  to  the  aggregate  of the  stated
liquidation  amount of $10 per  Preferred  Security  and  Common  Security  plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being  the  "Liquidation   Distribution"),   unless,  in  connection  with  such
dissolution,  and after  satisfaction  of  liabilities  to the  creditors of the
Trust, Debentures in an aggregate principal amount equal to the aggregate stated
liquidation  amount of such Preferred  Securities and the Common  Securities and
bearing  accrued and unpaid  interest in an amount equal to the  accumulated and
unpaid  Distributions on, such Preferred  Securities and the Common  Securities,
shall be distributed Pro Rata to the Holders of the Preferred Securities and the
Common Securities in exchange for such Securities.

If, upon any such dissolution,  the Liquidation Distribution can be paid only in
part because the Trust has insufficient  assets on hand legally available to pay
in full  the  aggregate  Liquidation  Distribution,  then  the  amounts  payable
directly  by the Trust on the  Preferred  Securities  and the Common  Securities
shall be paid, subject to the next paragraph, on a Pro Rata basis.

Holders  of  Common   Securities   will  be  entitled  to  receive   Liquidation
Distributions  upon any such  dissolution  Pro Rata with  Holders  of  Preferred
Securities,  except that if an Event of Default has occurred and is  continuing,
the Preferred  Securities shall have a priority over the Common  Securities with
respect to such Liquidation Distribution.

         (b) The Holder of the Common  Securities shall have the right to direct
         the  Property  Trustee in writing at any time to dissolve the Trust and
         to distribute  Debentures to Holders in exchange for Securities  (which
         direction is optional and wholly within the discretion of the Holder of
         the Common Securities). Upon the receipt of any such written direction,
         the Property  Trustee shall  promptly (i)  distribute  Debentures in an
         aggregate principal amount

                                       69





         equal to the  aggregate  stated  liquidation  amount  of the  Preferred
         Securities  and  the  Common  Securities  held by  each  Holder,  which
         Debentures  bear accrued and unpaid  interest in an amount equal to the
         accumulated and unpaid  Distributions  on the Preferred  Securities and
         the Common  Securities  of such Holder,  in exchange for the  Preferred
         Securities  and Common  Securities of such Holder and (ii) dissolve the
         Trust.

         (c)  On the  date  fixed  for  any  distribution  of  Debentures,  upon
         dissolution of the Trust,  (i) the Common  Securities will no longer be
         deemed to be outstanding  and may be canceled by the Regular  Trustees,
         and (ii) Certificates  representing Common Securities will be deemed to
         represent  beneficial  interests in the Debentures  having an aggregate
         principal amount equal to the stated liquidation amount of, and bearing
         accrued  and  unpaid   interest   equal  to   accumulated   and  unpaid
         Distributions  on, such Common  Securities until such  Certificates are
         presented  to  Litchfield  Financial  or  its  agent  for  transfer  or
         reissuance.

         4. REDEMPTION OF DEBENTURES. The Common Securities may be redeemed only
         if  Debentures  having  an  aggregate  principal  amount  equal  to the
         aggregate liquidation amount of the Preferred Securities and the Common
         Securities are repaid or redeemed as set forth below:

   (a) Upon the  repayment of the  Debentures,  in whole or in part,  whether at
   maturity,  upon  redemption at any time or from time to time on or after June
   30, 2004, the proceeds of such  repayment will be promptly  applied to redeem
   Pro Rata  Preferred  Securities  and Common  Securities  having an  aggregate
   liquidation amount equal to the aggregate  principal amount of the Debentures
   so repaid or redeemed,  upon not less than 30 nor more than 60 days'  notice,
   at a redemption price of $10 per Preferred  Security and Common Security plus
   an amount  equal to  accumulated  and unpaid  Distributions  thereon  to, but
   excluding, the date of redemption,  payable in cash (the "Redemption Price").
   The date of any such  repayment or  redemption  of Preferred  Securities  and
   Common  Securities  shall be  established  to coincide  with the repayment or
   redemption date of the Debentures.

   (b) If  fewer  than  all the  outstanding  Preferred  Securities  and  Common
   Securities  are to be so redeemed,  the Preferred  Securities  and the Common
   Securities  will be  redeemed  Pro Rata  and the  Common  Securities  will be
   redeemed as described in paragraph  4(e)(ii) below.  If a partial  redemption
   would result in the  delisting of the  Preferred  Securities  by any national
   securities  exchange or other organization on which the Preferred  Securities
   are then listed or traded,  Litchfield  Financial  pursuant to the  Indenture
   will redeem  Debentures only in whole and, as a result,  the Trust may redeem
   the Common Securities only in whole.

   (c) If, at any time,  a Tax Event or an  Investment  Company  Event  (each as
   hereinafter  defined,  and  each,  a  "Special  Event")  shall  occur  and be
   continuing,  Litchfield  Financial shall have the right at any time, upon not
   less than 30 nor more than 60 days' notice, to redeem the Debentures in whole
   or in part for cash at the  Redemption  Price  within 90 days  following  the
   occurrence of such Special Event,  and promptly  following  such  redemption,
   Preferred Securities and Common

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   Securities  with an  aggregate  liquidation  amount  equal  to the  aggregate
   principal  amount of the Debentures so redeemed will be redeemed by the Trust
   at the Redemption  Price on a Pro Rata basis.  The Common  Securities will be
   redeemed Pro Rata with the Preferred  Securities,  except that if an Event of
   Default has occurred and is continuing,  the Preferred Securities will have a
   priority over the Common Securities with respect to payment of the Redemption
   Price.

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

   "Investment  Company  Event" means that the Sponsor and the Regular  Trustees
   shall have received an Opinion of Counsel  experienced  in practice under the
   Investment Company Act that, as a result of the occurrence of a change in law
   or  regulation  or a  change  in  interpretation  or  application  of  law or
   regulation by any legislative body, court,  governmental agency or regulatory
   authority (a "Change in 1940 Act Law"),  there is more than an  insubstantial
   risk that the Trust is or will be considered  an Investment  Company which is
   required to be registered  under the Investment  Company Act, which Change in
   1940 Act Law becomes effective on or after May 19, 1999.

   (d) The Trust may not redeem fewer than all the outstanding Common Securities
   unless all accumulated and unpaid  Distributions have been paid on all Common
   Securities for all quarterly  Distribution periods terminating on or prior to
   the date of redemption.

   (e) (i) Notice of any redemption of, or notice of  distribution of Debentures
   in exchange  for,  the  Preferred  Securities  and the Common  Securities  (a
   "Redemption/Distribution  Notice")  will be given by the Regular  Trustees on
   behalf of the Trust by mail to each Holder of Preferred Securities and Common
   Securities to be redeemed or exchanged not less than 30 nor more than 60 days
   prior to the date fixed for redemption or exchange  thereof.  For purposes of
   the calculation of the date

                                       71

<PAGE>



   of redemption  or exchange and the dates on which notices are given  pursuant
   to this paragraph 4(e)(i), a  Redemption/Distribution  Notice shall be deemed
   to be given on the day such  notice is first  mailed by  first-  class  mail,
   postage prepaid,  to Holders of Preferred  Securities and Common  Securities.
   Each  Redemption/Distribution  Notice  shall be  addressed  to the Holders of
   Preferred Securities and Common Securities at the address of each such Holder
   appearing  in  the  books  and  records  of  the  Trust.  No  defect  in  the
   Redemption/Distribution  Notice  or in the  mailing  of either  thereof  with
   respect to any Holder shall affect the validity of the redemption or exchange
   proceedings with respect to any other Holder.

   (ii) In the event that fewer than all the outstanding  Common  Securities are
   to be redeemed,  the Common  Securities  to be redeemed  will be redeemed Pro
   Rata  from each  Holder  of  Common  Securities  (subject  to  adjustment  to
   eliminate fractional Common Securities).

(iii) If the  Trust  gives a  Redemption/Distribution  Notice  in  respect  of a
redemption of Common  Securities  as provided in this  paragraph 4 (which notice
will be  irrevocable),  then  immediately  prior to the close of business on the
redemption  date,  provided that  Litchfield  Financial has paid to the Property
Trustee in immediately available funds a sufficient amount of cash in connection
with the related  redemption or maturity of the Debentures,  Distributions  will
cease to accumulate on the Common Securities called for redemption,  such Common
Securities  will no longer be deemed to be outstanding and all rights of Holders
of such Common Securities so called for redemption will cease,  except the right
of the Holders of such Common  Securities to receive the Redemption  Price,  but
without  interest on such Redemption  Price.  Neither the Trustees nor the Trust
shall be  required to register  or cause to be  registered  the  transfer of any
Common  Securities  which have been so called for redemption.  If any date fixed
for  redemption of Common  Securities is not a Business Day, then payment of the
Redemption  Price payable on such date will be made on the next  succeeding  day
that is a Business Day (and without any interest or other  payment in respect of
any such delay)  except that,  if such  Business Day falls in the next  calendar
year,  such payment will be made on the immediately  preceding  Business Day, in
each case  with the same  force  and  effect  as if made on such date  fixed for
redemption.  If payment of the Redemption Price in respect of Common  Securities
is  improperly  withheld  or  refused  and  not  paid by the  Property  Trustee,
Distributions  on such Common  Securities will continue to accumulate,  from the
original  redemption  date to the  date of  payment,  in which  case the  actual
payment date will be considered  the date fixed for  redemption  for purposes of
calculating the Redemption Price.

   (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on
   behalf of the Trust to Holders of the Common Securities.

          5. VOTING RIGHTS.  (a) Except as provided  under  paragraph 5(b) below
     and as otherwise  required by law and the  Declaration,  the Holders of the
     Common Securities will have no voting rights.

                                       72





   (b) Holders of Common Securities have the sole right under the Declaration to
   increase  or  decrease  the number of  Trustees,  and to  appoint,  remove or
   replace a  Trustee,  any such  increase,  decrease,  appointment,  removal or
   replacement  to be approved by Holders of Common  Securities  representing  a
   Majority in liquidation amount of the Common Securities.

If any  proposed  amendment  to the  Declaration  provides  for,  or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers,  preferences or special rights of the Securities,  whether by way of
amendment to the Declaration, other than as described in Section 12.01(b) of the
Declaration, or otherwise, or (ii) the dissolution, winding-up or termination of
the Trust, other than as described in Section 8.01 of the Declaration or Section
3 of this  Exhibit C or Section 3 of Exhibit B, then the Holders of  outstanding
Securities  will be entitled to vote on such  amendment  or proposal as a single
class and such  amendment  or proposal  shall not be  effective  except with the
approval of the  Holders of  Securities  of at least a Majority  in  liquidation
amount of the Securities,  voting together as a single class; provided, however,
that (A) if any  amendment  or  proposal  referred  to in clause (i) above would
adversely affect only the Preferred  Securities or the Common  Securities,  then
only the affected class of Securities will be entitled to vote on such amendment
or proposal and such  amendment or proposal  shall not be effective  except with
the  approval  of at least a  Majority  in  liquidation  amount of such class of
Securities, (B) the rights of Holders of Common Securities under Section 5.02 of
the  Declaration to increase or decrease the number of, and to appoint,  replace
or remove,  Trustees shall not be amended  without the consent of each Holder of
Common  Securities,  and (C) amendments to the  Declaration  shall be subject to
such further  requirements  as are set forth in Sections  12.01 and 12.02 of the
Declaration.

In the  event  the  consent  of the  Property  Trustee,  as  the  holder  of the
Debentures,  is required  under the  Indenture  with  respect to any  amendment,
modification  or  termination of the Indenture or the  Debentures,  the Property
Trustee  shall  request the written  direction of the Holders of the  Securities
with  respect to such  amendment,  modification  or  termination.  The  Property
Trustee shall vote with respect to such  amendment,  modification or termination
as  directed  by a  Majority  in  liquidation  amount of the  Securities  voting
together  as a single  class;  provided,  however,  that where  such  amendment,
modification or termination of the Indenture requires the consent or vote of (1)
holders  of  Debentures  representing  a  specified  percentage  greater  than a
majority in principal amount of the Debentures or (2) each holder of Debentures,
the Property Trustee may only vote with respect to that amendment,  modification
or  termination  as  directed  by, in the case of clause (1) above,  the vote of
Holders of Securities  representing  such specified  percentage of the aggregate
liquidation amount of the Securities,  or, in the case of clause (2) above, each
Holder of Securities; and provided,  further, that the Property Trustee shall be
under no obligation to take any action in accordance  with the directions of the
Holders of Securities  unless the Property  Trustee shall have received,  at the
expense of the Sponsor, an Opinion of Counsel experienced in such matters to the
effect that the Trust will not be classified  for United States  Federal  income
tax purposes as other than a grantor trust on account of such action.

So long as any Debentures are held by the Property  Trustee,  the Trustees shall
not (i) direct the time,  method and place of conducting  any proceeding for any
remedy available to the Trustee of the

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Indenture (the "Debenture Trustee"),  or exercising any trust or power conferred
on such Debenture  Trustee with respect to the  Debentures,  (ii) waive any past
default that is waivable  under Section 6.06 of the Indenture or (iii)  exercise
any right to rescind or annul a declaration of  acceleration  of the maturity of
the  principal of the  Debentures,  without,  in each case,  obtaining the prior
approval of the Holders of a Majority in liquidation  amount of all  outstanding
Common  Securities and Preferred  Securities.  The Trustees shall not revoke any
action previously  authorized or approved by a vote of the Holders of the Common
Securities except by subsequent vote of such Holders. The Property Trustee shall
notify each Holder of Common Securities of any notice of default with respect to
the Debentures. In addition to obtaining the foregoing approvals of such Holders
of the Common  Securities and Preferred  Securities,  prior to taking any of the
foregoing actions,  the Trustees shall obtain an Opinion of Counsel  experienced
in such matters to the effect that for United States Federal income tax purposes
the Trust will not be  classified  as other  than a grantor  trust on account of
such action.

Notwithstanding  any  other  provision  of these  terms,  each  Holder of Common
Securities  will be deemed to have waived any Event of Default  with  respect to
the Common  Securities  and its  consequences  until all Events of Default  with
respect to the Preferred  Securities  have been cured,  waived by the Holders of
Preferred Securities as provided in the Declaration or otherwise eliminated, and
until all Events of Default with respect to the Preferred  Securities  have been
so cured, waived by the Holders of Preferred Securities or otherwise eliminated,
the Property Trustee will be deemed to be acting solely on behalf of the Holders
of Preferred  Securities and only the Holders of the Preferred  Securities  will
have the right to direct the Property  Trustee in  accordance  with the terms of
the  Declaration  or of the  Securities.  In the event that any Event of Default
with respect to the  Preferred  Securities is waived by the Holders of Preferred
Securities  as provided  in the  Declaration,  the Holders of Common  Securities
agree that such waiver shall also constitute the waiver of such Event of Default
with respect to the Common  Securities  for all purposes  under the  Declaration
without  any  further  act,  vote  or  consent  of the  Holders  of  the  Common
Securities.

A waiver  of an  Indenture  Event of  Default  by the  Property  Trustee  at the
direction of the Holders of the Preferred Securities will constitute a waiver of
the  corresponding  Event of  Default  under the  Declaration  in respect of the
Securities.

Any required  approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities or pursuant to written consent.
The  Regular  Trustees  will cause a notice of any  meeting at which  Holders of
Common  Securities are entitled to vote to be mailed to each Holder of record of
Common  Securities.  Each such notice will include a statement setting forth (i)
the date of such meeting,  (ii) a  description  of any  resolution  proposed for
adoption at such  meeting on which such  Holders are  entitled to vote and (iii)
instructions for the delivery of proxies.

No vote or consent of the Holders of Common  Securities will be required for the
Trust to redeem and cancel Common  Securities or to distribute the Debentures in
accordance with the Declaration.


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6. PRO RATA  TREATMENT.  A reference in these terms of the Common  Securities to
any payment,  Distribution  or treatment as being "Pro Rata" shall mean pro rata
to each Holder of Securities  according to the aggregate  liquidation  amount of
the  Securities  held  by the  relevant  Holder  in  relation  to the  aggregate
liquidation  amount of all  Securities  outstanding  unless,  in  relation  to a
payment,  an Event of Default has occurred and is continuing,  in which case any
funds  available to make such payment  shall be paid first to each Holder of the
Preferred  Securities pro rata according to the aggregate  liquidation amount of
Preferred  Securities  held by the  relevant  Holder  relative to the  aggregate
liquidation  amount of all  Preferred  Securities  outstanding,  and only  after
satisfaction of all amounts owed to the Holders of the Preferred Securities,  to
each Holder of Common Securities pro rata according to the aggregate liquidation
amount  of  Common  Securities  held  by the  relevant  Holder  relative  to the
aggregate liquidation amount of all Common Securities outstanding.

7. RANKING.  The Common  Securities  rank pari passu and payment thereon will be
made Pro Rata  with  the  Preferred  Securities,  except  that  when an Event of
Default occurs and is continuing,  the rights of Holders of Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise are subordinate to the rights of Holders of the Preferred Securities.

8. TRANSFER, EXCHANGE, METHOD OF PAYMENTS. Payment of Distributions and payments
on  redemption  of the Common  Securities  will be payable,  the transfer of the
Common   Securities  will  be  registrable,   and  Common   Securities  will  be
exchangeable  for Common  Securities of other  denominations of a like aggregate
liquidation  amount,  at the  principal  corporate  trust office of the Property
Trustee in The City of New York;  provided that payment of Distributions  may be
made at the  option  of the  Regular  Trustees  on  behalf of the Trust by check
mailed to the  address of the persons  entitled  thereto and that the payment on
redemption  of any  Common  Security  will be made only upon  surrender  of such
Common  Security  to  the  Property  Trustee.   Notwithstanding  the  foregoing,
transfers of Common  Securities  are subject to conditions  set forth in Section
9.01(c) of the Declaration.

9. ACCEPTANCE OF INDENTURE.  Each Holder of Common Securities, by the acceptance
thereof, agrees to the provisions of Indenture and the Debentures, including the
subordination provisions of the Indenture.

10. NO  PREEMPTIVE  RIGHTS.  The  Holders  of Common  Securities  shall  have no
preemptive or similar rights to subscribe to any additional Common Securities or
Preferred Securities.

11. MISCELLANEOUS.  These terms shall constitute a part of the Declaration.  The
Trust will provide a copy of the  Declaration  and the  Indenture to a Holder of
Common  Securities  without  charge  on  written  request  to the  Trust  at its
principal place of business.



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                                     Annex I

                       FORM OF COMMON SECURITY CERTIFICATE
                          TRANSFER OF THIS CERTIFICATE
                          IS SUBJECT TO THE CONDITIONS
                          SET FORTH IN THE DECLARATION
                                REFERRED TO BELOW

Certificate Number                 Number of Common Securities

                    Certificate Evidencing Common Securities

                                       of

                           Litchfield Capital Trust I

                     ____% Series A Trust Common Securities
                  (liquidation amount $10 per Common Security)

Litchfield Capital Trust I, a statutory business trust created under the laws of
the State of Delaware (the "Trust"),  hereby certifies that  ______________ (the
"Holder") is the registered  owner of  ____________________________  (_________)
common  securities  of  the  Trust  representing  common  undivided   beneficial
interests in the assets of the Trust and  designated  the "____%  Series A Trust
Common  Securities"  (liquidation  amount $10 per Common  Security) (the "Common
Securities"). The Common Securities are transferable on the books and records of
the Trust,  in person or by a duly authorized  attorney,  upon surrender of this
Certificate  duly endorsed and in proper form for transfer and  satisfaction  of
the other conditions set forth in the Declaration (as defined below)  including,
without  limitation,   Section  9.01(c)  thereof.   The  designations,   rights,
privileges,  restrictions,  preferences  and other terms and  provisions  of the
Common  Securities  are set  forth  in,  and  this  Certificate  and the  Common
Securities represented hereby are issued and shall in all respects be subject to
the terms and  provisions  of, the Amended and Restated  Declaration of Trust of
the Trust dated as of __________,  ____, as the same may be amended from time to
time  (the  "Declaration")  including  the  designation  of the  terms of Common
Securities  as set forth in Exhibit C thereto.  The  Common  Securities  and the
Preferred  Securities issued by the Trust pursuant to the Declaration  represent
undivided  beneficial  interests  in the  assets  of the  Trust,  including  the
Debentures  (as  defined  in the  Declaration)  issued by  Litchfield  Financial
Corporation, a Massachusetts corporation ("Litchfield Financial"),  to the Trust
pursuant to the Indenture referred to in the Declaration. The Trust will furnish
a copy of the  Declaration  and the Indenture to the Holder  without charge upon
written  request to the Trust at its  principal  place of business or registered
office.

The Holder of this Certificate, by accepting this Certificate, is deemed to have
agreed to the terms of the  Indenture  and the  Debentures,  including  that the
Debentures are subordinate and junior in right

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of payment to all Senior Debt (as defined in the Supplemental  Indenture) as and
to the extent provided in the Indenture.

Upon receipt of this Certificate,  the Holder is bound by the Declaration and is
entitled to the benefits thereunder.

IN WITNESS WHEREOF, the Trustees of the Trust have executed this Certificate
this ___ day of -------------, ----.

                           LITCHFIELD CAPITAL TRUST I

                           --------------------------------
                           John J. Malloy, as Regular Trustee

                           --------------------------------
                           Heather A. Sica, as Regular Trustee

                           --------------------------------
                           Ronald E. Rabidou, as Regular Trustee

                          [FORM OF REVERSE OF SECURITY]

Distributions  payable on each Common Security will be fixed at a rate per annum
of ___ % (the "Coupon Rate") of the stated  liquidation amount of $10 per Common
Security,  such rate being the rate of interest  payable on the Debentures to be
held by the Property Trustee. Distributions in arrears for more than one quarter
will accumulate  additional  distributions  thereon at the Coupon Rate per annum
(to the extent  permitted by  applicable  law)  compounded  quarterly.  The term
"Distributions"  as used herein means such periodic cash  distributions  and any
such additional distributions payable unless otherwise stated. A Distribution is
payable only to the extent that  payments are made in respect of the  Debentures
held by the  Property  Trustee  and to the  extent  the  Trust has funds on hand
legally available therefor.  The amount of Distributions  payable for any period
will be computed for any full  quarterly  Distribution  period on the basis of a
360-day year of twelve  30-day  months,  and for any period  shorter than a full
quarterly   Distribution   period   for  which   Distributions   are   computed,
Distributions will be computed on the basis of the actual number of days elapsed
per 90-day quarter.

Distributions on the Common Securities will accumulate from _________,  ____ and
will  be  payable  quarterly  in  arrears,   on   _____________,   ____________,
_____________ and _____________ of each year, commencing on ________,  ____, but
only if and to the  extent  that  interest  payments  are made in respect of the
Debentures held by the Property Trustee.  So long as Litchfield  Financial shall
not be in  default in the  payment of  interest  on the  Debentures,  Litchfield
Financial has the right under the Indenture for the Debentures to defer payments
of interest on the  Debentures by extending the interest  payment  period at any
time and from time to time on the Debentures for a period not

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exceeding  20  consecutive   quarterly  interest  periods  (each  an  "Extension
Period"),  during which Extension Period no interest shall be due and payable on
the Debentures.  As a consequence of such deferral,  Distributions shall also be
deferred. Despite such deferral,  Distributions will continue to accumulate with
additional  distributions thereon (to the extent permitted by applicable law but
not at a rate  greater than the rate at which  interest is then  accruing on the
Debentures) at the Coupon Rate  compounded  quarterly  during any such Extension
Period;  provided  that no  Extension  Period  shall  extend  beyond  the stated
maturity  of the  Debentures.  Prior to the  termination  of any such  Extension
Period,  Litchfield Financial may further extend such Extension Period; provided
that  such  Extension  Period  together  with  all  such  previous  and  further
extensions  thereof may not exceed 20 consecutive  quarterly  interest  periods.
Upon the termination of any Extension Period and the payment of all amounts then
due,  Litchfield  Financial may commence a new Extension Period,  subject to the
above  requirements.  Payments of accumulated  Distributions  will be payable to
Holders  of Common  Securities  as they  appear on the books and  records of the
Trust on the first record date after the end of the Extension Period.

The Common Securities shall be redeemable as provided in the Declaration.



                                       78




                                   ASSIGNMENT

FOR VALUE RECEIVED,  the undersigned  assigns and transfers this Common Security
Certificate to:

(Insert assignee's social security or tax identification number)

(Insert address and zip code of assignee)

and irrevocably appoints

_____________________________________________________  agent  to  transfer  this
Common Security  Certificate on the books of the Trust. The agent may substitute
another to act for him or her.

Date: ________________________

       Signature: _________________________________

          (Sign exactly as your name appears on the other side of this
                          Common Security Certificate)

HWD2:  517541-1


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