<PAGE> 1
Filed Pursuant to Rule 424 (b)(5)
File No. 333-76285, 333-76285-01,
333-76285-02
PROSPECTUS SUPPLEMENT
(To prospectus dated May 13, 1999)
2,500,000 PREFERRED SECURITIES
LITCHFIELD CAPITAL TRUST I
10% SERIES A TRUST PREFERRED SECURITIES
GUARANTEED BY
[LITCHFIELD FINANCIAL CORPORATION LOGO]
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THE TRUST: Litchfield Capital Trust I is a subsidiary of Litchfield
Financial Corporation, and a statutory business trust created under Delaware
law.
THE OFFERING: In connection with this offering, the trust will:
- sell preferred securities to the public and common securities to
Litchfield;
- use the proceeds from these sales to buy an equivalent principal amount
of 10% Series A Junior Subordinated Debentures due 2029 issued by
Litchfield; and
- distribute the cash payments it receives on the junior subordinated
debentures to the holders of the preferred and common securities.
The preferred securities represent undivided preferred beneficial interests
in the assets of the trust.
If you purchase preferred securities, you will be entitled to receive
cumulative cash distributions at an annual rate of 10% of the $10 liquidation
amount of each preferred security. Distributions will begin to accumulate on May
14, 1999 and will be payable quarterly, in arrears, on June 30, September 30,
December 31 and March 31, of each year, beginning June 30, 1999.
Litchfield can, on one or more occasions, defer interest payments on the
junior subordinated debentures for up to 20 consecutive quarterly periods. If
Litchfield defers interest payments, the trust will also defer payment of
distributions on the preferred and common securities. During a deferral period,
distributions will continue to accumulate on the preferred and common
securities. Also, additional cash distributions will accumulate on any deferred
distributions at an annual rate of 10%, to the extent permitted by law.
Litchfield will fully and unconditionally guarantee the trust's payment
obligations with respect to the preferred securities only to the extent
described in this prospectus supplement and the accompanying prospectus.
The trust has applied to have the preferred securities listed on the Nasdaq
National Market under the symbol "LTCHP". If approved for listing, we expect
trading to commence within 30 days after the preferred securities are first
issued.
The preferred securities will be ready for delivery in book-entry form only
through The Depository Trust Company on or about May 19, 1999.
Litchfield has granted the underwriters a 30-day option to purchase up to
375,000 additional preferred securities to cover over-allotments, if any.
INVESTING IN THE PREFERRED SECURITIES INVOLVES CERTAIN RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT. YOU SHOULD READ THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY BEFORE YOU INVEST IN THE PREFERRED SECURITIES.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER TRUST PREFERRED SECURITY TOTAL
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<S> <C> <C>
Public Offering Price..................................... $ 10.00 $ 25,000,000
Underwriting Commissions.................................. $ .40 $ 1,000,000
Proceeds to the trust..................................... $ 9.60 $ 24,000,000
</TABLE>
The trust will use all proceeds to purchase the junior subordinated
debentures. Litchfield will pay all underwriting discounts and commissions.
TUCKER ANTHONY CLEARY GULL FERRIS, BAKER WATTS
Incorporated
The date of this prospectus is May 13, 1999
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ABOUT THIS PROSPECTUS SUPPLEMENT
You should rely only on the information contained or incorporated by
reference in this prospectus supplement or the accompanying prospectus. We have
not, and the underwriters have not, authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information contained
in this prospectus supplement or the accompanying prospectus as well as the
information we previously filed with the SEC and incorporated by reference
herein, is accurate only as of its respective date. Our business, financial
condition, results of operations and prospects may have changed since that date.
Unless otherwise noted, capitalized terms used in this prospectus supplement
have the same meanings as used in the accompanying prospectus.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
About This Prospectus Supplement............................ S-2
Summary Information Regarding This Offering................. S-3
Risk Factors................................................ S-9
Use of Proceeds............................................. S-15
Accounting Treatment........................................ S-15
Litchfield Financial Corporation............................ S-16
Capitalization.............................................. S-26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-27
Litchfield Capital Trust I.................................. S-34
Description of the Preferred Securities..................... S-34
Description of the Preferred Securities Guarantee........... S-48
Description of the Junior Subordinated Debentures........... S-48
Relationship Between the Preferred Securities, the Junior
Subordinated Debentures and the Preferred Securities
Guarantee................................................. S-54
Certain Federal Income Tax Consequences..................... S-55
Underwriting................................................ S-60
PROSPECTUS
About This Prospectus....................................... 2
Where You Can Find More Information......................... 2
Disclosure Regarding Forward-looking Statements............. 4
Litchfield Financial Corporation............................ 5
Use of Proceeds............................................. 5
The Trusts.................................................. 6
Description of the Preferred Securities..................... 10
Descriptions of the Preferred Securities Guarantees......... 11
Description of the Junior Subordinated Debt Securities...... 15
Plan of Distribution........................................ 22
Legal Matters............................................... 23
Experts..................................................... 23
</TABLE>
S-2
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SUMMARY INFORMATION REGARDING THIS OFFERING
The following information supplements, and should be read together with,
the information contained in other parts of this prospectus supplement and in
the accompanying prospectus. This summary highlights selected information
included elsewhere in this prospectus supplement and the accompanying prospectus
to help you understand the terms of the preferred securities. You should
carefully read this prospectus supplement and the accompanying prospectus,
including "Risk Factors" and the financial statements and notes to those
statements included or incorporated by reference, to fully understand the terms
of the preferred securities, as well as the tax and other considerations that
are important to you in making a decision about whether to invest in the
preferred securities.
THE TRUST
Litchfield Capital Trust I is a subsidiary of Litchfield and a statutory
business trust recently created under Delaware law. In connection with this
offering, the trust will sell its preferred securities to the public and its
common securities to Litchfield. The trust will use the proceeds from these
sales to buy an equivalent principal amount of 10% Series A Junior Subordinated
Debentures due June 30, 2029 issued by Litchfield. The preferred securities and
the junior subordinated debentures will have essentially the same terms.
LITCHFIELD FINANCIAL CORPORATION
Litchfield is a diversified finance company that provides financing to
creditworthy borrowers for assets not typically financed by banks. Litchfield
provides this financing by making loans to businesses secured by consumer
receivables or other assets and by purchasing consumer loans.
Litchfield provides financing to rural land dealers, timeshare resort
developers and other finance companies secured by receivables. Litchfield also
purchases consumer loans consisting primarily of loans to purchasers of rural
and vacation properties and vacation ownership interests popularly known as
timeshare interests, and provides loans to dealers and developers for the
acquisition and development of rural land and timeshare resorts. In addition,
Litchfield purchases other loans, such as consumer home equity loans, mortgages
and construction loans and tax lien certificates, and provides financing to
other businesses secured by receivables or other assets.
The principal sources of Litchfield's revenues are:
- interest and fees on loans,
- gains on sales of loans and
- servicing and other income.
Gains on sales of loans are based on the difference between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of Litchfield's revenues is comprised
of gains realized upon sales of loans, the timing of these sales has a
significant effect on Litchfield's results of operations.
TERMS OF THE PREFERRED SECURITIES
Distributions
If you purchase preferred securities, you will be entitled to receive
cumulative cash distributions at an annual rate of 10% of the $10 liquidation
amount of each preferred security. Distributions will begin to accumulate on May
14, 1999 and will be payable quarterly, in arrears, on June 30, September 30,
December 31 and March 31 of each year beginning June 30, 1999.
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S-3
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Deferral of Distribution
Litchfield can defer interest payments on the junior subordinated
debentures for up to 20 consecutive quarterly periods unless an event of default
under the junior subordinated debentures has occurred and is continuing.
Litchfield cannot, however, defer interest payments beyond the maturity date of
the junior subordinated debentures, which is June 30, 2029. Additional interest
will accrue on any deferred interest payments at an annual rate of 10%, to the
extent permitted by law.
If Litchfield defers interest payments on the junior subordinated
debentures, the trust will also defer payment of distributions on the common and
preferred securities. During a deferral period, distributions will continue to
accumulate on the common and preferred securities at an annual rate of 10% of
the liquidation amount of $10 per common or preferred security. Also, additional
cash distributions will accumulate on any deferred distributions at an annual
rate of 10%, to the extent permitted by law.
Once Litchfield makes all interest payments due on the junior subordinated
debentures, including any additional interest, it can elect to defer interest
payments on the junior subordinated debentures again if no event of default
under the junior subordinated debentures has occurred and is continuing. This
deferral period, together with all previous and further extensions, may not
exceed 20 consecutive quarters.
During any period in which Litchfield defers interest payments on the
junior subordinated debentures, Litchfield will not be permitted, subject to
exceptions described on page S-50, to:
- pay a dividend or make any other payment or distribution on its capital
stock,
- redeem, purchase or acquire any of its capital stock,
- make an interest, principal or premium payment, or repurchase or redeem,
any of its debt securities that rank equal with or junior to the junior
subordinated debentures, or
- make any guarantee payments with respect to any guarantee of the debt
securities of any subsidiary that ranks equal with or junior to the
junior subordinated debentures.
Should Litchfield exercise its rights to defer payments of interest on the
junior subordinated debentures, you will be required to include accumulated
distributions in your gross income for United States federal income tax purposes
before you actually receive the related cash distributions.
Redemption
The trust will redeem all of the outstanding preferred securities when the
junior subordinated debentures are paid at maturity on June 30, 2029 or
otherwise become due. In addition, if Litchfield redeems any junior subordinated
debentures before their maturity, the trust will use the cash it receives on the
redemption of the junior subordinated debentures to redeem, on a pro rata basis,
preferred securities and common securities having an aggregate liquidation
amount equal to the aggregate principal amount of the junior subordinated
debentures redeemed.
Litchfield will have the right to redeem some or all of the junior
subordinated debentures before their maturity at 100% of their principal amount
plus accrued and unpaid interest to, but excluding, the date of redemption, on
one or more occasions any time on or after June 30, 2004.
Litchfield will also have the right to redeem the junior subordinated
debentures, in whole but not in part, at any time at 100% of their principal
amount, plus accrued and unpaid interest to, but excluding, the date of
redemption, if:
- certain changes in tax or investment company law occur, each of which is
a "special event" and is more fully described on page S-37, and
- the junior subordinated debentures are redeemed within 90 days of the
occurrence of the special event.
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S-4
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Preferred Securities Guarantee
Litchfield will fully and unconditionally guarantee the trust's payment
obligations with respect to the preferred securities to the extent described in
this prospectus supplement and the accompanying prospectus. Under the preferred
securities guarantee, Litchfield will guarantee the trust's payment obligations
only to the extent the trust has sufficient funds to make payments on the
preferred securities. If Litchfield does not make payments on the junior
subordinated debentures, the trust will not have sufficient funds to make
payments on the preferred securities. Litchfield's obligations under the
preferred securities guarantee are junior to its obligations to make payments on
all of its other liabilities, except as discussed elsewhere in this prospectus
supplement.
Conditional Right to Shorten Maturity
Litchfield may shorten the stated maturity of the junior subordinated
debentures to as early as September 30, 2018, if certain tax events relating to
non-deductibility of interest payments on the junior subordinated debentures
occur (as more fully described on page S-53). If Litchfield exercises this
option, the trust will redeem all of the outstanding preferred securities when
the junior subordinated debentures are paid on their new maturity date.
Distribution of Junior Subordinated Debentures
Litchfield has the right to dissolve the trust at any time. If Litchfield
decides to exercise its right to dissolve the trust, the trust will redeem the
preferred securities by distributing the junior subordinated debentures to you
and to Litchfield, as holder of the common securities, on a pro rata basis. If
the trust distributes the junior subordinated debentures, Litchfield will use
its best efforts to have the junior subordinated debentures listed on the Nasdaq
National Market or on such other exchange or automated quotation system as the
preferred securities are then listed.
Liquidation Amount
In the event the trust is liquidated and the junior subordinated debentures
are not distributed to you, you will generally be entitled to receive $10 per
preferred security plus an amount equal to any accumulated and unpaid
distributions on each preferred security to the date of payment.
Form of Preferred Securities
The preferred securities will be represented by one or more global
securities that will be deposited with and registered in the name of Cede & Co.,
as nominee for The Depository Trust Company. This means that you will not
receive a certificate for your preferred securities. Your beneficial interest in
the preferred securities will be evidenced by, and transfers thereof will be
effected only through, records maintained by the participants in The Depository
Trust Company. The preferred securities will be ready for delivery through The
Depository Trust Company on or about May 19, 1999.
Listing on the Nasdaq National Market
The trust has applied to have the preferred securities listed on the Nasdaq
National Market under the symbol "LTCHP." If approved for listing, we expect
trading to commence within 30 days after the preferred securities are first
issued. You should be aware that the listing of the preferred securities will
not necessarily ensure that a liquid trading market will develop or remain for
the preferred securities.
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S-5
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Certain amounts in the 1994 through 1996 financial information have been
restated to conform to the 1997 and 1998 presentation.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Interest and fees on loans......... $ 5,669 $ 11,392 $ 14,789 $ 19,374 $ 25,736
Gain on sale of loans.............. 4,847 5,161 7,331 8,564 10,691
Servicing and other income......... 459 908 1,576 1,753 2,379
---------- ---------- ---------- ---------- ----------
Total revenues.................. 10,975 17,461 23,696 29,691 38,806
---------- ---------- ---------- ---------- ----------
Expenses:
Interest expense................... 3,158 6,138 7,197 10,675 14,265
Salaries and employee benefits..... 1,776 2,798 2,824 3,399 4,806
Other operating expenses........... 1,164 2,120 3,147 3,480 3,834
Provision for loan losses.......... 559 890 1,954 1,400 1,532
---------- ---------- ---------- ---------- ----------
Total expenses.................. 6,657 11,946 15,122 18,954 24,437
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary item................. 4,318 5,515 8,574 10,737 14,369
Provision for income taxes........... 1,619 2,066 3,301 4,134 5,537
---------- ---------- ---------- ---------- ----------
Income before extraordinary item..... 2,699 3,449 5,273 6,603 8,832
Extraordinary item................... (126) -- -- (220) (77)
---------- ---------- ---------- ---------- ----------
Net income......................... $ 2,573 $ 3,449 $ 5,273 $ 6,383 $ 8,755
========== ========== ========== ========== ==========
Basic per common share amounts:
Income before extraordinary item... $ .66 $ .80 $ .97 $ 1.19 $ 1.41
Extraordinary item................. (.03) -- -- (.04) (.01)
---------- ---------- ---------- ---------- ----------
Net income per share............... $ .63 $ .80 $ .97 $ 1.15 $ 1.40
========== ========== ========== ========== ==========
Basic weighted average number of
shares outstanding................. 4,116,684 4,315,469 5,441,636 5,572,465 6,273,638
Diluted per common share amounts:
Income before extraordinary item... $ .63 $ .76 $ .93 $ 1.12 $ 1.34
Extraordinary item................. (.03) -- -- (.04) (.01)
---------- ---------- ---------- ---------- ----------
Net income per share............... $ .60 $ .76 $ .93 $ 1.08 $ 1.33
========== ========== ========== ========== ==========
Diluted weighted average number of
shares outstanding................. 4,282,884 4,524,607 5,682,152 5,909,432 6,604,367
Cash dividends declared per common
share.............................. $ .03 $ .04 $ .05 $ .06 $ .07
OTHER STATEMENT OF INCOME DATA:
Income before extraordinary item as a
percentage of revenues............. 24.6% 19.8% 22.3% 22.3% 22.8%
Ratio of EBITDA to interest
expense............................ 3.31 2.44 2.90 2.17 2.13
Ratio of earnings to fixed charges... 2.37 1.90 2.19 2.01 2.01
Return on average assets (before
extraordinary item)................ 4.6% 3.7% 4.0% 3.8% 3.7%
Return on average equity (before
extraordinary item)................ 17.2% 16.6% 13.3% 14.1% 13.2%
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
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1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................. $ 63,487 $112,459 $152,689 $186,790 $293,882
Loans held for sale (net of allowance)... 11,094 14,380 12,260 16,366 19,750
Other loans (net of allowance)........... 15,790 33,613 79,996 86,307 191,292
Retained interests in loan sales (net of
recourse obligation)................... 11,996 22,594 28,912 30,299 28,883
Secured debt............................. 5,823 9,836 43,727 5,387 50,521
Unsecured debt........................... 29,896 47,401 46,995 105,347 134,588
Stockholders' equity..................... 16,610 37,396 42,448 52,071 82,094
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Loans purchased and originated........... $ 59,798 $121,046 $133,750 $184,660 $375,292
Loans sold............................... 40,116 65,115 54,936 98,747 144,762
Loans participated....................... -- -- -- 6,936 3,569
Serviced Portfolio....................... 105,013 176,650 242,445 304,102 466,912
Loans serviced for others................ 72,731 111,117 129,619 179,790 238,132
Dealer/developer reserves................ 6,575 9,644 10,628 10,655 9,979
Allowance for loan losses (includes
estimated recourse obligation for loans
sold).................................. 1,264 3,715 4,528 5,877 6,707
Allowance ratio.......................... 1.20% 2.10% 1.87% 1.93% 1.44%
Delinquency ratio........................ .93% 1.73% 1.34% 1.20% 0.95%
Net charge-off ratio..................... .38% .67% .94% .74% .58%
Non-performing asset ratio............... 1.02% 1.35% 1.57% 1.03% 0.84%
</TABLE>
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The information shown above is explained further by the following:
- The ratio of EBITDA to interest expense is required to be calculated for
the twelve month period immediately preceding each calculation date,
pursuant to the terms of the indentures to which Litchfield is subject.
For the years ended December 31, 1994, 1995 and 1996, EBITDA is defined
as earnings before deduction of taxes, depreciation, interest expense,
amortization of debt costs and amortization of retained interests in loan
sales, but after deduction for any extraordinary item. For the years
ended December 31, 1997 and 1998 EBITDA is defined as earnings before
deduction of taxes, depreciation, interest expense and amortization of
debt costs, but after deduction for any extraordinary item.
- For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before income taxes and extraordinary items
and fixed charges. Fixed charges consist of interest charges and the
amortization of debt expense.
- The Serviced Portfolio consists of the principal amount of loans serviced
by or on behalf of Litchfield, except loans participated without recourse
to Litchfield.
- The allowance ratio is the amount of allowances for loan losses divided
by the amount of the Serviced Portfolio.
- The delinquency ratio is the amount of delinquent loans divided by the
amount of the Serviced Portfolio. Delinquent loans are those which are 31
days or more past due which are not covered by dealer/developer reserves
or guarantees and not included in other real estate owned.
- The net charge-off ratio is determined by dividing the amount of net
charge-offs for the period by amount of the average Serviced Portfolio
for the period.
- The non-performing asset ratio is determined by dividing the sum of the
amount of those loans which are 91 days or more past due and other real
estate owned by the amount of the Serviced Portfolio.
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RECENT DEVELOPMENTS:
Litchfield's net income for the first quarter of 1999 was $2,278,000 or
$.32 per share on a diluted basis compared with net income of $1,550,000 or $.26
per share on a diluted basis for the first quarter of 1998. These results
represent a 47% increase in net income and a 23% increase in diluted net income
per share. Litchfield's revenues for the first quarter of 1999 increased 39% to
$11,075,000 from $7,953,000 for the first quarter of 1998.
Litchfield's first quarter 1999 originations were $98.0 million,
representing a 45% increase from $67.5 million in the first quarter of 1998.
During the first quarter of 1999, Litchfield's land, timeshare and financial
services businesses originated $20.1 million, $47.8 million and $30.1 million,
respectively, compared to $22.1 million, $22.2 million and $23.2 million,
respectively, for the first quarter of 1998.
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S-8
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RISK FACTORS
Your investment in the preferred securities will involve some risks. You
should carefully consider the following discussion of risks and the other
information included or incorporated by reference in this prospectus supplement
and the accompanying prospectus before deciding whether an investment in the
preferred securities is appropriate for you.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
LITCHFIELD'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES ARE
SUBORDINATED TO ITS OTHER OBLIGATIONS.
Litchfield's obligations under the junior subordinated debentures are
unsecured and will rank junior in priority of payment to its senior debt, as
more fully described on pages 17, 18 and 19 of the accompanying prospectus. This
means that Litchfield cannot make any payments of principal, including
redemption payments, or interest on the junior subordinated debentures if it
defaults on a payment on its senior debt. In the event of the bankruptcy,
liquidation or dissolution of Litchfield, its assets would be available to pay
obligations under the junior subordinated debentures only after all payments had
been made on its senior debt. As of December 31, 1998, Litchfield had
approximately $185,109,000 of senior debt. Also, the junior subordinated
debentures will be effectively subordinated to all indebtedness and other
obligations, including trade payables, of Litchfield. As of December 31, 1998,
the indebtedness and other obligations of Litchfield totaled approximately
$211,788,000.
The preferred securities, the preferred securities guarantee and the junior
subordinated debentures do not limit the ability of Litchfield and its
subsidiaries to incur additional indebtedness, including indebtedness that ranks
senior in priority of payment to the junior subordinated debentures and the
preferred securities guarantee.
THE PREFERRED SECURITIES GUARANTEE ONLY GUARANTEES PAYMENTS IF THE TRUST HAS
CASH AVAILABLE.
The ability of the trust to pay distributions on the preferred securities,
to pay the redemption price of the preferred securities and to pay the
liquidation amount of each preferred security depends upon Litchfield making the
related payments on the junior subordinated debentures when due.
If Litchfield defaults on its obligations to pay principal or interest on
the junior subordinated debentures, the trust will not have sufficient funds to
pay distributions, the redemption price or the liquidation amount of each
preferred security. In those circumstances, you will not be able to rely upon
the preferred securities guarantee for payment of these amounts. Instead, you
may:
- directly sue Litchfield or seek other remedies to collect your pro rata
share of payments owed; or
- rely on the Property Trustee to enforce the trust's rights under the
junior subordinated debentures.
LITCHFIELD'S ABILITY TO DEFER INTEREST PAYMENTS ON THE JUNIOR SUBORDINATED
DEBENTURES HAS TAX CONSEQUENCES FOR YOU AND MAY AFFECT THE MARKET PRICE OF THE
PREFERRED SECURITIES.
Litchfield can, on one or more occasions, defer interest payments on the
junior subordinated debentures for up to 20 consecutive quarterly periods unless
an event of default under the junior subordinated debentures has occurred and is
continuing. Litchfield, however, cannot defer interest payments beyond the
maturity date of the junior subordinated debentures, which is June 30, 2029. If
Litchfield defers interest payments on the junior subordinated debentures, the
trust will also defer payment of distributions on the preferred and common
securities. During a deferral period, distributions will continue to accumulate
on the preferred and common securities. Also, additional distributions will
accumulate on any deferred distributions at an annual rate of 10%, to the extent
permitted by law.
If Litchfield exercises its right to defer payments of interest on the
junior subordinated debentures, you will be required to accrue interest income,
as original issue discount, the deferred stated interest allocable to your share
of preferred securities for United States federal income tax purposes. As a
result,
S-9
<PAGE> 10
you will include this income in gross income for United States federal income
tax purposes before you receive any cash distributions. In addition, you will
not receive cash from the trust related to this income if you dispose of your
preferred securities prior to the record date on which distributions of these
amounts are made. You should also consult with your own tax advisor about the
tax consequences of an investment in the preferred securities.
Litchfield does not currently intend to defer interest payments on the
junior subordinated debentures. However, if Litchfield exercises its right to
defer interest payments in the future, the market price of the preferred
securities may not fully reflect the value of accrued but unpaid interest on the
junior subordinated debentures. If you sell preferred securities during an
interest deferral period, you may not receive the same return on investment as
someone who continues to hold preferred securities. In addition, the existence
of Litchfield's right to defer interest payments on the junior subordinated
debentures could make the market price for the preferred securities more
volatile than other securities that are not subject to these rights.
THE TRUST MAY REDEEM THE PREFERRED SECURITIES IF CERTAIN TAX CHANGES OCCUR OR IF
THE TRUST IS REQUIRED TO REGISTER AS AN "INVESTMENT COMPANY."
If a special event, as more fully described on page S-37, occurs and is
continuing, Litchfield has the right to redeem all of the junior subordinated
debentures at a redemption price equal to 100% of the principal amount plus
accrued and unpaid interest to, but excluding, the redemption date. If
Litchfield redeems the junior subordinated debentures when a special event
occurs, the trust will use the cash it receives from the redemption of the
junior subordinated debentures to redeem the preferred and common securities.
THE PREFERRED SECURITIES MAY BE REDEEMED ON OR AFTER JUNE 30, 2004 AT
LITCHFIELD'S OPTION.
Litchfield may redeem the junior subordinated debentures at its option, in
whole or in part, at any time on or after June 30, 2004. The redemption price
will equal 100% of the principal amount to be redeemed plus any accrued and
unpaid interest to, but excluding, the redemption date. You should assume that
Litchfield will exercise its redemption option if it is able to refinance the
junior subordinated debentures at a lower interest rate or if it is otherwise in
Litchfield's interest to redeem the junior subordinated debentures. If this
redemption occurs, the trust will use the cash it receives from the redemption
of the junior subordinated debentures to redeem an equivalent amount of
preferred and common securities on a pro rata basis.
DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES MAY BE A TAXABLE EVENT.
Litchfield has the right to terminate the trust at any time. If Litchfield
decides to exercise its right to terminate the trust, the trust will redeem the
preferred and common securities by distributing the junior subordinated
debentures to you and Litchfield, as holder of the common securities, on a pro
rata basis.
Under current United States federal income tax laws, a distribution of
junior subordinated debentures on the dissolution of the trust would not be a
taxable event to you. Nevertheless, if the trust is classified for United States
federal income tax purposes as an association taxable as a corporation at the
time it is dissolved, the distribution of the junior subordinated debentures
would be a taxable event to you. If there is a change in law, a distribution of
junior subordinated debentures on the dissolution of the trust could also be a
taxable event to you.
Litchfield does not currently intend to terminate the trust and distribute
the junior subordinated debentures. However, there are no restrictions on its
ability to do so at any time. Litchfield anticipates that it would consider
exercising this right if expenses associated with maintaining the trust were
substantially greater than currently expected, such as if a special event
occurred. Litchfield cannot predict other circumstances under which this right
would be exercised.
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<PAGE> 11
Litchfield cannot predict the market prices for the junior subordinated
debentures that may be distributed. Accordingly, the junior subordinated
debentures that you receive on a distribution, or the preferred securities you
hold pending a distribution, may trade at a discount to the price that you paid
to purchase the preferred securities. If the junior subordinated debentures are
distributed to the holders of preferred securities if the trust is liquidated,
we will use our best efforts to list the junior subordinated debentures on the
Nasdaq National Market or SmallCap Market or the stock exchange on which the
preferred securities are then listed. However, we cannot assure you that the
exchange will approve the junior subordinated debentures for listing or that a
trading market will exist for the junior subordinated debentures.
Because you may receive junior subordinated debentures, you should make an
investment decision with regard to the junior subordinated debentures in
addition to the preferred securities. You should carefully review all the
information regarding the junior subordinated debentures contained in this
prospectus supplement and the accompanying prospectus.
TRADING PRICES OF THE PREFERRED SECURITIES MAY NOT REFLECT THE VALUE OF ACCRUED
BUT UNPAID INTEREST.
The preferred securities constitute a new issue of securities with no
established trading market. The preferred securities may trade at a price that
does not fully reflect the value of accrued but unpaid interest with respect to
the underlying junior subordinated debentures. If you dispose of your preferred
securities between record dates for payments of distributions, you will be
required to include accrued but unpaid interest on the junior subordinated
debentures through the date of disposition in income as ordinary income. You
also must add that amount to your adjusted tax basis in your pro rata share of
the underlying junior subordinated debentures deemed disposed of. Accordingly,
you will recognize a capital loss to the extent the selling price, which may not
fully reflect the value of accrued but unpaid interest, is less than your
adjusted tax basis, which will include accrued but unpaid interest. Subject to
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
AN ACTIVE MARKET FOR THE PREFERRED SECURITIES MAY NOT DEVELOP.
Prior to this offering, there has been no public market for the preferred
securities. The underwriters currently plan to make a market in the preferred
securities. However, Litchfield cannot assure you the underwriters will engage
in these activities or that an active trading market for the preferred
securities will develop or be sustained. If this market develops, the preferred
securities could trade at prices that may be higher or lower than their offering
price depending upon many factors, including prevailing interest rates,
Litchfield's operating results and the markets for similar securities.
YOU WILL HAVE LIMITED VOTING RIGHTS.
As a holder of preferred securities, you will have limited voting rights
relating only to the modification of the preferred securities and, in some
circumstances, the exercise of the trust's rights as holder of the junior
subordinated debentures and the preferred securities guarantee. Only Litchfield
can replace or remove any of the trustees or increase or decrease the number of
trustees.
RISK FACTORS RELATING TO LITCHFIELD
LITCHFIELD'S BUSINESS IS SUBJECT TO VARIOUS BUSINESS RISKS.
The level of Litchfield's revenues depends on demand for the type of loans
originated, purchased, sold and serviced by Litchfield from both potential
borrowers and investors. Future declines in real estate values, changes in
prevailing interest rates and changes in the availability of attractive returns
on alternative investments each could make loans of the type originated,
purchased, sold and serviced by Litchfield less attractive to borrowers and
investors.
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<PAGE> 12
LITCHFIELD HAS A CONTINUOUS NEED TO RAISE CAPITAL TO FINANCE GROWTH.
Litchfield has a constant need for working capital to fund the growth of
its business and, as a result, generally has experienced negative cash flows
from operations. Historically, Litchfield has funded negative cash flows from
operations by borrowing under secured lines of credit and issuing long-term debt
and equity securities. There can be no assurance that Litchfield will continue
to be able to obtain financing or raise capital on terms satisfactory to
Litchfield. Litchfield's ability to raise capital could be harmed by adverse
conditions in the capital and credit markets, as well as by Litchfield's
performance. To the extent Litchfield cannot raise additional funds, it could
materially harm its operations and its ability to repay the junior subordinated
debentures.
A GENERAL ECONOMIC SLOWDOWN COULD ADVERSELY EFFECT LITCHFIELD'S BUSINESS.
The business risks associated with Litchfield's business become more acute
in an economic slowdown. That environment is generally characterized by
decreased demand for rural and vacation real estate and timeshare interests and
declining real estate values in many areas of the country. Delinquencies,
foreclosures and loan losses generally increase during economic slowdowns or
recessions, and any future slowdowns could harm the future operations of
Litchfield.
INCREASES IN INTEREST RATES COULD CAUSE LITCHFIELD'S VARIABLE RATE LIABILITIES
TO EXCEED ITS VARIABLE RATE ASSETS.
Litchfield's interest and fees on loans, gain on sale of loans and interest
expense are affected by changes in interest rates. Litchfield could be harmed by
interest rate increases if its variable rate liabilities exceed its variable
rate assets or if the rates on its variable rate liabilities increase sooner or
to a greater extent than the rates on its variable rate assets.
LITCHFIELD'S LOANS ARE SUBJECT TO DELINQUENCY AND DEFAULT RISK.
General downturns in the economy and other factors beyond Litchfield's
control may increase Litchfield's delinquency and default rates. Litchfield's
acquisition and development loans and, to a lesser extent, its hypothecation
loans have a greater concentration of credit risk due to their larger size and,
in the case of acquisition and development loans, their development and
marketing risk.
Litchfield's timeshare interest business is subject to some risks
associated with timeshare interest ownership. Although individual timeshare
interest owners are obligated to make payments under their notes irrespective of
any defect in, damage to, or change in conditions of the vacation resort, or of
any breach of contract by the property owners association to provide certain
services to the timeshare interest borrowers, or of any other loss of benefits
of ownership of their unit weeks, any of this type of material defect, damage,
change, breach of contract, or loss of benefits is likely to result in a delay
in payment or default by a substantial number of the borrowers whose timeshare
interests are affected. The amounts realized on foreclosure and resale or
liquidation of timeshare interests are generally significantly less than the
amounts realized on other types of defaulted loans.
PREPAYMENTS AND DEFAULTS IN EXCESS OF PROJECTED AMOUNTS COULD REDUCE EARNINGS.
A significant portion of Litchfield's revenues historically has been
comprised of gains on sales of loans. The gains are recorded in Litchfield's
revenues and on its balance sheet as retained interests on loan sales at the
time of sale, and the amount of gains recorded is based in part on management's
estimates of future prepayment and default rates and other considerations in
light of then-current conditions. If actual prepayments occur more quickly than
was projected at the time loans were sold, as can occur when interest rates
decline, interest would be less than expected and earnings would be charged in
the current period. If actual defaults are greater than estimated, charge-offs
would exceed previously estimated amounts and earnings would be charged in the
current period.
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<PAGE> 13
LITCHFIELD IS MAKING LARGER LOANS OF TYPES THAT ENTAIL A GREATER CONCENTRATION
OF CREDIT RISK.
Litchfield has increased the number and average principal amount of its
hypothecation and acquisition and development loans. Acquisition and development
loans are larger commercial loans to land dealers and resort developers and,
consequently, have a greater concentration of credit risk than Litchfield's
purchased loans. Acquisition and development loans for timeshare resorts are
also subject to greater risk because their repayment depends on the successful
completion of the development of the resort and the subsequent successful sale
of a substantial portion of the resort's timeshare interests.
Litchfield has historically made hypothecation loans to land dealers and
resort developers secured by land loans and timeshare loans, respectively.
Hypothecation loans are commercial loans that have significantly larger balances
than Litchfield's purchased loans and, consequently, have a greater
concentration of credit risk which is only partially offset by the lesser
concentration of credit risk of the underlying collateral. As of December 31,
1998, Litchfield's five largest hypothecation loan relationships had aggregate
loan balances ranging from $10.8 million to $21.5 million.
In addition, Litchfield has expanded its marketing of hypothecation loans
to include loans to other finance companies secured by other types of
collateral. These loans may be subject to additional risk because Litchfield has
relatively less experience with these other types of collateral.
LITCHFIELD'S RESULTS MAY FLUCTUATE SIGNIFICANTLY FROM ONE QUARTER TO THE NEXT.
Since gains on sales of loans are a significant portion of Litchfield's
revenues, the timing of loan sales has a significant effect on Litchfield's
quarterly results of operations, and the results of one quarter are not
necessarily indicative of results for the next quarter.
LITCHFIELD HAS COMMITTED TO GUARANTEE OR REPURCHASE SOME OF THE LOANS IT SELLS
TO INVESTORS.
In connection with some of Litchfield's whole loan sales to investors,
Litchfield has committed to repurchase loans that become 90 days past due. These
contingent obligations are subject to various terms and conditions, including
limitations on the amounts of loans which must be repurchased. Litchfield has
also guaranteed payment of mortgage loans included in some of its mortgage
securitization programs. As of December 31, 1998, Litchfield had outstanding
contingent repurchase obligations in the aggregate amount of approximately $12.8
million. In addition, when Litchfield sells mortgage loans through mortgage
securitization programs, Litchfield commits to replace any loans that do not
conform to representations and warranties included in the operative loan sale
documents.
LITCHFIELD'S COMPETITORS MAY HAVE GREATER FINANCIAL RESOURCES THAN LITCHFIELD.
Some of Litchfield's competitors may have greater financial resources than
Litchfield.
CHANGES IN GOVERNMENTAL REGULATIONS MAY RESTRICT LITCHFIELD'S ABILITY TO
ORIGINATE OR SELL LOANS, AND MAY FURTHER LIMIT OR RESTRICT THE AMOUNT OF
INTEREST AND OTHER CHARGES EARNED UNDER LITCHFIELD'S LOANS.
The operations of Litchfield are subject to extensive regulation by
federal, state and local government authorities and are subject to various laws
and judicial and administrative decisions imposing various requirements and
restrictions, including among other things:
- regulating credit granting activities;
- establishing maximum interest rates and finance charges;
- requiring disclosures to customers;
- governing secured transactions and setting collection;
- repossession and claims handling procedures and;
- other trade practices.
S-13
<PAGE> 14
In addition, some states have enacted legislation which restricts the
subdivision of rural land, and numerous states have enacted regulations in
connection with time share interests. More restrictive laws, rules and
regulations or interpretations thereof may be adopted in the future which could:
- make compliance much more difficult or expensive;
- restrict Litchfield's ability to originate or sell loans;
- further limit or restrict the amount of interest and other charges earned
under loans originated or purchased by Litchfield; or
- otherwise adversely affect the business or prospects of Litchfield.
LITCHFIELD MAY INCUR SIGNIFICANT LIABILITY FOR THE REMOVAL OF HAZARDOUS
SUBSTANCES OR WASTE THAT COULD BE DISCOVERED ON PROPERTIES LITCHFIELD ACQUIRES
BY FORECLOSURE.
In the course of its business, Litchfield has acquired, and may in the
future acquire, properties securing defaulted loans. Although substantially all
of Litchfield's land loans are secured by mortgages on rural land, there is a
risk that hazardous substances or waste could be discovered on these properties
after foreclosure by Litchfield. In that event, Litchfield might be required to
remove these substances from the affected properties at its sole cost and
expense. Litchfield cannot assure you that the cost of the removal would not
substantially exceed the value of the affected properties or the loans secured
by the properties, that it would have adequate remedies against the prior owner
or other responsible parties, or that it could sell the affected properties
either before or after any removal.
LITCHFIELD DEPENDS ON ITS SENIOR MANAGEMENT.
Litchfield's success depends upon the continued contributions of its senior
management. The loss of services of some of Litchfield's executive officers
could harm Litchfield's business. Litchfield maintains key man insurance on the
life of one member of its senior management, Chief Executive Officer and
President, Richard A. Stratton.
LITCHFIELD'S SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT.
Litchfield uses and depends on a significant number of computer software
programs and operating systems to conduct its business. Litchfield believes that
substantially all of its operating systems are year 2000 compliant. To the
extent that Litchfield relies on outside software vendors, year 2000 compliance
matters will not be within Litchfield's direct control. In addition, Litchfield
has relationships with vendors, customers and other third parties that rely on
computer software that may not be year 2000 compliant. There can be no assurance
that year 2000 compliance failures by Litchfield and such third parties will not
harm Litchfield's performance.
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<PAGE> 15
USE OF PROCEEDS
The trust will invest all of the proceeds from the sale of the preferred
securities in junior subordinated debentures issued by Litchfield. Litchfield
anticipates that the net proceeds from the sale of the junior subordinated
debentures will be used to support its business activities, as capital to
support senior indebtedness and for other general corporate purposes.
ACCOUNTING TREATMENT
For financial reporting purposes, the trust will be treated as a subsidiary
of Litchfield and, accordingly, the accounts of the trust will be included in
the financial statements of Litchfield. The preferred securities will be
reflected in the consolidated balance sheets of Litchfield as "Litchfield
Obligated Mandatorily Redeemable Preferred Securities of Trust Subsidiaries
Holding Solely Debentures of Litchfield" and appropriate disclosures about the
preferred securities, the preferred securities guarantee and the junior
subordinated debentures will be included in Litchfield's notes to consolidated
financial statements.
S-15
<PAGE> 16
LITCHFIELD FINANCIAL CORPORATION
OVERVIEW
Litchfield purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). Litchfield also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition,
Litchfield purchases other loans, such as consumer home equity loans, mortgages
and construction loans and tax lien certificates, and provides financing to
other businesses secured by receivables or other assets ("Other Loans").
BUSINESS STRATEGY
Litchfield was founded in November 1988. Litchfield's strategy has been to
build its serviced portfolio (the "Serviced Portfolio") consisting of the
principal amount of loans serviced by or on behalf of Litchfield (except loans
participated without recourse to Litchfield) by acquiring loan portfolios from
rural land dealers, resort developers and financial institutions and by
providing loans to such dealers and developers and other businesses secured by
consumer receivables. Litchfield also provides A&D Loans in order to have the
opportunity to finance additional receivables generated by these A&D Loans. As
part of its business and financing strategy, Litchfield seeks niche markets
where its underwriting expertise and ability to provide value-added services
enable it to distinguish itself from its competitors and earn an attractive rate
of return on its invested capital. Initially, Litchfield pursued this strategy
by financing consumer Land Loans through a land dealer network and portfolio
acquisitions. Subsequently, Litchfield extended its strategy to financing
consumer VOI Loans and providing Hypothecation Loans to land dealers and resort
developers. In 1995, Litchfield significantly expanded its financing of VOI
Loans when it acquired approximately $41.5 million of VOI related loans and
assets as part of its purchase of the Government Employees Financial Corporation
("GEFCO") portfolio. In 1997, Litchfield expanded its financing of Hypothecation
Loans to other finance companies ("Financial Services Loans") secured by other
types of collateral. Litchfield expects to continue to expand its Financial
Services lending. These loans may be larger than Litchfield's average
Hypothecation Loans and may provide Litchfield an option to take an equity
position in the borrower. Litchfield's objective is to identify other lending
opportunities or lines of business to diversify its portfolio as it did with VOI
Loans and Hypothecation Loans.
Management believes that the marketing and operating strategies implemented
by Litchfield have enabled it to provide financing to parties whose needs have
been historically underserved in a highly fragmented and inefficient market. In
doing so, Litchfield has increased its earnings per share during each of its
full years of operations.
CHARACTERISTICS OF THE SERVICED PORTFOLIO, LOAN PURCHASES AND ORIGINATIONS
The following table shows the growth in the diversity of the Serviced
Portfolio from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A&D Loans and Other Loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Purchased Loans............................ 85.3% 81.6% 67.1% 56.6% 38.4%
Hypothecation Loans........................ 9.0 12.5 20.7 26.9 35.2
A&D Loans.................................. 3.3 3.1 8.7 13.7 11.2
Other Loans................................ 2.4 2.8 3.5 2.8 15.2
----- ----- ----- ----- -----
Total............................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
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<PAGE> 17
The following table shows the growth in the diversity of Litchfield's
originations from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A&D Loans and Other Loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Purchased Loans............................ 67.6% 71.4% 49.9% 30.3% 14.9%
Hypothecation Loans........................ 22.2 20.9 29.6 37.1 48.6
A&D Loans.................................. 6.0 3.1 14.4 24.0 10.2
Other Loans................................ 4.2 4.6 6.1 8.6 26.3
----- ----- ----- ----- -----
Total............................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
(1) Purchased Loans
Litchfield provides indirect financing to consumers through a large number
of experienced land dealers and resort developers from which it regularly
purchases Land and VOI Loans. The land dealers and resort developers make loans
to consumers generally using Litchfield's standard forms and subject to
Litchfield's underwriting criteria. Litchfield then purchases such loans from
the land dealer or resort developer on an individually approved basis in
accordance with its credit guidelines.
Each land dealer and resort developer from whom Litchfield purchases loans
is interviewed by Litchfield and approved by its credit committee. Management
evaluates each land dealer's and resort developer's experience, financial
statements and credit references and inspects a substantial portion of the land
dealer's and resort developer's inventory of land or VOIs prior to approval of
loan purchases.
In order to enhance the creditworthiness of loans purchased from land
dealers and resort developers, Litchfield typically requires land dealers and
resort developers to guarantee payment of the loans and typically retains a
portion of the amount payable by Litchfield to each land dealer and resort
developer on the purchase of the loan. The retained portion, or reserve, is
released to the land dealer or resort developer as the related loan is repaid.
Prior to purchasing Land or VOI Loans, Litchfield evaluates the credit and
payment history of each borrower in accordance with its underwriting guidelines,
performs borrower interviews on a sample of loans, reviews the documentation
supporting the loans for completeness and obtains an appropriate opinion from
local legal counsel. Litchfield purchases only those loans which meet its credit
standards.
Litchfield also purchases portfolios of seasoned loans primarily from land
dealers and resort developers. The land dealers or resort developers generally
guarantee the loans sold and Litchfield generally withholds a reserve as
described above. Management believes that the portfolio acquisition program is
attractive to land dealers and resort developers because it provides them with
liquidity to purchase additional inventory. Litchfield also purchases portfolios
of seasoned loans from financial institutions and others. Sellers generally do
not guarantee such loans, but estimated loan losses are considered in
establishing the purchase price.
In evaluating such seasoned portfolios, Litchfield conducts its normal
review of the borrower's documentation, payment history and underlying
collateral. However, Litchfield may not always be able to reject individual
loans.
Litchfield's portfolio of Purchased Loans is secured by property located in
39 states.
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<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF LOANS
------------------------------------
DECEMBER 31,
------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Southwest......................................... 19% 16% 26% 30% 32%
South............................................. 37 31 31 31 30
West.............................................. 3 20 20 17 19
Mid-Atlantic...................................... 16 16 10 10 8
Northeast......................................... 25 17 13 12 11
--- --- --- --- ---
Total................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
a. Land Loans
Dealers from whom Litchfield purchases Land Loans are typically
closely-held firms with annual revenues of less than $3.0 million. Dealers
generally purchase large rural tracts (generally 100 or more acres) from farmers
or other owners and subdivide the property into one to twenty acre parcels for
resale to consumers. Generally, the subdivided property is not developed
significantly beyond the provision of graded access roads. In recreational
areas, sales are made primarily to urban consumers who wish to use the property
for a vacation or retirement home or for recreational purposes such as fishing,
hunting or camping. In other rural areas, sales are more commonly made to
persons who will locate a manufactured home on the parcel. During the year ended
December 31, 1998, Litchfield acquired approximately $53.7 million of Land
Loans. The aggregate principal amount of Land Loans purchased from individual
dealers during the year ended December 31, 1998 varied from a low of
approximately $9,000 to a high of approximately $4.7 million. As of December 31,
1998, the five largest dealers accounted for approximately 20.6% of the
principal amount of the Land Loans in the Serviced Portfolio, and no single
dealer accounted for more than 5.4%.
As of December 31, 1998, 34.3% of the Serviced Portfolio consisted of Land
Loans with an average principal balance of approximately $13,100. The following
table sets forth as of December 31, 1998, the distribution of Land Loans in
Litchfield's Serviced Portfolio:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL PRINCIPAL NUMBER OF NUMBER OF
PRINCIPAL BALANCE AMOUNT AMOUNT LOANS LOANS
- ----------------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Less than $10,000................ $ 28,936,000 18.1% 5,581 45.7%
$10,000-$19,999.................. 61,138,000 38.2 4,287 35.1
$20,000 and greater.............. 70,024,000 43.7 2,343 19.2
------------ ----- ------ -----
Total.................. $160,098,000 100.0% 12,211 100.0%
============ ===== ====== =====
</TABLE>
As of December 31, 1998, the weighted average interest rate of the Land
Loans included in Litchfield's Serviced Portfolio was 12.0% and the weighted
average remaining maturity was 12 years. The following table sets forth as of
December 31, 1998 the distribution of interest rates payable on the Land Loans:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL PRINCIPAL
INTEREST RATE AMOUNT AMOUNT
- ------------- ------------ -------------
<S> <C> <C>
Less than 12.0%.......................................... $ 55,332,000 34.6%
12.0% - 13.9%............................................ 81,256,000 50.7
14.0% and greater........................................ 23,510,000 14.7
------------ -----
Total.......................................... $160,098,000 100.0%
============ =====
</TABLE>
As of December 31, 1998, Litchfield's Land Loan borrowers resided in 50
states, the District of Columbia and ten territories or foreign countries.
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<PAGE> 19
b. VOI Loans
Litchfield purchases VOI Loans from various resort developers. Litchfield
generally targets small to medium size resorts with completed amenities and
established property owners associations. These resorts participate in programs
that permit purchasers of VOIs to exchange their timeshare intervals for
timeshare intervals in other resorts around the world. During the year ended
December 31, 1998, Litchfield acquired approximately $2.4 million of VOI Loans.
As of December 31, 1998, the five largest developers accounted for approximately
35.1% of the principal amount of the VOI Loans in the Serviced Portfolio, and no
single developer accounted for more than 9.4%.
As of December 31, 1998, 4.1% of the Serviced Portfolio consisted of VOI
Loans, with an average principal balance of approximately $3,400. The following
table sets forth as of December 31, 1998 the distribution of VOI Loans:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL PRINCIPAL NUMBER OF NUMBER OF
PRINCIPAL BALANCE AMOUNT AMOUNT LOANS LOANS
----------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Less than $4,000.................. $ 7,519,000 39.3% 3,615 64.8%
$4,000 - $5,999................... 6,530,000 34.2 1,316 23.6
$6,000 and greater................ 5,070,000 26.5 649 11.6
----------- ----- ----- ------
Total................... $19,119,000 100.0% 5,580 100.0%
=========== ===== ===== ======
</TABLE>
As of December 31, 1998, the weighted average interest rate of the VOI
Loans included in Litchfield's Serviced Portfolio was 14.6% and the weighted
average remaining maturity was 3.7 years. The following table sets forth as of
December 31, 1998 the distribution of interest rates payable on the VOI Loans:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL PRINCIPAL
INTEREST RATE AMOUNT AMOUNT
- ------------- ----------- -------------
<S> <C> <C>
Less than 14.0%........................................... $ 8,147,000 42.6%
14.0% - 15.9%............................................. 4,482,000 23.4
16.0% and greater......................................... 6,490,000 34.0
----------- -----
Total........................................... $19,119,000 100.0%
=========== =====
</TABLE>
As of December 31, 1998, Litchfield's VOI borrowers resided in 50 states,
the District of Columbia and four territories or foreign countries.
(2) Hypothecation Loans
Litchfield extends Hypothecation Loans to land dealers and resort
developers and other businesses secured by receivables. Litchfield has expanded
its marketing of Hypothecation Loans to include loans to other finance companies
secured by other types of collateral. These loans may be larger than
Litchfield's average Hypothecation Loans and may provide Litchfield with an
option to take an equity position in the borrower. During the year ended
December 31, 1998, Litchfield extended or acquired approximately $182.2 million
of Hypothecation Loans, of which $26.5 million, or 14.5%, were secured by Land
Loans, $84.2 million, or 46.2%, were secured by VOI Loans and $71.5 million, or
39.3%, were secured by other types of collateral such as tax lien certificates,
accounts receivable and mortgages.
Litchfield typically extends Hypothecation Loans based on advance rates of
75% to 90% of the eligible receivables which serve as collateral. Litchfield's
Hypothecation Loans are typically made at variable rates based on the prime rate
of interest plus 2% to 4%. As of December 31, 1998, Litchfield had $164.5
million of Hypothecation Loans outstanding, none of which were 31 days or more
past due. During the three months ended March 31, 1998, Litchfield acquired a
$17.0 million participation interest in a Hypothecation Loan from another
financial institution. As planned, in May of 1998, the Company
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<PAGE> 20
purchased the underlying receivables, which Litchfield reclassified as Other
Loans. The proceeds of the receivables purchased were applied to pay off
Litchfield's participation interest. At December 31, 1998, Hypothecation Loans
ranged in size from less than $500 to $21.5 million with an average principal
balance of $1,678,000. The five largest Hypothecation Loans represented 15.5% of
the Serviced Portfolio.
(3) A&D Loans
Litchfield also makes A&D Loans to dealers and developers for the
acquisition and development of rural and timeshare resorts in order to finance
additional receivables generated by the A&D Loans. During the year ended
December 31, 1998, Litchfield made $38.2 million of A&D Loans to land dealers
and resort developers, of which $13.3 million, or 34.9%, were secured by land
and $24.9 million, or 65.1%, were secured by timeshare resorts under
development.
Litchfield generally makes A&D Loans to land dealers and resort developers
based on loan to value ratios of 60% to 80% at variable rates based on the prime
rate plus 2% to 4%. As of December 31, 1998, Litchfield had $52.3 million of A&D
Loans outstanding, none of which were 31 days or more past due. A&D Loans are
secured by timeshare resort developments and rural land subdivisions in 16
states and one territory. A&D Loans range in size from $1,700 to $9.5 million
with an average principal balance of $780,000. The five largest A&D Loans
represent 4.7% of the Serviced Portfolio.
(4) Other Loans
At December 31, 1998, Other Loans consisted primarily of consumer home
equity loans, mortgage and construction loans, other secured commercial loans
and tax lien certificates. Historically, Litchfield has made or acquired certain
other secured and unsecured loans as it has identified additional lending
opportunities or lines of business for possible future expansion as it did with
VOI Loans and Hypothecation Loans. In May of 1998, Litchfield purchased 232
builder construction loans totaling $32.7 million, a portion of which had
previously been collateral for the Hypothecation Loan in which Litchfield owned
a participation interest. As of December 31, 1998, Litchfield had 176 of the
builder construction loans totaling $33.9 million. In October 1998, Litchfield
began purchasing tax lien certificates and held $21.2 million of such
certificates at December 31, 1998. Litchfield had $71.0 million of Other Loans,
1.94% of which were 91 days or more past due. Other Loans range in size from
less than $500 to $875,000 with an average principal balance of $23,200. The
five largest Other Loans represent 0.8% of the Serviced Portfolio.
LOAN UNDERWRITING
Litchfield has established loan underwriting criteria and procedures
designed to reduce credit losses on its Serviced Portfolio. The loan
underwriting process includes reviewing each borrower's credit history. In
addition, Litchfield's underwriting staff routinely conducts telephone
interviews with a sample of borrowers. The primary focus of Litchfield's
underwriting is to assess the likelihood that the borrower will repay the loan
as agreed by examining the borrower's credit history through credit reporting
bureaus.
Litchfield's loan policy is to purchase Land and VOI Loans from $3,000 to
$50,000. On a case by case basis, Litchfield will also consider purchasing such
loans in excess of $50,000. As of December 31, 1998, Litchfield had 154 Land
Loans exceeding $50,000 representing 2.3% of the number of such loans in the
Serviced Portfolio, for a total of $10.9 million. There were no VOI Loans
exceeding $50,000 as of December 31, 1998. Litchfield will originate
Hypothecation Loans up to $15 million and A&D Loans up to $10 million. From time
to time, Litchfield may have an opportunity to originate larger Hypothecation
Loans or A&D Loans in which case Litchfield would seek to participate such loans
with other financial institutions. As of December 31, 1998, Litchfield's five
largest hypothecation loan relationships had aggregate loan balances ranging
from $10.8 million to $21.5 million and its largest A&D loan relationship had an
aggregate loan balance of $14.4 million. Construction loans greater than
$200,000 and any other loans greater than $100,000 must be approved by the
Credit Committee which is comprised of the Chief Executive Officer, three
Executive Vice Presidents and a Senior Vice President.
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<PAGE> 21
COLLECTIONS AND DELINQUENCIES
Management believes that the relatively low delinquency rate for the
Serviced Portfolio is attributable primarily to the application of its
underwriting criteria, as well as to dealer guarantees and reserves withheld
from dealers and developers. No assurance can be given that these delinquency
rates can be maintained in the future.
Collection efforts are managed and delinquency information is analyzed at
Litchfield's headquarters. Unless circumstances otherwise dictate, collections
are generally made by mail and telephone. Collection efforts begin when an
account is seven days past due, at which time Litchfield sends out a late
notice. When an account is fifteen days past due, Litchfield attempts to contact
the borrower to determine the reason for the delinquency and to attempt to cause
the account to become current. If the status of the account continues to
deteriorate, an analysis of the account is performed by the collection manager
to determine the appropriate action. When the loan is 90 days past due in
accordance with its original terms and it is determined that the amounts cannot
be collected from the dealer or developer guarantees or reserves, the loan is
generally placed on a non-accrual status, and the collection manager determines
the action to be taken. The determination of how to work out a delinquent loan
is based upon many factors, including the borrower's payment history and the
reason for the current inability to make timely payments. When a guaranteed loan
becomes 60 days (90 days in some cases) past due, in addition to Litchfield's
collection procedures, Litchfield generally obtains the assistance of the dealer
or developer in collecting the loan.
Litchfield extends a limited number of its loans for reasons Litchfield
considers acceptable such as temporary loss of employment or serious illness. In
order to qualify for a one to three month extension, the customer must make
three timely payments without any intervention from Litchfield. For extensions
of four to six months, the customer must make four to six timely payments,
respectively, without any intervention from Litchfield. Litchfield will not
extend a loan more than two times for an aggregate of six months over the life
of the loan. Litchfield has extended approximately 0.9% of its loans through
December 31, 1998. Litchfield does not generally modify any other loan terms
such as interest rates or payment amounts.
Regulations and practices regarding the rights of the mortgagor in default
vary greatly from state to state. To the extent permitted by applicable law,
Litchfield collects late charges and return-check fees and records these items
as additional revenue. Only if a delinquency cannot otherwise be cured will
Litchfield decide that foreclosure is the appropriate course of action. If
Litchfield determines that purchasing a property securing a mortgage loan will
minimize the loss associated with such defaulted loan, Litchfield may accept a
deed in lieu of foreclosure, take legal action to collect on the underlying note
or bid at the foreclosure sale for such property.
Serviced Portfolio
The following table shows Litchfield's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees, for the Serviced Portfolio:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Serviced Portfolio... $105,013,000 $176,650,000 $242,445,000 $304,102,000 $466,912,000
Delinquent
loans(1)........... 981,000 3,062,000 3,255,000 3,642,000 4,456,000
Delinquency as a
Percentage of
Serviced
Portfolio.......... .93% 1.73% 1.34% 1.20% 0.95%
</TABLE>
- ---------------
(1) Delinquent loans are those which are 31 days or more past due which are not
covered by dealer/ developer reserves or guarantees and not included in
other real estate owned.
S-21
<PAGE> 22
Land Loans
The following table shows Litchfield's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees, for Land Loans in the Serviced
Portfolio:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Land Loans in Serviced
Portfolio........... $90,502,000 $97,266,000 $119,370,000 $142,828,000 $160,098,000
Delinquent Land
Loans(1)............ 981,000 1,059,000 1,920,000 2,453,000 2,728,000
Delinquency as a
Percentage of Land
Loans in Serviced
Portfolio........... 1.08% 1.09% 1.61% 1.72% 1.70%
</TABLE>
- ---------------
(1) Delinquent loans are those which are 31 days or more past due which are not
covered by dealer/ developer reserves or guarantees and not included in
other real estate owned.
VOI Loans
The following table shows Litchfield's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees, for VOI Loans in the Serviced
Portfolio:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
VOI Loans in Serviced
Portfolio............... $2,851,000 $46,700,000 $43,284,000 $29,232,000 $19,119,000
Delinquent VOI Loans(1)... -- 1,958,000 1,316,000 739,000 350,000
Delinquency as a
Percentage of VOI Loans
in Serviced Portfolio... -- 4.19% 3.04% 2.53% 1.83%
</TABLE>
- ---------------
(1) Delinquent loans are those which are 31 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
Hypothecation, A&D and Other Loans
Litchfield did not have any delinquent Hypothecation Loans or A&D Loans for
the years ended December 31, 1993 through December 31, 1998. Litchfield did not
have significant amounts of delinquent Other Loans for the years ended December
31, 1993 through December 31, 1996. At December 31, 1997, there were $8.5
million of Other Loans of which $450,000 or 5.3% were 31 days or more past due
and not covered by dealer/developer reserves or guarantees and not included in
other real estate owned. At December 31, 1998, there were $71.0 million of Other
Loans of which $1,378,000 or 1.94% were 31 days or more past due and not covered
by dealer/developer reserves or guarantees and not included in other real estate
owned.
S-22
<PAGE> 23
ALLOWANCE FOR LOAN LOSSES AND ESTIMATED RECOURSE OBLIGATIONS, NET CHARGE-OFFS
AND DEALER RESERVES
The following is an analysis of the total allowances for all loan losses:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance, beginning of year..... $ 1,064,000 $ 1,264,000 $ 3,715,000 $ 4,528,000 $5,877,000
Net charge-offs of Uncollectible
accounts....................... (359,000) (946,000) (1,965,000) (2,010,000) (2,239,000)
Provision for loan losses........ 559,000 890,000 1,954,000 1,400,000 1,532,000
Allocation of purchase
Adjustment(1).................. -- 2,507,000 824,000 1,959,000 1,537,000
----------- ----------- ----------- ----------- ----------
Allowance, end of year........... $ 1,264,000 $ 3,715,000 $ 4,528,000 $ 5,877,000 $6,707,000
=========== =========== =========== =========== ==========
</TABLE>
- ---------------
(1) Represents allocation of purchase adjustment related to purchase of certain
non-guaranteed loans.
The following is an analysis of net charge-offs by major loan and
collateral types experienced by Litchfield:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Land Loans............... $ 359,000 $ 546,000 $ 669,000 $ 986,000 $1,358,000
VOI Loans................ -- 45,000 1,284,000 939,000 556,000
Hypothecation Loans...... -- -- -- -- --
A&D Loans................ -- 352,000 (8,000) (2,000) --
Other Loans.............. -- 3,000 20,000 87,000 325,000
---------- ---------- ---------- ---------- ----------
Total net charge-offs.... $ 359,000 $ 946,000 $1,965,000 $2,010,000 $2,239,000
========== ========== ========== ========== ==========
Net charge-offs as a
percentage of the
average Serviced
Portfolio.............. .38% .67% .94% .74% .58%
</TABLE>
As part of Litchfield's financing of Land and VOI Loans, Litchfield enters
into arrangements with most land dealers and resort developers whereby
Litchfield retains a portion of the amount payable to a dealer when purchasing a
Land or a VOI Loan to protect Litchfield from potential losses associated with
such loans and uses the amount retained to absorb loan losses. Litchfield
negotiates the amount of the reserves with the land dealers and resort
developers based upon various criteria, two of which are the financial strength
of the land dealer or resort developer and the credit risk associated with the
loans being purchased. Dealer reserves for Land Loans were $8,219,000,
$8,321,000 and $7,555,000 at December 31, 1998, 1997 and 1996, respectively.
Developer reserves for VOI Loans were $1,760,000, $2,299,000 and $3,072,000 at
December 31, 1998, 1997 and 1996, respectively. Most dealers and developers
provide personal and, when relevant, corporate guarantees to further protect
Litchfield from loss.
LOAN SERVICING AND SALES
Litchfield retains the right to service all loans it purchases or
originates. Servicing includes collecting payments from borrowers, remitting
payments to investors who have purchased the loans, accounting for principal and
interest, contacting delinquent borrowers and supervising foreclosure and
bankruptcies in the event of unremedied defaults. Substantially all servicing
results from the origination and purchase of loans by Litchfield, and Litchfield
has not historically purchased loan servicing rights except in connection with
the purchase of loans. Servicing rates generally approximate .5% to 2% of the
principal balance of a loan.
Historically, Litchfield subcontracted the servicing of its loans to an
unaffiliated third party. In July 1998, Litchfield resumed certain customer
service and collection functions. The unaffiliated third
S-23
<PAGE> 24
party continues to provide certain data processing and payment processing
functions. Litchfield retains responsibility for servicing all loans as a master
servicer.
In 1990, Litchfield began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
mortgage loans which have been transferred to trusts. The principal and a
portion of the interest payments on the loans transferred to the trust are
collected by Litchfield as the servicer of the loans remitted to the trust for
the benefit of the investors, and then distributed by the trust to the investors
in the pass-through certificates.
As of December 31, 1998, Litchfield sold or securitized a total of
approximately $493.0 million of loans at face value. In certain of Litchfield's
issues of pass-through certificates, credit enhancement was achieved by dividing
the issue into a senior portion which was sold to the investors and a
subordinated portion which was retained by Litchfield. In certain other of
Litchfield's private placements, credit enhancement was achieved through cash
collateral.
If borrowers default in the payment of principal or interest on the loans
underlying these issues of pass-through certificates, losses would be absorbed
first by the subordinated portion or cash collateral account retained by
Litchfield and might, therefore, have to be charged against the estimated
recourse obligations to the extent dealer guarantees and reserves are not
available.
Litchfield also has a $150.0 million revolving line of credit and sale
facility for its Land Loans as part of an asset backed commercial paper facility
with a multi-seller commercial paper conduit. The facility expires in June 2001.
As of December 31, 1998, the outstanding balance of the sold or pledged loans
securing this facility was $137.5 million. Litchfield has an additional
revolving line of credit and sale facility for its VOI Loans of $25.0 million
with another multi-seller commercial paper conduit. The facility expires in
March 2000. As of December 31, 1998, the outstanding aggregate balance of the
sold loans under the facility was $10.6 million.
MARKETING AND ADVERTISING
Litchfield markets its program to rural land dealers and resort developers
through brokers, referrals, dealer and developer solicitation, and targeted
direct mail. Litchfield employs three marketing executives based in Lakewood,
Colorado, five marketing executives based in Williamstown, Massachusetts and two
marketing executives based in Hoover, Alabama. In the last five years Litchfield
has closed loans with over 325 different dealers and developers.
Management believes that Litchfield benefits from name recognition as a
result of its referral, advertising and other marketing efforts. Referrals have
been the strongest source of new business for Litchfield and are generated in
the states in which Litchfield operates by dealers, brokers, attorneys and
financial institutions. Management and marketing representatives also conduct
seminars for dealers and brokers and attend trade shows to improve awareness and
understanding of Litchfield's programs.
REGULATION
Litchfield is licensed as a lender, mortgage banker or mortgage broker in
23 of the states in which it operates, and in those states its operations are
subject to supervision by state authorities (typically state banking or consumer
credit authorities). Expansion into other states may be dependent upon a finding
of financial responsibility, character and fitness of Litchfield and various
other matters. Litchfield is generally subject to state regulations, examination
and reporting requirements, and licenses are revocable for cause. Litchfield is
subject to state usury laws in all of the states in which it operates.
The consumer loans purchased or financed by Litchfield are subject to the
Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements
designed to provide consumers with uniform, understandable information with
respect to the terms and conditions of loans and credit transactions in order to
give them the ability to compare credit terms. Failure to comply with the
requirements of the Truth-in-Lending Act may give rise to a limited right of
rescission on the part of the borrower. Litchfield
S-24
<PAGE> 25
believes that its purchase or financing activities are in substantial compliance
in all material respects with the Truth-in-Lending Act.
Origination of the loans also requires compliance with the Equal Credit
Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors from
discriminating against applicants on the basis of race, color, sex, age or
marital status. Regulation B promulgated under ECOA restricts creditors from
obtaining certain types of information from loan applicants. It also requires
certain disclosures by the lender regarding consumer rights and requires lenders
to advise applicants of the reasons for any credit denial. In instances where
the applicant is denied credit or the interest rate charged increases as a
result of information obtained from a consumer credit agency, another statute,
the Fair Credit Reporting Act of 1970, as amended, requires the lenders to
supply the applicant with a name and address of the reporting agency.
COMPETITION
The finance business is highly competitive, with competition occurring
primarily on the basis of customer service and the term and interest rate of the
loans. Traditional competitors in the finance business include commercial banks,
credit unions, thrift institutions, industrial banks and other finance
companies, many of which have considerably greater financial, technical and
marketing resources than Litchfield. There can be no assurance that Litchfield
will not face increased competition from existing or new financial institutions
or finance companies. In addition, Litchfield may enter new lines of business
that may be highly competitive and may have competitors with greater financial
resources than Litchfield.
Litchfield believes that it competes on the basis of providing competitive
rates and prompt, efficient and complete service, and by emphasizing customer
service on a timely basis to attract borrowers whose needs are not met by
traditional financial institutions.
EMPLOYEES
As of December 31, 1998, Litchfield had 102 full-time equivalent employees.
None of Litchfield's employees are covered by a collective bargaining agreement.
Litchfield considers its relations with its employees to be good.
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<PAGE> 26
CAPITALIZATION
The following table sets forth the capitalization of Litchfield as of
December 31, 1998, and as adjusted to reflect the sale of the trust securities
by the trust and the issuance of the junior subordinated debentures by
Litchfield:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Long-term notes............................................. $134,588,000 $134,588,000
Litchfield Obligated Mandatorily Redeemable Preferred
Securities of Trust Subsidiaries Holding Solely Debentures
of Litchfield............................................. 0 25,000,000
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares, none issued and outstanding.................... 0 0
Common stock, $.01 par value; authorized 12,000,000
shares, 6,886,329 issued and outstanding (6,886,329
shares issued and outstanding, as adjusted)(1)......... 69,000 69,000
Additional paid in capital................................ 58,040,000 58,040,000
Accumulated other comprehensive income.................... 1,250,000 1,250,000
Retained earnings......................................... 22,735,000 22,735,000
------------ ------------
Total stockholders' equity........................ 82,094,000 82,094,000
------------ ------------
Total capitalization(2)........................... $216,682,000 $241,682,000
============ ============
</TABLE>
- ---------------
(1) Does not include 1,422,319 shares reserved for issuance pursuant to
Litchfield's 1990 Stock Option Plan and 18,864 shares reserved for issuance
pursuant to Litchfield's 1995 Stock Option Plan for Non-Employee Directors,
of which 853,850 are issuable upon exercise of options currently outstanding
as of December 31, 1998.
(2) Total capitalization includes total stockholders' equity, long-term notes
and Litchfield Obligated Mandatorily Redeemable Preferred Securities of
Trust Subsidiaries Holding Solely Debentures of Litchfield.
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<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenues,
unless otherwise indicated, of certain items included in Litchfield's statements
of income.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Revenues
Interest and fees on loans................................ 62.4% 65.3% 66.3%
Gain on sale of loans..................................... 30.9 28.8 27.6
Servicing and other income................................ 6.7 5.9 6.1
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses
Interest expense.......................................... 30.4 36.0 36.8
Salaries and employee benefits............................ 11.9 11.4 12.4
Other operating expenses.................................. 13.3 11.7 9.9
Provision for loan losses................................. 8.2 4.7 3.9
----- ----- -----
63.8 63.8 63.0
----- ----- -----
Income before income taxes and extraordinary item........... 36.2 36.2 37.0
Provision for income taxes.................................. 13.9 13.9 14.2
----- ----- -----
Income before extraordinary item............................ 22.3 22.3 22.8
Extraordinary item, net..................................... -- (0.8) (0.2)
----- ----- -----
Net income.................................................. 22.3% 21.5% 22.6%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues increased 30.7% to $38,806,000 for the year ended December 31,
1998, from $29,691,000 for the year ended December 31, 1997. Net income for the
year ended December 31, 1998 increased 37.2% to $8,755,000 compared to
$6,383,000 in 1997. Net income as a percentage of revenues was 22.6% for the
year ended December 31, 1998 compared to 21.5% for the year ended December 31,
1997. Loan purchases and originations grew 103.2% to $375,292,000 in 1998 from
$184,660,000 in 1997. The Serviced Portfolio increased 53.5% to $466,912,000 at
December 31, 1998 from $304,102,000 at December 31, 1997.
Interest and fees on loans increased 32.8% to $25,736,000 in 1998 from
$19,374,000 in 1997, primarily as the result of the higher average balance of
other loans during the 1998 period. The average rate earned on the Serviced
Portfolio decreased to 11.7% at December 31, 1998 from 12.2% at December 31,
1997, primarily due to the effect of the growth in Hypothecation Loans as a
percentage of the portfolio and a decline in interest rates. Hypothecation Loan
yields are usually less than Land Loan or VOI Loan yields, but servicing costs
and loan losses are generally less as well.
Gain on the sale of loans increased 24.8% to $10,691,000 in 1998 from
$8,564,000 in 1997. The volume of loans sold increased 46.6% to $144,762,000 for
the year ended December 31, 1998 from $98,747,000 for the same period in 1997.
Gain on sale of loans increased less than the volume of loans sold for the year
ended December 31, 1998 primarily due to the increase in Hypothecation Loans
sold. The yield on the sale of Hypothecation Loans is significantly less than
the typical yield on sales of consumer receivables primarily due to shorter
average maturities and the nature of the underlying collateral.
S-27
<PAGE> 28
Servicing and other income increased 35.7% to $2,379,000 for the year ended
December 31, 1998, from $1,753,000 for the year ended December 31, 1997 largely
due to the increase in the other fee income including certain processing fees,
prepayment penalties and income from an affiliate. Loans serviced for others
increased 32.5% to $238,132,000 as of December 31, 1998 from $179,790,000 at
December 31, 1997.
Interest expense increased 33.6% to $14,265,000 in 1998 from $10,675,000 in
1997. The increase in interest expense primarily reflects an increase in average
borrowings which was only partially offset by lower rates. During the year ended
December 31, 1998, the weighted average borrowings were $150,483,000 at an
average rate of 8.7% compared to $107,900,000 at an average rate of 9.1% during
the year ended December 31, 1997. Interest expense includes the amortization of
deferred debt issuance costs.
Salaries and employee benefits increased 41.4% to $4,806,000 for the year
ended December 31, 1998 from $3,399,000 for the year ended December 31, 1997
because of an increase in the number of employees in 1998 and, to a lesser
extent, an increase in salaries. Personnel costs as a percentage of revenues
increased slightly to 12.4% in 1998 compared to 11.4% in 1997. However, as a
percentage of the Serviced Portfolio, personnel costs decreased to 1.0% for the
year ended December 31, 1998 from 1.1% for the year ended December 31, 1997. The
increase in salaries and employee benefits was due in part to bringing customer
service and collections in-house during 1998. This resulted in a decrease in
third party servicing expenses included in other operating expenses. Total
salaries and employee benefits plus other operating expenses as a percentage of
revenues decreased in 1998 to 22.3% from 23.2% in 1997.
Other operating expenses increased 10.2% to $3,834,000 for the year ended
December 31, 1998 from $3,480,000 for the year ended December 31, 1997. Other
operating expenses increased due to the growth in the Serviced Portfolio that
was only partially offset by the decrease in third party servicing expenses
related to bringing customer service and collections in-house. As a percentage
of revenues, other operating expenses decreased to 9.9% in 1998 from 11.7% in
1997. As a percentage of the Serviced Portfolio, other operating expenses
decreased to 0.8% for the year ended December 31, 1998 compared to 1.1% for the
year ended December 31, 1997.
During the year ended December 31, 1998, the provision for loan losses
increased 9.4% to $1,532,000 from $1,400,000 for the year ended December 31,
1997 primarily due to the growth of the Serviced Portfolio.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues increased 25.3% to $29,691,000 for the year ended December 31,
1997, from $23,696,000 for the year ended December 31, 1996. Net income for 1997
increased 21.1% to $6,383,000 compared to $5,273,000 in 1996. Net income as a
percentage of revenues was 21.5% for the year ended December 31, 1997 compared
to 22.3% for the year ended December 31, 1996. Loan purchases and originations
grew 38.1% to $184,660,000 in 1997 from $133,750,000 in 1996. The Serviced
Portfolio increased 25.4% to $304,102,000 at December 31, 1997 from $242,445,000
at December 31, 1996.
Interest and fees on loans increased 31.0% to $19,374,000 in 1997 from
$14,789,000 in 1996, primarily as the result of the higher average balance of
loans held for sale and other loans during 1997. The average rate earned on
loans owned and retained interests in loan sales decreased to 12.2% for the year
ended December 31, 1997 from 12.5% for the year ended December 31, 1996,
primarily due to the effect of the growth in Hypothecation Loans and A&D Loans
as a percentage of the Serviced Portfolio. Hypothecation Loan and A&D Loan
yields are usually less than Land Loan or VOI Loan yields, but servicing costs
and loan losses are generally less as well.
Gain on the sale of loans increased 16.8% to $8,564,000 in 1997 from
$7,331,000 in 1996. The volume of loans sold increased 79.7% to $98,747,000 for
the year ended 1997 from $54,936,000 for the same period in 1996. Gain on sale
of loans increased less than the volume of loans sold for the year ended
December 31, 1997 primarily due to the lower yield on the sale of Hypothecation
Loans in 1997 and, to a lesser extent, the lower amount of discount relating to
loans sold.
S-28
<PAGE> 29
Servicing and other fee income increased 11.2% to $1,753,000 for the year
ended December 31, 1997, from $1,576,000 for the year ended December 31, 1996
mostly due to the increase in other fee income resulting from the collection of
significant prepayment penalties from a Hypothecation Loan and an A&D Loan in
1997. Although loans serviced for others increased 38.7% to $179,790,000 at
December 31, 1997 from $129,619,000 at December 31, 1996, servicing income
remained relatively constant due to a decrease in the average servicing fee per
loan primarily as the result of the decrease in the number of purchased VOI
Loans in the Serviced Portfolio.
Interest expense increased 48.3% to $10,675,000 for 1997, from $7,197,000
in 1996. The increase in interest expense primarily reflects an increase in
average borrowings that were only partially offset by a decrease in average
rates. During the year ended December 31, 1997, borrowings averaged $107,900,000
at an average rate of 9.1% compared to $71,800,000 and 9.3%, respectively,
during 1996. Interest expense includes the amortization of deferred debt
issuance costs.
Salaries and employee benefits increased 20.4% to $3,399,000 for the year
ended December 31, 1997 from $2,824,000 for the year ended December 31, 1996
because of an increase in the number of employees and, to a lesser extent, an
increase in salaries. Personnel costs as a percentage of revenues decreased
slightly to 11.4% for the year ended December 31, 1997 compared to 11.9% in
1996. As a percentage of the Serviced Portfolio, personnel costs decreased to
1.12% for the year ended December 31, 1997 from 1.16% for the same period in
1996.
Other operating expenses increased 10.6% to $3,480,000 for the year ended
December 31, 1997 from $3,147,000 for the same period in 1996 primarily as the
result of the growth in the Serviced Portfolio. As a percentage of revenues,
other operating expenses decreased to 11.7% in 1997 compared to 13.3% in 1996.
As a percentage of the Serviced Portfolio, other operating expenses decreased to
1.14% for 1997 from 1.30% for 1996.
During 1997, the provision for loan losses decreased 28.4% to $1,400,000
from $1,954,000 in 1996. The provision for loan losses decreased despite the
increase in loans owned and retained interests in loans sold because of the
growth in Hypothecation Loans as a percentage of the Serviced Portfolio.
Hypothecation Loans have experienced significantly lower delinquency and default
rates than Purchased Loans.
LIQUIDITY AND CAPITAL RESOURCES
Litchfield's business requires continued access to short and long-term
sources of debt financing and equity capital. Litchfield's principal cash
requirements arise from loan originations, repayment of debt on maturity and
payments of operating and interest expenses. Litchfield's primary sources of
liquidity are loan sales, short-term borrowings under secured lines of credit
and long-term debt and equity offerings.
Since its inception, Litchfield has sold $492,960,000 of loans at face
value ($348,198,000 through December 31, 1997). The principal amount remaining
on the loans sold was $238,132,000 at December 31, 1998 and $179,790,000 at
December 31, 1997. In connection with certain loan sales, Litchfield commits to
repurchase from investors any loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $12,750,000 of loans at December 31, 1998
which Litchfield could be required to repurchase in the future should such loans
become 90 days or more past due. Litchfield repurchased $491,000, $740,000 and
$991,000 of such loans under the recourse provisions of loan sales 1998, 1997
and 1996, respectively. As of December 31, 1998, $25,685,000 of Litchfield's
cash was restricted as credit enhancement for certain securitization programs.
To date, Litchfield has participated $10,505,000 of A&D and Other Loans without
recourse to Litchfield ($6,936,000 through December 31, 1997).
Litchfield funds its loan purchases in part with borrowings under various
lines of credit. Lines are paid down when Litchfield receives the proceeds from
the sale of the loans or when cash is otherwise available. These lines of credit
totaled $116,000,000 at December 31, 1998 and 117,500,000 at December 31, 1997.
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Outstanding borrowings on these lines of credit were $49,021,000 at December 31,
1998. Interest rates on these lines of credit range from the Eurodollar or LIBOR
rate plus 2% to the prime rate plus 1.25%. Litchfield is not required to
maintain compensating balances or forward sales commitments under the terms of
these lines of credit.
Litchfield also finances its loan purchases with two revolving line of
credit and sale facilities as part of asset backed commercial paper facilities
with multi-seller commercial paper issuers. Such facilities totaled $175,000,000
at December 31, 1998 and $150,000,000 at December 31, 1997. As of December 31,
1998 and December 31, 1997, the outstanding balances of loans sold or pledged
under these facilities were $148,164,000 and $121,142,000, respectively. There
were no outstanding borrowings under these lines of credit at December 31, 1998.
Outstanding borrowings under these lines of credit were $169,000 at December 31,
1997. Interest is payable on these lines of credit based on certain commercial
paper rates.
In June 1998, Litchfield issued 1,000,000 shares of common stock at $19 per
share. The net proceeds of the offering were $17,717,000 and were used to pay
down certain lines of credit. In connection with the underwriters' option to
purchase additional shares to cover over-allotments, Litchfield issued an
additional 166,500 shares in July 1998. Net proceeds of these shares totaled
$2,990,000 and were also used to pay down certain lines of credit.
Litchfield also finances its liquidity needs with long-term debt. Long-term
debt totaled $134,588,000 at December 31, 1998 and $105,347,000 at December 31,
1997.
In September of 1998, Litchfield redeemed a term note of $3,265,000
resulting in an extraordinary loss of $77,000, net of applicable tax benefit of
$48,000. The note was collateralized by certain of Litchfield's retained
interests in loan sales and cash. The balance outstanding on the note was
$5,210,000 at December 31, 1997.
In June 1997, Litchfield entered into two interest rate swap agreements.
The swap agreements involve the payment of interest to the counterparty at the
prime rate on a notional amount of $110,000,000 and the receipt of interest at
the commercial paper rate plus a spread and the LIBOR rate plus a spread on
notional amounts of $80,000,000 and $30,000,000, respectively. The swap
agreements expire in June 2000. There is no exchange of the notional amounts
upon which interest payments are based.
In June, 1994, Litchfield entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain increases in interest rates.
The interest rate cap entitles Litchfield to receive an amount, based on an
amortizing notional amount, which at December 31, 1998 was $3,670,000, when
commercial paper rates exceed 8%. If payments were to be received as a result of
the cap agreement, they would be accrued as a reduction of interest expense.
This agreement expires in July 2003.
Historically, Litchfield has not required major capital expenditures to
support its operations.
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<PAGE> 31
CREDIT QUALITY AND ALLOWANCES FOR LOAN LOSSES
Litchfield maintains allowances for loan losses and recourse obligations on
retained interests in loan sales at levels which, in the opinion of management,
provide adequately for current and estimated future losses on such assets.
Past-due loans (loans 31 days or more past due which are not covered by dealer/
developer reserves and guarantees) as a percentage of the Serviced Portfolio as
of December 31, 1998, decreased to 0.95% from 1.20% at December 31, 1997.
[NET DELINQUENCIES CHART]
[NET CHARGE-OFF RATIO CHART]
Management evaluates the adequacy of the allowances on a quarterly basis by
examining current delinquencies, the characteristics of the accounts, the value
of the underlying collateral, and general economic conditions and trends.
Management also evaluates the extent to which dealer/developer reserves and
guarantees can be expected to absorb loan losses. When Litchfield does not
receive guarantees on loan portfolios purchased, it adjusts its purchase price
to reflect anticipated losses and its required yield. This purchase adjustment
is recorded as an increase in the allowance for loan losses and is used only for
the respective portfolio. A provision for loan losses is recorded in an amount
deemed sufficient by management to maintain the allowances at adequate levels.
Total allowances for loan losses and recourse obligations on retained interests
in loan sales increased to $6,707,000 at December 31, 1998 compared to
$5,877,000 at December 31, 1997. The allowance ratio (the allowances for loan
losses divided by the amount of the Serviced Portfolio) at December 31, 1998
decreased to 1.44% from 1.93% at December 31, 1997 primarily as a result of the
increase in Hypothecation Loans as a percentage of the Serviced Portfolio.
[PERFORMANCE/ALLOWANCE BAR GRAPH]
<TABLE>
<CAPTION>
ALLOWANCE CHARGE-OFFS
--------- -----------
<S> <C> <C>
Land................................................... 2.15 0.90
VOI.................................................... 4.05 2.30
Hypo................................................... 0.50 0.00
A&D.................................................... 1.30 0.00
Other.................................................. 1.40 0.82
</TABLE>
As part of Litchfield's financing of Purchased Loans, arrangements are
entered into with dealers and resort developers, whereby reserves are
established to protect Litchfield from potential losses associated with such
loans. As part of Litchfield's agreement with the dealers and resort developers,
a portion of the amount payable to each dealer and resort developer for a
Purchased Loan is retained by Litchfield and is available to Litchfield to
absorb loan losses for those loans. Litchfield negotiates the amount of the
reserves with the dealers and developers based upon various criteria, two of
which are the financial
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strength of the dealer or developer and credit risk associated with the loans
being purchased. Dealer/developer reserves amounted to $9,979,000 and
$10,655,000 at December 31, 1998 and December 31, 1997, respectively. Litchfield
generally returns any excess reserves to the dealer/developer on a quarterly
basis as the related loans are repaid by borrowers.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
comply with "Year 2000" requirements.
State of Readiness. The year 2000 readiness process consists of the
following phases: (i) identification of all IT Systems and non-IT Systems; (ii)
assessment of repair or replacement requirements; (iii) repair or replacement;
(iv) testing; (v) implementation; and (vi) creation of contingency plans in the
event of year 2000 failures. Litchfield has evaluated the year 2000 readiness of
the information technology systems used in its operations ("IT Systems") and its
non-IT Systems, such as building security, voice mail and other systems.
Non-compliant IT Systems and non-IT Systems are expected to be remediated by the
end of the second quarter of 1999.
Litchfield's current financial and accounting software was installed in
October 1998, and the supplier has informed Litchfield that such software is
year 2000 compliant. Litchfield uses a third party servicer to perform certain
functions, such as receipt and posting of loan payments and other loan related
activity. The third party servicer has represented to Litchfield that its
systems are year 2000 compliant. In addition, Litchfield relies upon various
vendors, governmental agencies, utility companies, telecommunication service
companies, delivery service companies and other service providers who are
outside of its control. There is no assurance that such parties will not suffer
a year 2000 business disruption, which could have a material adverse effect on
Litchfield's financial condition and results of operations.
During 1998, Litchfield circulated a questionnaire to vendors and customers
with whom Litchfield has material relationships to obtain information about year
2000 compliance. Litchfield is still receiving and evaluating this information
to identify any significant risks. We plan to require all our business partners
to address any significant risks by July 1, 1999. We plan to replace any
material non-compliant business partners by October 1, 1999.
Costs. To date, Litchfield has not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. Most of
its expenses have related to the opportunity cost of time spent by employees of
Litchfield evaluating year 2000 compliance matters generally. Litchfield
believes that internally generated funds or available cash should be sufficient
to cover the projected costs associated with any modifications to existing
software to make it year 2000 compliant. However, no assurances can be given
that such modifications can be made in a timely and cost effective manner.
Failure to make timely modifications could, in a worse case scenario, result in
the inability to process loans and loan related data and could have a material
adverse effect on Litchfield. At this time, Litchfield does not possess the
information necessary to estimate the potential impact of year 2000 compliance
issues relating to its other IT-Systems, non-IT Systems, its vendors, its
customers, and other parties. Such impact, including the effect of a year 2000
business disruption, could have a material adverse effect on Litchfield's
financial condition and results of operations.
Contingency Plan. Litchfield has not yet developed a year 2000-specific
contingency plan. If further year 2000 compliance issues are discovered,
Litchfield then will evaluate the need for one or more contingency plans
relating to such issues.
INFLATION
Inflation has not had a significant effect on Litchfield's operating
results to date.
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EXPOSURE TO MARKET RISK
Litchfield performs an interest rate sensitivity analysis to identify the
potential interest rate exposures. Specific interest rate risks analyzed include
asset/liability mismatches, basis risk, risk caused by floors and caps, duration
mismatches and re-pricing lag in response to changes in a base index.
A simulated earnings model is used to identify the impact of specific
interest rate movements on earnings per share for the next 12 months. The model
incorporates management's expectations about future origination levels,
origination mix, amortization rates, prepayment speeds, timing of loan sales,
timing of capital issues, extensions and/or increases in lines of credit,
pricing of originations and cost of debt and lines of credit.
Litchfield's objective in managing the interest rate exposures is to
maintain, at a reasonable level, the impact on earnings per share of an
immediate and sustained change of 100 basis points in interest rates in either
direction. Litchfield periodically reviews the interest rate risk and various
options such as capital structuring, product pricing, hedging and spread
analysis to manage the interest rate risk at reasonable levels.
As of December 31, 1998, Litchfield had the following estimated sensitivity
profile:
<TABLE>
<S> <C> <C>
Interest rate changes (in basis points)............... 100 (100)
Impact on earnings per share.......................... ($ 0.02) $ 0.06
Impact on interest income and pre-tax earnings........ ($136,000) $425,000
</TABLE>
RECENT DEVELOPMENTS
Litchfield's net income for the first quarter of 1999 was $2,278,000 or
$.32 per share on a diluted basis compared with net income of $1,550,000 or $.26
per share on a diluted basis for the first quarter of 1998. These results
represent a 47% increase in net income and a 23% increase in diluted net income
per share. Litchfield's revenues for the first quarter of 1999 increased 39% to
$11,075,000 from $7,953,000 for the first quarter of 1998.
Litchfield's first quarter 1999 originations were $98.0 million,
representing a 45% increase from $67.5 million in the first quarter of 1998.
During the first quarter of 1999, Litchfield's land, timeshare and financial
services businesses originated $20.1 million, $47.8 million and $30.1 million,
respectively, compared to $22.1 million, $22.2 million and $23.2 million,
respectively, for the first quarter of 1998.
The preceding data is unaudited, but, in the opinion of management of
Litchfield, includes all adjustments (consisting of normal recurring accruals
and deferrals) that management considers necessary for a fair presentation of
the financial position and results of operations for the periods presented in
accordance with generally accepted accounting principles and practices
consistently applied.
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<PAGE> 34
LITCHFIELD CAPITAL TRUST I
Litchfield Capital Trust I is a statutory business trust created on April
12, 1999 under the Delaware Business Trust Act pursuant to a declaration of
trust among the trustees and Litchfield and the filing of a certificate of trust
with the Secretary of State of the State of Delaware. This declaration will be
amended and restated in its entirety, as so amended and restated, the
"Declaration" as of the date the trust initially issues the preferred
securities. The Declaration will be qualified under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
The trust will initially have five trustees. Three of the trustees will be
officers or employees of Litchfield. The Bank of New York will act as the
Property Trustee of the trust (the "Property Trustee") and The Bank of New York
(Delaware) will act as the Delaware Trustee of the trust.
Upon the issuance of the preferred securities, the holders thereof will own
all of the issued and outstanding preferred securities of the trust. Litchfield
will, directly or indirectly, acquire common securities representing common
undivided beneficial interests in the assets of the trust in an amount equal to
at least 3% of the total capital of the trust and will own, directly or
indirectly, all of the issued and outstanding common securities of the trust.
The trust exists for the purposes of:
- issuing the preferred securities,
- issuing the common securities to Litchfield,
- investing the gross proceeds from the sale of the trust securities in
junior subordinated debentures of Litchfield and
- engaging in only such other activities as are necessary, convenient or
incidental thereto or are specifically authorized in the Declaration.
The rights of the holders of the trust securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration, the Delaware Business Trust Act and the Trust Indenture Act. In the
Declaration, Litchfield has agreed to pay for all debts and obligations (other
than with respect to the trust securities) and all costs and expenses of the
trust, including the fees and expenses of the trustees and any taxes to which
the trust may become subject, except for United States withholding taxes, and
all related costs and expenses.
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities will be issued under the terms of the Declaration,
which is qualified under the Trust Indenture Act. The Property Trustee, but not
the other trustees of the trust, will act as the indenture trustee under the
Declaration for purposes of the Trust Indenture Act. The terms of the preferred
securities and the Declaration include those stated in the Declaration and those
made part of the Declaration by the Trust Indenture Act and the Delaware
Business Trust Act. The following summarizes the material terms and provisions
of the preferred securities and is qualified in its entirety by reference to the
Declaration, the Delaware Business Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the trust to issue the preferred securities,
which represent preferred undivided beneficial interests in the assets of the
trust, and the common securities, which represent common undivided beneficial
interests in the assets of the trust. All of the common securities will be
owned, directly or indirectly, by Litchfield. The common securities and the
preferred securities rank pari passu with each other and will have equivalent
terms except that (i) if a Declaration Event of Default (as hereinafter defined)
occurs and is continuing, the rights of the holders of the common securities to
payment in respect of periodic distributions and payments upon liquidation,
redemption or otherwise will be subordinated to the rights of the holders of the
preferred securities and (ii) holders of common
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<PAGE> 35
securities will have the exclusive right to appoint, remove or replace the
trustees and to increase or decrease the number of trustees.
The declaration does not permit:
- the issuance by the trust of any securities or other evidences of
beneficial ownership of, or beneficial interests in, the trust other than
the preferred securities and the common securities;
- the incurrence of any indebtedness for borrowed money by the trust; or
- the making of any investment other than in the junior subordinated
debentures.
Pursuant to the Declaration, the Property Trustee will own and hold the
junior subordinated debentures as trust assets for the benefit of the holders of
the preferred securities and the common securities. The payment of distributions
out of moneys held by the Property Trustee and payments on redemption of the
preferred securities or liquidation of the trust are guaranteed by Litchfield on
a subordinated basis as and to the extent described in this prospectus
supplement under "Description of the Preferred Securities Guarantee" and in the
accompanying prospectus under "Description of the Preferred Securities
Guarantees." The Property Trustee will hold the preferred securities guarantee
for the benefit of holders of the preferred securities. The preferred securities
guarantee is a full and unconditional guarantee from the time of issuance of the
preferred securities, but the preferred securities guarantee covers
distributions and other payments on the preferred securities only if and to the
extent that Litchfield has made a payment to the Property Trustee of interest or
principal on the junior subordinated debentures.
DISTRIBUTIONS
Distributions on the preferred securities will be fixed at an annual rate
of 10% of the $10 liquidation amount of each preferred security. Distributions
in arrears for more than one calendar quarter will accumulate additional
distributions at the rate per annum of 10%, to the extent permitted by law
compounded quarterly. The term "distributions" as used herein means such
periodic cash distributions and any additional distributions unless otherwise
stated. The amount of distributions payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months, and for any period shorter
than a full quarterly distribution period for which distributions are computed,
distributions will be computed on the basis of the actual number of days elapsed
per 90-day quarter.
Distributions on the preferred securities will accumulate from May 14,
1999, and, except as otherwise described below, will be payable quarterly in
arrears on June 30, September 30, December 31 and March 31 of each year,
commencing on June 30, 1999, but only if, and to the extent that, interest
payments are made on the junior subordinated debentures held by the Property
Trustee.
OPTION TO DEFER DISTRIBUTIONS
As long as it is not in default in the payment of interest on the junior
subordinated debentures, Litchfield has the right under the Indenture to defer
payments of interest on the junior subordinated debentures by extending the
interest payment period at any time and from time to time on the junior
subordinated debentures for a period not exceeding 20 consecutive quarterly
interest periods. During any Extension Period (as hereinafter defined) no
interest will be due and payable on the junior subordinated debentures. As a
consequence, distributions will also be deferred. Despite such deferral,
distributions will continue to accumulate with additional distributions thereon
(to the extent permitted by applicable law but not at a rate greater than the
rate at which interest is then accruing on the junior subordinated debentures)
at the rate of 10% per annum, compounded quarterly during any such Extension
Period; provided that no such Extension Period may extend beyond the stated
maturity of the junior subordinated debentures. For a description of capital
stock dividends and other restrictions that will be placed upon Litchfield
during an Extension Period, see "Description of the Junior Subordinated
Debentures -- Option to Extend Interest Payment Period."
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<PAGE> 36
Prior to the termination of any Extension Period, Litchfield may further
extend it; provided that such Extension Period together with all such previous
and further extensions thereof may not exceed 20 consecutive quarterly interest
periods. Upon the termination of any Extension Period and the payment of all
amounts then due, Litchfield may commence a new Extension Period, subject to the
above requirements. Litchfield may also prepay at any time all or any portion of
the interest accrued during an Extension Period. Consequently, there could be
multiple Extension Periods of varying lengths throughout the term of the junior
subordinated debentures, not to exceed 20 consecutive quarters or to cause any
extension beyond the maturity of the junior subordinated debentures. See "Risk
Factors -- Litchfield's ability to defer interest payments on the junior
subordinated debentures has tax consequences for you and may affect the market
price of the preferred securities," "Description of the Junior Subordinated
Debentures -- Interest" and "-- Option to Extend Interest Payment Period" in
this prospectus supplement. Payments of accumulated distributions will be
payable to holders of preferred securities as they appear on the books and
records of the trust on the first record date after the end of an Extension
Period.
PAYMENT OF DISTRIBUTIONS
Distributions on the preferred securities will be paid on the dates payable
to the extent that the Property Trustee has cash on hand in a segregated
non-interest bearing banking account (the "Property Account") to permit such
payment. The funds available for distribution to the holders of the preferred
securities will be limited to payments received by the Property Trustee for the
junior subordinated debentures. If Litchfield does not make interest payments on
the junior subordinated debentures, the Property Trustee will not make
distributions on the preferred securities. Under the Declaration, if and to the
extent Litchfield does make interest payments on the junior subordinated
debentures deposited in the trust as trust assets, the Property Trustee is
obligated to make distributions on the trust securities on a pro rata basis. The
payment of distributions on the preferred securities is guaranteed by Litchfield
on a subordinated basis as and to the extent described in this prospectus
supplement under "Description of the Preferred Securities Guarantee" and in the
accompanying prospectus under "Description of the Preferred Securities
Guarantees." The preferred securities guarantee is a full and unconditional
guarantee from the time of issuance of the preferred securities, but the
preferred securities guarantee covers distributions and other payments on the
preferred securities only if and to the extent that Litchfield has made a
payment to the Property Trustee of interest or principal on the junior
subordinated debentures.
METHOD OF PAYMENT OF DISTRIBUTIONS
Distributions on the preferred securities will be made to the holders of
the securities as they appear on the books and records of the trust on the
relevant record dates, which, as long as the preferred securities remain in
book-entry form, will be one business day prior to the relevant distribution
payment date. Distributions payable on any preferred securities that are not
punctually paid on any distribution payment date as a result of Litchfield's
failure to make the corresponding interest payment on the junior subordinated
debentures will forthwith cease to be payable to the person in whose name such
preferred security is registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such preferred
security is registered on the special record date established by the Regular
Trustees, which record date shall correspond to the special record date or other
specified date determined in accordance with the Indenture; provided, however,
that distributions will not be considered payable on any distribution payment
date falling within an Extension Period unless Litchfield has elected to make a
full or partial payment of interest accrued on the junior subordinated
debentures on the distribution payment date. Distributions on the preferred
securities will be paid through the Property Trustee who will hold amounts
received in respect of the junior subordinated debentures in the Property
Account for the benefit of the holders of the preferred securities and the
common securities. Subject to any applicable laws and regulations and the
provisions of the Declaration, each payment will be made as described under
"--Book-Entry Only Issuance--The Depository Trust Company" below. If the
preferred securities do not continue to remain in book-entry form, the relevant
record dates will be the fifteenth day of the month prior to the relevant
distribution payment date. The Declaration provides that the payment
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<PAGE> 37
dates or record dates for the preferred securities will be the same as the
payment dates and record dates for the junior subordinated debentures. All
distributions paid on the trust securities will be paid on a pro rata basis to
the entitled holders thereof. If any date on which distributions are to be made
is not a Business Day, then payment of the distribution to be made on that date
will be made on the next succeeding day that is a business day, and without any
interest or other payment in respect of any such delay, except that, if that
business day is in the next succeeding calendar year, the payment shall be made
on the immediately preceding business day, in each case with the same force and
effect as if made on the date the payment was originally payable. "Business Day"
means any day other than a Saturday or Sunday or a day on which banking
institutions in the borough of Manhattan, the City and State of New York, New
York or Boston, Massachusetts are authorized or required by law to close.
SPECIAL EVENT REDEMPTION
If a tax event or an investment company event (each, a "Special Event") has
occurred and is continuing, Litchfield will have the right to redeem the junior
subordinated debentures, in whole but not in part, and therefore cause a
mandatory redemption of the trust securities, in whole but not in part, at the
Redemption Price, the liquidation amount plus accumulated and unpaid
distributions, within 90 days following the occurrence of the Special Event.
"Tax Event" means that Litchfield and the Regular Trustees have received an
opinion of counsel experienced in these matters to the effect that on or after
the date of this prospectus supplement as a result of:
- any amendment to, or change, including any announced prospective change,
in, the laws, or any regulations thereunder, of the United States or any
political subdivision or taxing authority thereof or therein;
- any amendment to, or change in, an interpretation or application of any
laws or regulations by any legislative body, court, governmental agency
or regulatory authority, including the enactment of any legislation and
the publication of any judicial decision or regulatory determination;
- any interpretation or pronouncement by any legislative body, court,
governmental agency or regulatory authority that provides for a position
with respect to these laws or regulations that differs from the
theretofore generally accepted position; or
- any action taken by any governmental agency or regulatory authority;
which amendment or change is enacted, promulgated, issued or announced or which
interpretation or pronouncement is issued or announced or which action is taken,
in each case on or after the date of this prospectus supplement, there is more
than an insubstantial risk that:
- the trust is, or will be within 90 days of the date thereof, subject to
United States federal income tax with respect to income accrued or
received on the junior subordinated debentures;
- the trust is, or will be within 90 days of the date thereof, subject to
more than a de minimis amount of taxes, duties or other governmental
charges; or
- interest payable by Litchfield to the trust on the junior subordinated
debentures is not, or within 90 days of the date thereof will not be,
deductible by Litchfield for United States federal income tax purposes.
"Investment Company Event" means that Litchfield and the Regular Trustees
shall have received an opinion of counsel experienced in practice under the
Investment Company Act of 1940, as amended, that as a result of the occurrence
of a change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, there is more than an insubstantial risk that the trust is
or will be considered an "investment company" which is required to be registered
under the Investment Company Act, which change in Investment Company Act law
becomes effective on or after the date of this prospectus supplement.
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DISTRIBUTION OF THE JUNIOR SUBORDINATED DEBENTURES
At any time, Litchfield, as the holder of the common securities, may, in
its sole discretion, dissolve the trust and, after satisfaction of liabilities
to creditors of the trust as provided by applicable law, cause the junior
subordinated debentures to be distributed to the holders of the trust
securities.
If junior subordinated debentures are distributed to the holders of the
trust securities upon the dissolution and liquidation of the trust, the junior
subordinated debentures will be issued in denominations of $10 and integral
multiples of $10. If distributed to holders of the trust securities, it is
anticipated that the junior subordinated debentures would be distributed in the
form of one or more global securities and DTC, or any successor depositary for
the preferred securities, would act as depositary for the junior subordinated
debentures. The depositary arrangements for the junior subordinated debentures
would be substantially similar to those in effect for the preferred securities.
None of Litchfield, the indenture trustee, any paying agent or any other agent
of Litchfield or the indenture trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a global security for such junior subordinated
debentures or for maintaining, supervising or reviewing any records relating to
these beneficial ownership interests.
For a description of the depository and the terms of the depository
arrangements relating to payments, transfers, voting rights, redemption and
other notices and other matters relating to the junior subordinated debentures,
see "Description of the Junior Subordinated Debentures--Book-Entry and
Settlement."
On the date fixed for any distribution of junior subordinated debentures,
upon dissolution of the trust, (i) the preferred securities, the preferred
securities guarantee and the common securities will no longer be deemed to be
outstanding and (ii) any certificates representing preferred securities will be
deemed to represent beneficial interests in the junior subordinated debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, and bearing accrued and unpaid interest equal to accumulated and
unpaid distributions on, the preferred securities, until certificates are
presented to Litchfield or its agent for transfer or reissuance.
Litchfield cannot assure you about the market price for the junior
subordinated debentures which may be distributed in exchange for preferred
securities if a dissolution and liquidation of the trust occurs. Accordingly,
the junior subordinated debentures which a holder of preferred securities may
subsequently receive on dissolution and liquidation of the trust, may trade at a
discount to the price of the preferred securities exchanged. If the junior
subordinated debentures are distributed to the holders of preferred securities
upon the dissolution of the trust, Litchfield will use its best efforts to list
the junior subordinated debentures on the Nasdaq National Market or on another
exchange or automated quotation system on which the preferred securities are
then listed.
MANDATORY REDEMPTION
Upon the repayment of the junior subordinated debentures, in whole or in
part, whether at maturity, upon redemption or otherwise, the proceeds from the
repayment will be promptly applied to redeem on a pro rata basis preferred
securities and common securities having an aggregate liquidation amount equal to
the aggregate principal amount of the junior subordinated debentures so repaid
or redeemed, upon not less than 30 nor more than 60 days' notice, at the
Redemption Price. The common securities will be entitled to be redeemed on a pro
rata basis with the preferred securities, except that if an Event of Default
under the Declaration has occurred and is continuing, the preferred securities
will have a priority over the common securities with respect to payment of the
Redemption Price. Subject to the foregoing, if fewer than all outstanding
preferred securities and common securities are to be redeemed, the preferred
securities and common securities will be redeemed on a pro rata basis.
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REDEMPTION PROCEDURES
The trust may not redeem fewer than all outstanding preferred securities
unless all accumulated and unpaid Distributions have been paid on all preferred
securities for all quarterly Distribution periods terminating on or before the
date of redemption.
If the trust gives a notice of redemption for preferred securities, which
notice will be irrevocable, then, while the preferred securities are still in
book-entry only form, by 10:00 a.m., New York City time, on the Redemption Date
and provided that Litchfield has paid to the Property Trustee a sufficient
amount of cash in connection with the related redemption or maturity of the
junior subordinated debentures, the Property Trustee will irrevocably deposit
with the depositary funds sufficient to pay the applicable Redemption Price and
will give the Depositary irrevocable instructions and authority to pay the
Redemption Price to the holders of the preferred securities. See "--Book-Entry
Only Issuance--The Depository Trust Company." If notice of redemption is given
and funds deposited as required, then, immediately prior to the close of
business on the Redemption Date, Distributions will cease to accumulate on the
preferred securities called for redemption, the preferred securities will no
longer be deemed to be outstanding and all rights of holders of the preferred
securities so called for redemption will cease, except the right of the holders
of the preferred securities to receive the Redemption Price, but without
interest on the Redemption Price. Neither the trustees nor the trust shall be
required to register or cause to be registered the transfer of any preferred
securities which have been so called for redemption. If any date fixed for
redemption of preferred securities is not a Business Day, then payment of the
Redemption Price payable on that date will be made on the next succeeding day
that is a Business Day, and without any interest or other payment in respect of
any such delay, except that, if the Business Day falls in the next calendar
year, that payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on that date fixed for
redemption. If payment of the Redemption Price in respect of preferred
securities is improperly withheld or refused and not paid by the Property
Trustee or by Litchfield pursuant to the preferred securities guarantee,
Distributions on such preferred securities will continue to accumulate, from the
original redemption date of the preferred securities to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding preferred securities
are to be redeemed, the preferred securities will be redeemed as described below
under "--Book-Entry Only Issuance--The Depository Trust Company."
If a partial redemption of the preferred securities would result in the
delisting of the preferred securities by any national securities exchange or
other organization on which the preferred securities are then listed or traded,
Litchfield will redeem junior subordinated debentures only in whole and, as a
result, under these circumstances the trust may redeem the preferred securities
only in whole. Subject to the foregoing and applicable law, including, without
limitation, United States federal securities laws, Litchfield or any of its
subsidiaries may at any time purchase outstanding preferred securities by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Holders of the preferred securities and the common securities at the date
of any voluntary or involuntary dissolution, winding-up or termination of the
trust, as the case may be, are entitled to receive an amount equal to the
aggregate of the stated liquidation amount of $10 per trust security plus
accumulated and unpaid Distributions thereon to the date of payment. This amount
is paid on a pro rata basis solely out of the assets of the trust legally
available for distribution to holders of preferred securities and common
securities after satisfaction of liabilities to the creditors of the trust,
unless, in connection with the dissolution, winding-up or termination, and after
satisfaction of liabilities to the creditors of the trust, junior subordinated
debentures, in an aggregate principal amount equal to the aggregate stated
liquidation amount of such trust securities and bearing accrued and unpaid
interest in an amount equal to
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the accumulated and unpaid Distributions on such trust securities, shall be
distributed on a pro rata basis to the holders of the preferred securities and
the common securities in exchange therefor.
If, upon any such dissolution, winding-up or termination, the Liquidation
Distribution can be paid only in part because the trust has insufficient assets
on hand legally available to pay in full the aggregate Liquidation Distribution,
then the amounts payable directly by the trust on the preferred securities and
the common securities shall be paid on a pro rata basis. The holders of the
common securities will be entitled to receive Liquidation Distributions upon any
such dissolution, winding-up or termination on a pro rata basis with the holders
of the preferred securities, except that if an Event of Default under the
Declaration has occurred and is continuing, the preferred securities shall have
a priority over the common securities with respect to the payment of the
Liquidation Distribution.
Pursuant to the Declaration, the trust will dissolve:
- on June 30, 2029, the expiration of the term of the trust;
- when all of the trust securities have been called for redemption and the
amounts necessary for redemption thereof have been paid to the holders of
trust securities in accordance with the terms of the trust securities;
- when all of the junior subordinated debentures have been distributed to
the holders of trust securities in exchange for all of the trust
securities in accordance with the terms of the trust securities; or
- upon a decree of judicial dissolution.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The trust may not consolidate, convert into, amalgamate, merge with or
into, or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below, or as described in "Liquidation Distribution Upon Dissolution."
The trust may, at the request of Litchfield, with the consent of the Regular
Trustees and without the consent of the holders of the trust securities, the
Delaware Trustee or the Property Trustee, consolidate, convert into, amalgamate,
merge with or into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to, a trust organized as such
under the laws of any State; provided, that such successor entity either:
- expressly assumes all of the obligations of the trust under the trust
securities and the Declaration; or
- substitutes for the trust securities other securities having
substantially the same terms as the trust securities (the "Successor
Securities"), so long as the Successor Securities rank the same as the
trust securities rank with respect to Distributions and payments upon
liquidation, redemption and otherwise; and
- Litchfield expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the
holder of the junior subordinated debentures;
- the preferred securities are listed, or any Successor Securities will
be listed upon notification of issuance, on any national securities
exchange or with another organization on which the preferred
securities are then listed or quoted;
- such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the trust securities
(including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new
entity);
- such successor entity has purposes substantially identical to those of
the trust;
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- prior to such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, Litchfield has received an
opinion of counsel experienced in such matters to the effect that:
- such merger, conversion, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the trust securities
(including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the
new entity);
- following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the trust nor
such successor entity will be required to register as an investment
company under the Investment Company Act;
- following such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the trust or such
successor entity will continue to be classified as a grantor trust
for United States federal income tax purposes;
- Litchfield or any other permitted successor or assignee owns all of
the common securities of such successor entity and guarantees the
obligations of such successor entity under the Successor Securities at
least to the extent provided by the preferred securities guarantee;
and
- there shall have been furnished to the Property Trustee an officers'
certificate and an opinion of counsel relating to the satisfaction of
all conditions precedent in the Declaration.
Notwithstanding the foregoing, the trust will not, except with the consent
of holders of 100% in liquidation amount of the trust securities, consolidate,
amalgamate, merge with or into, convert into, or be replaced by or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to, any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if such consolidation,
amalgamation, merger, conversion, replacement, conveyance, transfer or lease
would cause the trust or the Successor Entity to be classified as other than a
grantor trust for United States federal income tax purposes or would cause the
holders of the trust securities not to be treated as owning an undivided
interest in the junior subordinated debentures.
DECLARATION EVENTS OF DEFAULT
An Indenture Event of Default will constitute an event of default under the
Declaration with respect to the trust securities (a "Declaration Event of
Default"); provided that pursuant to the Declaration, the holder of the common
securities will be deemed to have waived any such Declaration Event of Default
with respect to the common securities until all Declaration Events of Default
with respect to the preferred securities have been cured, waived or otherwise
eliminated. Until all such Declaration Events of Default with respect to the
preferred securities have been so cured, waived or otherwise eliminated, the
Property trustee will be deemed to be acting solely on behalf of the holders of
the preferred securities, and only the holders of the preferred securities will
have the right to direct the Property trustee with respect to certain matters
under the Declaration and consequently under the Indenture. In the event that
any Declaration Event of Default with respect to the preferred securities is
waived by the holders of the preferred securities as provided in the
Declaration, the holders of common securities pursuant to the Declaration have
agreed that such waiver also constitutes a waiver of such Declaration Event of
Default with respect to the common securities for all purposes under the
Declaration without any further act, vote or consent of the holders of the
common securities.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, subject to the limitations described below under "--Voting Rights," as
the holder of all of the junior subordinated debentures will have the right
under the Indenture to declare the principal of and interest on the Junior
Subordinated Debentures to be immediately due and payable. In addition, the
Property Trustee will, subject to the limitations described below under
"--Voting Rights," have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee.
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VOTING RIGHTS
Except as provided below, under "--Modification and Amendment of the
Declaration" and "Description of the Preferred Securities Guarantees--
Amendments and Assignment" in the accompanying prospectus and as otherwise
required by the Delaware Business Trust Act, the Trust Indenture Act and the
Declaration, the holders of the preferred securities will have no voting rights.
So long as any junior subordinated debentures are held by the Property
Trustee, the trustees will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee or exercising any trust or
power conferred on the indenture trustee with respect to the junior
subordinated debentures;
- waive any past default that is waivable under Section 6.06 of the
Indenture; or
- exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the junior subordinated debentures;
without, in each case, obtaining the prior approval of the holders of a majority
in liquidation amount of all outstanding preferred securities and common
securities. The trustees shall not revoke any action previously authorized or
approved by a vote of the holders of the preferred securities except by a later
vote of the holders. The Property Trustee will notify each holder of preferred
securities of any notice of default with respect to the junior subordinated
debentures. In addition to obtaining the foregoing approvals of the holders of
the preferred securities and common securities, prior to taking any of the
foregoing actions, the trustees will obtain an opinion of counsel experienced in
these matters to the effect that for United States federal income tax purposes
the trust will not be classified as other than a grantor trust on account of
such action.
If a Declaration Event of Default has occurred and is continuing, then the
holders of a majority in liquidation amount of the preferred securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Property Trustee or to direct the exercise of
any trust or power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the junior subordinated debentures. If the
Property Trustee fails to enforce its rights under the junior subordinated
debentures, a holder of preferred securities, to the extent permitted by
applicable law, may, after a period of 30 days has elapsed from the holder's
written request to the Property Trustee to enforce these rights, institute a
legal proceeding directly against Litchfield to enforce the Property Trustee's
rights under the junior subordinated debentures without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Further, if a Declaration Event of Default has occurred and is continuing and
the event is attributed to the failure of Litchfield to pay interest or
principal on the junior subordinated debentures on the date the interest or
principal is otherwise payable, or in the case of redemption, on the redemption
date, then a holder of preferred securities may directly institute a proceeding
to enforce the payment to the holder of the principal of or interest on the
junior subordinated debentures having a principal amount equal to the aggregate
liquidation amount of the preferred securities of the holder on or after the
respective due date specified in the junior subordinated debentures. In
connection with such Direct Action, Litchfield will be subrogated to the rights
of the holder of preferred securities to the extent of any payment made by
Litchfield to the holders of preferred securities in such direct action. Except
as provided in the preceding sentences, the holders of preferred securities will
not be able to exercise directly any other remedy available to the holders of
the junior subordinated debentures. See "The Trusts--The Property Trustee" in
the accompanying prospectus.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of holders of the preferred securities will constitute a waiver of the
corresponding Declaration Event of Default in respect of the trust securities.
In the event the consent of the Property Trustee as the holder of the
junior subordinated debentures is required under the Indenture for any
amendment, modification or termination of the Indenture or the
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junior subordinated debentures, the Property Trustee will request the written
direction of the holders of the trust securities with respect to the amendment,
modification or termination and shall vote with respect to the amendment,
modification or termination as directed by a majority in liquidation amount of
the trust securities voting together as a single class. If any amendment,
modification or termination under the Indenture would require the consent or
vote of holders of junior subordinated debentures representing a specified
percentage greater than a majority in principal amount of the junior
subordinated debentures, the Property Trustee may only vote with respect to that
amendment, modification or termination as directed by the vote of holders of
trust securities representing such specified percentage of the aggregate
liquidation amount of the trust securities. The Property Trustee will be under
no obligation to take any action in accordance with the directions of the
holders of the trust securities unless the Property Trustee has received an
opinion of counsel experienced in these matters that the trust will not be
classified for United States federal income tax purposes as other than a grantor
trust on account of this action.
Any required approval or direction of holders of preferred securities may
be given at a separate meeting of holders of preferred securities convened for
that purpose, at a meeting of all of the holders of trust securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of preferred securities are entitled to vote to be mailed to each
holder of record of preferred securities. Each notice will include a statement
setting forth:
- the date of the meeting;
- a description of any resolution proposed for adoption at the meeting on
which the holders are entitled to vote; and
- instructions for the delivery of proxies.
No vote or consent of the holders of preferred securities will be required
for the trust to redeem and cancel preferred securities or to distribute the
junior subordinated debentures in accordance with the Declaration.
Notwithstanding that holders of preferred securities are entitled to vote or
consent under any of the circumstances described above, any of the preferred
securities that are owned by Litchfield or by any affiliate of Litchfield will
not be entitled to vote or consent and shall, for purposes of the vote or
consent, be treated as if they were not outstanding.
The procedures by which persons owning preferred securities registered in
the name of and held by DTC or its nominee may exercise their voting rights are
described under "--Book-Entry Only Issuance--The Depository Trust Company"
below.
Holders of preferred securities will have no rights to increase or decrease
the number of trustees or to appoint, remove or replace a trustee, which rights
are held exclusively by the holders of the common securities.
MODIFICATION AND AMENDMENT OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of
the Regular Trustees, provided, that if any proposed modification or amendment
provides for, or the Regular Trustees otherwise propose to effect:
- any action that would adversely affect the powers, preferences or special
rights of the trust securities, whether by amendment to the Declaration,
other than as described below, or otherwise; or
- the dissolution, winding-up or termination of the trust other than under
the terms of the Declaration;
then the holders of the outstanding trust securities as a single class will be
entitled to vote on the amendment or proposal, and the amendment or proposal
will not be effective except with the approval of at least a majority in
liquidation amount of the trust securities. If any amendment or proposal
referred to above would adversely affect only the preferred securities or the
common securities, then only the affected
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class of trust securities will be entitled to vote on the amendment or proposal
and the amendment or proposal shall not be effective except with the approval of
a majority in liquidation amount of such class of trust securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration:
- unless the Regular Trustees shall have first received
- an officers' certificate from Litchfield that the amendment is
permitted by, and conforms to, the terms of the Declaration and
- an opinion of counsel the amendment is permitted by, and conforms to,
the terms of the Declaration and that all conditions precedent, if
any, in the Declaration to execute and deliver the amendment have been
satisfied; and
- to the extent the result of the amendment would be to
- cause the trust to fail to continue to be classified for purposes of
United States federal income taxation as a grantor trust,
- reduce or otherwise adversely affect the powers of the Property
Trustee in contravention of the Trust Indenture Act or
- cause the trust to be deemed to be an "investment company" required to
be registered under the Investment Company Act.
Specified provisions of the Declaration may not be amended without the
consent of all of the holders of the trust securities. No amendment which
adversely affects the rights, powers and privileges of the Property Trustee or
the Delaware Trustee may be made without the consent of the Property Trustee or
Delaware Trustee, respectively. Article IV of the Declaration relating to the
obligation of Litchfield to purchase the common securities and to pay some
obligations and expenses of the trust as described under "The Trusts" in the
accompanying prospectus may not be amended without the consent of Litchfield.
The rights of holders of common securities under Article V of the Declaration to
increase or decrease the number of, and to appoint, replace or remove trustees
shall not be amended without the consent of each holder of common securities.
The Declaration further provides that it may be amended without the consent
of the holders of the trust securities to:
- cure any ambiguity;
- correct or supplement any provision in the Declaration that may be
defective or inconsistent with any other provision of the Declaration;
- add to the covenants, restrictions or obligations of Litchfield;
- conform to changes in, or a change in interpretation or application of
certain Investment Company Act regulations by the Securities and Exchange
Commission;
- make any other provisions with respect to matters or questions arising
under the Declaration which shall not be inconsistent with the other
provisions of the Declaration;
- modify, eliminate or add to any provisions of the Declaration to the
extent necessary to ensure that the trust will be classified for United
States federal income tax purposes as a grantor trust at all times that
any trust securities are outstanding or to ensure that the trust will not
be required to register as an "investment company" under the Investment
Company Act; and
- evidence the acceptance of the appointment of a successor trustee or fill
a vacancy created by an increase in the number of Regular Trustees;
which amendment does not adversely affect in any material respect the rights,
preferences or privileges of the holders of the trust securities.
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Book-Entry Only Issuance--The Depository Trust Company
The Depository Trust Company ("DTC") will act as securities depositary for
the preferred securities. The preferred securities will be issued only as fully
registered securities registered in the name of DTC or its nominee. One or more
fully-registered global preferred securities certificates, representing the
total aggregate number of preferred securities, will be issued and will be
deposited with DTC or pursuant to DTC's instructions.
The laws of some jurisdictions require that some purchasers of securities
take physical delivery of securities in definitive form. These laws may impair
the ability to transfer beneficial interests in a global preferred security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit with
DTC. DTC also facilitates the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Direct Participants' accounts.
This eliminates the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other organizations. DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to securities brokers
and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly.
Direct Participants and Indirect Participants are collectively referred to
herein as "Participants." The rules applicable to DTC and its Participants are
on file with the SEC.
When a Preferred Securities Global Certificate is issued, DTC will credit
on its book-entry registration and transfer system the number of Preferred
Securities represented by such Preferred Securities Global Certificate to the
accounts of institutions that have accounts with DTC. Ownership of beneficial
interests in a Preferred Securities Global Certificate will be limited to
Participants or persons that may hold interests through Participants. The
ownership interest of each actual purchaser of each preferred security is
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners will receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased preferred
securities. Entries are made on the books of Participants acting on behalf of
Beneficial Owners to show transfers of ownership interests. Beneficial Owners
will not receive certificates representing their ownership interests in the
preferred securities, except in the event that use of the book-entry system for
the preferred securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the preferred
securities, DTC's records reflect only the identity of the Direct Participants
to whose accounts such preferred securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers. So long as DTC, or its
nominee, is the owner of a Preferred Securities Global Certificate, DTC or such
nominee, as the case may be, will be considered the sole owner and holder of
record of the preferred securities represented by such Preferred Securities
Global Certificate for all purposes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect.
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While DTC is acting as the securities depository for the preferred
securities, redemption notices will be sent by Litchfield and the trust directly
to DTC. DTC will then inform the Direct Participants, who will then contact the
Beneficial Owners. If less than all of the preferred securities are being
redeemed, DTC's practice is to determine by lot the interest of each Direct
Participant to be redeemed.
Although voting with respect to the preferred securities is limited, in
those instances in which a vote is required, neither DTC nor Cede & Co. will
consent or vote with respect to preferred securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the preferred
securities are credited on the record date, identified in a listing attached to
the Omnibus Proxy.
Distribution payments on the preferred securities represented by a
Preferred Series Global Certificate will be made by the Property Trustee to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices and will be the responsibility of
such Participants and not of DTC, the trust or Litchfield, subject to any
statutory or regulatory requirements as may be in effect at times. Payment of
Distributions to DTC is the responsibility of the trust, disbursement of such
payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided in this prospectus supplement, a Beneficial Owner will
not be entitled to receive physical delivery of preferred securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the preferred securities.
DTC may discontinue providing its services as securities depository with
respect to the preferred securities at any time by giving reasonable notice to
the trust. Under those circumstances, if a successor securities depository is
not obtained, preferred securities certificates will be required to be printed
and delivered. Additionally, the trust may decide to discontinue use of the
system of book-entry transfers through DTC, or a successor depository. In that
event, certificates for the preferred securities will be printed and delivered.
Under the Declaration, payments made by the trust to DTC or its nominee
will satisfy the trust's obligations under the Declaration, to the extent of the
payments so made. Beneficial Owners will not be, and will not be considered by
the trust to be, and will not have any rights as, owners of preferred securities
under the Declaration.
The trust, Litchfield and the trustees will have no responsibility or
obligation to any Direct Participant, Indirect Participant or any Beneficial
Owner or any other person not shown on the registration books of the trust as
being a registered owner with respect to: (1) the accuracy of any records
maintained by DTC or any Direct Participant or Indirect Participant, (2) the
payment of any amount due by DTC to any Direct Participant or by any Direct
Participant or Indirect Participant to any Beneficial Owner in respect of
Distributions, (3) the delivery of any notice by DTC to any Direct Participant
or by any Direct Participant or Indirect Participant to any Beneficial Owner
that is required or permitted to be given to registered owners under the terms
of the Declaration, (4) the selection of the Beneficial Owners to receive
payment in the event of any practical redemption of the preferred securities or
(5) any consent given or other action taken by DTC as a registered owner.
The trustee and the trust, so long as a book-entry only system is used for
the preferred securities, will send any notice of redemption or of proposed
document amendments requiring consent of registered owners and any other notices
required by the document to be sent to registered owners only to DTC, or any
successor securities depository, or its nominee. Any failure of DTC to advise
any Direct Participant, or of any Direct Participant or Indirect Participant to
notify the Beneficial Owner, of any notice and its
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content or effect will not affect the validity of the redemption of the
preferred securities called for redemption, the document amendment or any other
action premised on that notice.
The trust, Litchfield and the trustees cannot and do not assure that DTC
will distribute Distributions and other payments on the preferred securities
made to DTC or its nominee as the registered owner or any redemption or other
notices to the Participants, or that the Participants or others will distribute
the payments or notices to the Beneficial Owners, or that they will do so on a
timely basis, or that DTC will serve and act in the manner described in this
prospectus supplement. Beneficial Owners should make appropriate arrangements
with their broker or dealer regarding distribution of information regarding the
preferred securities that may be transmitted by or through DTC.
The foregoing information concerning DTC and DTC's book-entry system is
based upon information obtained from DTC and contains statements that are
believed to describe accurately DTC, the method of effecting book-entry
transfers of securities distributed through DTC and related matters. Neither the
trust nor Litchfield take any responsibility for the accuracy of these
statements.
Registrar, Transfer Agent and Paying Agent
If the preferred securities do not remain in book-entry only form, the
following provisions will apply.
Payment of Distributions and payments on redemption of the preferred
securities will be payable, the transfer of the preferred securities will be
registrable, and preferred securities will be exchangeable for preferred
securities of other denominations of a like aggregate liquidation amount at the
corporate trust office of the Property Trustee in New York, New York. Payment of
Distributions may be made at the option of the Regular Trustees on behalf of the
trust by check mailed to the address of the persons entitled to the payments and
the payment on redemption of any preferred security will be made only upon
surrender of the preferred security to the Property Trustee.
The Bank of New York or one of its affiliates will act as registrar and
transfer agent for the preferred securities. The Bank of New York will also act
as paying agent and, with the consent of the Regular Trustees, may designate
additional paying agents.
Registration of transfers of preferred securities will be effected without
charge by or on behalf of the trust but only upon payment, with the giving of
such indemnity as the Regular Trustees may require of, any tax or other
governmental charges that may be imposed in relation to it.
The trust will not be required to register or cause to be registered the
transfer of preferred securities after such preferred securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a Declaration Event of
Default and after the curing of all Declaration Events of Default that may have
occurred, will undertake to perform only the duties that are specifically set
forth in the Declaration and, after the occurrence of a Declaration Event of
Default, that has not been cured or waived, shall exercise the rights and powers
vested in it by the Declaration and use the same degree of care and skill in
their exercise, as a prudent individual would exercise or use under the
circumstances in the conduct of his or her own affairs. The Property Trustee is
under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of preferred securities, unless offered
reasonable security and indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Property Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Property Trustee has
reasonable grounds for believing that the repayment of such funds or liability
or adequate indemnity against such risk or liability is not reasonably assured
to it.
Litchfield and its subsidiaries maintain commercial banking and trust
relationships with the Property Trustee and its affiliates.
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Governing Law
The Declaration and the preferred securities will be governed by, and
construed in accordance with, the laws of the State of Delaware.
Miscellaneous
The Regular Trustees are authorized and directed to take such action as
they determine in their discretion to be necessary or desirable in carrying out
the purposes of the trust, including, but not limited to:
- causing the trust not to be deemed to be an "investment company" required
to be registered under the Investment Company Act;
- causing the trust to be classified for United States federal income tax
purposes as a grantor trust; and
- cooperating with Litchfield to ensure that the junior subordinated
debentures will be treated as indebtedness of Litchfield for United
States federal income tax purposes.
In this connection, the Regular Trustees are authorized to take any action
not inconsistent with applicable law, the certificate of trust or the
Declaration that the Regular Trustees determine in their discretion to be
reasonable and necessary or desirable for such purposes.
Litchfield and the Regular Trustees on behalf of the trust will be required
to provide to the Property Trustee annually a certificate as to whether or not
Litchfield and the trust, respectively, are in compliance with all the
conditions and covenants under the Declaration.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Pursuant to the preferred securities guarantee, Litchfield will irrevocably
and unconditionally agree, to the extent set forth therein, to pay in full to
the holders of the preferred securities, the Guarantee Payments (as defined in
the accompanying prospectus) (without duplication of amounts theretofore paid by
the trust) as and when due, regardless of any defense, right of set-off or
counterclaim which the trust may have or assert. Litchfield's obligation to make
a Guarantee Payment may be satisfied by direct payment of the required amounts
by Litchfield to the holders of preferred securities or by causing the trust to
pay such amounts to such holders. The preferred securities guarantee will be
qualified as an indenture under the Trust Indenture Act. The Bank of New York
will act as indenture trustee under the preferred securities guarantee (the
"Guarantee Trustee"). The terms of the preferred securities guarantee will be
those set forth in such preferred securities guarantee and those made part of
such preferred securities guarantee by the Trust Indenture Act. The preferred
securities guarantee will be held by the Guarantee Trustee for the benefit of
the holders of the preferred securities. A summary description of the preferred
securities guarantee appears in the accompanying prospectus under the caption
"Description of the Preferred Securities Guarantees."
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the junior subordinated debentures in
which the trust will invest the proceeds from the issuance and sale of the trust
securities and which will be deposited in the trust as trust assets. The terms
of the junior subordinated debentures include those stated in the Junior
Subordinated Indenture to be dated as of May 19, 1999 between Litchfield and The
Bank of New York, as trustee (the "Indenture Trustee"), as supplemented by
Supplemental Indenture No. 1 to be dated as of May 19, 1999 between Litchfield
and the Indenture Trustee (as so supplemented, the "Indenture") and those made
part of the Indenture by the Trust Indenture Act. This description supplements
the description of the general terms and provisions of the junior subordinated
debentures set forth in the accompanying prospectus under the caption
"Description of the Junior Subordinated Debt Securities." The following
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description does not purport to be complete and is qualified in its entirety by
reference to the Indenture and the Trust Indenture Act. Whenever particular
provisions or defined terms in the Indenture are referred to herein, such
provisions or defined terms are incorporated by reference herein.
The Indenture does not limit the aggregate principal amount of indebtedness
which may be issued thereunder and provides that junior subordinated debentures
may be issued thereunder from time to time in one or more series. The junior
subordinated debentures constitute a separate series under the Indenture.
Under certain circumstances involving the dissolution of the trust, junior
subordinated debentures may be distributed to the holders of the trust
securities in liquidation of the trust. See "Description of the Preferred
Securities--Distribution of the Junior Subordinated Debentures."
GENERAL
The junior subordinated debentures are unsecured, subordinated obligations
of Litchfield, limited in aggregate principal amount to an amount equal to the
sum of:
- the stated liquidation amount of the preferred securities issued by the
trust; and
- the proceeds received by the trust upon issuance of the common securities
to Litchfield (which proceeds will be used to purchase an equivalent
principal amount of junior subordinated debentures).
The entire principal amount of the junior subordinated debentures will
become due and payable, together with any accrued and unpaid interest thereon,
on June 30, 2029, unless such maturity date is shortened by Litchfield as
described herein under "--Litchfield's Right to Shorten Maturity." The junior
subordinated debentures are not subject to any sinking fund.
If junior subordinated debentures are distributed to holders of preferred
securities upon the dissolution of the trust, such junior subordinated
debentures will initially be issued as a Global Security (as defined below). As
described herein, under certain limited circumstances, junior subordinated
debentures may be issued in certificated form in exchange for a Global Security.
See "--Book-Entry and Settlement" below. In the event that junior subordinated
debentures are issued in certificated form, such junior subordinated debentures
will be in denominations of $10 and integral multiples thereof and may be
transferred or exchanged at the offices described below. Payments on junior
subordinated debentures issued as a Global Security will be made to DTC, a
successor depositary, or in the event that no depositary is used, to a paying
agent for the junior subordinated debentures.
In the event that junior subordinated debentures are issued in certificated
form, payments of principal and interest will be payable, the transfer of the
junior subordinated debentures will be registrable, and junior subordinated
debentures will be exchangeable for junior subordinated debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Indenture Trustee in New York, New York; provided that payment of
interest may be made at the option of Litchfield by check mailed to the address
of the persons entitled thereto and that the payment of principal with respect
to any Junior Subordinated Debenture will be made only upon surrender of such
Junior Subordinated Debenture to the Indenture Trustee.
OPTIONAL REDEMPTION
Except as provided below, the junior subordinated debentures may not be
redeemed prior to June 30, 2004. Litchfield shall have the right to redeem the
junior subordinated debentures, in whole or in part, from time to time, on or
after June 30, 2004, upon not less than 30 nor more than 60 days' notice, at
100% of the principal amount of the junior subordinated debentures together with
accrued and unpaid interest, including Compounded Interest (as hereinafter
defined) to, but excluding, the redemption date.
If the junior subordinated debentures are redeemed on any Interest Payment
Date (as defined below), accrued and unpaid interest shall be payable to holders
of record on the relevant record date.
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So long as the trust securities are outstanding, the proceeds from the
redemption of any junior subordinated debentures will be used to redeem trust
securities.
Litchfield will also have the right to redeem the junior subordinated
debentures, in whole but not in part, within 90 days following the occurrence of
a Special Event as described under "Description of the Preferred
Securities--Special Event Redemption."
Litchfield may not redeem any junior subordinated debentures unless all
accrued and unpaid interest thereon, including Compounded Interest, if any, has
been paid for all quarterly periods terminating on or prior to the date of
notice of redemption.
If Litchfield gives a notice of redemption in respect of junior
subordinated debentures (which notice will be irrevocable), then by 10:00 a.m.,
New York City time, on the redemption date, Litchfield will deposit irrevocably
with the Indenture Trustee funds sufficient to pay the applicable Redemption
Price and will give irrevocable instructions and authority to pay such
Redemption Price to the holders of the junior subordinated debentures. If notice
of redemption shall have been given and funds deposited as required, then
immediately prior to the close of business on the redemption date interest will
cease to accrue on the junior subordinated debentures called for redemption,
such junior subordinated debentures will no longer be deemed to be outstanding
and all rights of holders of such junior subordinated debentures so called for
redemption will cease, except the right of the holders of such junior
subordinated debentures to receive the applicable Redemption Price but without
interest on such Redemption Price. If any date fixed for redemption of junior
subordinated debentures is not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date fixed for redemption. If
Litchfield fails to repay the junior subordinated debentures on maturity or the
date fixed for redemption or if payment of the Redemption Price in respect of
junior subordinated debentures is improperly withheld or refused and not paid by
Litchfield, interest on such junior subordinated debentures will continue to
accrue from the original redemption date to the date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the applicable Redemption Price. If fewer than all of
the junior subordinated debentures are to be redeemed, the junior subordinated
debentures will be redeemed pro rata or by lot or by any other method utilized
by the Indenture Trustee.
In the event of any redemption in part, Litchfield will not be required to:
- issue, register the transfer of, or exchange any junior subordinated
debentures during a period beginning at the opening of business 15 days
before the mailing of a notice of redemption of junior subordinated
debentures and ending at the close of business on the date of such
mailing; and
- register the transfer of or exchange any junior subordinated debentures
so selected for redemption, in whole or in part, except the unredeemed
portion of any junior subordinated debentures being redeemed in part.
INTEREST
The junior subordinated debentures will bear interest at the rate of 10%
per annum from May 14, 1999. Interest will be payable quarterly in arrears June
30, September 30, December 31 and March 31 of each year (each, an "Interest
Payment Date"), commencing on June 30, 1999, to the person in whose name such
junior subordinated debenture is registered, subject to certain exceptions, at
the close of business on the Business Day next preceding such Interest Payment
Date. In the event (i) the preferred securities shall not continue to remain in
book-entry only form or (ii) if following distribution of the junior
subordinated debentures to holders of trust securities upon dissolution of the
trust as described under "Description of the Preferred Securities--Distribution
of the Junior Subordinated Debentures," the junior subordinated debentures shall
not continue to remain in book-entry only form, the relevant record date will be
the fifteenth day of the month in which the relevant Interest Payment Date
occurs. Interest payable on
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any Junior Subordinated Debenture that is not punctually paid or duly provided
for on any Interest Payment Date will forthwith cease to be payable to the
person in whose name such Junior Subordinated Debenture is registered on the
relevant record date, and such defaulted interest will instead be payable to the
person in whose name such junior subordinated debenture is registered on the
special record date or other specified date determined in accordance with the
Indenture; provided, however, that interest shall not be considered payable by
Litchfield on any Interest Payment Date falling within an Extension Period
unless Litchfield has elected to make a full or partial payment of interest
accrued on the junior subordinated debentures on such Interest Payment Date. The
amount of interest payable for any full quarterly interest period will be
computed on the basis of a 360-day year of twelve 30-day months, and for any
period shorter than a full quarterly interest period for which interest is
computed, interest will be computed on the basis of the actual number of days
elapsed per 90-day quarter. If any date on which interest is payable on the
junior subordinated debentures is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such payment was
originally payable.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as Litchfield is not in default in the payment of interest on the
junior subordinated debentures, Litchfield will have the right to defer payments
of interest on the junior subordinated debentures by extending the interest
payment period at any time from time to time for an extension period not
exceeding 20 consecutive quarterly interest periods (each such period, an
"Extension Period"). Litchfield has no current intention of exercising its right
to extend an interest payment period. No interest will be due and payable on the
junior subordinated debentures during an Extension Period, except at the end
thereof. During any Extension Period, Litchfield will not:
- declare or pay any dividends on, or redeem, purchase, acquire or make a
distribution or liquidation payment with respect to, any of its capital
stock other than:
- dividends or distributions in shares of, or options, warrants,
rights to subscribe for or purchase shares of, Litchfield's common
stock;
- any declaration of a dividend in connection with the implementation
of a shareholders' rights plan, or the issuance of stock under any
such plan in the future, or the redemption or repurchase of any
such rights pursuant thereto;
- as a result of a reclassification of Litchfield's capital stock or
the exchange or the conversion of one class or series of
Litchfield's capital stock for another class or series of
Litchfield's capital stock;
- the payment of accrued dividends and the purchase of fractional
interests in shares of Litchfield's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the
security being converted or exchanged;
- purchases of Litchfield's common stock related to the issuance of
Litchfield's common stock or rights under any of Litchfield's
benefit plans for its directors, officers, employees, any of
Litchfield's dividend reinvestment plans or stock purchase plans,
or any of the benefit plans of any of Litchfield's affiliates for
such affiliates' directors, officers or employees;
- make any payment of principal or of interest or premium, if any, on or
repay, repurchase or redeem any debt security of Litchfield that, ranks
pari passu with or junior in interest to the junior subordinated
debentures; or
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- make any guarantee payments with respect to any guarantee by Litchfield
of the debt securities of any subsidiary of Litchfield (other than the
preferred securities guarantee) if such guarantee ranks pari passu with
or junior in interest to the junior subordinated debentures.
Prior to the termination of any such Extension Period, Litchfield may
further extend such Extension Period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarterly interest periods or extend beyond the maturity of the
junior subordinated debentures. On the Interest Payment Date occurring at the
end of each Extension Period, Litchfield will pay to the holders of junior
subordinated debentures of record on the record date for such Interest Payment
Date (regardless of who the holders of record may have been on other dates
during the Extension Period) all accrued and unpaid interest on the junior
subordinated debentures, together with interest thereon at the rate specified
for the junior subordinated debentures to the extent permitted by applicable
law, compounded quarterly ("Compounded Interest"). Upon the termination of any
Extension Period and the payment of all amounts then due, Litchfield may
commence a new Extension Period, subject to the above requirements. Litchfield
may also prepay at any time all or any portion of the interest accrued during an
Extension Period. Consequently, there could be multiple Extension Periods of
varying lengths throughout the term of the junior subordinated debentures, not
to exceed 20 consecutive quarterly interest periods; provided, that no such
period may extend beyond the stated maturity of the junior subordinated
debentures. The failure by Litchfield to make interest payments during an
Extension Period would not constitute a default or an event of default under the
Indenture or Litchfield's currently outstanding indebtedness.
If the Property Trustee is the sole holder of the junior subordinated
debentures, Litchfield will give the Property Trustee notice of its election to
begin an Extension Period one Business Day prior to the earlier of:
- the next succeeding date on which Distributions on the preferred
securities are payable; or
- the date the trust is required to give notice to the Nasdaq National
Market or other applicable self-regulatory organization or to holders of
the preferred securities of the record date or the date such Distribution
is payable.
The trust will give notice of Litchfield's election to begin such Extension
Period to the holders of the preferred securities.
If junior subordinated debentures have been distributed to holders of trust
securities, Litchfield will give the holders of the junior subordinated
debentures notice of its election to begin an Extension Period at least ten
Business Days prior to the earlier of:
- the next succeeding Interest Payment Date; or
- the date Litchfield is required to give notice to the Nasdaq National
Market (if the junior subordinated debentures are then listed thereon) or
other applicable self-regulatory organization or to holders of the junior
subordinated debentures of the record or payment date of such related
interest payment.
ADDITIONAL INTEREST
If at any time the trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the U.S. or any other taxing authority, then, in any such
case, Litchfield will pay as additional interest ("Additional Interest") on the
junior subordinated debentures such additional amounts as shall be required so
that the net amounts received and retained by the trust after paying any such
taxes, duties, assessments or other governmental charges will be equal to the
amounts the trust would have received had no such taxes, duties, assessments or
other governmental charges been imposed.
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COMPOUNDED INTEREST
Payments of Compounded Interest on the junior subordinated debentures held
by the trust will make funds available to pay additional cash distributions on
Distributions in arrears in respect of the preferred securities pursuant to the
terms thereof.
LITCHFIELD'S RIGHT TO SHORTEN MATURITY
If a Tax Event occurs, then Litchfield will have the right (i) prior to the
dissolution of the trust, to shorten the stated maturity of the junior
subordinated debentures to the minimum extent required, but not earlier than
September 30, 2018 or (ii) to direct the Property Trustee to dissolve the trust
(if not previously dissolved) and shorten the stated maturity of the junior
subordinated debentures to the minimum extent required, but not earlier than
September 30, 2018, in each case such that in the opinion of counsel to
Litchfield experienced in such matters, after shortening the stated maturity,
interest paid on the junior subordinated debentures will be deductible for
federal income tax purposes.
If Litchfield exercises its right and shortens the stated maturity of the
junior subordinated debentures, the trust will redeem all of the outstanding
preferred securities when the junior subordinated debentures are paid on their
new maturity date.
BOOK-ENTRY AND SETTLEMENT
If any junior subordinated debentures are distributed to holders of
preferred securities (see "Description of the Preferred Securities--
Distribution of the Junior Subordinated Debentures"), such junior subordinated
debentures will be issued in the form of one or more global certificates (each a
"Global Security") registered in the name of the Depositary or its nominee.
Except under the limited circumstances described below, junior subordinated
debentures represented by the Global Security will not be exchangeable for, and
will not otherwise be issuable as, junior subordinated debentures in definitive
form. The Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or to a successor Depositary
or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in a Global
Security.
Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to receive physical delivery of junior
subordinated debentures in definitive form and will not be considered the
holders (as defined in the Indenture) thereof for any purpose under the
Indenture, and no Global Security representing junior subordinated debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor Depositary or its nominee. Accordingly, each such beneficial owner
must rely on the procedures of the Depositary or, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Indenture. If junior
subordinated debentures are distributed to holders of preferred securities, DTC
will act as securities depositary for the junior subordinated debentures.
For a description of DTC and DTC's book-entry system, see "Description of
the Preferred Securities--Book-Entry Only Issuance--The Depository Trust
Company." As of the date of this prospectus supplement, the description herein
of DTC's book-entry system and DTC's practices as they relate to purchases,
transfers, notices and payments with respect to the preferred securities apply
in all material respects to any debt obligations represented by one or more
Global Securities held by DTC. Litchfield may appoint a successor to DTC or any
successor depositary in the event DTC or the successor depositary is unable or
unwilling to continue as a depository for the Global Securities.
Litchfield, the Indenture Trustee, any paying agent and any other agent of
Litchfield or the Indenture Trustee will not have any responsibility or
liability for any aspect of the records relating to or payments
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made on account of beneficial ownership interests in a Global Security for
junior subordinated debentures or for maintaining, supervising or reviewing any
records relating to the beneficial ownership interests.
A Global Security shall be exchangeable for junior subordinated debentures
registered in the names of persons other than the depositary or its nominee only
if:
- the Depositary notifies Litchfield that it is unwilling or unable to
continue as a depositary for the Global Security and no successor
depositary shall have been appointed;
- the Depositary, at any time, ceases to be a clearing agency registered
under the Exchange Act at which time the Depositary is required to be so
registered to act as a depositary and no successor depositary shall have
been appointed; or
- Litchfield, in its sole discretion, determines that the Global Security
shall be so exchangeable.
Any Global Security that is exchangeable pursuant to the preceding sentence
will be exchangeable for junior subordinated debentures registered in the names
that the Depositary shall direct. It is expected that those instructions will be
based upon directions received by the Depositary from its Participants with
respect to ownership of beneficial interests in the Global Security.
RELATIONSHIP BETWEEN THE PREFERRED SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the trust exists for the purposes of:
- issuing the trust securities evidencing undivided beneficial interests in
the assets of the trust and investing the proceeds thereof in the junior
subordinated debentures; and
- only engaging in other activities as are necessary, convenient and
incidental thereto or are specifically authorized in the Declaration.
As long as payments of interest and other payments are made when due on the
junior subordinated debentures, those payments will be sufficient to cover
Distributions and other payments due on the preferred securities primarily
because:
- the aggregate principal amount of junior subordinated debentures held as
trust assets by the trust will be equal to the sum of the aggregate
stated liquidation amount of the preferred securities and the common
securities;
- the interest rate and interest and other payment dates of the junior
subordinated debentures will match the distribution rate and Distribution
and other payment dates of the preferred securities;
- the Declaration further provides that the trustees will not cause or
permit the trust, among other things, to engage in any activity that is
not consistent with the limited purposes of the trust; and
- the Declaration provides that Litchfield will pay for all debts and
obligations, other than with respect to the trust securities, and all
costs and expenses of the trust, including the fees and expenses of the
trustees and any taxes and all costs and expenses with respect thereto,
to which the trust may become subject, except for United States
withholding taxes. However, no assurance can be given that Litchfield
will have sufficient resources to enable it to pay those debts,
obligations, costs and expenses on behalf of the trust.
Payments of Distributions and other payments due on the preferred
securities are guaranteed by Litchfield on a subordinated basis as and to the
extent set forth under "Description of the Preferred Securities Guarantees" in
the accompanying prospectus. If Litchfield does not make interest or other
payments on the junior subordinated debentures, the trust will not make
Distributions or other payments on the preferred securities. Under the
Declaration, if and to the extent Litchfield does make interest or other
payments on the junior subordinated debentures, the Property Trustee is
obligated to make Distributions or other payments on the preferred securities.
The preferred securities guarantee is a full and
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unconditional guarantee from the time of issuance of the preferred securities,
but the preferred securities guarantee covers distributions and other payments
on the preferred securities only if and to the extent that Litchfield has made a
payment to the Property Trustee of interest or principal on the junior
subordinated debentures.
The Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture with respect to the junior subordinated
debentures, including its rights as the holder of the junior subordinated
debentures to enforce Litchfield's obligations under the junior subordinated
debentures upon the occurrence of an Indenture Event of Default. The Guarantee
Trustee will have the right to enforce the preferred securities guarantee on
behalf of the holders of the preferred securities. In addition, the holders of
at least a majority in liquidation amount of the preferred securities will have
the right to direct the Property Trustee with respect to certain matters under
the Declaration and the preferred securities guarantee. If the Property Trustee
fails to enforce its rights under the Indenture, any holder of preferred
securities may, after a period of 30 days has elapsed from the holder's written
request to the Property Trustee to enforce these rights, institute a legal
proceeding against Litchfield to enforce those rights. If the Guarantee Trustee
fails to enforce the preferred securities guarantee, to the extent permitted by
applicable law, any holder of preferred securities may institute a legal
proceeding directly against Litchfield to enforce the Guarantee Trustee's rights
under the preferred securities guarantee. Notwithstanding the foregoing, if
Litchfield has failed to make a guarantee payment, a holder of preferred
securities may directly institute a proceeding against Litchfield for
enforcement of the preferred securities guarantee for such payment. See
"Description of the Preferred Securities" and "Description of the Preferred
Securities Guarantee" herein and "Description of the Preferred Securities
Guarantees--Status of the Preferred Securities Guarantee" in the accompanying
prospectus.
The above mechanisms and obligations, taken together, provide a full and
unconditional guarantee by Litchfield of payments due on the preferred
securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Hutchins, Wheeler & Dittmar, A Professional Corporation,
counsel to Litchfield and the trust, the following are the material United
States federal income tax consequences of the ownership and disposition of the
preferred securities. Unless otherwise stated, this summary deals only with the
preferred securities held as capital assets by holders who acquire the preferred
securities upon original issuance at the price indicated on the cover of this
prospectus supplement. The tax treatment of a holder may vary depending on the
holder's particular situation. This summary does not deal with special classes
of holders, such as, for example, dealers in securities or currencies, banks,
thrifts, real estate investment trusts, regulated investment companies, life
insurance companies, persons holding preferred securities as part of a straddle
or as part of a hedging or conversion transaction, or persons whose functional
currency is not the United States dollar. Further, it does not include any
description of alternative minimum tax consequences or the tax laws of any state
or local government or any foreign government that may be applicable to the
preferred securities. This summary is based on the Internal Revenue Code of
1986, as amended, final and temporary Treasury Regulations promulgated
thereunder, published administrative positions of the Internal Revenue Service
(the "IRS"), and reported judicial decisions, all as existing on the date
hereof, and all of which are subject to change, possibly on a retroactive basis.
In particular, legislation was previously proposed by the Clinton Administration
in 1996 and 1997 that, if enacted, could have adversely affected Litchfield's
ability to deduct interest on the junior subordinated debentures. In addition,
the IRS has challenged the interest deduction in a similar arrangement that is
in the early stages of litigation in the Tax Court. Loss of the interest
deduction would permit Litchfield to cause a redemption of the junior
subordinated debentures and therefore cause a redemption of the preferred
securities. Alternatively, Litchfield could, in its discretion, dissolve the
trust and cause the junior subordinated debentures to be distributed to the
holders of the trust securities. See "Description of the Preferred
Securities -- Special Event Redemption." The authorities on which this summary
is based are subject to various interpretations, and it is therefore possible
that the federal income tax treatment of the ownership and disposition of
preferred securities may differ from the treatment described below.
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Investors are advised to consult their own tax advisors as to the United
States federal income tax consequences of the ownership and disposition of the
preferred securities in light of their particular circumstances, as well as the
effect of any state, local or other tax laws.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
Litchfield intends to take the position that the junior subordinated
debentures will be classified for United States federal income tax purposes as
indebtedness under current law. No assurance can be given, however, that this
position of Litchfield will not be challenged by the IRS. As mentioned above,
the allowability of the interest deduction in a similar arrangement is currently
being litigated in the Tax Court. The remainder of this discussion assumes that
the junior subordinated debentures will be classified for United States federal
income tax purposes as indebtedness of Litchfield.
CLASSIFICATION OF THE TRUST
Assuming full compliance with the terms of the Declaration, the trust will
be classified for United States federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, each holder of
preferred securities will be considered the owner of a pro rata portion of the
junior subordinated debentures held by the trust and will be required to include
in gross income the holder's pro rata share of income accrued on the junior
subordinated debentures, whether or not cash is actually distributed to the
holders.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations issued in 1996 applicable to debt instruments
(the "Regulations"), a "remote" contingency that stated interest will not be
timely paid will be ignored in determining whether a debt instrument is issued
with original issue discount ("OID"). Litchfield believes that the likelihood of
its exercising its option to defer payments is remote. Based on the foregoing,
the junior subordinated debentures will not be considered to be issued with OID
at the time of their original issuance and, accordingly, a holder should include
in gross income the holder's allocable share of interest on the junior
subordinated debentures in accordance with the holder's method of tax
accounting.
Under the Regulations, if Litchfield exercised its option to defer any
payment of interest, the junior subordinated debentures would at that time be
treated as issued with OID, and all stated interest on the junior subordinated
debentures would thereafter be treated as OID as long as the junior subordinated
debentures remained outstanding. In that event, each holder of the preferred
securities, including a taxpayer who otherwise uses the cash method of
accounting, would be required to include the holder's pro rata share of OID on
the junior subordinated debentures in income as it accrued, in accordance with a
constant yield method based on a compounding of interest, before the receipt of
Distributions on the preferred securities. Generally, during an Extension
Period, all of a holder's taxable interest income with respect to the junior
subordinated debentures will be accounted for as "OID" and actual distributions
of stated interest will not be separately reported as taxable income.
Consequently, during an Extension Period, a holder would be required to include
OID in gross income even though Litchfield would not make any actual cash
payments.
The Regulations have not been addressed in any rulings or other
interpretations by the IRS, and it is possible that the IRS could take a
position contrary to the interpretation herein.
No portion of the amounts received on the preferred securities will be
eligible for the dividends received deduction.
Subsequent uses of the term "interest" in this summary include income in
the form of OID.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD ON THE JUNIOR SUBORDINATED
DEBENTURES
Holders of preferred securities will begin to accrue OID with respect to
their pro rata share of the junior subordinated debentures during an Extension
Period. A holder who disposes of the preferred securities during an Extension
Period may suffer a loss because the market value of the preferred securities
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<PAGE> 57
will likely fall if Litchfield exercises its option to defer payments of
interest on the junior subordinated debentures. See "--Disposition of the
Preferred Securities" below. Furthermore, the market value of the preferred
securities may not reflect the accumulated Distributions that will be paid at
the end of the Extension Period, and a holder who sells the preferred securities
during the Extension Period will not receive from Litchfield any cash related to
the interest income the holder accrued and included in the holder's taxable
income under the OID rule (because that cash will be paid to the holder of
record at the end of the Extension Period).
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by the trust of the junior subordinated
debentures as described under the caption "Description of the Preferred
Securities--Distribution of the Junior Subordinated Debentures" will be
nontaxable and will result in the holder receiving directly the holder's pro
rata share of the junior subordinated debentures previously held indirectly
through the trust, with a holding period and tax basis equal to the holding
period and adjusted tax basis such holder was considered to have had in the
holder's pro rata share of the underlying junior subordinated debentures prior
to such distribution. A holder will include interest income in respect of junior
subordinated debentures received from the trust in the manner described above
under "-- Interest Income and Original Issue Discount."
DISPOSITION OF THE PREFERRED SECURITIES
Upon a sale, exchange or other disposition of the preferred securities
(including a distribution of cash in redemption of a holder's preferred
securities upon redemption or repayment of the underlying junior subordinated
debentures, but excluding the distribution of junior subordinated debentures), a
holder will recognize gain or loss equal to the difference between the amount
realized on the sale of such preferred securities and the holder's adjusted tax
basis in the preferred securities. The amount realized will equal the cash
received, less the amount of accrued and unpaid interest with respect to the
holder's pro rata share of the junior subordinated debentures. The holder will
be required to include such accrued and unpaid interest in the holder's ordinary
income. Assuming that Litchfield does not exercise its option to defer payment
of interest on the junior subordinated debentures, a holder's adjusted tax basis
in the preferred securities generally will be the holder's initial purchase
price. If the junior subordinated debentures are deemed to be issued with OID as
a result of Litchfield's deferral of any interest payment or otherwise, a
holder's tax basis in the preferred securities generally will be the holder's
initial purchase price, increased by OID previously includible in the holder's
gross income to the date of disposition and decreased by Distributions or other
payments received on the preferred securities since and including the date of
the first Extension Period. Such gain or loss generally will be a capital gain
or loss and generally will be a long-term capital gain or loss if the preferred
securities have been held for more than one year.
If Litchfield exercises its option to defer any payment of interest on the
junior subordinated debentures, the preferred securities may trade at a price
that does not fully reflect the value of accrued but unpaid interest on the
underlying junior subordinated debentures. If this deferral occurs, a holder who
disposes of the holder's preferred securities between record dates for payments
of Distributions thereon will nevertheless be required to include in income, as
OID, accrued but unpaid interest on the junior subordinated debentures through
the date of disposition and to add that amount to the holder's adjusted tax
basis in the holder's preferred securities. Accordingly, the holder will
recognize a capital loss to the extent the selling price, which may not fully
reflect the value of accrued but unpaid interest, is less than the holder's
adjusted tax basis, which will include accrued but unpaid interest. Subject to
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
INFORMATION REPORTING TO HOLDERS
The trust will report the interest income paid or accrued during the year
with respect to the junior subordinated debentures, and any gross proceeds
received by the trust from the retirement or redemption of the junior
subordinated debentures, annually to the holders of record of the preferred
securities and the
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IRS. The trust currently intends to deliver these reports to holders of record
prior to January 31 following each calendar year. It is anticipated that persons
who hold preferred securities as nominees for beneficial holders will report the
required tax information to beneficial holders on Form 1099.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, preferred securities may
be subject to a "backup" withholding tax of 31% unless the holder complies with
certain certification procedures. Any withheld amounts will generally be allowed
as a credit against the holder's federal income tax, provided the required
information is timely filed with the IRS.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust who or that is, for U.S.
federal income tax purposes, a foreign corporation, a nonresident alien
individual, a foreign partnership or a nonresident fiduciary of a foreign estate
or trust.
United States Treasury Regulations were published in the Federal Register
on October 14, 1997 that affect the procedures to be followed by a United States
Alien Holder in establishing its non-U.S. person status. These regulations are
generally effective with respect to payments made after December 31, 1999,
subject to transition rules. The discussion below is not intended to be a
complete discussion of the provisions of these regulations, and prospective
investors are urged to consult their own tax advisors with respect to the effect
of these regulations.
Litchfield and the trust, respectively, will not pay any additional amounts
on the junior subordinated debentures deemed to be held, and on the Preferred
Securities held, by a United States Alien Holder in respect of any tax,
assessment or governmental charge withheld or deducted.
PAYMENTS ON THE PREFERRED SECURITIES
As discussed above, Litchfield intends to take the position that the junior
subordinated debentures will be classified for United States federal income tax
purposes as indebtedness of Litchfield under current law. However, Litchfield
cannot assure you that this position will not be challenged by the IRS.
Assuming that the junior subordinated debentures are classified for United
States federal income tax purposes as indebtedness of Litchfield and subject to
the discussion of effectively connected income below, under present United
States federal income tax law, payments by the trust or any of its paying agents
to any holder of preferred securities who or that is a United States Alien
Holder will not be subject to U.S. federal withholding tax, provided that (a)
the beneficial owner of the preferred securities does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of Litchfield entitled to vote, (b) the beneficial owner of the
preferred securities is not a controlled foreign corporation that is related to
Litchfield through stock ownership, (c) the beneficial owner of the preferred
securities is not a bank deemed to be extending credit pursuant to a loan
agreement entered into in the ordinary course of its trade or business, and (d)
either (A) the beneficial owner of the preferred securities certifies to the
trust or its paying agent, under penalties of perjury, that the owner is not a
U.S. person and provides the owner's name, address and, if required, taxpayer
identification number, or (B)(x) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution"), and holds the
preferred securities in such capacity, certifies to the trust or its paying
agent, under penalties of perjury, that such statement has been received from
the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the trust or its paying agent with a copy thereof
or (y) with respect to payments after December 31, 1999, a "qualified
intermediary" (which includes certain foreign financial institutions, foreign
clearing organizations or foreign branches of U.S. financial institutions or
clearing organizations which have entered into withholding agreements with the
IRS and have received appropriate certification from the beneficial owner)
provides the trust or its paying agent with an intermediary withholding
certificate.
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If the junior subordinated debentures were not classified for United States
federal income tax purposes as indebtedness of Litchfield, payments by the trust
or any of its paying agents to any holder of preferred securities who or that is
a United States Alien Holder would be subject to U.S. withholding tax at a 30%
rate (or a lower rate prescribed by an applicable tax treaty).
Prospective investors that would be United States Alien Holders should
consult their tax advisors concerning the possible application of these rules.
SALE OR EXCHANGE OF PREFERRED SECURITIES
Subject to the discussion of effectively connected income below, a United
States Alien Holder (other than certain U.S. expatriates) generally will not be
subject to U.S. federal income tax on gain realized on the sale, exchange or
other disposition of the preferred securities unless the United States Alien
Holder is an individual who is present in the U.S. for 183 days or more in the
taxable year of disposition, and certain other conditions are satisfied.
EFFECTIVELY CONNECTED INCOME
If a United States Alien Holder of preferred securities is engaged in a
trade or business in the United States, and if the interest income paid or
accrued on the preferred securities is effectively connected with the conduct of
such trade or business, the United States Alien Holder, although exempt from the
withholding tax on payments on preferred securities, will generally be subject
to regular United States income tax on the interest income and on any gain
realized on the sale, exchange or other disposition of preferred securities in
the same manner as if the holder were a U.S. person. Such a holder will be
required to provide to the applicable withholding agent a properly executed form
prescribed by the IRS in order to claim an exemption from withholding tax. In
addition, if such United States Alien Holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or a lower rate prescribed by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year.
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UNDERWRITING
GENERAL
Based on the terms and conditions of an underwriting agreement, the trust
has agreed to sell to the underwriters named below, and the underwriters have
agreed to purchase from the trust, the number of preferred securities set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
----------- ----------
<S> <C>
Tucker Anthony Cleary Gull.................................. 1,666,667
Ferris, Baker Watts Incorporated............................ 833,333
---------
Total............................................. 2,500,000
=========
</TABLE>
The underwriters are obligated to purchase all of the preferred securities
if any preferred securities are purchased.
Litchfield and the trust have agreed with the underwriters to indemnify
them against certain civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute with respect to payments which the
underwriters may be required to make.
Some of the underwriters have in the past and may in the future engage in
transactions with, or perform services for, Litchfield or its subsidiaries in
the ordinary course of their businesses.
The underwriters will not make any sales to discretionary accounts without
the prior written approval of the customer.
Litchfield will pay all expenses, estimated to be approximately $380,000,
associated with the offer and the sale of the preferred securities by the trust.
Litchfield has granted the underwriters an option to purchase an aggregate
of up to an additional 375,000 preferred securities solely to cover
over-allotments, if any, at the initial offering price to the public plus
accrued interest. All or any of these options may be exercised at any time until
30 days after the date of the underwriting agreement.
COMMISSION AND DISCOUNTS
The underwriters will offer the preferred securities directly to the public
at a price of $10 per preferred security. The underwriters may also offer the
preferred securities to certain dealers at the above mentioned offering price
less a concession not in excess of $.20 per preferred security. The underwriters
may allow, and such dealers may reallow, a discount not in excess of $.125 per
preferred security to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
In view of the fact that the proceeds from the sale of the preferred
securities will be used to purchase the junior subordinated debentures,
Litchfield has agreed to pay to the underwriters as compensation for arranging
the investment therein of such proceeds an amount of $.40 per preferred
security, (or a total of $1,000,000).
The following tables show the per share and total underwriting discounts
and commissions Litchfield will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional preferred securities.
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<PAGE> 61
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY LITCHFIELD
<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
<S> <C> <C>
Per preferred security.............................. $ .40 $ .40
Total............................................... $1,150,000.00 $1,000,000.00
</TABLE>
NASDAQ NATIONAL MARKET LISTING
Before this offering, there has been no established public trading market
for the preferred securities. The trust has applied to list the preferred
securities on the Nasdaq National Market under the symbol "LTCHP". If approved
for listing, Litchfield expects trading of the preferred securities to begin
within 30 days of the issuance of the preferred securities. In order to meet all
of the requirements for listing the preferred securities on the Nasdaq National
Market, the underwriters have agreed to sell the preferred securities to a
minimum of 400 beneficial holders. The underwriters have advised Litchfield that
they intend to make a market in the preferred securities prior to the
commencement of trading on the Nasdaq National Market. However, the underwriters
are not obligated to do so and may discontinue market making at any time without
notice. No assurances can be given about the liquidity of the trading market for
the preferred securities.
NO SALES OF SIMILAR SECURITIES
Litchfield and the trust have agreed that, during the period beginning on
the date of the underwriting agreement and continuing to and including the date
of delivery of the preferred securities to the underwriters in accordance with
the underwriting agreement, they will not offer, sell, contract to sell or
otherwise dispose of any preferred securities, any securities convertible into
or exchangeable into or exercisable for the preferred securities or the junior
subordinated debentures or any debt securities substantially similar to the
junior subordinated debentures or any equity securities substantially similar to
the preferred securities (except for the junior subordinated debentures and the
preferred securities issued pursuant to the underwriting agreement) without the
prior written consent of Tucker Anthony Cleary Gull and Ferris, Baker Watts
Incorporated.
PRICE STABILIZATION AND SHORT POSITIONS
In connection with the sale of the preferred securities, Securities and
Exchange Commission rules permit the underwriters to engage in transactions that
stabilize the price of the preferred securities. These transactions may include
purchases for the purpose of fixing or maintaining the price of the preferred
securities.
The underwriters may create a short position in the preferred securities in
connection with the offering. That means that they sell a larger number of the
preferred securities than is shown on the cover page of this prospectus
supplement. If they create a short position, the underwriters may purchase
preferred securities in the open market to reduce the short position.
If the underwriters purchase the preferred securities to stabilize the
price or to reduce their short position, the price of the preferred securities
could be higher than it might be if an underwriter had not made such purchases.
The underwriters make no representation or prediction about any effect that the
purchases may have on the price of the preferred securities.
The underwriters may suspend any of these activities at any time.
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<PAGE> 63
PROSPECTUS
$100,000,000
[LITCHFIELD FINANCIAL CORPORATION LOGO]
JUNIOR SUBORDINATED DEBT SECURITIES
LITCHFIELD CAPITAL TRUST I
LITCHFIELD CAPITAL TRUST II
TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS SET FORTH HEREIN, BY
LITCHFIELD FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
THE TRUSTS:
Litchfield Capital Trust I and Litchfield Capital Trust II are subsidiaries
of Litchfield Financial Corporation. The trusts are statutory business trusts
created under Delaware law. They exist for the purpose of issuing trust
preferred securities.
THE OFFERING:
JUNIOR SUBORDINATED DEBT SECURITIES
By this prospectus, Litchfield may offer junior subordinated debt
securities. Litchfield's obligations under these debt securities will be
unsecured and subordinate and junior in right of payment to all other senior
debt of Litchfield. Litchfield may issue and sell these junior subordinated debt
securities to the trusts in connection with the trusts' investment of proceeds
from the sale of their trust preferred securities and common securities. Under
certain circumstances the trusts may be dissolved and these junior subordinated
debt securities will be distributed to holders of the trusts' trust preferred
securities.
TRUST PREFERRED SECURITIES
By this prospectus, the trusts may offer and sell trust preferred
securities representing undivided beneficial interests in the assets of the
issuing trust. The trusts will use the proceeds from the sale of their trust
preferred securities and common securities to purchase junior subordinated debt
securities of Litchfield.
GUARANTEE
Litchfield will fully and unconditionally guarantee the trusts' payment
obligations with respect to their trust preferred securities on the terms
described in this prospectus and the accompanying prospectus supplement.
- --------------------------------------------------------------------------------
We will provide additional terms of our securities in one or more
supplements to this prospectus. You should read this prospectus supplement
carefully before you invest in our securities. This prospectus may not be used
to offer and sell our securities unless accompanied by a prospectus supplement.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this prospectus is May 13, 1999
<PAGE> 64
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the SEC using a "shelf" registration process. By using this process, we may
offer the securities described in this prospectus in one or more public
offerings with a total aggregate initial offering price of up to $100,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we offer securities, we will provide a prospectus supplement.
The prospectus supplement will describe the specific terms of the offering. The
prospectus supplement may also add, update or change the information contained
in this prospectus. Please carefully read this prospectus and the applicable
prospectus supplement, in addition to the information contained in the documents
we refer to under the heading "Where You Can Find More Information."
You should rely only on the information contained or incorporated by
reference in this prospectus and any accompanying prospectus supplement. We have
not authorized anyone else to provide you with any different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. The information contained
in this prospectus is current only as of the date of this prospectus.
We have not included separate financial statements of the trusts in this
prospectus. We do not consider that such financial statements would be material
to holders of the trusts' trust preferred securities because:
- Each trust is a newly created special purpose entity;
- Each trust has no operating history or independent operations; and
- Neither trust is engaged in nor does it propose to engage in any activity
other than holding the Junior Subordinated Debt Securities (as defined
herein), issuing the trust securities (as defined herein) and any other
activity related thereto or specifically authorized by the trust's
Declaration (as defined herein).
Furthermore, taken together, Litchfield's obligations under the Junior
Subordinated Debt Securities, the Indenture, the Declarations and the preferred
securities guarantees (each, as defined herein) provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of distributions and
other amounts due on the trusts' preferred securities. See "The Trusts,"
"Description of the Preferred Securities," "Description of the Preferred
Securities Guarantees" and "Description of the Junior Subordinated Debt
Securities." In addition, we do not expect that the trusts will file reports
under the Securities Exchange Act of 1934, with the SEC.
WHERE YOU CAN FIND MORE INFORMATION
Litchfield files reports and other information with the SEC. You may read
and copy any document we file with the SEC at the SEC's Public Reference Room
located at 450 Fifth Street, N.W., Washington, D.C. 20549, at the district
office of the SEC located at 73 Tremont Street, Suite 600, Boston, MA 02108-
3912, and the regional office at 7 World Trade Center, Suite 1300, New York, New
York 10048. You may obtain further information regarding the operation of the
SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings
are also available to the public on the SEC's Internet site located at
http://www.sec.gov. In addition, you may inspect our reports at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with the SEC, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, unless we
update or supersede that information by the information contained in this
prospectus or a prospectus supplement or by information that we file
subsequently that is incorporated by reference into this prospectus. We are
incorporating by reference into this prospectus the following documents that
Litchfield has filed with the
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<PAGE> 65
SEC and Litchfield's future filings with the SEC under Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act, until the offering of the securities offered
hereby is completed:
- Litchfield's Annual Report on Form 10-K for its fiscal year ended
December 31, 1998; and
- The definitive Proxy Statement dated March 23, 1999 for the Annual
Meeting of Litchfield's stockholders held on April 23, 1999.
This prospectus is part of a registration statement we have filed with the
SEC relating to our securities. As permitted by SEC rules, this prospectus does
not contain all of the information included in the registration statement and
the accompanying exhibits and schedules we file with the SEC. You should read
the registration statement, the exhibits and schedules for more information
about us and our securities. The registration statement, exhibits and schedules
are also available at the SEC's Public Reference Room or through its web site.
You may also obtain a copy of our filings with the SEC at no cost, by
writing to or telephoning us at the following address:
Litchfield Financial Corporation
430 Main Street
Williamstown, Massachusetts 01267
Attn: Treasurer
(413) 458-1000
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<PAGE> 66
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus and any accompanying prospectus
supplement, including the documents that are incorporated by reference as set
forth in "Where You Can Find More Information," that are not historical facts
are forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Litchfield, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.
Such factors include, among others, the risk factors set forth under "Risk
Factors" as well as the following:
- general economic and business conditions;
- industry trends;
- changes in business strategy or development plans;
- availability and quality of management; and
- availability, terms and deployment of capital.
Special attention should be paid to such forward-looking statements
including, but not limited to, statements relating to Litchfield's ability to
execute its growth strategies, realize its growth objectives and obtain
sufficient resources to finance its working capital needs and provide for its
known obligations.
Forward-looking statements are based on the beliefs of Litchfield's
management as well as assumptions made by and information currently available to
management. Litchfield and the trusts caution that assumptions, projections,
expectations, intentions or beliefs about future events may and often do vary
materially from actual results and the differences between assumptions,
projections, expectations, intentions or beliefs and actual results can be
material. Accordingly, there can be no assurance actual results will not differ
materially from those expressed or implied by forward-looking statements.
4
<PAGE> 67
LITCHFIELD FINANCIAL CORPORATION
Litchfield Financial Corporation is a diversified finance company that
provides financing to creditworthy borrowers for assets not typically financed
by banks. Litchfield provides such financing by making loans to businesses
secured by consumer receivables or other assets and by purchasing consumer
loans.
Litchfield provides financing to rural land dealers, timeshare resort
developers and other finance companies secured by receivables. Litchfield also
purchases consumer loans consisting primarily of loans to purchasers of rural
and vacation properties and vacation ownership interests popularly known as
timeshare interests, and provides loans to dealers and developers for the
acquisition and development of rural land and timeshare resorts. In addition,
Litchfield purchases other loans, such as consumer home equity loans, mortgages
and construction loans and tax lien certificates, and provides financing to
other businesses secured by receivables or other assets.
The principal sources of Litchfield's revenues are:
- interest and fees on loans,
- gains on sales of loans and
- servicing and other income.
Gains on sales of loans are based on the difference between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of Litchfield's revenues is comprised
of gains realized upon sales of loans, the timing of such sales has a
significant effect on Litchfield's results of operations.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement,
Litchfield anticipates that any net proceeds from the sale of the securities
offered hereby will be used to support its business activities, as capital to
support senior indebtedness and for other general corporate purposes. Until used
for the purposes indicated, Litchfield will invest the net proceeds of this
offering in short-term investment-grade interest-bearing securities.
Each trust will use all proceeds received from the sale of its trust
securities to purchase junior subordinated debt securities from Litchfield.
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THE TRUSTS
Litchfield Capital Trust I and Litchfield Capital Trust II are statutory
business trusts created on April 12, 1999, under the Delaware Business Trust Act
pursuant to separate declarations of trust among the trustees of each trust and
Litchfield and the filing of a certificate of trust with the Secretary of State
of the State of Delaware. Each such declaration will be amended and restated in
its entirety (as so amended and restated, the "Declaration" and together, the
"Declarations") as of the date the respective trust initially issues trust
preferred securities representing preferred undivided beneficial interests in
the assets of such trust. Each Declaration will be qualified under the Trust
Indenture Act of 1939.
The following description summarizes the material terms of the Declarations
and is qualified in its entirety by reference to the form of Declaration, which
has been filed as an exhibit to the registration statement of which this
prospectus is a part, and the Trust Indenture Act.
The address of the principal office of each trust is c/o Litchfield
Financial Corporation, 430 Main Street, Williamstown, MA 01267, and the
telephone number of each trust at such address is
(413) 458-1000.
PREFERRED SECURITIES
Upon issuance of any preferred securities by a trust, the holders of the
preferred securities will own all of the issued and outstanding preferred
securities of such trust. Litchfield will, directly or indirectly, acquire
common securities representing common undivided beneficial interests in the
assets of each trust in an amount equal to 3% of the total capital of such
trust. Litchfield's common securities will constitute all of the issued and
outstanding common securities of each trust. The preferred securities and the
common securities will rank equally with each other and will have equivalent
terms; provided that
- if a Declaration Event of Default (as defined under "Events of Default")
under the Declaration of a trust occurs and is continuing, the holders of
preferred securities of such trust will have a priority over holders of
the common securities of such trust with respect to payments in respect
of distributions and payments upon liquidation, redemption and maturity
and (ii) the holders of common securities have the exclusive right to
appoint, remove or replace the trustees and to increase or decrease the
number of trustees. Each trust exists for the purposes of (a) issuing its
preferred securities, (b) issuing its common securities to Litchfield,
(c) investing the gross proceeds from the sale of its trust securities in
Junior Subordinated Debt Securities of Litchfield and (d) engaging in
only such other activities as are necessary, convenient or incidental
thereto or are specifically authorized in its Declaration. The rights of
the holders of the preferred securities of a trust, including economic
rights, rights to information and voting rights, are set forth in the
applicable Declaration, the Business Trust Act and the Trust Indenture
Act.
POWERS AND DUTIES OF TRUSTEES
The number of trustees of each trust will initially be five. Three of the
trustees (the "Regular Trustees") are individuals who are officers, directors or
employees of Litchfield. The fourth trustee is The Bank of New York, which is
unaffiliated with Litchfield and serves as the property trustee (the "Property
Trustee") and acts as the indenture trustee under the Declaration for purposes
of the Trust Indenture Act. The fifth trustee is The Bank of New York (Delaware)
which has its principal place of business in the State of Delaware (the
"Delaware Trustee"). Pursuant to each Declaration, legal title to the Junior
Subordinated Debt Securities purchased by a trust will be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the
holders of the trust securities of such trust, and the Property Trustee will
have the legal power to exercise all rights, powers and privileges under the
Indenture (as defined under "Description of the Junior Subordinated Debt
Securities") with respect to such Junior Subordinated Debt Securities. In
addition, the Property Trustee will maintain exclusive control of a segregated
non-interest bearing bank account (the "Property Account") to hold all payments
in respect of the Junior Subordinated Debt Securities purchased by a trust for
the benefit of the holders of its trust securities. The Property Trustee will
promptly make distributions to the holders of the trust securities out
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of funds from the Property Account. The preferred securities guarantees are
separately qualified under the Trust Indenture Act and will be held by The Bank
of New York (the "Guarantee Trustee"), acting in its capacity as indenture
trustee with respect thereto, for the benefit of the holders of the applicable
preferred securities. As used in this prospectus and any accompanying prospectus
supplement, the term "Property Trustee" with respect to a trust refers to The
Bank of New York acting either in its capacity as a trustee under the related
Declaration and the holder of legal title to the Junior Subordinated Debt
Securities purchased by such trust or in its capacity as the Guarantee Trustee
under the applicable preferred securities guarantee, as the context may require.
Litchfield, as the direct or indirect owner of all of the common securities of
each trust, will have the exclusive right to appoint, remove or replace trustees
and to increase or decrease the number of trustees, provided that the number of
trustees will be, except under certain circumstances, at least five and the
majority of trustees will be Regular Trustees. The term of a trust will be set
forth in the applicable prospectus supplement but may dissolve earlier as
provided in the applicable Declaration.
The duties and obligations of the trustees of a trust will be governed by
the Declaration of such trust, the Business Trust Act and the Trust Indenture
Act. Under its Declaration, each trust will not, and the trustees will cause
such trust not to, engage in any activity other than in connection with the
purposes of such trust or other than as required or authorized by the related
Declaration. In particular, each trust will not and the trustees will cause each
trust not to (a) invest any proceeds received by such trust from holding the
Junior Subordinated Debt Securities purchased by such trust but shall promptly
distribute from the Property Account all such proceeds to holders of its trust
securities pursuant to the terms of the related Declaration and of its trust
securities; (b) acquire any assets other than as expressly provided in the
related Declaration; (c) possess property of such trust for other than a trust
purpose; (d) make any loans, other than loans represented by the Junior
Subordinated Debt Securities; (e) possess any power or otherwise act in such a
way as to vary the assets of such trust or the terms of its trust securities in
any way whatsoever, except as expressly provided in the related Declaration; (f)
issue any securities or other evidences of beneficial ownership of, or
beneficial interests in, such trust other than its trust securities; (g) incur
any indebtedness for borrowed money; (h) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee (as
defined under "Description of the Junior Subordinated Debt Securities") or
exercising any trust or power conferred upon the Indenture Trustee with respect
to the Junior Subordinated Debt Securities deposited in such trust as trust
assets; (i)waive any past default that is waivable under the Indenture; (j)
exercise any right to rescind or annul a declaration of acceleration of the
maturity of the principal of all of the Junior Subordinated Debt Securities
deposited in such trust as trust assets, without, in the case of clauses (h),
(i) and (j), obtaining the prior approval of the holders of a majority in
liquidation amount of all outstanding trust securities of such trust; (k)
consent to any amendment, modification or termination of the Indenture or the
Junior Subordinated Debt Securities deposited in such trust as trust assets,
where such consent is required, unless in the case of this clause (k) the
Property Trustee shall have received an opinion of counsel experienced in such
matters to the effect that such amendment, modification or termination will not
cause more than an insubstantial risk that for United States federal income tax
purposes such trust will not be classified as a grantor trust; (l) take or
consent to any action that would result in the placement of a lien, pledge,
charge, mortgage or other encumbrance on any of the property of such trust; (m)
vary the investment (within the meaning of Treasury Regulation Section
301.7701-4(c)) of such trust or of the holders of its trust securities; (n)
after the issuance of its preferred securities, enter into any contract or
agreement (other than any depositary agreement or any agreement with any
securities exchange or automated quotation system) that does not expressly
provide that the holders of such preferred securities, in their capacities as
such, have limited liability (in accordance with the provisions of the Business
Trust Act) for the liabilities and obligations of such trust or (o) revoke any
action previously authorized or approved by a vote of the holders of its
preferred securities except by subsequent vote of such holders.
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BOOKS AND RECORDS
The books and records of each trust will be maintained at the principal
office of such trust and will be open for inspection by a holder of preferred
securities of such trust or his authorized representative for any purpose
reasonably related to his interest in such trust during normal business hours.
VOTING
Holders of preferred securities generally will have limited voting rights,
relating only to the modification of the preferred securities and, under certain
circumstances, to the exercise of a trust's rights as holder of the Junior
Subordinated Debt Securities and the preferred securities guarantee. The holders
of the preferred securities will not be able to appoint, remove or replace, or
to increase or decrease the number of, trustees, which rights are vested
exclusively in the holders of the common securities.
THE PROPERTY TRUSTEE
The Property Trustee, for the benefit of the holders of the trust
securities of a trust, is authorized under each Declaration to exercise all
rights under the Indenture with respect to the Junior Subordinated Debt
Securities deposited in such trust as trust assets, including its rights as the
holder of such Junior Subordinated Debt Securities to enforce Litchfield's
obligations under such Junior Subordinated Debt Securities upon the occurrence
of an Indenture Event of Default (as defined herein under "Description of the
Junior Subordinated Debt Securities--Indenture Events of Default"). The Property
Trustee will also be authorized to enforce the rights of holders of the
preferred securities of a trust under the related preferred securities
guarantee. If any trust's failure to make distributions on the preferred
securities of such trust is a consequence of Litchfield's exercise of any right
under the terms of the Junior Subordinated Debt Securities deposited in such
trust as trust assets to extend the interest payment period for such Junior
Subordinated Debt Securities, the Property Trustee will have no right to enforce
the payment of distributions on such preferred securities until a Declaration
Event of Default shall have occurred. If a Declaration Event of Default has
occurred and is continuing, then the holders of at least a majority in
liquidation amount of the preferred securities of a trust will have the right to
direct the Property Trustee for such trust with respect to certain matters under
the related Declaration and the related preferred securities guarantee. If the
Property Trustee fails to enforce its rights under the applicable series of
Junior Subordinated Debt Securities, any holder of preferred securities, to the
extent permitted by applicable law, may, after a period of 30 days has elapsed
from such holder's written request to the Property Trustee to enforce such
rights, institute a legal proceeding directly against Litchfield to enforce such
rights without first instituting any legal proceeding against the Property
Trustee or any other person. Notwithstanding the foregoing, if a Declaration
Event of Default under the applicable Declaration has occurred and is continuing
and such event is attributable to the failure of Litchfield to pay interest or
principal, or premium, if any, on the applicable series of Junior Subordinated
Debt Securities on the date such interest, principal or premium is otherwise
payable (or in the case of redemption, on the redemption date), then a holder of
preferred securities of such trust may directly institute a proceeding for
enforcement of payment to such holder of the principal of, or premium, if any,
or interest on the applicable series of Junior Subordinated Debt Securities
having a principal amount equal to the aggregate liquidation amount of the
preferred securities of such holder (a "Holder Direct Action") on or after the
respective due date specified in the applicable series of Junior Subordinated
Debt Securities. In connection with such Holder Direct Action, Litchfield will
be subrogated to the rights of such holder of preferred securities under the
applicable Declaration to the extent of any payment made by Litchfield to such
holder of preferred securities in such Holder Direct Action. Except as expressly
provided in the preceding sentences or in the applicable prospectus supplement,
the holders of preferred securities of such trust will not be able to exercise
directly any other remedy available to the holders of the applicable series of
Junior Subordinated Debt Securities.
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DISTRIBUTIONS
Pursuant to each Declaration, distributions on the preferred securities of
a trust must be paid on the dates payable to the extent that the Property
Trustee for such trust has cash on hand in the applicable Property Account to
permit such payment. The funds available for distribution to the holders of the
preferred securities of a trust will be limited to payments received by the
Property Trustee in respect of the Junior Subordinated Debt Securities that are
deposited in such trust as trust assets. If Litchfield does not make interest
payments on the Junior Subordinated Debt Securities deposited in a trust as
trust assets, the Property Trustee will not make distributions on the preferred
securities of such trust. Under each Declaration, if and to the extent
Litchfield does make interest payments on the Junior Subordinated Debt
Securities deposited in a trust as trust assets, the Property Trustee is
obligated to make distributions on the trust securities of such trust on a Pro
Rata Basis (as defined below). The payment of distributions on the preferred
securities of a trust is guaranteed by Litchfield as and to the extent set forth
under "Description of the Preferred Securities Guarantees." A preferred
securities guarantee is a guarantee from the time of issuance of the preferred
securities, but the preferred securities guarantee covers distributions and
other payments on the applicable preferred securities only if and to the extent
that Litchfield has made a payment to the Property Trustee of interest or
principal, or premium, if any, on the Junior Subordinated Debt Securities
deposited in a trust as trust assets. As used in this prospectus, the term "Pro
Rata Basis" shall mean pro rata to each holder of trust securities of a trust
according to the aggregate liquidation amount of the trust securities of such
trust held by the relevant holder in relation to the aggregate liquidation
amount of all trust securities of such trust outstanding unless, in relation to
a payment, a Declaration Event of Default under the related Declaration has
occurred and is continuing, in which case any funds available to make such
payment shall be paid first to each holder of the preferred securities of such
trust pro rata according to the aggregate liquidation amount of the preferred
securities held by the relevant holder in relation to the aggregate liquidation
amount of all the preferred securities of such trust outstanding, and only after
satisfaction of all amounts owed to the holders of such preferred securities, to
each holder of common securities of such trust pro rata according to the
aggregate liquidation amount of such common securities held by the relevant
holder in relation to the aggregate liquidation amount of all common securities
of such trust outstanding.
EVENTS OF DEFAULT
If an Indenture Event of Default occurs and is continuing with respect to
the Junior Subordinated Debt securities deposited in a trust as trust assets, an
Event of Default under the Declaration (a "Declaration Event of Default") of
such trust will occur and be continuing, with respect to any outstanding trust
securities of such trust. In such event, each Declaration provides that the
holders of common securities of such trust will be deemed to have waived any
such Declaration Event of Default with respect to the common securities until
all Declaration Events of Default with respect to the preferred securities of
such trust have been cured or waived or otherwise eliminated. Until all such
Declaration Events of Default with respect to the preferred securities of such
trust have been so cured, waived or otherwise eliminated, the Property Trustee
will be deemed to be acting solely on behalf of the holders of the preferred
securities of such trust and only the holders of such preferred securities will
have the right to direct the Property Trustee with respect to certain matters
under such Declaration and consequently under the Indenture. In the event that
any Declaration Event of Default with respect to the preferred securities of
such trust is waived by the holders of the preferred securities of such trust as
provided in the Declaration, the holders of common securities of such trust
pursuant to such Declaration have agreed that such waiver also constitutes a
waiver of such Declaration Event of Default with respect to such common
securities for all purposes under the Declaration without any further act, vote
or consent of the holders of such common securities. The Property Trustee shall
notify each holder of preferred securities of a trust of any notice of default
with respect to the related Junior Subordinated Debt Securities, unless such
default has been cured before the giving of such notice or the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers (as that term is defined in the applicable Declaration) of
the Property Trustee in good faith determines that the withholding of such
notice is in the interests of the holders of the trust securities of such trust.
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RECORD HOLDERS
Each Declaration provides that the trustees of such trust may treat the
person in whose name a certificate representing its preferred securities is
registered on the books and records of such trust as the sole holder thereof and
of the preferred securities represented thereby for purposes of receiving
distributions and for all other purposes and, accordingly, will not be bound to
recognize any equitable or other claim to or interest in such certificate or in
the preferred securities represented thereby on the part of any person, whether
or not the trustees of such trust shall have actual or other notice thereof.
Preferred securities will be issued in fully registered form. Unless otherwise
specified in a prospectus supplement, preferred securities will be represented
by one or more global certificates registered on the books and records of such
trust in the name of a depositary (the "Depositary") named in an accompanying
prospectus supplement or its nominee. Under each Declaration:
(i) such trust and the trustees thereof will be entitled to deal with
the Depositary (or any successor depositary) for all purposes, including
the payment of distributions and receiving approvals, votes or consents
under the related Declaration, and except as set forth in the related
Declaration with respect to the issuance of definitive certificates
representing the preferred securities, will have no obligation to persons
owning a beneficial interest in preferred securities ("Preferred Security
Beneficial Owners") registered in the name of and held by the Depositary or
its nominee; and
(ii) the rights of Preferred Security Beneficial Owners will be
exercised only through the Depositary (or any successor depositary) and
will be limited to those established by law and agreements between such
Preferred Security Beneficial Owners and the Depositary and/or its
participants. With respect to preferred securities registered in the name
of and held by the Depositary or its nominee, all notices and other
communications required under each Declaration will be given to, and all
distributions on such preferred securities will be given or made to, the
Depositary (or its successor).
The specific terms of the depositary arrangement with respect to the
preferred securities of a trust will be disclosed in the applicable prospectus
supplement.
DEBTS AND OBLIGATIONS
In each Declaration, Litchfield has agreed to pay all debts and obligations
(other than with respect to the related trust securities) and all costs and
expenses of the applicable trust, including the fees and expenses of its
trustees and any taxes and all costs and expenses with respect thereto, to which
such trust may become subject, except for United States withholding taxes. The
foregoing obligations of Litchfield under each Declaration are for the benefit
of, and will be enforceable by, any person to whom any such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
Litchfield directly against Litchfield, and Litchfield has irrevocably waived
any right or remedy to require that any such Creditor take any action against
any trust or any other person before proceeding against Litchfield. Litchfield
will be subrogated to all rights of a trust in respect of any amounts paid to
any Creditor by Litchfield. Litchfield has agreed in each Declaration to execute
such additional agreements as may be necessary or desirable in order to give
full effect to the foregoing.
DESCRIPTION OF THE PREFERRED SECURITIES
Each trust may issue, from time to time, only one series of preferred
securities having terms described in the prospectus supplement relating thereto.
The Declaration of each trust authorizes the Regular Trustees of such trust to
issue on behalf of such trust one series of preferred securities. Each
Declaration will be qualified as an indenture under the Trust Indenture Act. The
preferred securities will have such terms, including distributions, redemption,
voting, liquidation rights and such other preferred, deferred or other special
rights or such restrictions as set forth in the related Declaration or made part
of such Declaration by the Trust Indenture Act. Reference is made to the
prospectus supplement relating to the
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preferred securities of a trust for specific terms, including (i) the specific
designation of such preferred securities, (ii) the number of preferred
securities issued by such trust, (iii) the annual distribution rate (or method
of calculation thereof) for preferred securities issued by such trust, the date
or dates upon which such distributions will be payable and the record date or
dates for the payment of such distributions, (iv) whether distributions on the
preferred securities issued by such trust will be cumulative, and, in the case
of preferred securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
preferred securities issued by such trust will be cumulative, (v) the amount or
amounts which will be paid out of the assets of such trust to the holders of
preferred securities of such trust upon voluntary or involuntary dissolution,
winding-up or termination of such trust, (vi) the obligation or right, if any,
of such trust to purchase or redeem preferred securities issued by such trust
and the price or prices at which, the period or periods within which and the
terms and conditions upon which preferred securities issued by such trust will
or may be purchased or redeemed, in whole or in part, pursuant to such
obligation or right, (vii) the voting rights, if any, of preferred securities
issued by such trust in addition to those required by law, including the number
of votes per preferred security and any requirement for the approval by the
holders of preferred securities, as a condition to specified actions or
amendments to the Declaration of such trust, (viii) terms for any conversion or
exchange into other securities (ix) the rights, if any, to defer distributions
on the preferred securities by extending the interest payment period on the
Junior Subordinated Debt Securities and (x) any other relevant, terms, rights,
preferences, privileges, limitations or restrictions of preferred securities
issued by such trust consistent with the Declaration of such trust or with
applicable law. All preferred securities offered hereby will be guaranteed by
Litchfield as and to the extent set forth below under "Description of the
Preferred Securities Guarantees." Certain United States federal income tax
considerations applicable to any offering of preferred securities will be
described in the prospectus supplement relating thereto.
In connection with the issuance of the preferred securities, each trust
will issue one series of common securities. The Declaration of each trust
authorizes the Regular Trustees of such trust to issue on behalf of such trust
one series of common securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as set forth
therein. The terms of the common securities issued by a trust will be
substantially identical to the terms of the preferred securities issued by such
trust and the common securities will rank pari passu, and payments will be made
thereon on a Pro Rata Basis with the preferred securities except that if a
Declaration Event of Default occurs and is continuing, the rights of the holders
of such common securities to payment in respect of distributions and payments
upon liquidation, redemption and maturity will be subordinated to the rights of
the holders of such preferred securities. The common securities issued by a
trust will also carry the right to vote and to appoint, remove or replace any of
the trustees of such trust. All of the common securities issued by a trust will
be directly or indirectly owned by Litchfield.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
The payment of periodic cash distributions with respect to the preferred
securities of each trust out of moneys held by the Property Trustee of each
trust, and payments on liquidation of each trust and redemption of preferred
securities of each trust, will be fully and unconditionally guaranteed by
Litchfield as described herein. Set forth below is a summary of the preferred
securities guarantees that will be executed and delivered by Litchfield for the
benefit of the holders from time to time of preferred securities. Each preferred
securities guarantee will be separately qualified under the Trust Indenture Act
and will be held by The Bank of New York, acting in its capacity as indenture
trustee with respect thereto (the "Guarantee Trustee"), for the benefit of
holders of the preferred securities of the applicable trust. The terms of each
preferred securities guarantee will be those set forth in such preferred
securities guarantee and those made part of such guarantee by the Trust
Indenture Act. This description summarizes the material terms of the preferred
securities guarantees and is qualified in its entirety by reference to the form
of preferred securities guarantee, which is filed as an exhibit to the
registration statement of which this prospectus forms a part, and the Trust
Indenture Act.
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GENERAL
Pursuant to each preferred securities guarantee, Litchfield will
irrevocably and unconditionally agree, to the extent set forth therein, to pay
in full, to the holders of the preferred securities issued by a trust, the
Guarantee Payments (as defined herein) (without duplication of amounts
theretofore paid by such trust), as and when due, regardless of any defense,
right of set-off or counterclaim that such trust may have or assert. The
following payments or distributions with respect to preferred securities issued
by a trust to the extent not paid or made by or on behalf of such trust will be
subject to such preferred securities guarantee (without duplication): (i) any
accumulated and unpaid distributions on such preferred securities, and the
redemption price, including all accumulated and unpaid distributions to, but
excluding, the date of redemption, with respect to such preferred securities
called for redemption by such trust but if and only to the extent that in each
case Litchfield has made a payment to the related Property Trustee of interest
or principal, or premium, if any, on the Junior Subordinated Debt Securities
deposited in such trust as trust assets and (ii) upon a voluntary or involuntary
dissolution, winding-up or termination of such trust (other than in connection
with the distribution of Junior Subordinated Debt Securities to the holders of
such preferred securities in exchange for preferred securities or the redemption
of all of such preferred securities upon the maturity or redemption of the
Junior Subordinated Debt Securities), the lesser of (a) the aggregate of the
liquidation amount and all accumulated and unpaid distributions on such
preferred securities to the date of payment, to the extent such trust has funds
on hand legally available therefor, and (b) the amount of assets of such trust
remaining available for distribution to holders of such preferred securities in
liquidation of such trust as required by applicable law (the "Guarantee
Payments"). Litchfield's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by Litchfield to the holders of such
preferred securities or by causing the applicable trust to pay such amounts to
such holders.
The preferred securities guarantee is a guarantee from the time of issuance
of the applicable preferred securities, but the preferred securities guarantee
covers distributions and other payments on such preferred securities only if and
to the extent that Litchfield has made a payment to the Property Trustee of
interest or principal, or premium, if any, on the Junior Subordinated Debt
Securities deposited in the applicable trust as trust assets. If Litchfield does
not make interest, principal or premium, if any, payments on the Junior
Subordinated Debt Securities deposited in the applicable trust as trust assets,
the Property Trustee will not make distributions on the preferred securities of
such trust and the trust will not have funds available therefor.
Litchfield's obligations under the Declaration for each trust, the
preferred securities guarantee issued with respect to preferred securities
issued by such trust, the Junior Subordinated Debt Securities purchased by such
trust and the Indenture, in the aggregate, will provide a full and unconditional
guarantee on a subordinated basis by Litchfield of payments due on the preferred
securities issued by such trust.
CERTAIN COVENANTS OF LITCHFIELD
In each preferred securities guarantee, Litchfield will covenant that, so
long as any preferred securities issued by the applicable trust remain
outstanding, Litchfield will not (i) declare or pay any dividends on, or redeem,
purchase, acquire or make a distribution or liquidation payment with respect to,
any of its capital stock (other than (a) dividends or distributions in shares
of, or options, warrants, rights to subscribe for or purchase shares of, common
stock of Litchfield, (b) any declaration of a dividend in connection with the
implementation of a shareholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) as a result of a reclassification of Litchfield's capital
stock or the exchange or the conversion of one class or series of Litchfield's
capital stock for another class or series of Litchfield's capital stock, (d) the
payment of accrued dividends and the purchase of fractional interests in shares
of Litchfield's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, or (e)
purchases of Litchfield's common stock related to the issuance of Litchfield's
common stock or rights under any of Litchfield's benefit plans for its
directors, officers or employees, any of Litchfield's
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dividend reinvestment plans or stock purchase plans, or any of the benefit plans
of any of Litchfield's affiliates for such affiliates' directors, officers or
employees), (ii) make any payment of principal or of interest or premium, if
any, on or repay, repurchase or redeem any debt security of Litchfield that
ranks pari passu with or junior in interest to the Junior Subordinated Debt
Securities deposited in such trust or (iii) make any guarantee payments with
respect to any guarantee by Litchfield of the debt securities of any subsidiary
of Litchfield (other than pursuant to a preferred securities guarantee) if such
guarantee ranks pari passu with or junior in interest to the Junior Subordinated
Debt Securities deposited in such trust, if at such time (x) Litchfield shall be
in default with respect to its Guarantee Payments or other payment obligations
under the related preferred securities guarantee, (y) there shall have occurred
any Declaration Event of Default under the applicable Declaration or (z)
Litchfield shall have given notice of its election to defer payments of interest
on the Junior Subordinated Debt Securities by extending the interest payment
period as provided in the terms of the Junior Subordinated Debt Securities
deposited in such trust as trust assets and such period, or any extension
thereof, is continuing. In addition, so long as any preferred securities of a
trust remain outstanding, Litchfield has agreed (i) to remain the sole direct or
indirect owner of all of the outstanding common securities of such trust and not
to cause or permit such common securities to be transferred except to the extent
permitted by the applicable Declaration; provided that any permitted successor
of Litchfield under the Indenture may succeed to Litchfield's ownership of such
common securities and (ii) to use reasonable efforts to cause such trust to
continue to be treated as a grantor trust for United States federal income tax
purposes except in connection with a distribution of Junior Subordinated Debt
Securities to the holders of such preferred securities as provided in the
applicable Declaration.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of preferred securities in any material respect (in which case no
consent will be required), each preferred securities guarantee may be amended
only with the prior approval of Litchfield and the holders of not less than a
majority in liquidation amount of the outstanding preferred securities issued by
the applicable trust. The manner of obtaining any such approval of holders of
such preferred securities will be set forth in an accompanying prospectus
supplement. All guarantees and agreements contained in a preferred securities
guarantee shall bind the successors, assignees, receivers, trustees and
representatives of Litchfield and shall inure to the benefit of the holders of
the preferred securities of the applicable trust then outstanding. Except in
connection with a consolidation, merger or sale involving Litchfield that is
permitted under the Indenture, Litchfield may not assign its obligations under
any preferred securities guarantee.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
Each preferred securities guarantee will terminate and be of no further
force and effect as to the preferred securities issued by the applicable trust
(i) upon full payment of the redemption price of all preferred securities of
such trust, (ii) upon distribution of the Junior Subordinated Debt Securities to
the holders of the trust securities of such trust in exchange for all of the
trust securities issued by such trust or (iii) upon full payment of the amounts
payable in accordance with the applicable Declaration upon liquidation of such
trust. Notwithstanding the foregoing, each preferred securities guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of preferred securities issued by the applicable trust must
restore payment of any sums paid with respect to such preferred securities or
under such preferred securities guarantee.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
Litchfield's obligation under each preferred securities guarantee to make
the Guarantee Payments will constitute an unsecured obligation of Litchfield and
will rank (i) subordinate and junior in right of payment to all other
liabilities of Litchfield, including the Junior Subordinated Debt Securities,
except those made pari passu or subordinate by their terms, and (ii) senior to
all capital stock (other than the most senior preferred stock issued, from time
to time, if any, by Litchfield, which preferred stock will rank
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pari passu with each preferred securities guarantee) now or hereafter issued by
Litchfield and to any guarantee now or hereafter entered into by Litchfield in
respect of any of its capital stock (other than the most senior preferred stock
issued, from time to time, if any, by Litchfield). Litchfield's obligations
under each preferred securities guarantee will rank pari passu with respect to
obligations under other guarantee agreements which it may enter into from time
to time to the extent that (i) such agreements shall be entered into in
substantially the form of the preferred securities guarantee and provide for
comparable guarantees by Litchfield of payment on preferred securities issued by
other trusts, partnerships or other entities affiliated with Litchfield that are
financing vehicles of Litchfield and (ii) the debentures or other evidences of
indebtedness of Litchfield relating to such preferred securities are junior
subordinated, unsecured indebtedness of Litchfield. Litchfield's obligations
under each preferred securities guarantee are effectively subordinated to all
existing and future liabilities, including trade payables, of Litchfield's
subsidiaries, except to the extent that Litchfield is a creditor of the
subsidiaries and is recognized as such. Each Declaration provides that each
holder of preferred securities by acceptance thereof agrees to the subordination
provisions and other terms of the related preferred securities guarantee.
Each preferred securities guarantee will constitute a guarantee of payment
and not merely of collection (that is, the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity). Each preferred securities guarantee will be deposited with the
Guarantee Trustee, as indenture trustee, to be held for the benefit of the
holders of the preferred securities issued by the applicable trust. The
Guarantee Trustee will have the right to enforce the preferred securities
guarantee on behalf of the holders of the preferred securities issued by the
applicable trust. The holders of not less than a majority in aggregate
liquidation amount of the preferred securities issued by the applicable trust
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
related preferred securities guarantee or exercising any trust or other power
conferred upon the Guarantee Trustee under such preferred securities guarantee.
If the Guarantee Trustee fails to enforce such preferred securities guarantee as
above provided, any holder of preferred securities issued by the applicable
trust may institute a legal proceeding directly against Litchfield to enforce
its rights under such preferred securities guarantee without first instituting a
legal proceeding against the applicable trust, the Guarantee Trustee or any
other person or entity. Notwithstanding the foregoing, if Litchfield has failed
to make a Guarantee Payment, a holder of preferred securities may directly
institute a proceeding against Litchfield for enforcement of the applicable
preferred securities guarantee for such payment without first instituting a
legal proceeding against the applicable trust, the Guarantee Trustee or any
other person or entity.
MISCELLANEOUS
Litchfield will be required to provide annually to the Guarantee Trustee a
statement as to the performance by Litchfield of certain of its obligations
under each preferred securities guarantee and as to any default in such
performance. Litchfield is required to file annually with the Guarantee Trustee
an officers' certificate as to Litchfield's compliance with all conditions under
each preferred securities guarantee.
The Guarantee Trustee, prior to the occurrence of an event of default under
a preferred securities guarantee and after the curing or waiving of all events
of default that may have occurred, will undertake to perform only such duties as
are specifically set forth in the applicable preferred securities guarantee, and
no implied covenants will be read into such preferred securities guarantee.
After a default with respect to a preferred securities guarantee has occurred,
the Guarantee Trustee shall exercise such of the rights and powers vested in it
by such preferred securities guarantee, and use the same degree of care and
skill in its exercise thereof as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs. Subject to such
provision, the Guarantee Trustee is under no obligation to exercise any of the
rights or powers vested in it by a preferred securities guarantee at the request
or direction of any holder of the applicable preferred securities unless it is
offered security and indemnity satisfactory to it against the costs, expenses
and liabilities that might be incurred thereby.
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GOVERNING LAW
Each preferred securities guarantee will be governed by, and construed in
accordance with, the laws of the State of New York, without regard to the
conflicts of laws provisions thereof.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBT SECURITIES
Litchfield may issue from time to time one or more series of Junior
Subordinated Debt Securities ("Junior Subordinated Debt Securities") under a
Junior Subordinated Indenture (the "Indenture") between Litchfield and The Bank
of New York, as trustee (the "Indenture Trustee"). The Indenture will be
qualified under the Trust Indenture Act. The form of the Indenture has been
filed as an exhibit to the registration statement of which this prospectus forms
a part. The following description summarizes the material terms of the
Indenture, and is qualified in its entirety by reference to the Indenture and
the Trust Indenture Act. Whenever particular provisions or defined terms in the
Indenture are referred to herein, such provisions or defined terms are
incorporated by reference herein. Section and article references used herein are
references to provisions of the Indenture.
GENERAL
The Junior Subordinated Debt Securities will be unsecured junior
subordinated obligations of Litchfield. The Indenture does not limit the amount
of additional indebtedness Litchfield or any of its subsidiaries may incur.
Litchfield's rights and the rights of its creditors, including the holders of
Junior Subordinated Debt Securities, to participate in the assets of any
subsidiary of Litchfield upon the latter's liquidation or recapitalization will
be subject to the prior claims of the subsidiary's creditors, except to the
extent that Litchfield may itself be a creditor with recognized claims against
the subsidiary.
The Indenture does not limit the aggregate principal amount of indebtedness
that may be issued thereunder and provides that Junior Subordinated Debt
Securities may be issued thereunder from time to time in one or more series. The
Junior Subordinated Debt Securities are issuable in one or more series pursuant
to an indenture supplemental to the Indenture.
In the event Junior Subordinated Debt Securities are issued to a trust in
connection with the issuance of trust securities by such trust, such Junior
Subordinated Debt Securities subsequently may be distributed pro rata to the
holders of such trust securities in connection with the dissolution of such
trust at the election of Litchfield or upon the occurrence of certain events
described in the prospectus supplement relating to such trust securities. Only
one series of Junior Subordinated Debt Securities will be issued to each trust
in connection with the issuance of the trust securities by such trust.
Reference is made to the prospectus supplement which will accompany this
prospectus for the following terms of the series of Junior Subordinated Debt
Securities being offered thereby (to the extent such terms are applicable to the
Junior Subordinated Debt Securities of such series): (i) the specific
designation of such Junior Subordinated Debt Securities, aggregate principal
amount, purchase price and premium, if any; (ii) any limit on the aggregate
principal amount of such Junior Subordinated Debt Securities; (iii) the date or
dates on which the principal of such Junior Subordinated Debt Securities is
payable and the right to shorten, extend or defer such date or dates; (iv) the
rate or rates at which such Junior Subordinated Debt Securities will bear
interest or the method of calculating such rate or rates, if any; (v) the date
or dates from which such interest shall accrue, the interest payment dates on
which such interest will be payable or the manner of determination of such
interest payment dates and the record dates for the determination of holders to
whom interest is payable on any such interest payment dates; (vi) the right, if
any, to extend or defer the interest payment periods and the duration of such
extension; (vii) the period or periods within which, the price or prices at
which, and the terms and conditions upon which, such Junior Subordinated Debt
Securities may be redeemed, in whole or in part, at the option of Litchfield;
(viii) the obligation, if any, of Litchfield to redeem or purchase such Junior
Subordinated Debt Securities pursuant to any sinking fund or analogous
provisions (including payments made in cash in anticipation of future sinking
fund obligations) or at the option of the holder thereof and the period or
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periods for which, the price or prices at which, the currency or currencies
(including currency unit or units) in which and the terms and conditions upon
which, such Junior Subordinated Debt Securities will be redeemed or purchased,
in whole or part, pursuant to such obligation; (ix) any exchangeability,
conversion or prepayment provisions of the Junior Subordinated Debt Securities;
(x) any applicable United States federal income tax consequences, including
whether and under what circumstances Litchfield will pay additional amounts on
the Junior Subordinated Debt Securities held by a person who is not a U.S.
person in respect of any tax, assessment or governmental charge withheld or
deducted and, if so, whether Litchfield will have the option to redeem such
Junior Subordinated Debt Securities rather than pay such additional amounts;
(xi) the form of such Junior Subordinated Debt Securities; (xii) if other than
denominations of $10 or any integral multiple thereof, the denominations in
which such Junior Subordinated Debt Securities will be issuable; (xiii) any and
all other terms with respect to such series, including any modification of or
additions to the events of default or covenants provided for with respect to
such series, and any terms which may be required by or advisable under
applicable laws or regulations not inconsistent with the Indenture; and (xiv)
whether such Junior Subordinated Debt Securities are issuable as a global
security, and in such case, the identity of the depositary. (Section 2.01)
Unless otherwise indicated in the prospectus supplement relating thereto,
the Junior Subordinated Debt Securities will be issued in United States dollars
in fully registered form without coupons in denominations of $10 or integral
multiples thereof. Junior Subordinated Debt Securities may be presented for
exchange and Junior Subordinated Debt Securities in registered form may be
presented for transfer in the manner, at the places and subject to the
restrictions set forth in the Junior Subordinated Debt Securities and the
prospectus supplement. Such services will be provided without charge, other than
any tax or other governmental charge payable in connection therewith, but
subject to the limitations provided in the Junior Subordinated Debt Securities.
Junior Subordinated Debt Securities may bear interest at a fixed rate or a
floating rate. Junior Subordinated Debt Securities bearing no interest or
interest at a rate that at the time of issuance is below the prevailing market
rate will be sold at a discount below their stated principal amount. Special
United States federal income tax considerations applicable to any such
discounted Junior Subordinated Debt Securities or to certain Junior Subordinated
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes will be described in the
relevant prospectus supplement.
CERTAIN COVENANTS OF LITCHFIELD APPLICABLE TO THE JUNIOR SUBORDINATED DEBT
SECURITIES
If Junior Subordinated Debt Securities are issued to a trust in connection
with the issuance of trust securities by such trust, Litchfield will covenant in
the Indenture that, so long as the preferred securities issued by the applicable
trust remain outstanding, Litchfield will not (i) declare or pay any dividends
on, or redeem, purchase, acquire or make a distribution or liquidation payment
with respect to, any of its capital stock (other than (a) dividends or
distributions in shares of, or options, warrants, rights to subscribe for or
purchase shares of, common stock of Litchfield, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) as a result of a
reclassification of Litchfield's capital stock or the exchange or the conversion
of one class or series of Litchfield's capital stock for another class or series
of Litchfield's capital stock, (d) the payment of accrued dividends and the
purchase of fractional interests in shares of Litchfield's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, or (e) purchases of Litchfield's common
stock related to the issuance of Litchfield's common stock or rights under any
of Litchfield's benefit plans for its directors, officers, employees, any of
Litchfield's dividend reinvestment plans or stock purchase plans, or any of the
benefit plans of any of Litchfield's affiliates for such affiliates' directors,
officers or employees), (ii) make any payment of principal or of interest or
premium, if any, on or repay, repurchase or redeem any debt security of
Litchfield that, ranks pari passu with or junior in interest to the Junior
Subordinated Debt Securities deposited in such trust or (iii) make any guarantee
payments with respect to any guarantee by Litchfield of the debt securities of
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any subsidiary of Litchfield (other than pursuant to a preferred securities
guarantee) if such guarantee ranks pari passu with or junior in interest to the
Junior Subordinated Debt Securities deposited in such trust, if at such time (x)
Litchfield shall be in default with respect to its Guarantee Payments or other
payment obligations under the related preferred securities guarantee, (y) there
shall have occurred any Indenture Event of Default with respect to the Junior
Subordinated Debt Securities deposited in such trust as trust assets or (z)
Litchfield shall have given notice of its election to defer payments of interest
on the Junior Subordinated Debt Securities by extending the interest payment
period as provided in the terms of the Junior Subordinated Debt Securities
deposited in such trust as trust assets and such period, or any extension
thereof, is continuing. In addition, if Junior Subordinated Debt Securities are
issued to a trust in connection with the issuance of trust securities by such
trust, for so long as any preferred securities issued by the applicable trust
remain outstanding, Litchfield has agreed (i) to remain the sole direct or
indirect owner of all of the outstanding common securities issued by the
applicable trust and not to cause or permit such common securities to be
transferred except to the extent permitted by the applicable Declaration;
provided that any permitted successor of Litchfield under the Indenture may
succeed to Litchfield's ownership of the common securities issued by the
applicable trust, (ii) to comply fully with all of its obligations and
agreements contained in the related Declaration and (iii) to use reasonable
efforts to cause the applicable trust to continue to be treated as a grantor
trust for United States federal income tax purposes except in connection with a
distribution of Junior Subordinated Debt Securities to holders of preferred
securities issued by the applicable trust as provided in the related
Declaration.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Junior
Subordinated Debt Securities will, to the extent and in the manner set forth in
the Indenture, be subordinated and junior in right of payment to the prior
payment in full, in cash or cash equivalents, of all Senior Debt of Litchfield
whether outstanding on the date of this prospectus or thereafter incurred.
Upon any payment by Litchfield or distribution of assets of Litchfield to
creditors upon any liquidation, dissolution, winding up, receivership,
reorganization, assignment for the benefit of creditors, marshaling of assets
and liabilities or any bankruptcy, insolvency or similar proceedings of
Litchfield, the holders of all Senior Debt will first be entitled to receive
payment in full of all amounts due or to become due thereon before the holders
of the Junior Subordinated Debt Securities will be entitled to receive any
payment in respect of the principal of, premium, if any, or interest on the
Junior Subordinated Debt Securities.
In the event and during the continuation of any default by Litchfield in
the payment of principal, premium, interest or any other payment due on any
Senior Debt, or in the event that the maturity of any Senior Debt has been
accelerated because of a default, then, in either case, no payment shall be made
by Litchfield with respect to the principal (including redemption payments) of
or premium, if any, or interest on the Junior Subordinated Debt Securities until
such default shall have been cured or waived in writing or shall have ceased to
exist or such Senior Debt shall have been discharged or paid in full.
In the event of the acceleration of the maturity of the Junior Subordinated
Debt Securities, then no payments shall be made by Litchfield with respect to
the principal (including redemption payments) of or premium, if any, or interest
on the Junior Subordinated Debt Securities until the holders of all Senior Debt
outstanding at the time of such acceleration shall receive payment in full of
such Senior Debt (including any amounts due upon acceleration).
In the event that, notwithstanding the foregoing, any payment shall be
received by the Indenture Trustee or any holder of Junior Subordinated Debt
Securities when such payment is prohibited by the preceding paragraphs, such
payment shall be held in trust for the benefit of, and shall be paid over or
delivered to, the holders of Senior Debt or their respective representatives, or
to the trustee or trustees under any indenture pursuant to which any of such
Senior Debt may have been issued, as their respective interests may appear.
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By reason of such subordination, in the event of insolvency of Litchfield,
funds that would otherwise be payable to holders of Junior Subordinated Debt
Securities will be paid to the holders of Senior Debt of Litchfield to the
extent necessary to pay such Senior Debt in full, and Litchfield may be unable
to meet fully its obligations with respect to the Junior Subordinated Debt
Securities.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication), (i) all indebtedness of such person for
borrowed money, (ii) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments, including obligations incurred
in connection with the acquisition of property, assets or businesses, (iii) all
obligations of such person in respect of letters of credit or bankers'
acceptances or other similar instruments (or reimbursement obligations with
respect thereto) issued on the account of such person, (iv) all obligations of
such person to pay the deferred purchase price of property or services, except
certain trade payables, (v) all obligations of such person as lessee under
capitalized leases, (vi) all Debt of others secured by a lien on any asset of
such person, whether or not such Debt is assumed by such person; provided that,
for purposes of determining the amount of any Debt of the type described in this
clause, if recourse with respect to such Debt is limited to such asset, the
amount of such Debt shall be limited to the lesser of the fair market value of
such asset or the amount of such Debt, (vii) all Debt of others guaranteed by
such person to the extent such Debt is guaranteed by such person and (viii) to
the extent not otherwise included in this definition, all obligations of such
person for claims in respect of derivative products, including interest rate,
foreign exchange rate and commodity prices, forward contracts, options, swaps,
collars and similar arrangements.
"Senior Debt" is defined to mean the principal of (and premium, if any) and
interest on all Debt of Litchfield whether created, incurred or assumed before,
on or after the date of the Indenture; provided that such Senior Debt shall not
include (i) Debt of Litchfield that, when incurred and without respect to any
election under Section 1111(b) of Title 11, U.S. Code, was without recourse and
(ii) any other Debt of Litchfield which by the terms of the instrument creating
or evidencing the same is specifically designated as being subordinated to or
pari passu with the Junior Subordinated Debt Securities, and in particular the
Junior Subordinated Debt Securities shall rank pari passu with all other debt
securities and guarantees issued to any trust, partnership or other entity
affiliated with Litchfield which is a financing vehicle of Litchfield in
connection with an issuance of preferred securities by such financing entity.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event of
Default" with respect to each series of Junior Subordinated Debt Securities:
(a) failure for 30 days to pay interest on the Junior Subordinated
Debt Securities of such series when due; provided that a valid extension of
the interest payment period by Litchfield shall not constitute a default in
the payment of interest for this purpose;
(b) failure to pay principal of or premium, if any, on the Junior
Subordinated Debt Securities of such series when due whether at maturity,
upon redemption, by declaration or otherwise;
(c) failure for 30 days to pay any sinking fund or analogous fund
payment with respect to the Junior Subordinated Debt Securities of such
series;
(d) failure to duly observe or perform, in any material respect, any
other covenant or agreement contained in the Indenture with respect to such
series for 90 days after written notice to Litchfield from the Indenture
Trustee or the holders of at least 25% in principal amount of the
outstanding Junior Subordinated Debt Securities of such series;
(e) certain events in bankruptcy, insolvency or reorganization of
Litchfield; or
(f) any other Indenture Event of Default applicable to the Junior
Subordinated Debt Securities of such series. (Section 6.01)
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In each and every such case, unless the principal of all the Junior
Subordinated Debt Securities of that series shall have already become due and
payable, either the Indenture Trustee or the holders of not less than 25% in
aggregate principal amount of the Junior Subordinated Debt Securities of that
series then outstanding, by notice in writing to Litchfield (and to the
Indenture Trustee if given by such holders), may declare the principal of all
the Junior Subordinated Debt Securities of that series to be due and payable
immediately, and upon any such declaration the same shall become and shall be
immediately due and payable. (Section 6.01)
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debt Securities of that series have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee or exercising any trust or power conferred on the
Indenture Trustee with respect to such series. (Section 6.06) The Indenture
Trustee or the holders of not less than 25% in aggregate outstanding principal
amount of the Junior Subordinated Debt Securities of that series may declare the
principal due and payable immediately upon an Indenture Event of Default with
respect to such series, but the holders of a majority in aggregate outstanding
principal amount of Junior Subordinated Debt Securities of such series may
rescind and annul such declaration and waive the default if the default has been
cured and a sum sufficient to pay all matured installments of interest and
principal otherwise than by acceleration and any premium has been deposited with
the Indenture Trustee. (Sections 6.01 and 6.06)
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debt Securities of that series may, on behalf of the holders
of all the Junior Subordinated Debt Securities of that series, waive any past
default, except a default in the payment of principal, premium, if any, or
interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal otherwise than by acceleration
and any premium has been deposited with the Indenture Trustee) or a call for
redemption of the Junior Subordinated Debt Securities of that series. (Section
6.06) Litchfield is required to file annually with the Indenture Trustee a
certificate as to whether or not Litchfield is in compliance with all the
conditions and covenants under the Indenture. (Section 5.03)
If Junior Subordinated Debt Securities are issued to a trust in connection
with the issuance of trust securities of such trust, then under the applicable
Declaration an Indenture Event of Default with respect to such series of Junior
Subordinated Debt Securities will constitute a Declaration Event of Default. If
a Declaration Event of Default under the applicable Declaration has occurred and
is continuing and such event is attributable to the failure of Litchfield to pay
interest or principal, or premium, if any, on the applicable series of Junior
Subordinated Debt Securities on the date such interest, principal or premium is
otherwise payable (or in the case of redemption, on the redemption date), then a
holder of preferred securities of such trust may directly institute a Holder
Direct Action on or after the respective due date specified in the applicable
series of Junior Subordinated Debt Securities (see "The Trusts--The Property
Trustee"). In connection with such Holder Direct Action, Litchfield will be
subrogated to the rights of such holder of preferred securities under the
applicable Declaration to the extent of any payment made by Litchfield to such
holder of preferred securities in such Holder Direct Action. Except as expressly
provided in the preceding sentences or in the applicable prospectus supplement,
the holders of preferred securities of such trust will not be able to exercise
directly any other remedy available to the holders of the applicable series of
Junior Subordinated Debt Securities.
MODIFICATION OF THE INDENTURE
From time to time Litchfield and the Indenture Trustee may, without the
consent of the holders of Junior Subordinated Debt Securities, amend the
Indenture or indentures supplemental thereto for one or more of the following
purposes:
(a) to evidence the succession of another corporation or other entity
to Litchfield under the Indenture and the Junior Subordinated Debt
Securities and the assumption by such successor corporation or other entity
of the obligations of Litchfield thereunder;
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(b) to add further covenants, restrictions, conditions or provisions
for the protection of the holders of Junior Subordinated Debt Securities;
(c) to cure any ambiguity or to correct or supplement any provision
which may be defective or inconsistent with any other provision;
(d) to add to, change or eliminate any of the provisions of the
Indenture, provided that any such addition, change or elimination shall
become effective only after there are no such Junior Subordinated Debt
Securities of any series entitled to the benefit of such provision
outstanding;
(e) to provide for the issuance of Junior Subordinated Debt Securities
in coupon form;
(f) to evidence and provide for the acceptance of a successor trustee;
(g) to qualify or maintain the qualification of the Indenture under
the Trust Indenture Act;
(h) to establish the form or terms of a series of Junior Subordinated
Debt Securities; and
(i) to make any addition, change or elimination of any provision of
the Indenture that does not adversely affect the rights of any holder of
Junior Subordinated Debt Securities in any material respect. (Section 9.01)
The Indenture contains provisions permitting Litchfield and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the outstanding Junior Subordinated Debt Securities of each
series affected by such modification, to modify the Indenture or any
supplemental indenture affecting the rights of the holders of such Junior
Subordinated Debt Securities; provided that no such modification may, without
the consent of the holder of each outstanding Subordinated Debt Security
affected thereby, (i) extend the fixed maturity of the Junior Subordinated Debt
Securities of any series, reduce the principal amount thereof, reduce the rate
or extend the time of payment of interest thereon, reduce any premium payable
upon the redemption thereof or (ii) reduce the percentage of Junior Subordinated
Debt Securities, the holders of which are required to consent to any such
modification. (Section 9.02)
BOOK-ENTRY AND SETTLEMENT
If any Junior Subordinated Debt Securities of a series are represented by
one or more global securities (each, a "Global Security"), the applicable
prospectus supplement will describe the circumstances, if any, under which
beneficial owners of interests in any such Global Security may exchange such
interests for Junior Subordinated Debt Securities of such series and of like
tenor and principal amount in any authorized form and denomination. Principal of
and any premium and interest on a Global Security will be payable in the manner
described in the applicable prospectus supplement.
The specific terms of the depositary arrangement with respect to any
portion of a series of Junior Subordinated Debt Securities to be represented by
a Global Security will be described in the applicable prospectus supplement.
CONSOLIDATION, MERGER AND SALE
The Indenture will provide that Litchfield may not consolidate with or
merge into any other person or convey, transfer or lease its properties and
assets substantially as an entirety to any person and may not permit any person
to merge into or consolidate with Litchfield unless (i) either Litchfield will
be the resulting or surviving entity or any successor or purchaser is a
corporation, limited liability company, partnership or trust organized under the
laws of the United States of America, any State or the District of Columbia, and
any such successor or purchaser expressly assumes Litchfield's obligations under
the Junior Subordinated Debt Securities and the Indenture and (ii) immediately
after giving effect to the transaction no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default shall
have occurred and be continuing. (Section 10.01)
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DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, Litchfield will be discharged from any
and all obligations in respect of a series of the Junior Subordinated Debt
Securities (except in each case for certain obligations to register the transfer
or exchange of such Junior Subordinated Debt Securities, replace stolen, lost or
mutilated Junior Subordinated Debt Securities of such series, maintain paying
agencies and hold moneys for payment in trust) if (i) Litchfield irrevocably
deposits with the Indenture Trustee cash or U.S. Government Obligations or a
combination thereof, as trust funds in an amount certified to be sufficient to
pay at maturity (or upon redemption) the principal of, premium, if any, and
interest on all outstanding Junior Subordinated Debt Securities of such series;
(ii) such deposit will not result in a breach or violation of, or constitute a
default under, any agreement or instrument to which Litchfield is a party or by
which it is bound; (iii) Litchfield delivers to the Indenture Trustee an opinion
of counsel to the effect that the holders of the Junior Subordinated Debt
Securities of such series will not recognize income, gain or loss for United
States federal income tax purposes as a result of such defeasance and discharge
and that such defeasance and discharge will not otherwise alter holders' United
States federal income tax treatment of principal, premium and interest payments
on such Junior Subordinated Debt Securities of such series (such opinion must be
based on a ruling of the Internal Revenue Service or a change in United States
federal income tax law occurring after the date of the Indenture, since such a
result would not occur under current tax law); (iv) Litchfield has delivered to
the Indenture Trustee an officers' certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the defeasance
and discharge contemplated by such provision have been complied with; and (v) no
event or condition shall exist that pursuant to the applicable subordination
provisions, would prevent Litchfield from making payments of principal of,
premium, if any, and interest on the Junior Subordinated Debt Securities at the
date of the irrevocable deposit referred to above. (Section 11.01)
GOVERNING LAW
The Indenture and the Junior Subordinated Debt Securities will be governed
by the laws of the State of New York, without regard to the conflicts of laws
principles thereof. (Section 13.05)
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to the occurrence of an Indenture Event of
Default and after the curing of all Indenture Events of Default undertakes to
perform only such duties as are specifically set forth in the Indenture and,
after an Indenture Event of Default has occurred (which has not been cured or
waived), shall exercise such of the rights and powers vested in it by the
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. (Section 7.01) Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debt Securities,
unless offered security or indemnity satisfactory to it by such holder against
the costs, expenses and liabilities that might be incurred thereby. (Section
7.02) The Indenture Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties or
in the exercise of any of its rights or powers if there is reasonable ground for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of the Indenture or adequate indemnity against
such risk is not reasonably assured to it. (Section 7.01)
Litchfield and its subsidiaries maintain commercial banking and trust
relationships with the Indenture Trustee and its affiliates.
MISCELLANEOUS
Litchfield will have the right at all times to assign any of its rights or
obligations under the Indenture to an affiliate; provided that, in the event of
any such assignment, Litchfield will remain jointly and severally liable for all
such obligations. Subject to the foregoing, the Indenture will be binding upon
and
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inure to the benefit of the parties thereto and their respective successors and
assigns. The Indenture provides that it may not otherwise be assigned by the
parties thereto other than by Litchfield to a successor or purchaser pursuant to
a consolidation, merger, sale or conveyance permitted by the Indenture. (Section
13.11)
PLAN OF DISTRIBUTION
Litchfield may sell any series of Junior Subordinated Debt Securities and
each trust may sell its preferred securities (the Junior Subordinated Debt
Securities and the preferred securities are collectively referred to herein as
the "Offered Securities") being offered hereby in any of three ways (or in any
combination thereof): (i) through underwriters or dealers; (ii) directly to a
limited number of purchasers or to a single purchaser; or (iii) through agents.
The prospectus supplement with respect to any Offered Securities will set forth
the terms of the offering of such Offered Securities, including the name or
names of any underwriters, dealers or agents and the respective amounts of such
Offered Securities underwritten or purchased by each of them, the initial public
offering price of such Offered Securities and the proceeds to Litchfield or the
applicable trust, as the case may be, from such sale, any discounts, commissions
or other items constituting compensation from Litchfield or the applicable
trust, as the case may be, and any discounts, commissions or concessions allowed
or reallowed or paid to dealers and any securities exchanges on which such
Offered Securities may be listed. Any public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time to
time.
If underwriters are used in the sale of any Offered Securities, such
Offered Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. Such Offered Securities may be either offered to
the public through underwriting syndicates represented by managing underwriters,
or directly by underwriters. Unless otherwise set forth in the prospectus
supplement, the obligations of the underwriters to purchase such Offered
Securities will be subject to certain conditions precedent and the underwriters
will be obligated to purchase all of such Offered Securities if any are
purchased.
Offered Securities may be sold directly by Litchfield or a trust, as the
case may be, or through agents designated by Litchfield or such trust, as the
case may be, from time to time. Any agent involved in the offer or sale of
Offered Securities in respect of which this prospectus is delivered will be
named, and any commissions payable by Litchfield or the applicable trust, as the
case may be, to such agent will be set forth, in the prospectus supplement.
Unless otherwise indicated in the prospectus supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
If so indicated in the prospectus supplement, Litchfield or the applicable
trust, as the case may be, will authorize underwriters, dealers or agents to
solicit offers by certain purchasers to purchase Offered Securities from
Litchfield or the applicable trust, as the case may be, at the public offering
price set forth in the prospectus supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
Such contracts will be subject only to those conditions set forth in the
prospectus supplement, and the prospectus supplement will set forth the
commission payable for solicitation of such contracts.
Agents and underwriters may be entitled under agreements entered into with
Litchfield and the applicable trust to indemnification by Litchfield and the
applicable trust against certain civil liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments which the agents
or underwriters may be required to make in respect thereof. Agents and
underwriters may be customers of, engage in transactions with, or perform
services for Litchfield, the applicable trust and/or any of their affiliates in
the ordinary course of business.
Certain persons participating in the offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Offered
Securities. In connection with the offering, the underwriters or agents, as the
case may be, may purchase and sell the Offered Securities in the open market.
These
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transactions may include overallotment and stabilizing transactions and
purchases to cover syndicate short positions created in connection with the
offering. Stabilizing transactions consist of certain bids or purchases for the
purpose of preventing or retarding a decline in the market price of the Offered
Securities; and syndicate short positions involve the sale by the underwriters
or agents, as the case may be, of a greater number of Offered Securities than
they are required to purchase from Litchfield or the applicable trust, as the
case may be, in the offering. The underwriters may also impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers
for the Offered Securities sold for their account may be reclaimed by the
syndicate if such Offered Securities are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Offered Securities, which may be
higher than the price that might otherwise prevail in the open market, and, if
commenced, may be discontinued at any time. These transactions may be effected
on the Nasdaq National Market, in the over-the-counter market or otherwise. For
a description of these activities, see "Plan of Distribution" or "Underwriting"
in the relevant prospectus supplement.
Unless otherwise indicated in the prospectus supplement, Litchfield does
not intend to list any of the Offered Securities on a national securities
exchange. No assurances can be given that there will be a market for the Offered
Securities.
LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplement, certain
matters of Delaware law relating to the validity of the preferred securities,
the enforceability of the applicable Declaration and the formation of the trusts
will be passed upon by Richards, Layton & Finger, P.A., Wilmington, Delaware,
special Delaware counsel to the trusts and Litchfield. The validity of the
applicable Preferred Securities Guarantee and the Junior Subordinated Debt
Securities offered hereby will be passed upon for Litchfield by Hutchins,
Wheeler & Dittmar, A Professional Corporation, Boston, Massachusetts and for the
Underwriters by Bass, Berry & Sims PLC, Nashville, Tennessee. Certain legal
matters may also be passed upon by John J. Malloy, Esq., Senior Vice President,
General Counsel and Clerk of Litchfield. James Westra,, a shareholder of
Hutchins, Wheeler & Dittmar, is a Director of Litchfield. Mr. Westra owns 1,735
shares of Litchfield's common stock and has options to acquire another 7,512
shares.
EXPERTS
The consolidated financial statements of Litchfield Financial Corporation
incorporated by reference in Litchfield's Annual Report (Form 10-K) for the year
ended December 31, 1998, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated by reference therein
and incorporated herein by reference. Such financial statements are, and audited
financial statements to be included in subsequently filed documents will be,
incorporated herein in reliance upon the reports of Ernst & Young LLP pertaining
to such financial statements (to the extent covered by consents filed with the
Securities and Exchange Commission) given on the authority of such firm as
experts in accounting and auditing.
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